10-K 1 form10k.htm 10-K ARCP 12.31.2013 10-K SS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2013
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to __________

Commission file number: 001-35263

AMERICAN REALTY CAPITAL PROPERTIES, INC.
(Exact name of registrant as specified in its charter) 
Maryland
 
45-2482685
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
405 Park Ave., 12th Floor, New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
(212) 415-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class:
 
Name of each exchange on which registered:
Common Stock, $0.01 par value per share
 
NASDAQ Stock Market
Series F Preferred Stock, $0.01 par value per share
 
NASDAQ Stock Market
 
 
 
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
 
None
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No x

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 ¨

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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox

The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of June 30, 2013 was $2.78 billion.

The number of outstanding shares of the registrant’s common stock on February 25, 2014 was 766,128,817 shares.


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement to be delivered to stockholders in connection with the registrant’s 2014 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.



 
Page
PART I
 
PART II
 
PART III
 
PART IV
 


2

Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of American Realty Capital Properties, Inc. 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. As used herein, the terms “ARCP,” “we,” “our” and “us” refer to American Realty Capital Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including ARC Properties Operating Partnership, L.P., a Delaware limited partnership of which we are the sole general partner, which we refer to in this Annual Report on Form 10-K as our “OP”; “our Former Manager” refers to ARC Properties Advisors, LLC, a Delaware limited liability company, our former external manager; “ARC” refers to AR Capital, LLC (formerly known as American Realty Capital II, LLC) and its affiliated companies, which was our sponsor; and “the Contributor” refers to ARC Real Estate Partners, LLC, an affiliate of ARC, which contributed its 100% indirect ownership interests in the properties contributed to our OP in the formation transactions related to our initial public offering, or our IPO, described elsewhere in this Annual Report on Form 10-K, or the formation transactions. During the year ended December 31, 2013, we retained our Former Manager to manage our affairs on a day to day basis and, as a result, were generally externally managed, with the exception of certain acquisition, accounting and portfolio management services performed by our employees. Our board of directors determined that it is in the best interests of us and our stockholders to become self-managed, and we completed our transition to self-management on January 8, 2014. In connection with becoming self-managed and since the beginning of the third quarter of 2013, we terminated the existing management agreement with our Former Manager, entered into employment and incentive compensation arrangements with our executives and acquired from our Former Manager certain assets necessary for its operations.
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 and limited experience operating a public company. This inexperience makes our future performance difficult to predict.
•
The competition for the type of properties we desire to acquire may cause our dividends and the long-term returns of our investors to be lower than they otherwise would be.
•
We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all, which could have a material adverse effect on our financial condition, results of operations, cash flow, cash available for dividends to our stockholders, per share trading price of our common stock and our ability to satisfy our debt service obligations.
•
We depend on tenants for our revenue, and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.
•
Failure by any major tenant with leases in multiple locations to make rental payments to us, because of a deterioration of its financial condition or otherwise, or the termination or non-renewal of a lease by a major tenant, would have a material adverse effect on us.
•
We are subject to tenant industry concentrations that make us more susceptible to adverse events with respect to certain industries.
•
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay dividends to our stockholders.
•
We may be unable to make scheduled payments on our debt obligations.
•
We may not generate cash flows sufficient to pay our dividends to stockholders, and as such we may be forced to borrow at higher rates to fund our operations.
•
We may be unable to pay or maintain cash dividends or increase dividends over time.
•
We may be affected by the incurrence of additional secured or unsecured debt;
•
We may be adversely affected by increases in interest rates or a failure to maintain our OP’s credit rating.
•
We may not be able to integrate the assets and businesses acquired in Recent Acquisitions into our existing portfolio or with our business successfully, or may not realize the anticipated benefits within the expected timeframe or at all.

3

•
We may not be able to effectively manage or dispose of assets acquired in connection with our Recent Acquisitions that do not fit within our target assets.
•
We may not be able to effectively manage our expanded portfolio and operations following our Recent Acquisitions completed acquisitions.
•
We may be affected by risks associated with current and future litigation.
•
We may not be able to successfully acquire future properties on advantageous terms and the performance of such properties.
•
We may not be able to achieve and maintain profitability.
•
We are subject to risks associated with lease terminations, tenant defaults, bankruptcies and insolvencies and tenant credit, geographic and industry concentrations.
•
We could be subject to unexpected costs or unexpected liabilities that may arise from our Recent Acquisitions.
•
We may fail to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes (“REIT”).
•
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.
•
Certain of our executive officers and the executive officers of the non-traded REITs advised by our private capital management business acquired in the Cole Merger (our "PCM business") have obligations to, and financial interests in non-traded REITs and businesses sponsored by AR Capital, LLC and owned by RCS Capital Corporation, which may compete with our businesses; therefore, such individuals will be subject to conflicts of interest and may owe their time and attention to such competing businesses.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this Annual Report on Form 10-K.
This Annual Report on Form 10-K includes certain unaudited pro forma consolidated financial information. We use the terms “on a combined basis”, “pro forma” and “on a pro forma basis” throughout this Annual Report on Form 10-K. The pro forma consolidated financial information combines the historical financial statements of ARCP, American Realty Capital Trust IV, Inc. (“ARCT IV”), after giving effect to the ARCT IV Merger, as described and defined below, using the carryover basis of accounting as ARCP and ARCT IV are considered to be entities under common control under United States generally accepted accounting principles (“U.S. GAAP”). The pro forma consolidated financial information also combines Cole, Fortress and Inland, after giving effect to the Cole Merger and the acquisitions of the Fortress Portfolio and the Inland Portfolio (each as defined herein), as described in further detail below, using the acquisition method of accounting under U.S. GAAP. The unaudited pro forma consolidated financial information should be read in conjunction with ARCP’s historical consolidated financial statements including the notes thereto, and the notes to the unaudited pro forma consolidated financial statements contained elsewhere in this report.
The unaudited pro forma consolidated financial information is presented for illustrative purposes only and does not purport to be indicative of the results that would actually have occurred if the merger between ARCP, ARCT IV and Cole, and the acquisition of the Fortress and Inland Portfolios had occurred as presented in such statements or that may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements.
We use certain defined terms throughout this Annual Report on Form 10-K that have the following meanings:
We use the term “net lease” throughout this Annual Report on Form 10-K. Under a net lease, the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. There are various forms of net leases, most typically classified as triple net or double net. Triple net leases typically require the tenant to pay all costs associated with a property, including real estate taxes, insurance, utilities and routine maintenance in addition to the base rent. Double net leases typically require the tenant to pay all the costs as triple net leases, but hold the landlord responsible for capital expenditures, including the repair or replacement of specific structural and/or bearing components of a property, such as the roof or structure of the building. Accordingly, the owner receives the rent “net” of these expenses, rendering the cash flow associated with the lease predictable for the term of the lease. Under a net lease, the tenant generally agrees to lease the property for a significant term and agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease.
We use the term “modified gross lease” throughout this Annual Report on Form 10-K. Under a modified gross lease, the commercial enterprises occupying the leased property pay base rent plus a proportional share of some of the other costs associated with the property, such as property taxes, utilities, insurance and maintenance.

4

We use the term “credit tenant” throughout this Annual Report on Form 10-K. When we refer to a “credit tenant,” we mean a tenant that has entered into a lease that we determine is creditworthy and may include tenants with an investment grade or below investment grade credit rating, as determined by major credit rating agencies, or unrated tenants. To the extent we determine that a tenant is a “credit tenant” even though it does not have an investment grade credit rating, we do so based on our management's determination that a tenant should have the financial wherewithal to honor its obligations under its lease with us. This determination is based on our management's substantial experience closing net lease transactions and is made after evaluating all tenants' due diligence materials that are made available to us, including financial statements and operating data.
We use the term “annualized rental income” throughout this Annual Report on Form 10-K. When we refer to “annualized rental income,” we mean the rental income under our leases reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by U.S. GAAP, which includes the effect of tenant concessions such as free rent, as applicable. We also use the term annualized rental income/net operating income (“NOI”) throughout this Annual Report on Form 10-K. When we refer to “annualized rental income/NOI” for net leases, we mean rental income on a straight-line basis, which includes the effect of tenant concessions such as free rent as applicable. For modified gross leased properties, NOI is rental income on a straight-line basis, which includes the effect of tenant concessions such as free rent, as applicable, plus operating expense reimbursement revenue less property expenses.
When we refer to properties that are net leased on a “medium-term basis,” we mean properties originally leased long term (10 years or longer) that are currently subject to net leases with remaining primary lease terms of generally three to eight years, on average. When we refer to properties that are net leased on a “long-term basis,” we mean properties with remaining primary lease terms of generally 10 years or longer on average.


5

PART I

Item 1. Business.

Overview
 
We were incorporated on December 2, 2010 as a Maryland corporation that qualified as a REIT for U.S. federal income tax purposes beginning in the year ended December 31, 2011. On September 6, 2011, we completed our initial public offering (our "IPO") and our shares of common stock began trading on the NASDAQ Stock Market (“NASDAQ”) under the symbol “ARCP” on September 7, 2011.
We are a self-managed and self-administered real estate company that acquires, owns and operates single-tenant, free-standing commercial real estate properties primarily subject to net leases with high credit quality tenants. We focus on investing in properties that are net leased to (i) credit tenants, which are generally large public companies with investment-grade ratings and other creditworthy tenants and (ii) governmental, quasi-governmental and not-for-profit entities. Our long-term business strategy is to acquire a diverse portfolio consisting of approximately 70% long-term leases and 30% medium-term leases, with an average remaining lease term of 10 to 12 years. We expect this investment strategy to provide for stable income from credit tenants and to provide for growth opportunities from re-leasing of current below market leases.
Substantially all of our business is conducted through the OP. We are the sole general partner and holder of 95.8% of the equity interests in the OP as of December 31, 2013. As of December 31, 2013, certain affiliates of ours and certain unaffiliated investors are limited partners and owners of 3.9% and 0.3%, respectively, of the equity interests in the OP. Under the limited partnership agreement of the OP, after holding units of limited partner interests in the OP (“OP Units”) for a period of one year, unless otherwise consented to by us, holders of OP Units have the right to redeem the OP Units for the cash value of a corresponding number of shares of our common stock or, at our option, as general partner of the OP, a corresponding number of shares of our common stock. The remaining rights of the holders of OP Units are limited, 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 advanced our investment objectives by growing our net lease portfolio through self-origination of property acquisitions and strategic mergers and acquisitions. Since January 1, 2013, we have completed mergers and portfolio acquisitions that have provided assets totaling approximately $20.0 billion. See Note 2 to the consolidated financial statements.
As of December 31, 2013, excluding one vacant property classified as held for sale, we owned 1,329 properties consisting of 34.2 million square feet, which properties were 98.1% leased with a weighted average remaining lease term of 8.5 years. In constructing our portfolio, we are committed to diversification (by industry, tenant and geography). As of December 31, 2013, rental revenues derived from investment grade tenants and tenants affiliated with investment grade entities as determined by a major rating agency approximated 54% (we have attributed the rating of each parent company to its wholly owned subsidiary for purposes of this disclosure). Our strategy encompasses receiving the majority of our revenue from investment grade tenants as we further acquire properties and enter into (or assume) lease arrangements.
As of December 31, 2013, ARCP, after giving effect to properties acquired from ARCT IV, Cole, Fortress and Inland after December 31, 2013, excluding one vacant property classified as held for sale, owned 3,710 properties consisting of 101.5 million square feet, which properties were 98.8% leased with a weighted average remaining lease term of 10.2 years as of December 31, 2013. As of December 31, 2013, rental revenues derived from investment grade tenants and tenants affiliated with investment grade entities as determined by a major rating agency approximated 49% (we have attributed the rating of each parent company to its wholly owned subsidiary for purposes of this disclosure).
Completed Mergers and Major Acquisitions
The following summarizes mergers and portfolio acquisitions that have been consummated since January 1, 2013 (the “Recent Acquisitions”):
American Realty Capital Trust III Merger
On December 14, 2012, we entered into an Agreement and Plan of Merger (the “ARCT III Merger Agreement”) with American Realty Capital Trust III, Inc. (“ARCT III”) and certain subsidiaries of each company. The ARCT III Merger Agreement provided for the merger of ARCT III (the “ARCT III Merger”) with and into a subsidiary of ours. The ARCT III Merger was consummated on February 28, 2013. See Note 2 —Mergers and Acquisitions for further discussion of the ARCT III Merger.
Also in connection with the ARCT III Merger, we entered into an agreement with ARC and its affiliates to internalize certain functions performed by them prior to the ARCT III Merger, reduce certain fees paid to affiliates, purchase certain corporate assets and pay certain merger related fees. See Note 18 — Related Party Transactions and Arrangements for further discussion.

6

GE Capital Portfolio Acquisition
On June 27, 2013, we acquired, through subsidiaries of the OP, from certain affiliates of GE Capital Corp., the equity interests in the entities that own a real estate portfolio comprised of 447 properties, (the “GE Capital Portfolio”) for a purchase price of $826.3 million, exclusive of closing costs, with no liabilities assumed. See Note 2 —Mergers and Acquisitions for further discussion of the GE Capital Portfolio acquisition.
CapLease, Inc. Merger
On May 28, 2013, we entered into an Agreement and Plan of Merger (the “CapLease Merger Agreement”) with CapLease, Inc., a Maryland corporation (“CapLease”), and certain subsidiaries of each company. The CapLease Merger Agreement provided for the merger of CapLease with and into a subsidiary of ours (the “CapLease Merger”). On November 5, 2013, we completed the merger with CapLease based on the terms of the CapLease Merger Agreement. See Note 2 —Mergers and Acquisitions for further discussion of the CapLease Merger.
American Realty Capital Trust IV Merger
On July 1, 2013, we entered into an Agreement and Plan of Merger, as amended on October 6, 2013 and October 11, 2013, (the “ARCT IV Merger Agreement”) with American Realty Capital Trust IV, Inc., a Maryland corporation (“ARCT IV”), and certain subsidiaries of each company. The ARCT IV Merger Agreement provided for the merger of ARCT IV with and into a subsidiary of the OP (the “ARCT IV Merger”). The Company consummated the ARCT IV Merger on January 3, 2014. See Note 2 —Mergers and Acquisitions for further discussion of the ARCP IV Merger.
Fortress Portfolio Acquisition
On July 24, 2013, ARC and another related entity, on our behalf and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with affiliates of funds managed by Fortress Investment Group LLC ("Fortress") for the purchase and sale of 196 properties owned by Fortress for an aggregate contract purchase price of $972.5 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to us based on the pro rata fair value of the properties acquired by us relative to the fair value of all 196 properties to be acquired from Fortress. Of the 196 properties, 120 properties were allocated to us (the "Fortress Portfolio"). On October 1, 2013, the Company closed on 41 of the 120 properties with a total purchase price of $200.3 million, exclusive of closing costs. The Company closed the acquisition of the remaining 79 properties in the Fortress Portfolio on January 8, 2014, for an aggregate contract purchase price of $400.9 million, exclusive of closing costs. The total purchase price of the Fortress Portfolio was $601.2 million, exclusive of closing costs. See Note 2 —Mergers and Acquisitions for further discussion of Fortress Portfolio acquisition.
Cole Real Estate Investments, Inc. Merger
On October 22, 2013, we entered into an Agreement and Plan of Merger (the “Cole Merger Agreement”) with Cole Real Estate Investments, Inc. (“Cole”), a Maryland corporation, and a wholly owned subsidiary of ours. The Cole Merger Agreement provided for the merger of Cole with and into a wholly owned subsidiary of ours (the “Cole Merger”). We consummated the Cole Merger on February 7, 2014 (the "Cole Acquisition Date"). See Note 2 —Mergers and Acquisitions for further discussion of the Cole Merger.
Inland Portfolio Acquisition
On August 8, 2013, ARC entered into a purchase and sale agreement with Inland American Real Estate Trust, Inc. ("Inland") for the purchase and sale of the equity interests of 67 companies owned by Inland for an aggregate contract purchase price of approximately $2.3 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. Of the 67 companies, the equity interests of ten companies (the "Inland Portfolio") will be acquired, in total, by the Company from Inland for a purchase price of approximately $501.0 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to the Company based on the pro rata fair value of the Inland Portfolio relative to the fair value of all 67 companies to be acquired from Inland by the Company and the other entities sponsored directly or indirectly by ARC. The Inland Portfolio is comprised of 33 properties. As of December 31, 2013, the Company has closed on five of the 33 properties for a total purchase price of $56.4 million, exclusive of closing costs. The Company closed the acquisition of the 23 additional properties in the Inland Portfolio on February 21, 2014, for an aggregate contract purchase price of $211.0 million, exclusive of closing costs. The remaining five properties are expected to close in the first half of 2014. During the year ended December 31, 2013, the Company deposited $28.6 million into escrow in relation to the Inland Portfolio, which has been included in prepaid expenses and other assets in the consolidated balance sheets.

7

Transition to Self-Management
During the year ended December 31, 2013, we retained our Former Manager, a wholly owned subsidiary of ARC, to manage our affairs on a day-to-day basis and, as a result, were generally externally managed, with the exception of certain acquisition, accounting and portfolio management services performed by our employees. In August 2013, our board of directors determined that it is in the best interests of us and our stockholders to become self-managed, and we completed our transition to self-management on January 8, 2014. In connection with becoming self-managed, we terminated the existing management agreement with our Former Manager, entered into employment and incentive compensation arrangements with our executives and acquired from the Former Manager certain assets necessary for our operations.
Under the termination agreement, the Former Manager will continue to provide services previously provided under the Management Agreement, to the extent required by ARCP, for a tail period of 60 days following January 8, 2014 and will receive a payment in the amount of $10.0 million for providing such services. In addition, pursuant to a separate transition services agreement, affiliates of the Former Manager agreed to provide certain transition services, including accounting support, acquisition support, investor relations support, public relations support, human resources and administration, general human resources duties, payroll services, benefits services, treasury, insurance and risk management, information technology, telecommunications and internet and services relating to office supplies for a 60 day term, which may be extended by ARCP. If ARCP requests any services, it will pay a fee at an hourly rate or flat rate to be agreed on, not to exceed a market rate. An affiliate of the Former Manager also transferred to us furniture, fixtures and equipment used by the Former Manager in connection with the business of the Company, and we paid the Former Manager $10.0 million for the furniture, fixtures and equipment and certain unreimbursed expenses. See Note 23 — Subsequent Events for further discussion.
Investment Policies

Our primary business objective is to generate dependable monthly cash dividends from a consistent and predictable level of funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) per share and capital appreciation associated with extending expiring leases or repositioning our properties for lease to new credit tenants upon the expiration of a net lease. Upon consummation of the mergers and acquisitions discussed above, we will own a portfolio that uniquely combines all entities' portfolio of properties with stable income from high credit quality tenants, with our portfolio, which has substantial growth opportunities. Our long-term business strategy is to acquire a diverse portfolio consisting of approximately 70% long-term leases and 30% medium-term leases, with an average remaining lease term of 10 to 12 years. We expect this investment strategy to provide for stable income from credit tenants and to provide for growth opportunities from the re-leasing of properties that are currently subject to below market leases. We intend to pursue an investment strategy that maximizes current cash flow and achieves sustainable long-term growth. We expect to achieve these objectives by acquiring net leased properties that either (a) have in-place rental rates below current average asking rents in the applicable submarket and are located in submarkets with stable or improving market fundamentals or (b) provide an essential location or infrastructure that is essential to the business operations of the tenant, which we believe will incent the existing tenant or a new credit tenant to re-lease the property at a higher rental rate upon the expiration of the existing lease.

Primary Investment Focus

We focus on investing in properties that are net leased to (i) credit tenants, which are generally large public companies with investment grade or below investment grade ratings and (ii) governmental, quasi-governmental and not-for-profit entities. We intend to invest in properties with tenants that reflect a diversity of industries, geographies and sizes. A significant majority of our net lease investments have been and will continue to be in properties net leased to investment grade tenants, although at any particular time our portfolio may not reflect this. Our properties are primarily located in ‘‘Main & Main’’ locations in markets that we believe exhibit demographic trends that will support growth. We believe the diversification of our portfolio reduces the risks associated with potential adverse events that may impact any one tenant, industry, asset type or location. We believe our scale will enable us to continue to make significant acquisitions without exposing ourselves to excessive concentration risk. Our strategy encompasses receiving the majority of our revenue from investment grade tenants as we further acquire properties and enter into (or assume) lease arrangements.

Under net lease arrangements, tenants enter into long-term leases and pay most of the costs associated with the property and limited day-to-day property management by us is required. As a result, net lease companies are generally able to increase their size and scale with minimal incremental expense. This enables us to take advantage of economies of scale resulting in significant operational efficiencies as we grow. We believe that our focus on net leases has also enabled us to achieve greater tenant and geographic diversification, more stable cash flows, increased liquidity and lower cost of capital .



8

Investing in Real Property

We invest, and expect to continue to invest, in primarily freestanding, single-tenant retail properties net-leased to investment grade and other creditworthy tenants. When evaluating prospective investments in real property, our management will consider relevant real estate and financial factors, including the location of the property, the leases and other agreements affecting the property, the creditworthiness of major tenants, its income-producing capacity, its physical condition, its prospects for appreciation, its prospects for liquidity, tax considerations and other factors. In this regard, our management will have substantial discretion with respect to the selection of specific investments, subject to approval of our board of directors.

As of December 31, 2013, after giving effect to the Cole and ARCT IV Mergers and the acquisition of the Fortress and Inland Portfolios acquired after December 31, 2013, we owned nearly 3,710 double and triple-net lease assets across property types. As a percentage of rental income, on a pro forma basis, after giving effect to the Cole and ARCT IV Mergers and acquisition of the Fortress and Inland Portfolios acquired after December 31, 2013, as of December 31, 2013, single-tenant retail properties represented 48%, office properties represented 24% and industrial properties represented 15% of our total portfolio. In addition, approximately 13% of our portfolio is comprised of multi-tenant retail assets acquired pursuant to the Cole Merger. Our portfolio is located across 48 states, the District of Columbia and Puerto Rico. On a pro forma basis as of December 31, 2013, after giving effect to the Cole and ARCT IV Mergers and the acquisition of the Fortress and Inland Portfolios acquired after December 31, 2013, our tenant base is comprised of approximately 1,100 tenants, which include well-known national as well as regional companies across 67 industries.

The following table lists the tenants whose annualized rental income, on a straight-line basis, represented greater than 10% of consolidated annualized rental income on a straight-line basis as of December 31, 2013 and 2012:
Tenant
 
2013
 
2012
Dollar General
 
*
 
12.3%
Citizens Bank
 
*
 
11.8%
FedEx
 
*
 
10.2%
_______________________________________________
* The tenants' annualized rental income was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.

As of December 31, 2013, no tenants had annualized rental income, on a straight-line basis, that represented greater than 10% of ARCP's annualized rental income, on a straight-line basis, after giving effect to the properties acquired from ARCT IV, Cole, Fortress and Inland after December 31, 2013.

The following table lists the states where we have concentrations of properties where annual rental income, on a straight-line basis, represented greater than 10% of consolidated annualized rental income, on a straight-line basis, as of December 31, 2013 and 2012:
State
 
2013
 
2012
Texas
 
10.8%
 
*
Illinois
 
*
 
11.2%
_______________________________________________
* The state's annualized rental income was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.

The following table lists the states where ARCP, after giving effect to properties acquired from ARCT IV, Cole, Fortress and Inland after December 31, 2013, have concentrations of properties where annual rental income, on a straight-line basis, represented greater than 10% of pro forma annualized rental income, on a straight-line basis, as of December 31, 2013:
State
 
2013
Texas
 
12.3%

We do not have any specific policy as to the amount or percentage of our assets which will be invested in any specific property, other than the requirements under REIT qualification rules. We currently anticipate that our real estate investments will continue to be diversified in multiple net leased single tenant properties and in multiple geographic markets.



9


Purchase and Sale of Investments

We may deliberately and strategically dispose of properties in the future and redeploy funds into new acquisitions that align with our strategic objectives. Further, on a limited and opportunistic basis, we intend to acquire and promptly resell medium-term net lease assets for immediate gain. To the extent we engage in these activities, to avoid adverse U.S. federal income tax consequences, we generally must do so through a taxable REIT subsidiary (“TRS”). In general, a TRS is treated as a regular “C corporation” and therefore must pay corporate-level taxes on its taxable income. Thus, our yield on such activities will be reduced by such taxes borne by the TRS. Our two vacant properties will be held in a TRS because we are contemplating various strategies including selling them as a means of maximizing our value from those properties.

Investments in Real Estate Mortgages

While our current portfolio consists of, and our business objectives emphasize, equity investments in real estate, we may, at the discretion of our board of directors and without a vote of our stockholders, invest in mortgages and other types of real estate interests consistent with our qualification as a REIT. We acquired approximately $97.5 million of mortgage loans and approximately$211.9 million of collateralized mortgage backed securities, or CMBS, pursuant to the Cole merger and the CapLease merger Investments in real estate mortgages run the risk that one or more borrowers may default under the mortgages and that the collateral securing those mortgages may not be sufficient to enable us to recoup our full investment. Investments in mortgages are also subject to our policy not to be treated as an “investment company” under the Investment Company Act.

Securities of or Interests in Persons Primarily Engaged in Real Estate Activities and Other Issuers

Subject to the asset tests and income tests necessary for REIT qualification, we may invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers (including partnership interests, limited liability company interests, common stock and preferred stock), where such investment would be consistent with our investment objectives, including for the purpose of exercising control over such entities. There are no limitations on the amount or percentage of our total assets that may be invested in any one issuer, other than those imposed by the gross asset tests we must meet in order to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). We do not intend that our investments in securities will require us to register as an “investment company” under the Investment Company Act, and we would generally divest appropriate securities before any such registration would be required.

Build-to-Suit and Properties under Development

We are also expanding our investment activities beyond the traditional investment in completed properties with tenants in occupancy and paying rents by continuing the build-to-suit program and acquisition of properties under the development of Cole and CapLease. These programs involve acquisition of properties that are not yet developed or are under development. Through the build-to-suit program and acquisition of properties under development or that require substantial refurbishment or renovation, we seek to source investments at higher rates of return relative to completed projects. We believe that by entering into projects with established developer partners, we can provide the capital needed to get projects built, while at the same time, securing long-term investment assets for our company at yields significantly higher than those available for completed properties.

PCM Business
We are also engaged in the PCM business, which we acquired from Cole. The PCM business sponsors and manages direct investment programs, which primarily includes five publicly registered, non-traded REITs. Our PCM business is responsible for managing the day-to-day affairs of the non-traded REITs, identifying and making acquisitions and investments on behalf of the non-traded REITs, and recommending to each of the respective board of directors of the non-traded REITs an approach for providing investors with liquidity. Our PCM business also develops new non-traded REIT offerings, distributes the shares of common stock for the non-traded REITs and advises them regarding offerings, manages relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to the offerings.

Joint Ventures

We may acquire or enter into joint ventures from time to time, if we determine that doing so would be the most cost-effective and efficient means of raising capital. Equity investments may be subject to existing mortgage financing and other indebtedness or such financing or indebtedness may be incurred in connection with acquiring investments. Any such financing or indebtedness will have priority over our equity interest in such property.


10

Financing Policies

We rely on leverage to allow us to invest in a greater number of assets and enhance our asset returns. We expect our leverage levels to decrease over time, as a result of one or more of the following factors: scheduled principal amortization on our debt and lower leverage on new asset acquisitions. We expect to continue to strengthen our balance sheet through debt repayment or repurchase and also opportunistically grow our portfolio through new property acquisitions.

We intend to finance future acquisitions with the most advantageous source of capital available to us at the time of the transaction, which may include a combination of public and private offerings of our equity and debt securities, secured and unsecured corporate-level debt, property-level debt and mortgage financing and other public, private or bank debt. In addition, we may acquire properties in exchange for the issuance of common stock or OP units and in many cases we may acquire properties subject to existing mortgage indebtedness.

In February 2014, we, through our OP, raised $2.55 billion in unsecured senior notes, and simultaneously with that financing, our credit agreement, which previously had been secured by pledges of interests in property-owning entities was modified to eliminate these pledges. We intend to continue to emphasize unsecured corporate- or OP-level debt in our financing and seek to reduce the percentage of our assets which are secured by mortgage loans.

When we use mortgage financing, we generally seek to finance our properties with, or acquire properties subject to, long-term, fixed-rate, non-recourse debt, effectively locking in the spread we expect to generate on our properties and isolating the default risk to solely the properties financed. Through non-recourse debt, we seek to limit the overall company exposure in the event we default on the debt to the amount we have invested in the asset or assets financed. We seek to finance our assets with “match-funded” or substantially “match-funded” debt, meaning that we seek to obtain debt whose maturity matches as closely as possible the lease maturity of the asset financed. We expect that over time the leverage on net leased properties with medium-term remaining lease durations will be approximately 45% to 55% of the property value. At December 31, 2013, our corporate leverage ratio (total debt outstanding less on-hand cash and cash equivalents divided by base purchase price of acquired properties) was 67.9%. On a pro forma basis for ARCP, ARCT IV, Cole, Fortress and Inland combined, our corporate leverage ratio is expected to be approximately 58.3%.

We also may obtain secured or unsecured debt to acquire properties, and we expect that our financing sources will include banks, institutional investment firms, including asset managers, and life insurance companies. Although we intend to maintain a conservative capital structure, with limited reliance on debt financing, our charter does not contain a specific limitation on the amount of debt we may incur and our board of directors may implement or change target debt levels at any time without the approval of our stockholders.

Lending Policies

We do not have a policy limiting our ability to make loans to other persons, although we may be so limited by applicable law, such as the Sarbanes-Oxley Act. Subject to REIT qualification rules, we may make loans to unaffiliated third parties. For example, we may consider offering purchase money financing in connection with the disposition of properties in instances where the provision of that financing would increase the value to be received by us for the property sold. We do not expect to engage in any significant lending in the future. We may choose to guarantee debt of certain joint ventures with third parties. Consideration for those guarantees may include, but is not limited to, fees, long-term management contracts, options to acquire additional ownership interests and promoted equity positions. Our board of directors may, in the future, adopt a formal lending policy without notice to or consent of our stockholders.

Dividend Policy

We intend to pay regular monthly dividends to holders of our common stock, Series D cumulative convertible preferred stock, Series F cumulative redeemable preferred stock and the units of ownership in the OP. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income.


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In September 2011, our board of directors authorized, and we began paying dividends in October 2011, on the fifteenth day of each month to common stockholders of record at the close of business on the eighth day of such month. Since October 2011, the board of directors has authorized the following increases in our common stock dividends:
Declaration date
 
Annualized dividend per share
 
Distribution date
 
Record date
September 7, 2011
 
$
0.875

 
10/15/2011
 
10/8/2011
February 27, 2012
 
$
0.880

 
3/15/2012
 
3/8/2012
March 16, 2012
 
$
0.885

 
6/15/2012
 
6/8/2012
June 27, 2012
 
$
0.890

 
9/15/2012
 
9/8/2012
September 30, 2012
 
$
0.895

 
11/15/2012
 
11/8/2012
November 29, 2012
 
$
0.900

 
2/15/2013
 
2/8/2013
March 17, 2013
 
$
0.910

 
6/15/2013
 
6/8/2013
May 28, 2013
 
$
0.940

 
12/13/2013
 
12/6/2013
October 23, 2013*
 
$
1.000

 
2/15/2014
 
2/7/2014
_______________________________________________
* The dividend increase was contingent upon, and became effective with, the close of the Cole merger, which was consummated on February 7, 2014.

Commencing on May 31, 2012, we had been paying cumulative dividends on the Series A convertible preferred stock monthly in arrears at the annualized rate of $0.77 per share. Commencing on August 15, 2012, we had been paying cumulative dividends on the Series B convertible preferred stock monthly in arrears at an annualized rate of $0.74 per share. These dividends were discontinued when the Series A and B convertible preferred stock were converted to common stock in August 2013. Commencing in June 2013, we have been paying cumulative dividends on the Series C cumulative convertible preferred stock monthly in arrears at the annualized rate of $0.9104 per share. These dividends were discontinued when the Series C cumulative convertible preferred stock was converted to common stock and cash in November 2013. Commencing in November 2013, we have been paying cumulative dividends on the Series D cumulative preferred stock monthly in arrears at the annualized rate of $0.7896 per share.

We have the ability to fund dividends from any source, including borrowing funds and using the proceeds of equity and debt offerings. Dividends made by us will be authorized by our board of directors in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including restrictions under applicable law and our capital requirements.

We and our board of directors share a similar philosophy with respect to paying our dividend. The dividend should principally be derived from cash flows generated from real estate operations. The management agreement with our Former Manager, prior to the amendment thereof in connection with the ARCT III Merger, provided for payment of the asset management fee only if the full amount of the dividends declared by us in respect of our OP units for the six immediately preceding months is equal to or greater than the amount of our AFFO. This condition has been satisfied. Prior to when it was satisfied, our Former Manager waived such portion of its management fee that, when added to our AFFO, without regard to the waiver of the management fee, increased our AFFO so that it equaled the dividends declared by us in respect of our OP units for the prior six months. For the year ended December 31, 2013, approximately $14.0 million in asset management fees were incurred while $6.1 million of these fees were waived by our Former Manager. Subsequent to December 31, 2013, the management agreement was terminated as a result of our transition to self-management. See Note 23 — Subsequent Events for further discussion.

As our real estate portfolio matures and one-time acquisition and transaction expenses are significantly reduced, we expect cash flows from operations to cover a more significant portion of our dividends and over time to cover dividends.


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Tax Status

We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2011. We believe that we are organized and operate in such a manner as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Pursuant to our charter, our board of directors has the authority to make any tax elections on our behalf that, in their sole judgment, are in our best interest. This authority includes the ability to elect not to qualify as a REIT for U.S. federal income tax purposes or, after qualifying as a REIT, to revoke or otherwise terminate our status as a REIT. Our board of directors has the authority under our charter to make these elections without the necessity of obtaining the approval of our stockholders. In addition, our board of directors has the authority to waive any restrictions and limitations contained in our charter that are intended to preserve our status as a REIT during any period in which our board of directors has determined not to pursue or preserve our status as a REIT.

Competition

We are subject to competition in the acquisition of properties and intense competition in the leasing of our properties. We compete with a number of developers, owners and operators of retail, restaurant, industrial and office real estate, many of which own properties similar to ours in the same markets in which our properties are located, in the leasing of our properties. We also may face new competitors and, due to our focus on single-tenant properties located throughout the United States, and because many of our competitors are locally or regionally focused, we will not encounter the same competitors in each region of the United States.

Many of our competitors have greater financial and other resources and may have other advantages over our company. Our competitors may be willing to accept lower returns on their investments and may succeed in buying the properties that we have targeted for acquisition. We may also incur costs on unsuccessful acquisitions that we will not be able to recover.

Regulations

Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.

Environmental Matters

Under various federal, state and local environmental laws, a current owner of real estate may be required to investigate and clean up contaminated property. Under these laws, courts and government agencies have the authority to impose cleanup responsibility and liability even if the owner did not know of and was not responsible for the contamination. For example, liability can be imposed upon us based on the activities of our tenants or a prior owner. In addition to the cost of the cleanup, environmental contamination on a property may adversely affect the value of the property and our ability to sell, rent or finance the property, and may adversely impact our investment in that property.

Prior to acquisition of a property, we will obtain Phase I environmental reports, or will rely on recent Phase I environmental reports. These reports will be prepared in accordance with an appropriate level of due diligence based on our standards and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title and review of historic aerial photographs and other information on past uses of the property and nearby or adjoining properties. We may also obtain a Phase II investigation which may include limited subsurface investigations and tests for substances of concern where the results of the Phase I environmental reports or other information indicates possible contamination or where our consultants recommend such procedures.

Employees

As of December 31, 2013, we had 12 employees. On January 8, 2014, we successfully completed our transition to self-management. In connection with becoming self-managed, ARCP terminated its management agreement with its external manager and certain former executives and employees of our Former Manager became our employees. As of February 26, 2014, including employees from the consummation of the Cole Merger, we had approximately 400 employees.


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Financial Information About Industry Segments

Our current business consists of owning, managing, operating, leasing, acquiring, investing in and disposing of real estate assets. All of our consolidated revenues are from our consolidated real estate properties. We internally evaluate operating performance on an individual property level and view all of our real estate assets as one industry segment, and accordingly, all of our properties are aggregated into one reportable segment. Please see Part IV, Item 15 — Exhibits and Financial Statement Schedules included elsewhere in this annual report for more detailed financial information.

Available Information

We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or you may obtain information by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information, which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from the website maintained for us at www.arcpreit.com. We are not incorporating our website or any information from the website into this Annual Report on Form 10-K.

Item 1A. Risk Factors

This “Risk Factors” section contains references to
our “capital stock” and to our “stockholders.” Unless expressly stated otherwise, the references to our “capital stock” represent our common stock and any class or series of our preferred stock, while the references to our “stockholders” represent holders of our common stock and any class or series of our preferred stock.

Risks Related to Our Properties and Operations

Our growth will partially depend upon our ability to successfully acquire future properties, and we may be unable to enter into and consummate property acquisitions on advantageous terms or our property acquisitions may not perform as we expect due to competitive conditions and other factors.

We acquire and intend to continue to acquire primarily freestanding, single tenant retail properties net leased primarily to investment grade and other credit tenants. The acquisition of properties entails various risks, including the risks that our investments may not perform as we expect, that we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, we face significant competition for attractive investment opportunities from other well capitalized real estate investors, including both publicly-traded REITs and private institutional investment funds including REITs and funds sponsored by the PCM business and these competitors may have greater financial resources than us and a greater ability to borrow funds and acquire properties. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be significantly elevated. In addition, we expect to finance future acquisitions through a combination of borrowings under our revolving credit facility, proceeds from equity or debt offerings by us or our operating partnership or its subsidiaries and proceeds from property contributions and divestitures, which may not be available and which could adversely affect our cash flows. Any of the above risks could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock.

In addition, our growth strategy includes the disciplined acquisition of properties as opportunities arise. Our ability to acquire properties on satisfactory terms and successfully integrate and operate them is subject to the following significant risks:

•
we may be unable to acquire desired properties because of competition from other real estate investors with more capital, including other real estate operating companies, REITs and investment funds;

•
we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;

•
competition from other potential acquirers may significantly increase the purchase price of a desired property;

•
we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity financing to consummate an acquisition or, if obtainable, financing may not be on satisfactory terms;

14


•
we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

•
agreements for the acquisition of properties are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential acquisitions that we do not consummate;

•
the process of acquiring or pursuing the acquisition of a new property may divert the attention of our management from our existing business operations;

•
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;

•
market conditions may result in future vacancies and lower-than-expected rental rates; and

•
we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as cleanup of environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

If we cannot complete property acquisitions on favorable terms, or operate acquired properties to meet our goals or expectations, our business, financial condition, results of operations and cash flow; the per share trading price of our common stock; and our ability to satisfy our debt service obligations and to make dividends to our stockholders could be materially and adversely affected.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all, which could have a material adverse effect on our financial condition, results of operations, cash flow, cash available for dividends to our stockholders, the per share trading price of our common stock and our ability to satisfy our debt service obligations.

Because we compete with a number of real estate operators in connection with the leasing of our properties, the possibility exists that one or more of our tenants will extend or renew its lease with us when the lease term expires on terms that are less favorable to us than the terms of the then-expiring lease, or that such tenant or tenants will not renew at all. Because we depend, in large part, on rental payments from our tenants, if one or more tenants renews its lease on terms less favorable to us, does not renew its lease or we do not re-lease a significant portion of the space made available due to vacancy, our financial condition, results of operations, cash flow, cash available for dividends to our stockholders, the per share trading price of our common stock and our ability to satisfy our debt service obligations could be materially adversely affected.

We are dependent on single-tenant leases for our revenue and, accordingly, lease terminations or tenant defaults could have a material adverse effect on our results of operations.

We focus our investment activities on ownership of freestanding, single-tenant commercial properties that are net leased to a single tenant. Therefore, the financial failure of, or other default in payment by, a single tenant under its lease is likely to cause a significant reduction in our operating cash flows from that property and a significant reduction in the value of the property, and could cause a significant reduction in our revenues. If a lease is terminated or defaulted on, we may experience difficulty or significant delay in re-leasing such property, or we may be unable to find a new tenant to re-lease the vacated space, which could result in us incurring a loss. The current economic conditions may put financial pressure on and increase the likelihood of the financial failure of, or other default in payment by, one or more of the tenants to whom we have exposure.


15

The failure by any major tenant with leases in multiple locations to make rental payments to us, because of a deterioration of its financial condition or otherwise, or the termination or non-renewal of a lease by a major tenant, would have a material adverse effect on us.

Our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our tenants. While we evaluate the creditworthiness of our tenants by reviewing available financial and other pertinent information, there can be no assurance that any tenant will be able to make timely rental payments or avoid defaulting under its lease. At any time, our tenants may experience an adverse change in their business. For example, the downturn in the global economy that commenced in 2008 may have adversely affected, or may in the future adversely affect, one or more of our tenants. If any of our tenants' business experience significant adverse changes, they may decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number of stores, exercise early termination rights (to the extent such rights are available to the tenant) or declare bankruptcy. If a tenant defaults, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.

If any of the foregoing were to occur, it could result in the termination of the tenant's leases and the loss of rental income attributable to the terminated leases. If a lease is terminated or defaulted on, we may be unable to find a new tenant to re-lease the vacated space at attractive rents or at all, which would have a material adverse effect on our results of operations and our financial condition. Furthermore, the consequences to us would be exacerbated if one of our major tenants were to experience an adverse development in their business that resulted in them being unable to make timely rental payments or to default under their lease. The occurrence of any of the situations described above would have a material adverse effect on our results of operations and our financial condition.

If a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely affected.

We have entered and may continue to enter into sale-leaseback transactions, whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as either a financing or a joint venture, either of which outcomes could adversely affect our financial condition, cash flow and the amount available for distributions to our stockholders.

If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.

We are subject to tenant geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas.

We are subject to geographic concentrations, the most significant of which, as of December 31, 2013, on a pro forma basis (including the properties acquired in the ARCT IV Merger, the Cole Merger and the acquisitions of the Fortress Portfolio and Inland Portfolio after December 31, 2013), are the following:

•approximately $62.2 million, or 10.6%, of our annualized rental income came from properties located in Texas;
•approximately $40.6 million, or 6.9%, of our annualized rental income came from properties located in Pennsylvania;
•approximately $38.7 million, or 6.6%, of our annualized rental income came from properties located in Illinois;
•approximately $32.7 million, or 5.6%, of our annualized rental income came from properties located in Florida; and
•approximately $32.0 million, or 5.5%, of our annualized rental income came from properties located in California.

Any downturn of the economies in one or more of these states, or in any other state in which we, may have a significant credit concentration in the future, could result in a material reduction of our cash flows or material losses to us.


16

Our net leases may require us to pay property-related expenses that are not the obligations of our tenants.

Under the terms of the majority of our net leases, in addition to satisfying their rent obligations, our tenants are responsible for the payment of real estate taxes, insurance and ordinary maintenance and repairs. However, under the provisions of certain leases and leases that we may enter into in the future with our tenants, including leases of multi-tenant properties acquired in the Cole Merger, we may be required to pay some expenses, such as the costs of environmental liabilities, roof and structural repairs, insurance, certain non-structural repairs and maintenance. If our properties incur significant expenses that must be paid by us under the terms of our leases, our business, financial condition and results of operations will be adversely affected and the amount of cash available to meet expenses and to make dividends to holders of our capital stock may be reduced.

Net leases may not result in fair market lease rates over time, which could negatively impact our income and reduce the amount of funds available to make distributions to stockholders.

The vast majority of our rental income comes from net leases, which generally provide the tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Furthermore, net leases typically have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair market rental rates during those years. As a result, our income and distributions to our stockholders could be lower than they would otherwise be if we did not engage in net leases.

Long-term leases with tenants may not result in fair value over time.

Long-term leases do not allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs, to the extent not covered under the net leases could result in us receiving less than fair value from these leases. These circumstances would adversely affect our revenues and funds available for distribution to our stockholders.

Any of our properties that incurs a vacancy could be difficult to sell or re-lease.

One or more of our properties may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. Certain of our properties may be specifically suited to the particular needs of a tenant (e.g., a retail bank branch or distribution warehouse) and major renovations and expenditures may be required in order for us to re-lease vacant space for other uses. We may have difficulty obtaining a new tenant for any vacant space we have in our properties, including our presently vacant property. If the vacancies continue for a long period of time, we may suffer reduced revenues, resulting in less cash available to be distributed to stockholders. In addition, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

Our properties may be subject to impairment charges.

We periodically evaluate our real estate investments for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal structure. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Since our investment focus is on properties net leased to a single tenant, the financial failure of, or other default in payment by, a single tenant under its lease may result in a significant impairment loss. If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the property, which could have a material adverse effect on our results of operations and FFO in the period in which the impairment charge is recorded.

Our real estate investments are relatively illiquid and therefore we may not be able to dispose of properties when appropriate or on favorable terms.

The real estate investments made, and to be made, by us are relatively difficult to sell quickly. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of a property. In addition, the Code imposes restrictions on the ability of a REIT to dispose of properties that are not applicable to other types of real estate companies. We may be unable to realize our investment objectives by disposition or refinancing of a property at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

17


Our investments in properties backed by below investment grade credits will have a greater risk of default.

As of December 31, 2013, on a pro forma basis (including the properties acquired in the ARCT IV Merger, the Cole Merger and the acquisitions of the Fortress Portfolio and the Inland Portfolio after December 31, 2013), 51%of our annualized rental income is derived from tenants who do not have investment grade credit ratings from a major ratings agency or are not affiliates of companies having an investment grade credit rating. We also may invest in other properties in the future where the tenant is not rated or the tenant's credit rating is below investment grade. These investments will have a greater risk of default and bankruptcy than investments in properties leased exclusively to investment grade tenants.

Our investments in properties where the underlying tenant does not have a publicly available credit rating will expose us to certain risks.

When we invest in properties where the underlying tenant does not have a publicly available credit rating, we will rely on our own estimates of the tenant's credit rating. If our lender or a credit rating agency disagrees with our ratings estimates, or our ratings estimates are inaccurate, we may not be able to obtain our desired level of leverage or our financing costs may exceed those that we projected. This outcome could have an adverse impact on our returns on that asset and hence our operating results.

Dividends paid from sources other than our cash flow from operations, particularly from proceeds of financings, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments and may dilute stockholders' interests in us, which may adversely affect our ability to fund future dividends with cash flow from operations and may adversely affect stockholders' overall return.
    
Our cash flows used in operations were $7.1 million for the year ended December 31, 2013. For the year ended December 31, 2013, our dividends paid of $151.6 million were partially funded from cash flows from operations and through $2.3 billion from proceeds of financing activities. Additionally, we may in the future pay dividends from sources other than from our cash flow from operations.

Even after our acquisition of properties during 2013 and the ARCT IV Merger, the Cole Merger and the acquisitions of the Fortress Portfolio and the Inland Portfolio, we may not generate sufficient cash flow from operations to pay dividends. Our inability to acquire additional properties or other real estate-related investments may result in a lower return on your investment than you expect. If we have not generated sufficient cash flow from our operations and other sources, such as from borrowings, and/or the sale of additional securities, , to fund distributions, we may use the proceeds from offerings of securities. Moreover, our board of directors may change our dividend distribution policy, in its sole discretion, at any time. Dividends made from offering proceeds are a return of capital to stockholders, from which we will have already paid offering expenses in connection with the applicable offering. We have not established any limit on the amount of proceeds from an offering that may be used to fund dividends, except that, in accordance with our organizational documents and Maryland law, we may not make dividend distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences; or (3) jeopardize our ability to qualify as a REIT.

If we fund dividends from the proceeds of offerings of securities, we will have less funds available for acquiring properties or other real estate-related investments. As a result, the return you realize on your investment may be reduced. Funding dividends from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding dividends with the sale of assets or the proceeds of offerings of securities may affect our ability to generate cash flows. Funding dividends from the sale of additional securities could dilute your interest in us if we sell shares of our common stock or securities convertible or exercisable into shares of our common stock to third party investors. Payment of dividends from the mentioned sources could restrict our ability to generate sufficient cash flow from operations, affect our profitability and/or affect the dividends payable to you upon a liquidity event, any or all of which may have an adverse effect on your investment.


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We disclose FFO and adjusted funds from operations ("AFFO"), a non-GAAP financial measure, including in documents filed with the SEC; however, AFFO is not equivalent to our net income or loss as determined under GAAP, and you should consider GAAP measures to be more relevant to our operating performance.

We use and disclose to investors FFO and AFFO, which is a non-GAAP financial measure. See ''Management's Discussion and Analysis of Financial Condition and Results of Operations - Funds from Operations and Adjusted Funds from Operations.'' FFO and AFFO are not equivalent to our net income or loss as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant to evaluating our operating performance. FFO and AFFO and GAAP net income differ because one or both FFO and AFFO exclude gains and losses from the sale of property, plus depreciation and amortization, merger related costs, acquisition-related fees and expenses and other non cash charges.

Because of the differences between FFO and AFFO and GAAP net income or loss, FFO and AFFO may not be accurate indicators of our operating performance, especially during periods in which we are acquiring properties. In addition, AFFO is not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO and AFFO as alternatives to cash flows from operations, as an indication of our liquidity, or as indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders.

Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO and AFFO. Also, because not all companies calculate FFO and AFFO the same way, comparisons with other companies may not be meaningful.

Operating expenses of our properties will reduce our cash flow and funds available for future distributions.

For certain of our properties, including multi-tenant properties acquired in the Cole Merger, we are responsible for some or all of the operating costs of the property. In some of these instances, our leases require the tenant to reimburse us for all or a portion of these costs, either in the form of an expense reimbursement or increased rent. Our reimbursement may be limited to a fixed amount or a specified percentage annually. To the extent operating costs exceed our reimbursement, our returns and net cash flows from the property and hence our overall operating results and cash flows could be materially adversely affected.

We would face potential adverse effects from tenant defaults, bankruptcies or insolvencies.

The bankruptcy of our tenants may adversely affect the income generated by our properties. If our tenant files for bankruptcy, we generally cannot evict the tenant solely because of such bankruptcy. In addition, a bankruptcy court could authorize a bankrupt tenant to reject and terminate its lease with us. In such a case, our claim against the tenant for unpaid and future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and it is unlikely that a bankrupt tenant would pay in full amounts it owes us under the lease. Any shortfall resulting from the bankruptcy of one or more of our tenants could adversely affect our cash flow and results of operations.

We have assumed, and expect in the future to continue to assume, liabilities in connection with our property acquisitions, including unknown liabilities.

We have assumed existing liabilities some of which may have been unknown or unquantifiable at the time of the transaction related to our formation transactions, our Recent Acquisitions and certain other property acquisitions, and expect in the future to continue to assume existing liabilities related to our property acquisitions. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of tenants or other persons dealing with the sellers prior to our acquisition of the properties, tax liabilities, employment-related issues, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. If the magnitude of such unknown liabilities is high, either singly or in the aggregate, they could adversely affect our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make distributions to our stockholders.

We face intense competition, which may decrease or prevent increases in the occupancy and rental rates of our properties.

We compete with numerous developers, owners and operators of retail, industrial and office real estate, many of which own properties similar to ours in the same markets in which our properties are located. If one of our properties becomes vacant and our competitors (which would include funds sponsored by us) offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer substantial rent abatements. As a result, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make dividends to our stockholders may be adversely affected.

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Our operating performance and value are subject to risks associated with our real estate assets and with the real estate industry.

Our real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our control. Certain events may decrease cash available for dividends, as well as the value of our properties. These events include, but are not limited to:

•
adverse changes in international, national or local economic and demographic conditions such as the recent global economic downturn;

•
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or tenant-favorable renewal options;

•
adverse changes in financial conditions of buyers, sellers and tenants of properties;

•
inability to collect rent from tenants;

•
competition from other real estate investors with significant capital, including other real estate operating companies, REITs and institutional investment funds;

•
reductions in the level of demand for commercial space generally, and freestanding net leased properties specifically, and changes in the relative popularity of our properties;

•
increases in the supply of freestanding single-tenant properties;

•
fluctuations in interest rates, which could adversely affect our ability, or the ability of buyers and tenants of our properties, to obtain financing on favorable terms or at all;

•
increases in expenses, including, but not limited to, insurance costs, labor costs, energy prices, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies, all of which have an adverse impact on the rent a tenant may be willing to pay us in order to lease one or more of our properties; and

•
changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990.

In addition, periods of economic slowdown or recession, such as the recent global economic downturn, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties to meet our financial expectations, our business, financial condition, results of operations, cash flow, market price of our common stock and ability to satisfy our debt service obligations and to pay dividends to our stockholders could be materially and adversely affected. We cannot assure you that we will achieve our return objectives.


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A potential change in U.S. accounting standards regarding operating leases may make the leasing of our properties less attractive to our potential tenants, which could reduce overall demand for our leasing services.

Under current authoritative accounting guidance for leases, a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant, and the obligation does not appear on the tenant's balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant's balance sheet in comparison to direct ownership. The Financial Accounting Standards Board, or the FASB, and the International Accounting Standards Board (the "IASB"), conducted a joint project to re-evaluate lease accounting. In August 2010, the FASB and the IASB jointly released exposure drafts of a proposed accounting model that would significantly change lease accounting. Based on comments received, a revised Exposure was released in May 2013. Changes to the accounting guidance could affect both our accounting for leases as well as that of our current and potential tenants. These changes may affect how our real estate leasing business is conducted. For example, if the accounting standards regarding the financial statement classification of operating leases are revised, then companies may be less willing to enter into leases with us in general or desire to enter into leases with us with shorter terms because the apparent benefits to their balance sheets could be reduced or eliminated. This in turn could make it more difficult for us to enter into leases on terms we find favorable.

We will rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.

In order to qualify as a REIT under the Code, we will be required, among other things, to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with U.S. GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. Because of this dividend requirement, we may not be able to fund, from cash retained from operations, all of our future capital needs, including capital needed to make investments and to satisfy or refinance maturing obligations.

We expect to rely on external sources of capital, including debt and equity financing, to fund future capital needs. However, the U.S. and global economic slowdown that commenced in 2008 has resulted in a capital environment characterized by limited availability, increasing costs and significant volatility. If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business, or to meet our obligations and commitments as they mature.

Any additional debt we incur will increase our leverage. Our access to capital will depend upon a number of factors over which we have little or no control, including:

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general market conditions;

•
the market's perception of our growth potential;

•
our current debt levels;

•
our current and expected future earnings;

•
our cash flow and cash dividends; and

•
the market price per share of our common stock.

We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable to access the capital markets on a timely basis on favorable terms.

Our ability to sell equity to expand our business will depend, in part, on the market price of our common stock, and our failure to meet market expectations with respect to our business could negatively affect the market price of our common stock and limit our ability to sell equity.

The availability of equity capital to us will depend, in part, on the market price of our common stock, which, in turn, will depend upon various market conditions and other factors that may change from time to time, including:

•
the extent of investor interest;

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•
our ability to satisfy the dividend requirements applicable to REITs;

•
the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;

•
our financial performance and that of our tenants;

•
analyst reports about us and the REIT industry;

•
general stock and bond market conditions, including changes in interest rates on fixed-income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future dividends;

•
a failure to maintain or increase our dividend, which is dependent, to a large part, on FFO, which, in turn, depends upon increased revenue from additional acquisitions and rental increases; and

•
other factors such as governmental regulatory action and changes in REIT tax laws.

Our failure to meet market expectations with regard to future earnings and cash dividends would likely adversely affect the market price of our common stock and, as a result, the availability of equity capital to us.

We have substantial amounts of indebtedness outstanding, which may affect our ability to make dividends, may expose us to interest rate fluctuation risk and may expose us to the risk of default under our debt obligations.

As of December 31, 2013, our aggregate indebtedness was approximately $3.6 billion. Subsequent to December 31, 2013, we incurred $2.6 billion of indebtedness pursuant to an offering of senior notes in February 2014. After giving effect to the financing and the use of proceeds therefrom, on a pro forma basis (including the properties acquired in the ARCT IV Merger, the Cole Merger and the acquisitions of the Fortress Portfolio and Inland Portfolio after December 31, 2013), our aggregate indebtedness was approximately $10.3 billion. We may incur significant additional debt for various purposes including, without limitation, the funding of future acquisitions, capital improvements and leasing commissions in connection with the repositioning of a property.

We intend to incur additional indebtedness in the future, including borrowings under our existing $2.72 billion credit facility (under which we have undrawn commitments of $980.2 million at February 26, 2014 and which contains an “accordion” feature to allow us, under certain circumstances, to increase the commitments thereunder by $280 million). At February 26, 2014, we had approximately $1.7 billion of outstanding borrowings under this credit facility.

Payments of principal and interest on borrowings may leave us with insufficient cash resources to make the dividends currently contemplated or necessary to maintain our REIT qualification. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including as follows:

•
our cash flow may be insufficient to meet our required principal and interest payments;

•
we may be unable to borrow additional funds as needed or on satisfactory terms, which could, among other things, adversely affect our ability to capitalize upon emerging acquisition opportunities or meet needs to fund capital improvements and leasing commissions;

•
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

•
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;

•
we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations;

•
certain of the property subsidiaries' loan documents may include restrictions on such subsidiary's ability to make dividends to us;


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•
we may be unable to hedge floating-rate debt, counterparties may fail to honor their obligations under our hedge agreements, these agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements, we would be exposed to then-existing market rates of interest and future interest rate volatility;

•
we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;

•
increasing our vulnerability to general adverse economic and industry conditions;

•
limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

•
requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;

•limiting our flexibility in planning for, or reacting to, changes in our business and industry; and

•putting us at a disadvantage compared to our competitors with less indebtedness.

If we default under a loan or indenture (including any default in respect of the financial maintenance and negative covenants contained in our credit facility), we may automatically be in default under any other loan or indenture that has cross-default provisions (including our credit facility), and further borrowings under our credit facility will be prohibited, outstanding indebtedness under our credit facility, our indenture or such other loans may be accelerated, and to the extent our credit facility, our indenture or such other loans are secured, directly or indirectly by any properties or assets, lenders or trustees under our credit facility, our indenture or such other loans may foreclose on the collateral securing such indebtedness as a result. In addition, increases in interest rates may impede our operating performance and put us at a competitive disadvantage. Further, payments of required debt service or amounts due at maturity, or creation of additional reserves under loan agreements or indentures, could adversely affect our financial condition and operating results.

If any one of these events were to occur, our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make dividends to our stockholders could be materially and adversely affected. In addition, any foreclosure on our properties could create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the REIT dividend requirements imposed by the Code.

Our existing loan agreements contain, and future financing arrangements will likely contain, restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

We are subject to certain restrictions pursuant to the restrictive covenants of our outstanding indebtedness, which may affect our dividend and operating policies and our ability to incur additional debt. Indentures and loan documents evidencing our existing indebtedness contain, and loan documents entered into in the future will likely contain, certain operating covenants that limit our ability to further incur indebtedness or discontinue insurance coverage. In addition, future agreements may contain, and any future company credit facilities and indentures likely will contain, financial covenants, including certain coverage ratios, and negative covenants, including limitations on our ability to incur secured and unsecured debt, make dividends, sell all or substantially all of our assets, and engage in mergers and consolidations and certain acquisitions. Specifically, our ability to make distributions may be limited by our credit facility, pursuant to which our distributions may not exceed the greater of (i) 105% of our FFO, as adjusted for certain items, the most significant of which are acquisition and merger related expenses, in 2013, and 95% thereafter or (ii) the amount required for us to qualify and maintain our status as a REIT. Covenants under any future indebtedness may restrict our ability to pursue certain business initiatives or certain acquisition transactions. In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under or accelerate some or all of our indebtedness, which would have a material adverse effect on us.


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The indenture governing our senior notes and the credit agreement governing our credit facility contain restrictive covenants that limit our operating flexibility.

The indenture governing our senior notes and the agreement governing our credit facility require us to meet specified financial and operating covenants, including financial maintenance covenants with respect to maximum consolidated leverage ratio, maximum secured recourse indebtedness, minimum fixed charge coverage, minimum borrowing base interest coverage, maximum secured leverage, minimum tangible net worth and maximum variable rate indebtedness and borrowing base asset value ratio. In addition, our credit facility contains certain customary negative covenants that restrict the ability of our OP to incur secured and unsecured indebtedness. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of the indenture governing our senior notes and the credit agreement governing our credit facility may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting us. Any failure to comply with these financial maintenance covenants and negative covenants would constitute a default under our credit facility and/or senior note indenture, as applicable and would prevent further borrowings under our credit facility, and could cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.

Our organizational documents have no limitation on the amount of indebtedness that we may incur. As a result, we may become highly leveraged in the future, which could adversely affect our financial condition.

Our business strategy contemplates the use of both secured and unsecured debt to finance long-term growth. While we intend to limit our indebtedness to maintain an overall net debt to gross asset value of approximately 45% to 55%, provided that we may exceed this amount for individual properties in select cases where attractive financing is available, our governing documents contain no limitations on the amount of debt that we may incur, and our board of directors may change our financing policy at any time without stockholder approval. As a result, we may be able to incur substantial additional debt, including secured debt, in the future, which could result in an increase in our debt service and harm our financial condition.

Increases in interest rates would increase our debt service costs, may adversely affect any future refinancing of our debt and our ability to incur additional debt, and could adversely affect our financial condition, cash flow and results of operations.

Certain of our borrowings bear interest at variable rates, and we may incur additional variable-rate debt in the future. Increases in interest rates would result in higher interest expenses on our existing unhedged variable rate debt, and increase the costs of refinancing existing debt or incurring new debt. Additionally, increases in interest rates may result in a decrease in the value of our real estate and decrease the market price of ARCP’s common stock and could accordingly adversely affect our financial condition, cash flow and results of operations.

A downgrade in our credit ratings could materially adversely affect our business and financial condition.

We received credit ratings for our senior notes from Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services. We plan to manage our operations to maintain these credit ratings with a capital structure consistent with or better than our current profile, but there can be no assurance that we will be able to maintain the current credit ratings. Any downgrades in terms of ratings or outlook by any of the noted rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our financial condition, results of operations and liquidity and the trading price of the notes. Credit ratings are not recommendations to purchase, hold or sell the notes. Additionally, credit ratings may not reflect the potential effect of risks relating to the structure or marketing of the notes.

We may not be able to generate sufficient cash flow to meet our debt service obligations.

Our ability to make payments on and to refinance our indebtedness, and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs.

Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase. We may need to refinance all or a portion of our indebtedness or before maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:

•
our financial condition and market conditions at the time; and

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•
restrictions in the agreements governing our indebtedness.

As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additional equity, or delaying strategic acquisitions and alliances or capital expenditures, any of which could have a material adverse effect on our operations. We cannot assure you that we will be able to effect any of these actions on commercially reasonable terms, or at all.

The continued recovery of real estate markets from the recent recession is dependent upon forecasted moderate economic growth which, if significantly slower than expected, could have a negative impact on the performance of our investment portfolio.

The U.S. economy is in its fourth year of recovery from a severe global recession and the commercial real estate markets stabilized and began to recover in 2011. Based on moderate economic growth in the future, and historically low levels of new supply in the commercial real estate pipeline, a stronger recovery is forecasted for all property sectors over the next two years. Nevertheless, this ongoing economic recovery remains fragile, and could be slowed or halted by significant external events. As a result, real estate markets could perform lower than expected as a result of reduced tenant demand. A severe weakening of the economy or a renewed recession could also lead to higher tenancy default and vacancy rates, which could create an oversupply of rentable space, increased property concessions and tenant improvement expenditures and reduced rental rates to maintain occupancies. There can be no assurance that our real estate investments will not be adversely impacted by a severe slowing of the economy or renewed recession. Tenant defaults, fluctuations in interest rates, limited availability of capital and other economic conditions beyond our control could negatively impact our portfolio and decrease the value of your investment.

Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and cash flows, and there can be no assurance as to future costs and the scope of coverage that may be available under insurance policies.

We carry comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in our portfolio under a blanket insurance policy with policy specifications, limits and deductibles customarily carried for similar properties. In addition, we carry professional liability and directors' and officers' insurance. We have selected policy specifications and insured limits that we believe are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for certain losses, including, but not limited to, losses caused by riots or war. Certain types of losses may be either uninsurable or not economically insurable, such as losses due to earthquakes, riots or acts of war. Should an uninsured loss occur, we could lose both our investment in and anticipated profits and cash flow from a property. If any such loss is insured, we may be required to pay a significant deductible on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss, or the amount of the loss may exceed our coverage for the loss. In addition, future lenders may require such insurance, and our failure to obtain such insurance could constitute a default under our loan agreements. In addition, we may reduce or discontinue terrorism, earthquake, flood or other insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. Our title insurance policies may not insure for the current aggregate market value of our portfolio, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases. As a result, our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make dividends to our stockholders may be materially and adversely affected.

If we or one or more of our tenants experiences a loss that is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

If any of our insurance carriers becomes insolvent, we could be adversely affected.

We carry several different lines of insurance, placed with several large insurance carriers. If any one of these large insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely affect our results of operations and cash flows.


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Terrorism and other factors affecting demand for our properties could harm our operating results.

The strength and profitability of our business depends on demand for and the value of our properties. Future terrorist attacks in the United States, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of terrorism or war could have a negative impact on our operations. Such terrorist attacks could have an adverse impact on our business even if they are not directed at our properties. In addition, the terrorist attacks of September 11, 2001 have substantially affected the availability and price of insurance coverage for certain types of damages or occurrences, and our insurance policies for terrorism include large deductibles and co-payments. The lack of sufficient insurance for these types of acts could expose us to significant losses and could have a negative impact on our operations.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant and investor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships or confidential information will not be negatively impacted by such an incident.

We may be required to make significant capital expenditures to improve our properties in order to retain and attract tenants, causing a decline in operating revenue and reducing cash available for debt service and distributions to stockholders.

Upon expiration of leases at our properties, we may be required to make rent or other concessions to tenants, or accommodate requests for renovations, build-to-suit remodeling and other improvements. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants. Additionally, we may need to raise capital to make such expenditures. If we are unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases, which would result in declines in revenue from operations and reduce cash available for debt service and dividends to stockholders.

Difficult conditions in the commercial real estate markets may cause us to experience market losses related to our holdings, and these conditions may not improve in the near future.

Our results of operations are materially affected by conditions in the real estate markets, the financial markets and the economy generally and may cause commercial real estate values, including the values of our properties, and market rental rates, including rental rates that we are able to charge, to decline significantly. Recent economic and credit market conditions have contributed to increased volatility and diminished expectations for real estate markets, as well as adversely impacted inflation, energy costs, geopolitical issues and the availability and cost of credit, and may continue to do so going forward. The further deterioration of the real estate market may cause us to record losses on our assets, reduce the proceeds we receive upon sale or refinance of our assets or adversely impact our ability to lease our properties. Declines in the market values of our properties may adversely affect our results of operations and credit availability, which may reduce earnings and, in turn, cash available for dividends to our stockholders. Economic and credit market conditions may also cause one or more of the tenants to whom we have exposure to fail or default in their payment obligations, which could cause us to record material losses or a material reduction in our cash flows.


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Because we own real property, we are subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

Environmental laws regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various provisions of these laws, an owner or operator of real estate, such as us, is or may be liable for costs related to soil or groundwater contamination on, in, or migrating to or from its property. In addition, persons who arrange for the disposal or treatment of hazardous or toxic substances may be liable for the costs of cleaning up contamination at the disposal site. Such laws often impose liability regardless of whether the person knew of, or was responsible for, the presence of the hazardous or toxic substances that caused the contamination. The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or lease our property or to borrow using such property as collateral. In addition, persons exposed to hazardous or toxic substances may sue us for personal injury damages. For example, certain laws impose liability for release of or exposure to asbestos-containing materials and contamination from past operations or from off-site sources. As a result, in connection with our current or former ownership, operation, management and development of real properties, we may be potentially liable for investigation and cleanup costs, penalties, and damages under environmental laws.

Although all of our properties were, at the time they were acquired by our predecessor, subjected to preliminary environmental assessments, known as Phase I assessments, by independent environmental consultants that identify certain liabilities, Phase I assessments are limited in scope, and may not include or identify all potential environmental liabilities or risks associated with the property. Further, any environmental liabilities that arose since the date the studies were done would not be identified in the assessments. Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the liabilities disclosed in the Phase I assessments.

We cannot assure you that these or other environmental studies identified all potential environmental liabilities, or that we will not incur material environmental liabilities in the future. If we do incur material environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any affected properties.

Our PCM business, which was acquired from Cole are subject to risks that are particular to their role as sponsors and dealer managers for direct investment program offerings.

Our PCM business, including Cole Capital Corporation, which was Cole’s broker-dealer subsidiary and is a wholesale broker-dealer registered with the SEC and a member firm of FINRA, is subject to various risk and uncertainties that are common in the securities industry. Such risks and uncertainties include:

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the volatility of financial markets;

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extensive governmental regulation;

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litigation; and

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intense competition.

Our PCM business, which involves sponsoring and distributing interests in direct investment programs, will depend on a number of factors including our ability to enter into agreements with broker-dealers and independent investment advisors who will sell interests to their clients, our success in investing the proceeds of our offering, managing the properties acquired and generating cash flow to make distributions to investors in our direct investment programs and our success in entering into liquidity event for the direct investment programs. We are subject to competition from other sponsors and dealer-managers of direct investment programs and other investments, and there can be no assurance that this business will be successful.

Sponsorship of non-traded REITs also involves risks relating to the possibility that such programs will not receive capital at the levels and timing that are anticipated and that sufficient capital will not be raised to repay investments of cash in, and loans to, such non-traded REITs needed to meet up-front costs, the initial breaking of escrow and the acquisition of properties will not be made, as well as risks relating to competition from other sponsors of other similar programs.


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In addition, our PCM business is subject to risks that are particular to its function as a wholesale broker-dealer and sponsoring non-traded REITs. For example, the broker-dealer provides substantial promotional support to broker-dealers selling a particular offering, including by providing sales literature, forums, webinars, press releases and other mass forms of communication. Due to our PCM business acting as a sponsor of non-traded REITs and the volume of materials that Cole Capital Corporation may provide throughout the course of an offering, much of which may be scrutinized by regulators. We and Cole Capital Corporation may be exposed to significant liability under federal and state securities laws. Additionally, Cole Capital Corporation may be subject to fines and suspension from the SEC and FINRA.

Failure to comply with the net capital requirements could subject us to sanctions imposed by the SEC or FINRA.

Our broker-dealer subsidiary is required to maintain certain levels of minimum net capital subject to the SEC’s net capital rule. The net capital rule is designed to measure the general financial integrity and liquidity of a broker-dealer. Compliance with the net capital rule limits those operations of broker-dealers that require the intensive use of their capital, such as underwriting commitments and principal trading activities. The rule also limits the ability of securities firms to pay dividends or make payments on certain indebtedness, such as subordinated debt, as it matures. FINRA may enter the offices of a broker-dealer at any time, without notice, and calculate the firm’s net capital. If the calculation reveals a deficiency in net capital, FINRA may immediately restrict or suspend certain or all the activities of a broker-dealer. Our broker-dealer subsidiary may not be able to maintain adequate net capital, or its net capital may fall below requirements established by the SEC, and it may be subject to disciplinary action in the form of fines, censure, suspension, expulsion or the termination of business altogether. In addition, if these net capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require the intensive use of capital would be limited. A large operating loss or charge against net capital could adversely affect our broker-dealer's ability to expand or even maintain its present levels of business, which could have a material adverse effect on its business of sponsoring and distributing interests in direct investment programs. In addition, our broker-dealer subsidiary may become subject to net capital requirements in other foreign jurisdictions in which it operates. We cannot predict its future capital needs or its ability to obtain additional financing.

Broker-dealers and other financial services firms are subject to extensive regulations and increased scrutiny.

The financial services industry is subject to extensive regulation by U.S. federal, state and international government agencies, as well as various self-regulatory agencies. Recent turmoil in the financial markets has contributed to significant rule changes, heightened scrutiny of the conduct of financial services firms and increasing penalties for rule violations. Our broker-dealer subsidiary may be adversely affected by new laws or rules or changes in the interpretation of existing rules or more rigorous enforcement. Significant new rules are developing under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Some of these rules could impact our broker-dealer subsidiary's business, including through the potential implementation of a more stringent fiduciary standard for brokers and enhanced regulatory oversight over incentive compensation.

Our broker-dealer subsidiary also may be adversely affected by other evolving regulatory standards, such as those relating to suitability and supervision. Legal claims or regulatory actions against our broker-dealer subsidiary also could have adverse financial effects on us or harm our reputation, which could harm our business prospects.

Our broker-dealer subsidiary, which is registered as a broker-dealer under the Exchange Act and is a member of FINRA, is subject to regulation, examination and supervision by the SEC, FINRA, other self-regulatory organizations and state securities regulators. Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales practices, use and safekeeping of clients’ funds and securities’ capital adequacy, record-keeping and the conduct and qualification of officers, employees and independent contractors. Failure by our broker-dealers to comply with applicable laws or regulations could result in censures, penalties or fines, the issuance of cease and desist orders, the suspension or expulsion from the securities industry of any such broker-dealer, or its officers, employees or independent contractors or other similar adverse consequences. Additionally, the adverse publicity arising from the imposition of sanctions could harm our reputation and cause us to lose existing clients or fail to gain new clients.


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Financial services firms are also subject to rules and regulations relating to the prevention and detection of money laundering. The USA PATRIOT Act of 2001 mandates that financial institutions, including broker-dealers and investment advisors, establish and implement anti-money laundering (“AML”) programs reasonably designed to achieve compliance with the Bank Secrecy Act of 1970 and the rules thereunder. Financial services firms must maintain AML policies, procedures and controls, designate an AML compliance officer to oversee the firm’s AML program, implement appropriate employee training and provide for annual independent testing of the program. Our broker-dealer subsidiary has established AML programs but there can be no assurance of the effectiveness of these programs. Failure to comply with AML requirements could subject our broker-dealer subsidiary to disciplinary sanctions and other penalties. Financial services firms must also comply with applicable privacy and data protection laws and regulations, including SEC Regulation S-P and applicable provisions of the 1999 Gramm-Leach-Bliley Act, the Fair Credit Reporting Act of 1970 and the 2003 Fair and Accurate Credit Transactions Act. Any violations of laws and regulations relating to the safeguarding of private information could subject our broker-dealer subsidiary to fines and penalties, as well as to civil action by affected parties.

We are subject to risks relating to mortgage loans, bridge loans, mezzanine loans, CMBS and real estate-related securities.

In connection with the Cole and Caplease Mergers, we acquired interests in mortgage loans, bridge loans, mezzanine loans, CMBS and other types of real estate-related securities. In addition, we may continue to make similar investments, which will subject us to risks relating to these types of loans and securities.

Risks relating to mortgage, bridge or mezzanine loans.

Investing in mortgage, bridge or mezzanine loans involves risk of defaults on those loans caused by many conditions beyond our control, including local and other economic conditions affecting real estate values, interest rate changes, rezoning, and failure by the borrower to maintain the property. If there are defaults under these loans, we may not be able to repossess and sell quickly any properties securing such loans. An action to foreclose on a property securing a loan is regulated by state statutes and regulations and is subject to many of the delays and expenses of any lawsuit brought in connection with the foreclosure if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the loan, which could reduce the value of our investment in the defaulted loan. In addition, investments in mezzanine loans involve a higher degree of risk than long-term senior mortgage loans secured by income-producing real property because the investment may become unsecured as a result of foreclosure on the underlying real property by the senior lender.

Risks Relating to Real Estate-Related Securities in General.

Investments in real estate-related securities involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments discussed herein, including risks relating to rising interest rates.

Real estate-related securities are often unsecured and also may be subordinated to other obligations of the issuer. As a result, investments in real estate-related securities are subject to risks of (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities, (2) substantial market price volatility resulting from changes in prevailing interest rates in the case of traded equity securities, (3) subordination to the prior claims of banks and other senior lenders to the issuer, (4) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets, (5) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (6) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic slowdown or downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the issuers thereof to repay principal and interest or make distribution payments.

We may not have the expertise necessary to maximize the return on our investment in real estate-related securities. If we determine that it is advantageous to us to make the types of investments in which we do not have experience, we intend to employ persons, engage consultants or partner with third parties that have, in our opinion, the relevant expertise necessary to assist us in evaluating, making and administering such investments.


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Risks relating to CMBS.

CMBS are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to all of the risks of the underlying mortgage loans. In a rising interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. CMBS are issued by investment banks, not financial institutions, and are not insured or guaranteed by the U.S. government.

CMBS are also subject to several risks created through the securitization process. Subordinate CMBS are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes delinquent loans, there is a risk that interest payments on subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are more highly rated. In certain instances, third-party guarantees or other forms of credit support can reduce the credit risk.

The value of CMBS can be negatively impacted by any dislocation in the mortgage-backed securities market in general. Currently, the mortgage-backed securities market is suffering from a severe dislocation created by mortgage pools that include sub-prime mortgages secured by residential real estate. Sub-prime loans often have high interest rates and are often made to borrowers with credit scores that would not qualify them for prime conventional loans. In recent years, banks made a great number of the sub-prime residential mortgage loans with high interest rates, floating interest rates, interest rates that
reset from time to time, and/or interest-only payment features that expire over time. These terms, coupled with rising interest rates, have caused an increasing number of homeowners to default on their mortgages. Purchasers of mortgage-backed securities collateralized by mortgage pools that include risky sub-prime residential mortgages have experienced severe losses as a result of the defaults and such losses have had a negative impact on the CMBS market.

Our build-to-suit program is subject to additional risks related to properties under development

The businesses we acquired in each of the Cole and CapLease Mergers engage in build-to-suit programs and acquisition of properties under development. In connection with these businesses, we enter into purchase and sale arrangements with sellers or developers of suitable properties under development or construction. In such cases, we are obligated to purchase the property at the completion of construction, provided that the construction conforms to definitive plans, specifications, and costs approved by us in advance. We may continue this business.

As a result, we are subject to potential development risks and construction delays and the resultant increased costs and risks. If we engage in development or construction projects, we will be subject to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups, and the builder’s ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks if we make periodic progress payments or other advances to builders before they complete construction. These and other such factors can result in increased project costs or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also will rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If these projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer. If we contract with a development company for newly developed properties, we anticipate that it will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties. In the case of properties to be developed by a development company, we anticipate that it will be required to close the purchase of the property upon completion of the development of the property. At the time of contracting and the payment of the earnest money deposit, the development company typically will not have acquired title to any real property, and there is a risk that its earnest money deposit made to the development company may not be fully refunded.

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Risks Related to Our Organization and Structure

The supermajority voting requirements applicable to our board of directors in connection with our consolidation, merger, sale of all or substantially all of our assets or our engaging in a share exchange will limit our independent directors' ability to influence such corporate matters.

Our charter provides that we may not consolidate, merge, sell all or substantially all of our assets or engage in a share exchange, unless such actions are approved by the affirmative vote of at least two-thirds of our board of directors. This concentrated control limits the ability of our independent directors to influence such corporate matters and could delay, deter or prevent a change of control transaction that might otherwise involve a premium for our shares of common stock or otherwise be in the best interests of our stockholders. Additionally, the market price of our common stock could be adversely affected because of the imbalance of control.

Our charter, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay or prevent a change of control transaction.

Our charter, subject to certain exceptions, limits any person to actual or constructive ownership of no more than 9.8% in value of the aggregate of our outstanding shares of stock and not more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors, in its sole discretion and upon receipt of certain representations and undertakings, may exempt a person (prospectively or retroactively) from the ownership limits. However, our board of directors may not, among other limitations, grant an exemption from the ownership limits to any person whose ownership, direct or indirect, in excess of the 9.8% ownership limit would cause us to fail to qualify as a REIT. The ownership limits and the other restrictions on ownership and transfer of our stock contained in our charter may delay or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Tax protection provisions on certain properties could limit our operating flexibility.

We have agreed with the Contributor, an affiliate of ARC, to indemnify it against adverse tax consequences if we were to sell, convey, transfer or otherwise dispose of all or any portion of the interests in the continuing properties acquired by us in the formation transactions, in a taxable transaction. However, we can sell these properties in a taxable transaction if we pay the Contributor cash in the amount of its tax liabilities arising from the transaction and tax payments. These tax protection provisions apply until September 6, 2021, which is the tenth anniversary of the closing of our IPO. Although it may be in our stockholders' best interest that we sell a property, it may be economically disadvantageous for us to do so because of these obligations. We have also agreed to make debt available for the Contributor to guarantee. We agreed to these provisions in order to assist the Contributor in preserving its tax position after its contribution of its interests in our initial properties. As a result, we may be required to incur and maintain more debt than we would otherwise.

Tax consequences to holders of OP units upon a sale or refinancing of our properties may cause the interests of our principals to differ from the interests of our other stockholders.

As a result of the unrealized built-in gain that may be attributable to one or more of the contributed properties at the time of contribution in connection with the formation transactions, some holders of OP units, including the Contributor, an affiliate of ARC, may experience different tax consequences than holders of our capital stock upon the sale or refinancing of the properties owned by our operating partnership, including disproportionately greater allocations of items of taxable income and gain upon a realization event. As those holders will not receive a correspondingly greater distribution of cash proceeds, they may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties, or whether to sell or refinance such properties at all, than those that would be in the best interests of our stockholders taken as a whole.

We continue to rely on services provided by our Former Manager for certain administrative services.
While we have terminated our management agreement with our Former Manager our Former Manager continues to provide us with certain administrative services, including transaction management services, under agreements which continue in effect following our transition to self-management. Affiliates of our Former Manager have not agreed to dedicate specific personnel to providing these services. Accordingly, we continue to rely on affiliates of the Former Manager for services required to execute our business plan.

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We are a holding company with no direct operations. As a result, we rely on funds received from our operating partnership to pay liabilities and dividends, our stockholders' claims will be structurally subordinated to all liabilities of our operating partnership and our stockholders do not have any voting rights with respect to our operating partnership's activities, including the issuance of additional OP units.

We are a holding company and conduct all of our operations through our operating partnership. We do not have, apart from our ownership of our operating partnership, any independent operations. As a result, we rely on distributions from our operating partnership to pay any dividends we might declare on shares of our common stock. We also rely on distributions from our operating partnership to meet any of our obligations, including tax liability on taxable income allocated to us from our operating partnership (which might make distributions to the company not equal to the tax on such allocated taxable income).

In addition, because we are a holding company, stockholders' claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, claims of our stockholders will be satisfied only after all of our and our operating partnership's and its subsidiaries' liabilities and obligations have been paid in full.

As of December 31, 2013, we owned approximately 95.8% of the OP units in our operating partnership. However, our operating partnership may issue additional OP units in the future. Such issuances could reduce our ownership percentage in our operating partnership. Because our stockholders will not directly own any OP units, they will not have any voting rights with respect to any such issuances or other partnership-level activities of our operating partnership.

Our board of directors may create and issue a class or series of common or preferred stock without stockholder approval.

Our board of directors is empowered under our charter to amend our charter from time to time to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue, to designate and issue from time to time one or more classes or series of stock and to classify or reclassify any unissued shares of our common stock or preferred stock without stockholder approval. Our board of directors may determine the relative preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of any class or series of stock issued. As a result, we may issue series or classes of stock with voting rights, rights to dividends or other rights, senior to the rights of holders of our capital stock. The issuance of any such stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.

Certain provisions in the partnership agreement of our operating partnership may delay or prevent unsolicited acquisitions of us.

Provisions in the partnership agreement of our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes in our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable. These provisions include, among others:

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redemption rights of qualifying parties;

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transfer restrictions on the OP units;

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the ability of the general partner in some cases to amend the partnership agreement without the consent of the limited partners;

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the right of the limited partners to consent to transfers of the general partnership interest of the general partner and mergers or consolidations of our company under specified limited circumstances; and

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restrictions relating to our qualification as a REIT under the Code.

Our charter and bylaws and the partnership agreement of our operating partnership also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.


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Certain rights which are reserved to our stockholders may allow third parties to enter into business combinations with us that are not in the best interest of the stockholders, without negotiating with our board of directors.

Certain provisions of the Maryland General Corporation Law (the "MGCL"), may have the effect of requiring a third party seeking to acquire us to negotiate with our board of directors, including:

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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of our company who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and stockholder supermajority voting requirements on these combinations; and

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“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the MGCL, our board of directors has by resolution exempted business combinations (1) between us and any person, provided that such business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such person) and (2) between us and ARC, our Former Manager, our operating partnership or any of their respective affiliates. Consequently, the five-year prohibition and the supermajority vote requirements will not apply to such business combinations. As a result, any person described above may be able to enter into business combinations with us that may not be in the best interest of our stockholders without compliance by us with the supermajority vote requirements and other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time by our board of directors. If this resolution is repealed, or our board of directors does not otherwise approve a business combination with a person other than ARC, our Former Manager, our operating partnership or any of their respective affiliates, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, we may, by amendment to our bylaws, opt in to the control shares provisions of the MGCL in the future.

Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not yet have. These provisions may have the effect of inhibiting a third-party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then current market price.

Our fiduciary duties as sole general partner of our operating partnership could create conflicts of interest.

We are the sole general partner of our operating partnership, and, as such, will have fiduciary duties to our operating partnership and the limited partners in the operating partnership, the discharge of which may conflict with the interests of our stockholders. The limited partnership agreement of our operating partnership provides that, in the event of a conflict between the duties owed by our directors to our company and the duties that we owe, in our capacity as the sole general partner of our operating partnership, to such limited partners, our directors are under no obligation to give priority to the interests of such limited partners. In addition, those persons holding OP units will have the right to vote on certain amendments to the limited partnership agreement (which require approval by a majority in interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights, as well as the right to vote on mergers and consolidations of us in our capacity as sole general partner of the operating partnership in certain limited circumstances. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we cannot adversely affect the limited partners' rights to receive distributions, as set forth in the limited partnership agreement, without their consent, even though modifying such rights might be in the best interest of our stockholders generally.


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We had never operated as a REIT prior to making our initial REIT election for the year ended December 31, 2011 and have only recently begun operating as a public company and, therefore, we cannot assure you that we will successfully and profitably operate our business in compliance with the regulatory requirements applicable to REITs and to public companies.

We had never operated as a REIT prior to making our initial REIT election for the year ended December 31, 2011. Also, we have only operated as a public company beginning the date of the closing of our IPO on September 6, 2011. In addition, certain members of our board of directors and certain of our executive officers have no experience in operating a publicly traded REIT that is traded on a securities exchange other than in connection with our operations. We cannot assure you that we will be able to successfully operate our company as a REIT or a publicly traded company, including satisfying the requirements to timely meet disclosure requirements and complying with the Sarbanes-Oxley Act, including implementing effective internal controls. Failure to maintain our qualification as a REIT or comply with other regulatory requirements would have an adverse effect on our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make distributions to our stockholders.

Our board of directors may change significant corporate policies without stockholder approval.

Our investment, financing, borrowing and dividend policies and our policies with respect to other activities, including growth, debt, capitalization and operations, will be determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of the board of directors without a vote of our stockholders. In addition, the board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in these policies could have an adverse effect on our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make distributions to our stockholders.

ARCP may incur adverse tax consequences if ARCT III , CapLease, ARCT IV or Cole has failed qualify as a REIT for U.S. federal income tax purposes.

If ARCT III , CapLease, ARCT IV or Cole has failed to qualify as a REIT for U.S. federal income tax purposes at any time prior to the ARCT III Merger, the CapLease Merger, the ARCT IV Merger and the Cole Merger, respectively, ARCP may inherit significant tax liabilities and could lose ARCP’s REIT status should disqualifying activities continue after the mergers.

We could incur liability as a result of a lawsuit to which Cole is subject in connection with the merger between Cole and Cole Holdings Corporation ("Cole Holdings"), pursuant to which Cole became a self-managed REIT.

Three outstanding putative class action and/or derivative lawsuits, which were filed earlier this year, assert claims for breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment, aiding and abetting breach of fiduciary duty and other claims relating to the merger between a wholly owned subsidiary of Cole and Cole Holdings, pursuant to which Cole became a self-managed REIT. The Court in one of the lawsuits has granted defendants’ motion to dismiss with prejudice, but the plaintiffs have filed a notice of appeal of this dismissal. The other two lawsuits, which also purport to assert claims under the Securities Act, are pending in the United States District Court for the District of Arizona. Defendants filed a motion to
dismiss both complaints on January 10, 2014.

Whether or not any plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect our operations.


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We could incur liability as a result of an adverse judgment in litigation challenging one or more of our Recent Acquisitions, including the Cole Merger and the Caplease Merger and the ARCT III Merger.
Stockholders of Cole have filed lawsuits and may file additional lawsuits challenging the Cole Merger, which name and may name ARCP as a defendant. To date, eleven such lawsuits have been filed. Two putative class actions have been filed in in the U.S. District Court of Arizona, captioned as: (i) Wunsch v. Cole Real Estate Investment, Inc., et al.; and (ii) Sobon v. Cole Real Estate Investments, Inc., et al. Eight other putative stockholder class action lawsuits have been filed in the Circuit Court for Baltimore City, Maryland, captioned as: (i) Operman v. Cole Real Estate Investments, Inc., et al.; (ii) Branham v. Cole Real Estate Investments, Inc., et al.; (iii) Wilfong v. Cole Real Estate Investments, Inc., et al.; (iv) Polage v. Cole Real Estate Investments, Inc., et al.; (v) Flynn v. Cole Real Estate Investments, Inc., et al.; (vi) Corwin v. Cole Real Estate Investments, Inc., et al.; (vii) Green v. Cole Real Estate Investments, Inc., et al.; and (viii) Morgan v. Cole Real Estate Investments, Inc., et al. (collectively, the ‘‘Baltimore Actions’’). All of these lawsuits name ARCP, Cole and the Cole board of directors as defendants. All of the named plaintiffs claim to be Cole stockholders and purport to represent all holders of Cole’s stock. Each complaint generally alleges that the individual defendants breached fiduciary duties owed to plaintiff, the other public stockholders of Cole and to Cole, and that certain entity defendants aided and abetted those breaches. In addition, certain lawsuits claim that the individual defendants breached their duty of candor to our stockholders and the Branham, Polage and Flynn lawsuits assert claims derivatively against the individual defendants for their alleged breach of fiduciary duties owed to Cole. The Polage lawsuit also asserts derivative claims for waste of corporate assets and unjust enrichment. The eight Baltimore Actions were consolidated on December 12, 2013. The Wunsch and Sobon lawsuits, which were consolidated by court order on January 17, 2014, also allege that the joint proxy statement filed in relation to the Cole Merger contains materially incomplete and misleading disclosures in violation of Sections 14(a) and 20(a) of the Exchange Act. Among other remedies, the complaints seek money damages, costs and attorneys’ fees.

On January 10, 2014, solely to avoid the costs, risks, and uncertainties inherent in litigation and without admitting any liability or wrongdoing, ARCP, Cole and the other named defendants in the Baltimore Actions entered into a memorandum of understanding with the plaintiffs in the Baltimore Actions to settle the cases. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement. The stipulation of settlement will be subject to customary conditions, including court approval following notice to ARCP’s and Cole’s stockholders. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled by the court to consider the fairness, reasonableness, and adequacy of the settlement. In the event the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the Cole Merger, the Cole Merger Agreement and any disclosure made in connection therewith, among other claims, pursuant to terms that will be disclosed to stockholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiff’s counsel in the Baltimore Actions will file a petition in the court for an award of attorneys’ fees and expenses to be paid by ARCP, which the defendants may oppose. ARCP will pay or cause to be paid any attorneys’ fees and expenses awarded by the court. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated.

One additional putative class action has been filed in the Supreme Court of New York, captioned as: Realistic Partners v. Schorsch et al. (the ‘‘Realistic Partners Action’’). This lawsuit names ARCP, the ARCP board of directors and Cole as defendants. The named plaintiff claims to be an ARCP stockholder and purports to represent all holders of ARCP’s stock. The complaint generally alleges that ARCP and the individual defendants breached a fiduciary duty of candor allegedly owed to plaintiff and to the other public stockholders of ARCP, and that Cole aided and abetted those breaches. On January 17, 2014, solely to avoid the costs, risks, and uncertainties inherent in litigation and without admitting any liability or wrongdoing, ARCP, Cole and the other named defendants in the Realistic Partners Action entered into a memorandum of understanding with the plaintiff in the Realistic Partners Action to settle the case. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement. The stipulation of settlement will be subject to customary conditions, including court approval following notice to ARCP’s and Cole’s stockholders. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled by the court to consider the fairness, reasonableness, and adequacy of the settlement. In the event the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the Cole Merger, the Cole Merger Agreement, and any disclosure made in connection therewith, among other claims, pursuant to terms that will be disclosed to stockholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiff’s counsel in the Realistic Partners Action will file a petition in the court for an award of attorneys’ fees and expenses to be paid by ARCP, which the defendants may oppose. ARCP will pay or cause to be paid any attorneys’ fees and expenses awarded by the court. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated.


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A number of lawsuits by CapLease’s stockholders have been challenging the CapLease Merger, some of which name ARCP and the OP as defendants. Additionally, a lawsuit was commenced on behalf of holders of a series of CapLease’s preferred stock in connection with the CapLease Merger alleging that the conversion of such preferred stock pursuant to the terms of the CapLease Merger Agreement was prohibited by the Articles Supplementary classifying and designating such preferred stock.

After the announcement of the ARCT III Merger Agreement, Randell Quaal filed a putative class action lawsuit on January 30, 2013 against the Company, the OP, ARCT III, ARCT III OP, the members of the board of directors of ARCT III and certain subsidiaries of the Company in the Supreme Court of the State of New York. In February 2013, the parties agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of ARCT III stockholders. In connection with the settlement contemplated by the memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.

We cannot assure you as to the outcome of these lawsuits, including the costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation or settlement of these claims. Whether or not any plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect the operation of our business.

Our future results will suffer if we do not effectively manage our expanded portfolio and operations following the Recent Acquisitions.

Following the Recent Acquisitions, we have an expanded portfolio and operations and likely will continue to expand its operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges.Our future success will depend, in part, upon -our ability to manage our expansion opportunities, integrate new operations into our existing business in an efficient and timely manner, successfully monitor our operations, costs, regulatory compliance and service quality, and maintain other necessary internal controls. We cannot assure you that our expansion or acquisition opportunities will be successful, or that we will realize the expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

ARCP has a history of operating losses and cannot assure you that it will achieve profitability.

Since ARCP’s inception in 2010, ARCP has experienced net losses (calculated in accordance with GAAP) each fiscal year and, as of December 31, 2013, had an accumulated deficit of $692.4 million. The extent of ARCP’s future operating losses and the timing of when ARCP will achieve profitability are uncertain, and depends on the demand for, and value of, ARCP’s portfolio of properties and ARCP may never achieve or sustain profitability.


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ARCP may be unable to integrate the recently acquired GE Capital, Fortress and Inland Portfolios into ARCP’s existing portfolio or CapLease’s, ARCT IV’s and Cole’s businesses with ARCP’s business successfully and realize the anticipated synergies and related benefits of the Mergers, and acquisition of the GE Capital Portfolio and other pending acquisitions or do so within the anticipated timeframe.

ARCP’s consummation of the CapLease Merger, the ARCT IV Merger and the Cole Merger, involves the combination of companies that, prior to the consummation thereof, operated as independent companies. Additionally, ARCP recently acquired the GE Capital, Fortress and Inland Portfolios. ARCP may be required to devote significant management attention and resources to integrating ARCP’s business practices and operations with those of CapLease, ARCT IV and Cole and the acquired GE Capital, Inland and Fortress Portfolios as well as the Inland Portfolio. Potential difficulties ARCP may encounter in the integration process include the following:
•
the inability to successfully combine ARCP’s business with CapLease’s, ARCT IV’s or Cole’s business or the GE Capital, Inland and Fortress Portfolios into ARCP’s portfolio, in each case in a manner that permits the combined company to achieve the anticipated cost savings, which would result in the anticipated benefits of the mergers and the acquisition of the Inland and Fortress Portfolios not being realized in the timeframe anticipated or at all;
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the complexities associated with managing the combined business out of several different locations and integrating personnel from the two companies;
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the additional complexities of combining companies with different histories, cultures, potential regulatory restrictions, markets and tenant bases;
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the failure to retain ARCP’s key employees or those of any of ARCT IV, CapLease or Cole;
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the inability to divest certain CapLease or Cole assets not fundamental to ARCP’s business;
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potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the combinations; and
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performance shortfalls as a result of the diversion of management’s attention caused by completing the Mergers and acquisition of the Inland and Fortress Portfolios and integrating operations.

For all these reasons, our stockholders should be aware that it is possible that the integration process following the Recent Acquisitions could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with tenants, vendors and employees or to achieve the anticipated benefits of such transactions, or could otherwise adversely affect the business and our financial results.

ARCP cannot assure our stockholders that it will be able to continue paying distributions at the current rate.

ARCP plans to continue its current monthly distribution practices. However, ARCP’s stockholders may not receive the same distributions for various reasons, including the following:
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as a result of the mergers and the issuance of shares of ARCP’s common and preferred stock in connection with the mergers, the total amount of cash required for ARCP to pay distributions at its current rate will increase;
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ARCP may not have enough cash to pay such distributions due to changes in ARCP’s cash requirements, capital spending plans, cash flow or financial position;
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decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the ARCP Board, which reserves the right to change ARCP’s dividend practices at any time and for any reason;
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ARCP may desire to retain cash to maintain or improve its credit ratings; and
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the amount of distributions that ARCP’s subsidiaries may distribute to ARCP may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

ARCP’s stockholders have no contractual or other legal right to distributions or dividends that have not been declared.
 

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Our net income per share and FFO per share in the near term may decrease as a result of us becoming self-managed.

We completed our transition to self-management in January 2014. While we will no longer bear the external costs of the various fees and expenses paid to our Former Manager, subsequent to becoming self-managed, net income per share and FFO per share in the near term may decrease as a result of us becoming self-managed, due to increased expenses related to being self-managed, including expenses for compensation and benefits of our officers and other employees, which previously were paid by our Former Manager. Therefore, the exact amount of savings to us, if any, from becoming self-managed cannot reasonably be estimated. If the expenses we assume as a result of us becoming self-managed are higher than we anticipate, our net income per share and FFO per share may be lower as a result of us becoming self-managed than we otherwise would have been, potentially causing our net income per share and FFO per share to decrease.

In connection with us becoming self-managed, we may become exposed to risks to which we have not historically been exposed.

In connection with us becoming self-managed, we may be exposed to risks to which we have not historically been exposed. Excluding the effect of the eliminated asset management and other fees previously paid to our Former Manager and its affiliates, our direct overhead, on a consolidated basis, will increase as a result of us becoming self-managed. Prior to us becoming self-managed, the responsibility for such overhead was borne by our Former Manager.

Prior to us becoming self-managed, we did not have separate facilities, communications and information systems nor did we directly employ very many employees; our Former Manager formerly provided such amenities. As a result of us becoming self-managed, we now will lease office space, have our own communications and information systems and directly employ a staff. Any failure of our employees or infrastructure to provide these services after self-management could adversely affect our operations. Our business is highly dependent on communications and information systems. Any failure or interruption of our systems could have a material adverse effect on our financial condition and operating results. Additionally, as a direct employer, we will be subject to those potential liabilities that are commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances, and we will bear the costs of the establishment and maintenance of such plans.

Furthermore, pursuant to our Recent Acquisitions, we will also be combining the facilities and personnel of the companies acquired pursuant to our Recent Acquisitions. In particular, as a result of the Cole Merger, we will significantly increase the number of our employees, including the addition of employees who will become our senior officers, and significantly increase the facilities at which our business operates. We will face potential difficulties in effecting our self-management and integrating these businesses, including those described under “ —ARCP may be unable to integrate the recently acquired GE Capital, Fortress and Inland Portfolios into ARCP’s existing portfolio or CapLease’s, ARCT IV’s and Cole’s businesses with ARCP’s business successfully and realize the anticipated synergies and related benefits of the Mergers, and acquisition of the GE Capital Portfolio and other pending acquisitions or do so within the anticipated timeframe.”

U.S. Federal Income Tax Risks

Our failure to remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax, and would adversely affect our operations and the market price of our common stock.

We have qualified to be taxed as a REIT commencing with the taxable year ended December 31, 2011 and intend to operate in a manner that would allow us to continue to qualify as a REIT. However, we may terminate our REIT qualification if our board of directors determines that not qualifying as a REIT is in our best interests, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We structured our activities in a manner designed to satisfy all requirements for qualification as a REIT. However, the REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to remain qualified as a REIT is not binding on the IRS and is not a guarantee that we will continue to qualify as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to satisfy all requirements for qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.


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If we fail to continue to qualify as a REIT for any taxable year and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

Even with our REIT qualification, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution to our stockholders.

Even with our REIT qualification, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient dividends to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will be subject to corporate tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including franchise, payroll and transfer taxes, either directly or at the level of our operating partnership or at the level of the other companies through which we indirectly own our assets, such as TRSs, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to our stockholders.

To qualify as a REIT we must meet annual dividend requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce our stockholders overall return.

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which dividends we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these dividends. Although we intend to make dividends sufficient to meet the annual dividend requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT, it is possible that we might not always be able to do so.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on our stockholders' investments.

For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding our TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. While we qualify as a REIT, we intend to avoid the 100% prohibited transaction tax by (a) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur corporate rate income taxes with respect to any income or gain recognized by it), (b) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction or (c) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements have been held for at least two years. However, despite our present intention, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding our TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

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Our TRSs are subject to corporate-level taxes and our dealings with our TRSs may be subject to 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% of the value of a REIT's assets may consist of stock or securities of one or more TRSs.

A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. We may use TRSs generally to hold properties for sale in the ordinary course of business or to hold assets or conduct activities that we cannot conduct directly as a REIT. Our TRSs will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income. In addition, the TRS rules limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules which are applicable to us as a REIT also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.

If our operating partnership failed to qualify as a partnership or was not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.

We intend to maintain the status of our operating partnership as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of our operating partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of dividends that our operating partnership could make to us. This would also result in our failing to qualify as a REIT, and becoming subject to a corporate level tax on our income. This substantially would reduce our cash available to pay dividends and the yield on our stockholders' investments. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing dividends to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

We may choose to make distributions in our own stock, in which case stockholders may be required to pay U.S. federal income taxes in excess of the cash dividends stockholders receive.

In connection with our qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with U.S. GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions that are payable in cash and/or shares of our common stock (which could account for up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay U.S. federal income taxes with respect to such distributions in excess of the cash portion of the distribution received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.

Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.


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The taxation of distributions to our stockholders can be complex; however, dividends that we make to our stockholders generally will be taxable as ordinary income.

Dividends that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. However, a portion of our dividends may (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us as qualified dividend income generally to the extent they are attributable to dividends we receive from our TRSs, or (3) constitute a return of capital generally to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of a stockholder's investment in our common stock.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. Tax rates could be changed in future legislation.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with U.S. GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the IRS’s position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment plan inadvertently causing a greater than 5% discount on the price of such stock purchased). While we believe that our operations have been structured in such a manner that we will not be treated as inadvertently paying preferential dividends, there is no de minimis exception with respect to preferential dividends. Therefore, if the IRS were to take the position that we inadvertently paid a preferential dividend, we may be deemed either to (a) have distributed less than 100% of our REIT taxable income and be subject to tax on the undistributed portion, or (b) have distributed less than 90% of our REIT taxable income and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS.


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Complying with REIT requirements may force us to forgo or liquidate otherwise attractive investment opportunities.

To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for dividend to our stockholders.

The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce dividends to our stockholders.

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. While we elected to be qualified to be taxed as a REIT, we may terminate our REIT election if we determine that qualifying as a REIT is no longer in the best interests of our stockholders. If we cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of our common stock.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of our common stock.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their tax advisor with respect to the impact of recent legislation on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Our stockholders should also note that our counsel's tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.

In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help insure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.


42

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.

Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on dividends received from us and upon the disposition of our shares.

Subject to certain exceptions, dividends received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the dividends are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, capital gain dividends attributable to sales or exchanges of “U.S. real property interests,” or USRPIs, generally will be taxed to a non-U.S. stockholder as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (a) the dividend is received with respect to a class of stock that is regularly traded on an established securities market located in the United States; and (b) the non-U.S. stockholder does not own more than 5% of the class of our stock at any time during the one year period ending on the date the dividend is received. We anticipate that our shares will be “regularly traded” on an established securities market for the foreseeable future, although, no assurance can be given that this will be the case.

Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less than 50% in value of such REIT's stock is held directly or indirectly by non-U.S. stockholders. We believe, but cannot assure our stockholders, that we will be a domestically-controlled qualified investment entity, and because our common stock will be publicly traded, no assurance can be given that we will be a domestically-controlled qualified investment entity.

Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our common stock, gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) our common stock is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 5% or less of our common stock at any time during the five-year period ending on the date of the sale. We encourage our stockholders to consult their tax advisor to determine the tax consequences applicable to them if they are non-U.S. stockholders.

Potential characterization of dividends or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.

If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our common stock, or (c) a holder of common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, common stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.

Item 1B. Unresolved Staff Comments

None.


43

Item 2. Properties

General

As of December 31, 2013, we owned 1,329 properties with an aggregate base purchase price of $5.2 billion, comprised of 34.2 million square feet and located in 48 states and Puerto Rico, excluding one vacant property classified as held for sale. Our properties were 98.1% occupied with a weighted average remaining lease term of 8.5 years as of December 31, 2013.

As of December 31, 2013, ARCT IV owned 1,231 properties with an aggregate base purchase price of $2.2 billion, comprised of 9.7 million square feet and located in 46 states and the District of Columbia. ARCT IV's properties were 99.9% occupied with a weighted average remaining lease term of 11.5 years as of December 31, 2013.

As of December 31, 2013, Cole owned 1,043 properties with an aggregate base purchase price of $7.3 billion, comprised of 45.7 million square feet and located in 48 states. Cole's properties were 99.0% occupied with a weighted average remaining lease term of 11.5 years as of December 31, 2013.

As of December 31, 2013, the Fortress Portfolio consisted of 79 properties with an aggregate base purchase price of $400.8 million, comprised of 5.6 million square feet and located in 23 states. The Fortress Portfolio of properties have a 100% occupancy rate with a weighted average remaining lease term of 8.5 years as of December 31, 2013.

As of December 31, 2013, the Inland Portfolio of properties consisted of 28 properties with an aggregate base purchase price of $456.6 million, comprised of 6.3 million square feet and located in 14 states. The Inland Portfolio of properties have a 94.0% occupancy rate with a weighted average remaining lease term of 4.5 years as of December 31, 2013.

As of December 31, 2013, ARCP, giving effect to the properties acquired in the ARCT IV Merger, the Cole Merger and the acquisitions of the Fortress and Inland Portfolio, owned 3,710 properties with an aggregate base purchase price of $15.6 billion, comprised of 101.5 million square feet and located in 48 states, the District of Columbia, and Puerto Rico, excluding one vacant property classified as held for sale. Such properties have an approximately 98.8% occupancy rate with a weighted average remaining lease term of approximately 10.2 years as of December 31, 2013.

Industry Distribution

The following table details the industry distribution of our portfolio as of December 31, 2013 (dollars in thousands):
Industry
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Advertising
 
1

 
—

 
—
%
 
$
2

 
—
%
Aerospace
 
1

 
303,035

 
0.9
%
 
2,528

 
0.6
%
Agricultural Products & Services
 
3

 
551,249

 
1.6
%
 
1,512

 
0.4
%
Auto Manufacturer
 
1

 
246,060

 
0.7
%
 
3,491

 
0.9
%
Auto Retail
 
61

 
1,369,870

 
4.0
%
 
9,627

 
2.4
%
Auto Services
 
5

 
39,747

 
0.1
%
 
714

 
0.2
%
Casual Dining
 
103

 
750,074

 
2.2
%
 
16,407

 
4.2
%
Consulting
 
1

 
227,486

 
0.7
%
 
2,058

 
0.5
%
Consumer Goods
 
1

 
75,050

 
0.2
%
 
631

 
0.2
%
Consumer Products
 
13

 
8,675,937

 
25.4
%
 
35,817

 
9.1
%
Discount Retail
 
298

 
2,684,256

 
7.9
%
 
24,239

 
6.1
%
Distribution
 
1

 
140,361

 
0.4
%
 
2,424

 
0.6
%
Diversified Industrial
 
5

 
858,897

 
2.5
%
 
10,931

 
2.8
%
Education
 
2

 
35,224

 
0.1
%
 
936

 
0.2
%
Family Dining
 
112

 
682,157

 
2.0
%
 
14,972

 
3.8
%
Financial Services
 
3

 
504,038

 
1.5
%
 
8,643

 
2.2
%
Fitness
 
1

 
45,906

 
0.1
%
 
1,319

 
0.3
%

44

Industry
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Freight
 
31

 
1,809,019

 
5.3
%
 
17,491

 
4.4
%
Gas/Convenience
 
31

 
112,754

 
0.3
%
 
6,467

 
1.6
%
Government Services
 
22

 
670,161

 
2.0
%
 
18,611

 
4.7
%
Healthcare
 
29

 
1,159,904

 
3.4
%
 
19,546

 
5.0
%
Heavy Equipment
 
1

 
552,960

 
1.6
%
 
2,353

 
0.6
%
Home Maintenance
 
3

 
743,645

 
2.2
%
 
7,777

 
2.0
%
Information and Communications
 
1

 
115,583

 
0.3
%
 
2,649

 
0.7
%
Insurance
 
8

 
2,109,360

 
6.2
%
 
31,565

 
8.0
%
Jewelry
 
1

 
367,740

 
1.1
%
 
5,497

 
1.4
%
Manufacturing
 
2

 
34,359

 
0.1
%
 
747

 
0.2
%
Marine Products
 
1

 
15,404

 
0.1
%
 
277

 
0.1
%
Media
 
2

 
216,285

 
0.6
%
 
2,817

 
0.7
%
Oil/Gas
 
1

 
308,586

 
0.9
%
 
5,338

 
1.4
%
Packaging
 
1

 
221,035

 
0.7
%
 
1,480

 
0.4
%
Pharmacy
 
99

 
1,341,418

 
3.9
%
 
33,109

 
8.4
%
Professional Services
 
20

 
500,246

 
1.5
%
 
7,013

 
1.8
%
Publishing
 
2

 
210,776

 
0.6
%
 
2,054

 
0.5
%
Quick Service Restaurant
 
279

 
792,438

 
2.3
%
 
27,827

 
7.0
%
Retail - Department Stores
 
3

 
1,416,908

 
4.1
%
 
10,876

 
2.8
%
Retail - Discount
 
1

 
7,992

 
0.0
%
 
96

 
0.0
%
Retail - Hobby/books/music
 
1

 
25,050

 
0.1
%
 
579

 
0.2
%
Retail - Home furnishings
 
1

 
131,930

 
0.4
%
 
1,337

 
0.3
%
Retail - Sporting Goods
 
2

 
133,713

 
0.4
%
 
1,455

 
0.4
%
Retail - Wholesale
 
1

 
108,532

 
0.3
%
 
883

 
0.2
%
Retail Banking
 
168

 
1,149,997

 
3.4
%
 
25,648

 
6.5
%
Specialty Retail
 
16

 
500,017

 
1.5
%
 
4,463

 
1.1
%
Storage Facility
 
1

 
126,664

 
0.4
%
 
443

 
0.1
%
Supermarket
 
16

 
897,482

 
2.6
%
 
7,729

 
2.0
%
Technology
 
5

 
267,071

 
0.8
%
 
7,442

 
1.9
%
Telecommunications
 
2

 
272,526

 
0.8
%
 
3,958

 
1.0
%
Transportation
 
1

 
18,214

 
0.1
%
 
242

 
0.1
%
Travel Centers
 
1

 
17,480

 
0.1
%
 
970

 
0.3
%
Vacant
 
—

 
640,458

 
1.9
%
 
—

 
—
%
 
 
1,365

 
34,185,054

 
100.0
%
 
$
394,990

 
100.0
%


45

The following table details the industry distribution of the pro forma portfolio of ARCP, after giving effect to ARCT IV, Cole and the Fortress and Inland Portfolios, as of December 31, 2013 (dollars in thousands):
Industry
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
3rd Party Logistics
 
2

 
550,130

 
0.5
%
 
$
1,559

 
0.1
%
Advertising
 
6

 
—

 
—
%
 
48

 
—
%
Aerospace
 
2

 
707,798

 
0.7
%
 
8,568

 
0.7
%
Agricultural Products & Services
 
4

 
581,249

 
0.6
%
 
1,970

 
0.2
%
Alcohol Distribution
 
1

 
134,210

 
0.1
%
 
501

 
—
%
Animal Supplies
 
49

 
1,436,157

 
1.4
%
 
25,884

 
2.1
%
Auto Manufacturer
 
1

 
246,060

 
0.2
%
 
3,491

 
0.3
%
Auto Retail
 
144

 
6,728,023

 
6.6
%
 
38,408

 
3.1
%
Auto Services
 
9

 
70,186

 
0.1
%
 
1,395

 
0.1
%
Bolts, Nuts, Screws, & Washers
 
1

 
137,607

 
0.1
%
 
816

 
0.1
%
Casual Dining
 
457

 
2,765,951

 
2.7
%
 
75,767

 
6.2
%
Childcare and development
 
4

 
21,000

 
0.0
%
 
281

 
0.0
%
Consulting
 
1

 
227,486

 
0.2
%
 
2,058

 
0.2
%
Consumer Goods
 
1

 
75,050

 
0.1
%
 
631

 
0.1
%
Consumer Products
 
32

 
12,100,137

 
11.9
%
 
50,284

 
4.1
%
Discount Retail
 
595

 
5,321,103

 
5.2
%
 
51,660

 
4.2
%
Distribution
 
2

 
200,013

 
0.2
%
 
2,931

 
0.2
%
Diversified Industrial
 
9

 
1,188,585

 
1.2
%
 
15,739

 
1.3
%
Education
 
17

 
1,917,765

 
1.9
%
 
21,723

 
1.8
%
Entertainment and recreation
 
1

 
3,000

 
—
%
 
—

 
—
%
Family Dining
 
364

 
2,070,533

 
2.0
%
 
50,149

 
4.1
%
Financial Services
 
22

 
1,080,944

 
1.1
%
 
22,446

 
1.8
%
Fitness
 
35

 
1,071,984

 
1.1
%
 
20,471

 
1.7
%
Freight
 
53

 
2,859,312

 
2.8
%
 
27,749

 
2.3
%
Furniture Rental & Leasing
 
40

 
655,000

 
0.7
%
 
4,912

 
0.4
%
Gas/Convenience
 
102

 
441,370

 
0.4
%
 
24,068

 
2.0
%
Government Services
 
28

 
747,161

 
0.7
%
 
23,346

 
1.9
%
Haircare Services
 
13

 
20,802

 
—
%
 
474

 
—
%
Healthcare
 
120

 
2,607,559

 
2.6
%
 
50,281

 
4.1
%
Heavy Equipment
 
1

 
552,960

 
0.6
%
 
2,353

 
0.2
%
Home Maintenance
 
30

 
3,940,954

 
3.9
%
 
28,485

 
2.3
%
Information and communications
 
4

 
119,583

 
0.1
%
 
2,788

 
0.2
%
Insurance
 
15

 
2,714,121

 
2.7
%
 
44,199

 
3.6
%
Jewelry
 
1

 
367,740

 
0.4
%
 
5,497

 
0.5
%
Manufacturing
 
14

 
3,152,600

 
3.1
%
 
15,910

 
1.3
%
Marine Products
 
3

 
81,404

 
0.1
%
 
1,622

 
0.1
%
Media
 
3

 
220,006

 
0.2
%
 
2,862

 
0.2
%
Movie Theater
 
2

 
85,136

 
0.1
%
 
1,249

 
0.1
%
Office Products
 
20

 
389,419

 
0.4
%
 
5,572

 
0.5
%
Oil/Gas
 
18

 
675,586

 
0.7
%
 
14,226

 
1.2
%
Packaging
 
1

 
221,035

 
0.2
%
 
1,480

 
0.1
%
Parking
 
1

 
8,400

 
—
%
 
1

 
—
%

46

Industry
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Personal services
 
136

 
355,411

 
0.4
%
 
8,226

 
0.7
%
Pharmacy
 
248

 
3,513,095

 
3.5
%
 
86,058

 
7.0
%
Professional Services
 
61

 
1,234,044

 
1.2
%
 
20,573

 
1.7
%
Publishing
 
2

 
210,776

 
0.2
%
 
2,054

 
0.2
%
Quick Service Restaurant
 
1,036

 
2,870,296

 
2.8
%
 
91,950

 
7.5
%
Retail - Department Stores
 
144

 
5,221,706

 
5.2
%
 
43,807

 
3.6
%
Retail - Discount
 
65

 
1,373,484

 
1.4
%
 
14,307

 
1.2
%
Retail - Electronics and appliances
 
6

 
32,000

 
—
%
 
402

 
—
%
Retail - Grocery
 
10

 
432,000

 
0.4
%
 
5,232

 
0.4
%
Retail - Hobby/books/music
 
42

 
531,705

 
0.5
%
 
6,816

 
0.6
%
Retail - Home furnishings
 
22

 
348,287

 
0.3
%
 
4,489

 
0.4
%
Retail - Internet
 
3

 
3,048,000

 
3.0
%
 
13,922

 
1.1
%
Retail - Office supply stores
 
5

 
72,000

 
0.1
%
 
1,104

 
0.1
%
Retail - Pet supply stores
 
3

 
17,685

 
—
%
 
228

 
—
%
Retail - Sporting Goods
 
34

 
1,702,481

 
1.7
%
 
18,259

 
1.5
%
Retail - Variety
 
13

 
2,101,000

 
2.1
%
 
17,618

 
1.4
%
Retail - Wholesale
 
19

 
3,000,516

 
3.0
%
 
26,747

 
2.2
%
Retail Banking
 
298

 
2,031,641

 
2.0
%
 
45,638

 
3.7
%
Specialty Retail
 
207

 
3,811,345

 
3.8
%
 
47,911

 
3.9
%
Storage Facility
 
1

 
126,664

 
0.1
%
 
443

 
—
%
Supermarket
 
88

 
5,788,157

 
5.7
%
 
65,389

 
5.3
%
Technology
 
7

 
644,123

 
0.6
%
 
9,763

 
0.8
%
Telecommunications
 
40

 
2,813,675

 
2.8
%
 
42,366

 
3.5
%
Transportation
 
2

 
211,414

 
0.2
%
 
1,015

 
0.1
%
Travel Centers
 
1

 
17,480

 
—
%
 
970

 
0.1
%
 
 
4,857

 
101,454,758

 
100.0
%
 
$
1,229,141

 
100.0
%

Geographical Distribution

The following table details the geographic distribution of our portfolio as of December 31, 2013 (dollars in thousands):
State/Possession
 
Number of Properties
 
Square Feet
 
Leased Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Alabama
 
45

 
710,845

 
2.1
%
 
$
12,340

 
3.1
%
Arizona
 
10

 
101,443

 
0.3
%
 
2,309

 
0.6
%
Arkansas
 
35

 
386,630

 
1.1
%
 
4,403

 
1.1
%
California
 
24

 
2,881,421

 
8.4
%
 
27,099

 
6.9
%
Colorado
 
16

 
659,357

 
1.9
%
 
12,727

 
3.2
%
Connecticut
 
11

 
50,086

 
0.2
%
 
1,729

 
0.4
%
Delaware
 
4

 
12,369

 
—
%
 
286

 
0.1
%
Florida
 
42

 
556,757

 
1.6
%
 
8,847

 
2.2
%
Georgia
 
68

 
667,694

 
2.0
%
 
10,735

 
2.7
%
Idaho
 
8

 
71,565

 
0.2
%
 
1,590

 
0.4
%
Illinois
 
44

 
2,030,931

 
5.9
%
 
28,777

 
7.3
%
Indiana
 
31

 
3,456,136

 
10.1
%
 
14,481

 
3.7
%

47

State/Possession
 
Number of Properties
 
Square Feet
 
Leased Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Iowa
 
19

 
671,434

 
2.0
%
 
4,610

 
1.2
%
Kansas
 
26

 
1,594,889

 
4.7
%
 
10,089

 
2.6
%
Kentucky
 
34

 
1,109,534

 
3.3
%
 
8,815

 
2.2
%
Louisiana
 
33

 
407,287

 
1.2
%
 
6,650

 
1.7
%
Maine
 
2

 
146,430

 
0.4
%
 
2,828

 
0.7
%
Maryland
 
5

 
468,423

 
1.4
%
 
1,893

 
0.5
%
Massachusetts
 
21

 
548,804

 
1.6
%
 
7,149

 
1.8
%
Michigan
 
80

 
875,049

 
2.6
%
 
15,899

 
4.0
%
Minnesota
 
11

 
200,487

 
0.6
%
 
1,675

 
0.4
%
Mississippi
 
36

 
1,380,764

 
4.0
%
 
8,250

 
2.1
%
Missouri
 
87

 
956,240

 
2.8
%
 
11,209

 
2.8
%
Montana
 
5

 
55,377

 
0.2
%
 
795

 
0.2
%
Nebraska
 
5

 
622,690

 
1.8
%
 
5,958

 
1.5
%
Nevada
 
12

 
100,660

 
0.3
%
 
2,425

 
0.6
%
New Hampshire
 
10

 
65,328

 
0.2
%
 
1,350

 
0.3
%
New Jersey
 
11

 
607,746

 
1.8
%
 
12,345

 
3.1
%
New Mexico
 
13

 
97,812

 
0.3
%
 
2,012

 
0.5
%
New York
 
26

 
424,645

 
1.2
%
 
9,367

 
2.4
%
North Carolina
 
59

 
1,351,397

 
4.0
%
 
13,675

 
3.5
%
North Dakota
 
4

 
31,318

 
0.1
%
 
572

 
0.1
%
Ohio
 
67

 
1,325,121

 
3.9
%
 
12,030

 
3.1
%
Oklahoma
 
25

 
697,064

 
2.0
%
 
8,634

 
2.2
%
Oregon
 
6

 
25,143

 
0.1
%
 
679

 
0.2
%
Pennsylvania
 
75

 
2,708,439

 
7.9
%
 
26,832

 
6.8
%
Puerto Rico
 
3

 
87,550

 
0.3
%
 
2,429

 
0.6
%
Rhode Island
 
7

 
136,188

 
0.4
%
 
2,431

 
0.6
%
South Carolina
 
32

 
654,929

 
1.9
%
 
7,226

 
1.8
%
South Dakota
 
2

 
49,641

 
0.2
%
 
416

 
0.1
%
Tennessee
 
54

 
593,151

 
1.7
%
 
9,697

 
2.5
%
Texas
 
150

 
2,891,271

 
8.5
%
 
42,825

 
10.8
%
Utah
 
3

 
14,009

 
0.0
%
 
417

 
0.1
%
Vermont
 
4

 
15,432

 
0.1
%
 
336

 
0.1
%
Virginia
 
34

 
874,155

 
2.6
%
 
15,580

 
3.9
%
Washington
 
6

 
374,900

 
1.1
%
 
6,276

 
1.6
%
West Virginia
 
10

 
59,979

 
0.2
%
 
1,486

 
0.4
%
Wisconsin
 
10

 
352,976

 
1.0
%
 
4,230

 
1.1
%
Wyoming
 
4

 
23,558

 
0.1
%
 
577

 
0.2
%
 
 
1,329

 
34,185,054

 
100.0
%
 
$
394,990

 
100.0
%


48

The following table details the geographic distribution of the pro forma portfolio of ARCP, after giving effect to ARCT IV, Cole and the Fortress and Inland Portfolios, as of December 31, 2013 (dollars in thousands):
State/Possession
 
Number of Properties
 
Square Feet
 
Leased Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Alabama
 
132

 
2,322,096

 
2.3
%
 
$
37,892

 
3.1
%
Alaska
 
3

 
94,805

 
0.1
%
 
1,736

 
0.1
%
Arizona
 
73

 
3,214,727

 
3.2
%
 
54,609

 
4.4
%
Arkansas
 
90

 
894,581

 
0.9
%
 
9,578

 
0.8
%
California
 
78

 
6,097,340

 
6.0
%
 
74,509

 
6.1
%
Colorado
 
49

 
2,252,681

 
2.2
%
 
33,943

 
2.8
%
Connecticut
 
17

 
359,023

 
0.4
%
 
7,928

 
0.7
%
Delaware
 
9

 
249,928

 
0.3
%
 
4,406

 
0.4
%
District of Columbia
 
1

 
3,210

 
0.0
%
 
44

 
0.0
%
Florida
 
234

 
5,511,166

 
5.4
%
 
72,392

 
5.9
%
Georgia
 
181

 
5,669,822

 
5.6
%
 
70,443

 
5.7
%
Idaho
 
16

 
125,853

 
0.1
%
 
3,927

 
0.3
%
Illinois
 
161

 
5,968,344

 
5.9
%
 
77,162

 
6.3
%
Indiana
 
115

 
5,620,538

 
5.5
%
 
39,042

 
3.2
%
Iowa
 
47

 
1,426,616

 
1.4
%
 
11,329

 
0.9
%
Kansas
 
41

 
1,859,772

 
1.8
%
 
13,696

 
1.1
%
Kentucky
 
74

 
1,531,552

 
1.5
%
 
16,174

 
1.3
%
Louisiana
 
91

 
1,358,457

 
1.3
%
 
18,539

 
1.5
%
Maine
 
23

 
624,834

 
0.6
%
 
7,932

 
0.7
%
Maryland
 
23

 
998,889

 
1.0
%
 
13,548

 
1.1
%
Massachusetts
 
39

 
2,370,866

 
2.3
%
 
26,054

 
2.1
%
Michigan
 
166

 
3,223,511

 
3.2
%
 
42,963

 
3.5
%
Minnesota
 
32

 
458,372

 
0.5
%
 
5,566

 
0.5
%
Mississippi
 
63

 
1,683,935

 
1.7
%
 
12,920

 
1.1
%
Missouri
 
143

 
3,028,379

 
3.0
%
 
36,692

 
3.0
%
Montana
 
6

 
71,377

 
0.1
%
 
1,056

 
0.1
%
Nebraska
 
17

 
875,154

 
0.9
%
 
10,233

 
0.8
%
Nevada
 
31

 
815,743

 
0.8
%
 
10,056

 
0.8
%
New Hampshire
 
19

 
242,597

 
0.2
%
 
4,218

 
0.3
%
New Jersey
 
31

 
1,533,452

 
1.5
%
 
33,768

 
2.8
%
New Mexico
 
44

 
846,456

 
0.8
%
 
12,034

 
1.0
%
New York
 
63

 
1,206,634

 
1.2
%
 
22,598

 
1.8
%
North Carolina
 
150

 
3,697,242

 
3.6
%
 
35,298

 
2.9
%
North Dakota
 
6

 
109,248

 
0.1
%
 
1,978

 
0.2
%
Ohio
 
225

 
5,611,566

 
5.5
%
 
45,749

 
3.7
%
Oklahoma
 
58

 
1,215,462

 
1.2
%
 
17,603

 
1.4
%
Oregon
 
15

 
303,884

 
0.3
%
 
3,794

 
0.3
%
Pennsylvania
 
140

 
5,446,815

 
5.4
%
 
49,201

 
4.0
%
Puerto Rico
 
3

 
87,550

 
0.1
%
 
2,429

 
0.2
%
Rhode Island
 
14

 
213,642

 
0.2
%
 
4,270

 
0.4
%
South Carolina
 
107

 
2,980,383

 
2.9
%
 
28,010

 
2.3
%
South Dakota
 
7

 
106,414

 
0.1
%
 
1,272

 
0.1
%

49

State/Possession
 
Number of Properties
 
Square Feet
 
Leased Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Tennessee
 
114

 
3,463,940

 
3.4
%
 
29,996

 
2.4
%
Texas
 
501

 
10,919,217

 
10.8
%
 
151,344

 
12.3
%
Utah
 
8

 
86,527

 
0.1
%
 
1,188

 
0.1
%
Vermont
 
7

 
22,432

 
0.0
%
 
470

 
0.0
%
Virginia
 
97

 
2,353,808

 
2.3
%
 
37,288

 
3.0
%
Washington
 
20

 
455,633

 
0.5
%
 
9,787

 
0.8
%
West Virginia
 
36

 
199,528

 
0.2
%
 
4,118

 
0.3
%
Wisconsin
 
81

 
1,582,593

 
1.6
%
 
17,209

 
1.4
%
Wyoming
 
9

 
58,164

 
0.1
%
 
1,151

 
0.1
%
 
 
3,710

 
101,454,758

 
100.0
%
 
$
1,229,142

 
100.0
%

Property Type

The following table details the property type of our portfolio as of December 31, 2013 (dollars in thousands):
Property Type
 
Number of Properties
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Retail
 
1,189

 
9,556,554

 
28.0
%
 
$
172,800

 
43.8
%
Office
 
81

 
8,837,119

 
25.9
%
 
141,462

 
35.8
%
Distribution
 
58

 
15,683,861

 
45.9
%
 
79,956

 
20.2
%
Industrial
 
1

 
107,520

 
0.3
%
 
770

 
0.2
%
 
 
1,329

 
34,185,054

 
100.0
%
 
$
394,988

 
100.0
%

The following table details the property type of the pro forma portfolio of ARCP, after giving effect to ARCT IV, Cole and the Fortress and Inland Portfolios, as of December 31, 2013 (dollars in thousands):

Property Type
 
Number of Properties
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Retail
 
3,358

 
34,546,007

 
34.1
%
 
$
592,225

 
48.2
%
Office
 
146

 
16,843,455

 
16.6
%
 
291,247

 
23.7
%
Distribution
 
90

 
28,152,569

 
27.8
%
 
139,381

 
11.3
%
Parking Lot
 
1

 
8,400

 
—
%
 
1

 
—
%
Billboard
 
5

 
—

 
—
%
 
48

 
—
%
Industrial
 
22

 
9,449,165

 
9.3
%
 
44,281

 
3.6
%
Multi-Tenant Retail
 
83

 
12,096,088

 
11.9
%
 
161,959

 
13.2
%
 
 
3,710

 
101,454,758

 
100.0
%
 
$
1,229,142

 
100.0
%


50

Property Financing

Our mortgage notes payable consist of the following as of December 31, 2013 and 2012 (dollar amounts in thousands):
 
 
Encumbered Properties
 
Outstanding Loan Amount
 
Weighted Average
Effective Interest Rate (1)
 
Weighted Average Maturity (2)
2013
 
175

 
$
1,256,537

 
3.42
%
 
3.41
2012
 
164

 
$
265,118

 
4.28
%
 
5.51
_______________________________________________
(1)
Mortgage notes payable have fixed rates or are fixed by way of interest rate swap arrangements. Effective interest rates range from 1.83% to 6.28% at December 31, 2013 and 3.32% to 6.13% at December 31, 2012.
(2)
Weighted average remaining years until maturity as of December 31, 2013 and 2012, respectively.

On a pro forma basis after giving effect to the ARCT IV and Cole Mergers, and the Fortress and Inland Portfolio acquisitions, we will have mortgage notes payable of $5.06 billion encumbering approximately 800 properties with effective interest rates ranging from 1.83% to 6.93%.
As part of the CapLease Merger, we assumed a secured credit facility with Wells Fargo, National Association (the "Secured Credit Facility"), which had commitments of up to $150.0 million at December 31, 2013. The Secured Credit Facility was fully drawn with $150.0 million outstanding at December 31, 2013.
The borrowings under the Secured Credit Facility bear interest at an annual rate of one-month LIBOR or LIBOR based on an interest period of one, three or six months, at our election, plus an applicable margin of 2.75%, payable quarterly in arrears. The Secured Credit Facility matures on December 31, 2014 and may be prepaid, in whole or in part, without premium or penalty, at our option, at any time.
In addition, we have financing, which is not secured by interests in real property, which is described under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Future Minimum Lease Payments

The following table presents future minimum base rental cash payments due to us over the next 10 years. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (amounts in thousands):
 
 
Future Minimum Base Rent Payments
2014
 
$
379,480

2015
 
371,122

2016
 
355,606

2017
 
321,111

2018
 
294,307

2019
 
267,564

2020
 
249,443

2021
 
220,217

2022
 
192,957

2023
 
149,356

Thereafter
 
545,455

 
 
$
3,346,618



51

The following table presents future minimum base rental cash payments due to the pro forma portfolio of ARCP, after giving effect to ARCT IV, Cole and the Fortress and Inland Portfolios, over the next 10 years. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (amounts in thousands):
 
 
Future Minimum Base Rent Payments
2014
 
$
1,139,228

2015
 
1,132,275

2016
 
1,108,071

2017
 
1,062,010

2018
 
1,007,436

2019
 
948,217

2020
 
908,454

2021
 
859,816

2022
 
776,870

2023
 
688,338

Thereafter
 
2,980,261

 
 
$
12,610,976


Future Lease Expirations

The following is a summary of lease expirations for the next 10 years at the properties we own as of December 31, 2013 (dollar amounts in thousands):
Year of Expiration
 
Number of Leases Expiring
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income Expiring
 
Annualized Rental Income Expiring as a % of Total Portfolio
2014
 
41

 
1,121,087

 
3.28
%
 
$
9,361

 
2.37
%
2015
 
66

 
1,737,342

 
5.08
%
 
19,642

 
4.97
%
2016
 
68

 
1,619,685

 
4.74
%
 
24,189

 
6.12
%
2017
 
114

 
3,863,382

 
11.30
%
 
39,593

 
10.02
%
2018
 
126

 
1,626,057

 
4.76
%
 
24,848

 
6.29
%
2019
 
79

 
834,205

 
2.44
%
 
20,795

 
5.26
%
2020
 
86

 
1,352,566

 
3.96
%
 
23,333

 
5.91
%
2021
 
71

 
3,099,701

 
9.07
%
 
27,761

 
7.03
%
2022
 
144

 
5,336,129

 
15.61
%
 
40,465

 
10.24
%
2023
 
78

 
3,009,662

 
8.80
%
 
33,227

 
8.41
%
 
 
873

 
23,599,816

 
69.04
%
 
$
263,214

 
66.62
%


52

The following is a summary of lease expirations for the next 10 years at the pro forma properties the pro forma portfolio of ARCP, after giving effect to ARCT IV, Cole and the Fortress and Inland Portfolios, owns as of December 31, 2013 (dollar amounts in thousands):
Year of Expiration
 
Number of Leases Expiring
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income Expiring
 
Annualized Rental Income Expiring as a % of Total Portfolio
2014
 
177

 
1,660,887

 
1.58
%
 
$
19,442

 
1.64
%
2015
 
238

 
3,209,252

 
2.76
%
 
33,893

 
3.16
%
2016
 
268

 
4,433,363

 
4.06
%
 
49,883

 
4.37
%
2017
 
374

 
7,300,831

 
7
%
 
86,049

 
7.2
%
2018
 
386

 
4,291,647

 
4.94
%
 
60,759

 
4.23
%
2019
 
246

 
3,736,763

 
4.7
%
 
58,112

 
3.68
%
2020
 
189

 
2,829,754

 
3.54
%
 
43,476

 
2.8
%
2021
 
202

 
11,614,463

 
7.14
%
 
87,776

 
11.45
%
2022
 
285

 
10,455,037

 
6.76
%
 
83,137

 
10.31
%
2023
 
238

 
7,116,588

 
7.22
%
 
88,800

 
7.01
%
 
 
2,603

 
56,648,585

 
49.73
%
 
$
611,327

 
55.84
%

Item 3. Legal Proceedings

The information contained in Note 15— Commitments and Contingencies — "Litigation" of our notes to consolidated financial statements included in this Annual Report on Form 10-K is incorporated by reference into this Item 3. Except as set forth therein, as of the end of the period covered by this Annual Report on Form 10-K, we are not a party to, and none of our properties are subject to, any material pending legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.


53

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information
Our common stock is currently traded on the NASDAQ under the symbol “ARCP”. Set forth below is a line graph comparing the cumulative total stockholder return on our common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the FTSE National Association of Real Estate Investment Trusts Equity Index (“NAREIT”) and the S&P 500 Index (“S&P 500”) for the period commencing September 6, 2011, the date of our IPO, and ending December 31, 2013. The graph assumes an investment of $100 on September 6, 2011.

Comparison to Cumulative Total Return


For each calendar quarter indicated, the following table reflects respective high, low and closing sales prices for the common stock as quoted by NASDAQ and the dividends paid per share in each such period:
 
 
First Quarter 2012
 
Second Quarter 2012
 
Third Quarter 2012
 
Fourth Quarter 2012
 
First Quarter 2013
 
Second Quarter 2013
 
Third Quarter 2013
 
Fourth Quarter 2013
High
 
$
11.65

 
$
11.34

 
$
12.50

 
$
13.48

 
$
14.92

 
$
18.05

 
$
15.36

 
$
13.94

Low
 
$
10.39

 
$
10.00

 
$
10.43

 
$
11.94

 
$
12.45

 
$
13.99

 
$
12.13

 
$
12.16

Close
 
$
11.34

 
$
10.40

 
$
12.50

 
$
13.24

 
$
14.67

 
$
15.26

 
$
12.20

 
$
12.85

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid per share
 
$
0.219

 
$
0.220

 
$
0.222

 
$
0.223

 
$
0.225

 
$
0.226

 
$
0.228

 
$
0.230

Holders

As of February 25, 2014, we had 766,128,817 shares of common stock outstanding held by 9,449 stockholders of record.



54

Dividends

We have elected to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2011. As a REIT, we are required to distribute at least 90% of our REIT taxable income to our stockholders annually, computed without regard to the dividends paid deduction and excluding net capital gain. Our distributions are paid on a monthly basis as directed by our board of directors. Monthly cash distributions are paid based on daily record and distribution declaration dates so our investors will be entitled to be paid distributions beginning no more than a month from the day that they are admitted as stockholders. All distributions are recorded as a reduction of stockholders' equity. From a tax perspective, 22.3% and 54.5% of the amounts distributed by us during the years ended December 31, 2013, and 2012, respectively, represented a return of capital, and 77.7% and 45.5% of our dividends represented ordinary income for the years ended December 31, 2013 and 2012, respectively. On a per share basis, dividends of $0.704 and $0.202 were a return of capital and ordinary income, respectively, for the year ended December 31, 2013. Dividends of $0.482 and $0.402 were a return of capital and ordinary income, respectively, for the year ended December 31, 2012. Distributions that are a return of capital are deferred for the purpose of being subject to income tax. During the years ended December 31, 2013 and 2012, monthly distributions totaled $156.5 million and $73.0 million, respectively. As of December 31, 2013, cash used to pay our distributions is generated from cash received from operating activities and financing activities (as reported on a U.S. GAAP basis). The amount of dividends payable to our common stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, financial condition, capital expenditure requirements, as applicable, and annual dividend requirements needed to qualify and maintain our status as a REIT under the Code. Operating cash flows are expected to increase as additional properties are acquired in our investment portfolio.
The following is a chart of quarterly distributions declared and paid in respect of our common stock during the years ended December 31, 2013 and 2012 and through the date of this Annual Report on Form 10-K (in thousands):
 
 
Total Distributions Paid
2014:
 
 
January and February (1)
 
$
101,450

 
 
 
2013:
 
 
1st Quarter
 
32,304

2nd Quarter
 
37,088

3rd Quarter
 
42,054

4th Quarter
 
45,057

Total 2013
 
$
156,503

 
 
 
2012:
 
 
1st Quarter
 
4,427

2nd Quarter
 
12,110

3rd Quarter
 
24,807

4th Quarter
 
31,681

Total 2012
 
$
73,025

_______________________________________________
(1) 
Pursuant to the Cole Merger Agreement, we paid a stub period dividend to our stockholders who were record holders on February 6, 2014 for the period since their most recent record date through the last business day prior to the closing of the Cole Merger. The amount paid for such stub period was $0.08113 per share and totaled $19.7 million, and is included above.



55

Our board of directors' philosophy is that dividends should principally be derived from cash flows generated from real estate operations. In order to improve our operating cash flows and our ability to pay dividends from operating cash flows, our agreed to waive certain fees including asset management and incentive fees prior to our transition to self-management. Base asset management fees incurred during the year ended December 31, 2013 were $14.0 million, of which $6.1 million was waived during the year ended December 31, 2013. No incentive fees have been incurred or paid to our Former Manager since inception. The fees that were waived relating to the activity during 2013 are not deferrals and accordingly, will not be paid. Because our Former Manager waived certain fees that we owed, cash flow from operations that would have been used to pay such fees to our Former Manager was available to pay dividends to our stockholders. See Note 18 — Related Party Transactions and Arrangements for further information on fees paid to and forgiven by our Former Manager. Subsequent to December 31, 2013, we completed our transition to self-management and will no longer pay such fees to our Former Manager. See Note 23 — Subsequent Events for further discussion. The Management Agreement was terminated effective January 8, 2014.

As our real estate portfolio matures, we expect cash flows from operations to cover our dividends.

Our board of directors authorized and we declared the following annualized dividends per share payable monthly, in cash, on the fifteenth day of each month to stockholders of record at the close of business on the eighth day of such month.
Declaration date
 
Annualized dividend per share
 
Distribution date
 
Record date
September 7, 2011
 
$
0.875

 
10/15/2011
 
10/8/2011
February 27, 2012
 
$
0.880

 
3/15/2012
 
3/8/2012
March 16, 2012
 
$
0.885

 
6/15/2012
 
6/8/2012
June 27, 2012
 
$
0.890

 
9/15/2012
 
9/8/2012
September 30, 2012
 
$
0.895

 
11/15/2012
 
11/8/2012
November 29, 2012
 
$
0.900

 
2/15/2013
 
2/8/2013
March 17, 2013
 
$
0.910

 
6/15/2013
 
6/8/2013
May 28, 2013
 
$
0.940

 
12/13/2013
 
12/6/2013
October 23, 2013*
 
$
1.000

 
2/15/2014
 
2/7/2014
_______________________________________________
* The dividend increase was contingent upon, and became effective with, the close of the Cole merger, which was consummated on February 7, 2014.

Our existing loan agreements contain, and future financing arrangements will likely contain, restrictive covenants that could limit our ability to make distributions to our stockholders. Specifically, our ability to make distributions may be limited by our Credit Facility, pursuant to which our distributions may not exceed the greater of (i) 105% of our FFO, as adjusted for certain items, the most significant of which are acquisition and merger related expenses, in 2013, and 95% thereafter (ii) the amount required for us to qualify and maintain our status as a REIT.

Distribution payments are dependent on the availability of funds. Our board of directors may reduce the amount of dividends paid or suspend dividend payments at any time and therefore dividend payments are not assured. The dividends paid in respect of our common stock for the year ended December 31, 2013 were $161.4 million.

Share Based Compensation Plans

Equity Plan

We have adopted the American Realty Capital Properties, Inc. Equity Plan (the "Equity Plan"), which provides for the grant of stock options, restricted shares of common stock, restricted stock units, dividend equivalent rights and other equity-based awards to our and our affiliates' non-executive directors, officers and other employees and advisors and consultants who are providing services to us or our affiliates.

We authorized and reserved a total number of shares equal to 10.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis assuming the redemption of all OP Units for shares of common stock) to be issued at any time under the Equity Plan for equity incentive awards.


56

Director Stock Plan

We have adopted the American Realty Capital Properties, Inc. Non-Executive Director Stock Plan (the "Director Stock Plan"), which provides for the grant of restricted shares of common stock to each of our independent directors, each of whom is a non-executive director. Awards of restricted stock will vest ratably over a five-year period following the date of grant in increments of 20.0% per annum, subject to the director’s continued service on the board of directors, and shall provide for “distribution equivalents” with respect to this restricted stock, whether or not vested, at the same time and in the same amounts as distributions are paid to the stockholders. At December 31, 2013, a total of 99,000 shares of common stock are reserved for issuance under the Director Stock Plan.

The fair value of restricted common stock awards under the Equity Plan and Director Stock Plan is determined on the grant date using the closing stock price on NASDAQ that day. The fair value of restricted common stock awarded to the non-employees under the Equity Plan is updated at the end of each quarter based on quarter end closing stock price through the final vesting date.

ARCT III Restricted Share Plan

ARCT III had an employee and director incentive restricted share plan (the “RSP”), which provided for the automatic grant of 3,000 restricted shares of common stock to each of its independent directors, without any further action by ARCT III’s board of directors or its stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder’s meeting thereafter. Restricted stock issued to independent directors vested over a five-year period following the date of grant in increments of 20.0% per annum. The RSP provided ARCT III with the ability to grant awards of restricted shares to its directors, officers and employees (if ARCT III ever had employees), employees of ARCT III's Advisor and its affiliates, employees of entities that provided services to ARCT III, directors of the ARCT III Advisor or of entities that provided services to ARCT III, certain consultants to ARCT III and the ARCT III Advisor and its affiliates or to entities that provided services to ARCT III.
Immediately prior to the effective time of the ARCT III Merger, each then-outstanding share of ARCT III restricted stock fully vested. All shares of ARCT III common stock then-outstanding as a result of the full vesting of shares of ARCT III restricted stock, and the satisfaction of any applicable withholding taxes, had the right to receive a number of shares of our common stock based on the ARCT III Exchange Ratio.
The following tables detail the restricted shares activity within the Equity Plan, Director Stock Plan and RSP during the years ended December 31, 2013, 2012 and 2011:

Restricted Share Awards
 
 
Equity Plan
 
RSP & Director Stock Plan
 
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
Awarded, January 1, 2011
 
—

 
$
—

 
—

 
$
—

Granted
 
167,400

 
12.50

 
14,700

 
11.50

Awarded December 31, 2011
 
167,400

 
12.50

 
14,700

 
11.50

Granted
 
93,683

 
10.65

 
23,250

 
10.45

Forfeited
 
(1,174
)
 
10.65

 
(7,650
)
 
11.54

Awarded December 31, 2012
 
259,909

 
$
11.84

 
30,300

 
$
10.68

Granted
 
932,527

 
13.82

 
18,000

 
14.58

Forfeited
 
(1,085
)
 
12.85

 
—

 
—

Awarded December 31, 2013
 
1,191,351

 
$
13.39

 
48,300

 
$
12.13




57

Unvested Restricted Shares
 
 
Equity Plan
 
RSP & Director Stock Plan
 
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
Unvested, January 1, 2011
 
—

 
$
—

 
—

 
$
—

Granted
 
167,400

 
12.50

 
14,700

 
11.50

Vested
 
(13,950
)
 
12.50

 
—

 
—

Unvested, December 31, 2011
 
153,450

 
12.50

 
14,700

 
11.50

Granted
 
93,683

 
10.65

 
23,250

 
10.45

Vested
 
(59,556
)
 
12.42

 
(2,370
)
 
11.88

Forfeited
 
(1,174
)
 
10.65

 
(7,650
)
 
11.54

Unvested, December 31, 2012
 
186,403

 
$
11.62

 
27,930

 
$
10.58

Granted
 
932,527

 
13.82

 
18,000

 
14.58

Vested
 
(186,403
)
 
11.62

 
(30,930
)
 
11.03

Forfeited
 
(1,085
)
 
12.85

 
—

 
—

Unvested, December 31, 2013
 
931,442

 
$
13.82

 
15,000

 
$
14.45

For the years ended December 31, 2013, 2012 and 2011, compensation expense for restricted shares was $2.0 million, $1.2 million and $0.2 million, respectively. For the year ended December 31, 2013, merger and other transaction related costs includes compensation expense of $2.7 million resulting from our consummation of the Cole Merger; compensation expense of $2.2 million for the accelerated vesting of restricted shares in conjunction with the ARCT III Merger; and compensation expense of $0.7 million from the issuance of 52.5 thousand fully vested shares to certain employees of our Former Manager. In addition, we recognized $2.7 million as a distribution to our Former Manager, which is included in consideration to Former Manager for internalization in the accompanying consolidated statements of changes in equity.
Multi-Year Performance Plan
Upon consummation of the ARCT III Merger, we entered into the 2013 Advisor Multi-Year Outperformance Agreement (the “OPP”) with our Former Manager, whereby our Former Manager was able to potentially earn compensation upon the attainment of stockholder value creation targets.
Under the OPP, our Former Manager was granted 8,241,101 long term incentive plan units (“LTIP Units”) of the OP, which will be earned or forfeited based on our total return to stockholders (including both share price appreciation and common stock distributions) (“Total Return”), for the three-year period consisting of:
•
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle of 7% for each annual measurement period, non-compounded, 14% for the interim measurement period and 21% for the full performance period; and
•
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance period of a peer group comprised of the following companies: CapLease, Inc.; EPR Properties; Getty Realty Corporation; Lexington Realty Trust; National Retail Properties, Inc.; and Realty Income Corporation.
The award will be funded (“OPP Pool”) up to a maximum award opportunity equal to 5% of our equity market capitalization at the ARCT III Merger date of $2.1 billion (the “OPP Cap”). Awards under the OPP are dependent on achieving an annual hurdle that commenced December 11, 2012, an interim (two-year) hurdle and then the aforementioned three-year hurdle ending on December 31, 2015.

58

In order to further ensure that the interests of our Former Manager are aligned with our investors, the Relative Component is subject to a ratable sliding scale factor as follows:
•
100% will be earned if we attain a median Total Return of at least 6% for each annual measurement period, non-compounded, at least 12% for the interim measurement period, and at least 18% for the full performance period;
•
50% will be earned if we attain a median Total Return of at least 0% for each measurement period;
•
0% will be earned if we attain a median Total Return of less than 0% for each measurement period; and
•
A percentage from 50% to 100% calculated by linear interpolation will be earned if the our median Total Return is between 0% and the percentage set for each measurement period.
For each year during the performance period a portion of the OPP Cap equal to a maximum of up to 1.25% of our equity market capitalization of $2.1 billion will be “locked-in” based upon the attainment of the performance hurdles set forth above for each annual measurement period. In addition, a portion of the OPP Cap equal to a maximum of up to 3% of our equity market capitalization will be “locked-in” based upon the attainment of the performance hurdles set forth above for the interim measurement period, which if achieved, will supersede and negate any prior “locked-in” portion based upon annual performance through the first and second valuation dates on December 31, 2013 and 2014, respectively (i.e., a maximum award opportunity equal to a maximum of up to 3% of our equity market capitalization may be “locked-in” through December 31, 2014). Since certain awards under the OPP plan are dependent on the comparison of our current market capitalization to our market capitalization at the inception of plan, the issuance of additional common shares by us may result in higher awards.
Following the performance period, the Absolute Component and the Relative Component will be calculated separately and then added together to determine the aggregate award earned under the OPP, which in no event may exceed the OPP Cap. The OPP Pool will be used to determine the number of LTIP Units that vest. Any unvested LTIP Units will be immediately forfeited on December 31, 2015. At December 31, 2013, 100% of the OPP Pool has been allocated.
Pursuant to previous authorization of our board of directors, as a result of the termination of the Management Agreement, all 8,241,101 LTIP Units vested upon the consummation of our transition to self-management on January 8, 2014. However, such LTIP Units are earned as of each respective valuation date according to the terms of the OPP and a portion of such vested LTIP Units may not be convertible to OP Units if not earned.
Our Former Manager is generally entitled to convert any of the LTIP Units earned on a valuation date into OP Units within 30 days following the date on which the calculations are performed following the applicable valuation date. In addition, the OPP provides for accelerated earning and vesting of LTIP Units and redemption of vested LTIP Units for cash if our Former Manager is terminated or if we experience a change in control. Our Former Manager is entitled to receive a tax gross-up in the event that any amounts paid to it under the OPP constitute “parachute payments” as defined in Section 280G of the Code.
During the year ended December 31, 2013, we recorded expenses of $92.3 million for the OPP, of which $32.9 million and $59.4 million is recorded in restricted equity based compensation and merger and other transaction expense on the consolidated statements of operations and comprehensive loss. As of December 31, 2013, 2.3 million LTIP Units were earned and $32.9 million of the expense was locked-in and has been included in non-controlling interest on the consolidated balance sheets. The remaining $59.4 million is included in accounts payable and accrued expenses.

59

New Multi-Year Outperformance Plan
On October 21, 2013, we approved a multi-year outperformance plan (the “New OPP”), to be effective as of our transition to self-management, which occurred on January 8, 2014. Under the New OPP, individual agreements will be entered into between us and the participants selected by the our board of directors (the “Participants”) that set forth the Participant’s participation percentage in the New OPP and the number of LTIP Units subject to the award (“OPP Agreements”). Under the OPP Agreements, the Participants will be eligible to earn performance-based bonus awards equal to the Participant’s participation percentage of a pool that will be funded up to a maximum award opportunity (the “New OPP Cap”) of $222.1 million, which is equal to approximately 5% of our equity market capitalization (“the Initial Market Cap”). Subject to the New OPP Cap, the pool will equal an amount to be determined based on our achievement of total return to stockholders, including both share price appreciation and common stock distributions (“Total Return”), for a three-year performance period (the “Performance Period”); each 12-month period during the Performance Period (each an “Annual Period”) and the initial 24-month period of the Performance Period (the “Interim Period”), as follows:
 
Performance Period
 
Annual Period
 
Interim Period
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the beginning of such period:
21%
 
7%
 
14%
Relative Component: 4% of any excess Total Return attained above the median Total Return for the performance period of the Peer Group(1), subject to a ratable sliding scale factor as follows based on achievement of cumulative Total Return measured from the beginning of such period:
 
 
 
 
 
•
100% will be earned if cumulative Total Return achieved is at least:
18%
 
6%
 
12%
•
50% will be earned if a cumulative Total Return achieved is:
0%
 
0%
 
0%
•
0% will be earned if cumulative Total Return achieved is less than:
0%
 
0%
 
0%
•
a percentage from 50% to 100% calculated by linear interpolation will be earned if cumulative Total Return achieved is if between:
0% - 18%
 
0% - 6%
 
0%- 12%
(1) The “Peer Group” is comprised of the following companies: EPR Properties; Getty Realty Corporation; Lexington Realty Trust; National Retail Properties, Inc.; Realty Income Corporation; and Spirit Realty Capital, Inc.

The New OPP provides for early calculation and vesting of the award in the event of a change in our control of prior to the end of the Performance Period. Under the New OPP, treatment of a Participant’s award upon a termination of service will be governed by the terms of the Participants’ OPP Agreement or service agreement with us. In the event a Participant’s OPP Agreement or service agreement does not provide for treatment of the award upon the Participant’s termination, then the award will be forfeited upon such termination. The Participant’s will be entitled to receive a tax gross-up in the event that any amounts paid to the Participant under the OPP constitute “parachute payments” as defined in Section 280G of the Code. The LTIP Units granted under the New OPP represent units of equity ownership in the OP that are structured as a profits interest therein. Subject to the Participant’s continued service through each vesting date, 1/3 of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of January 8, 2014. The Participant will be entitled to receive distributions on their LTIP Units to the extent provided for in the limited partnership agreement of the OP, as amended from time to time.

Use of Proceeds from Sales of Registered Securities; Unregistered Sales of Equity Securities
On April 19, 2013, we issued approximately 38,300 shares of our common stock upon the conversion of limited partner interests in the OP (the “OP Unit Conversion”) at a purchase price of $16.23, for an aggregate purchase price of approximately $0.6 million.
On June 7, 2013, we closed on a private placement transaction for the sale and issuance of approximately 29.4 million shares of our common stock, par value $0.01 per share, at a purchase price of $15.47 per share, for an aggregate purchase price of $455.0 million (the “Common Stock Transaction”).
Concurrently with the closing of the Common Stock Transaction, we closed on a private placement transaction for the sale of approximately 28.4 million shares of a 5.81% convertible preferred stock designated as Series C Convertible Preferred Stock, at a purchase price of $15.67 per share, for an aggregate purchase price of $445.0 million (the “Preferred Stock Transaction”). After deducting for fees and expenses, the aggregate net proceeds from (i) the Common Stock Transaction were approximately $453.0 million and (ii) the Preferred Stock Transaction were approximately $443.0 million, for aggregate net proceeds from both transactions of approximately $896.0 million.

60

The shares of common stock and Series C Convertible Preferred Stock offered and sold pursuant to the OP Unit Conversion, the Common Stock Transaction and the Preferred Stock Transaction were sold pursuant to an exemption from registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
On June 11, 2013, we issued approximately 560,900 shares of our common stock upon the conversion of limited partner interests in the OP at a purchase price of $14.56, for an aggregate purchase price of approximately $5.4 million.
On August 5, 2013, we issued 546,611 shares of our common stock upon the conversion of 545,454 shares of Series A Preferred Stock. An additional 1,157 shares of common stock were issued in lieu of unpaid dividends.
On August 13, 2013, we issued 283,018 shares of our common stock upon the conversion of 283,018 shares of Series B Preferred Stock.
On September 15, 2013, we entered into definitive purchase agreements pursuant to which we agreed to issue Series D Preferred Stock, par value $0.01 per share, and common stock, par value $0.01 per share, to certain institutional holders promptly following the close of our merger with CapLease, via a private placement. Pursuant to the definitive purchase agreements, we issued approximately 21.7 million shares of Series D Preferred Stock and 15.1 million shares of common stock, for gross proceeds of $288.0 million and $186.0 million, respectively, on November 8, 2013. The Series D Preferred Stock has a 5.81% coupon on its liquidation preference of $13.59 per share (equivalent to $0.79 per share on an annualized basis).
All the net proceeds from our equity offerings were contributed to our OP in exchange for OP units. Our operating partnership has primarily used the net proceeds from our issuance of common and preferred stock to acquire single-tenant, freestanding commercial real estate primarily subject to net leases with high credit quality tenants. As of December 31, 2013, we have used the net proceeds from the issuance of common and preferred stock, revolving credit facility, and debt financings to purchase 1,329 properties with an aggregate purchase price of $5.2 billion. We did not use any proceeds from any registered offering during the fourth quarter of 2013.

Item 6. Selected Financial Data.

The following selected financial data should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. The pro forma consolidated financial balance sheet information is presented as if we had acquired the following on December 31, 2013: (i) ARCT IV; (ii) the 79 properties included in the Fortress Portfolio that were acquired on January 8, 2014; (ii) the remaining 28 properties included in the Inland Portfolio that were not acquired as of December 31, 2013; and (iv) Cole. The pro forma operating data is presented for the year ended December 31, 2013 as if these acquisitions had been acquired at the beginning of the period presented.

Balance sheet data (amounts in thousands):
 
 
Pro Forma ARCP
 
Historical ARCP
 
 
December 31,
 
December 31,
 
 
2013
 
2013
 
2012
 
2011
 
2010
Total real estate investments, at cost
 
$
17,229,479

 
$
5,226,163

 
$
1,798,490

 
$
209,326

 
$
—

Total assets
 
20,520,919

 
5,578,281

 
1,965,452

 
221,578

 
279

Mortgage notes payable, net
 
5,064,694

 
1,298,990

 
265,118

 
35,320

 
—

Senior secured revolving credit facility
 
—

 
—

 
124,604

 
42,407

 
—

Senior corporate credit facility
 
1,389,063

 
1,059,800

 
—

 
—

 
 
Convertible debt, net
 
972,490

 
972,490

 
—

 
—

 
—

Other debt
 
2,889,561

 
254,804

 
—

 
—

 
—

Total liabilities
 
10,867,020

 
3,816,816

 
417,293

 
80,790

 
279

Total equity
 
9,384,600

 
1,492,166

 
1,548,159

 
140,788

 
—



61

Operating data (amounts in thousands except share and per share data):
 
 
Pro Forma ARCP
Year ended December 31,
 
Historical ARCP
 
Period from December 2, 2010 (Date of Inception) to December 31, 2010
 
 
 
Year ended December 31,
 
 
 
2013
 
2013
 
2012
 
2011
 
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
1,221,499

 
$
223,701

 
$
64,791

 
$
3,762

 
$
—

Direct financing lease income
 
5,520

 
1,700

 
—

 
—

 
—

Operating expense reimbursements
 
77,522

 
15,095

 
2,002

 
208

 
—

Private capital management revenue
 
587,293

 
—

 
—

 
—

 
—

Other revenues
 
30,397

 
—

 
—

 
—

 
—

Total revenues
 
1,922,231

 
240,496

 
66,793

 
3,970

 
—

 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
Acquisition related
 
—

 
23,295

 
42,761

 
3,898

 
—

Merger and other transaction related
 
—

 
256,662

 
2,603

 
—

 
—

Reallowed fees and commissions
 
254,413

 
—

 
—

 
—

 
—

Property operating
 
94,789

 
19,890

 
3,484

 
220

 
—

Operating fees to affiliates
 
63,002

 
5,654

 
212

 
—

 
—

General and administrative
 
210,775

 
6,658

 
3,901

 
735

 
—

Equity-based compensation
 
34,935

 
34,935

 
1,191

 
—

 
—

Depreciation and amortization
 
604,479

 
156,971

 
40,700

 
2,111

 
—

Total operating expenses
 
1,262,393

 
504,065

 
94,852

 
6,964

 
—

Operating income (loss)
 
659,838

 
(263,569
)
 
(28,059
)
 
(2,994
)
 
—

Other (expense) income:
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(404,380
)
 
(80,800
)
 
(11,856
)
 
(960
)
 
—

Loss on derivative instruments, net
 
(69,111
)
 
(67,937
)
 
—

 
—

 
—

Other (expense) income, net
 
(13,844
)
 
609

 
960

 
2

 
—

Total other expenses, net
 
(487,335
)
 
(148,128
)
 
(10,896
)
 
(958
)
 
—

Income (loss) from continuing operations
 
172,503

 
(411,697
)
 
(38,955
)
 
(3,952
)
 
—

Income (loss) from discontinued operations attributable to stockholders
 
59,889

 
(20
)
 
(745
)
 
(852
)
 
—

Net loss
 
(239,214
)
 
(411,717
)
 
(39,700
)
 
(4,804
)
 
—

Net loss (income) attributable to non-controlling interest
 
(3,760
)
 
5,212

 
301

 
105

 
—

Net loss attributable to stockholders
 
$
(242,974
)
 
$
(406,505
)
 
$
(39,399
)
 
$
(4,699
)
 
$
—

 
 
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 
 
 
 
 
 
Cash flows (used in) provided by operating activities
 
 
 
$
(7,133
)
 
$
11,610

 
$
(257
)
 
$
—

Cash flows used in investing activities
 
 
 
$
(2,385,333
)
 
$
(1,624,506
)
 
$
(89,981
)
 
$
—

Cash flows provided by financing activities
 
 
 
$
2,272,331

 
$
1,750,438

 
$
109,569

 
$
—

Per share data:
 
 
 
 
 
 
 
 
 
 
Basic net income (loss) per share from continuing operations attributable to stockholders
 
$
0.30

 
$
(2.35
)
 
$
(0.38
)
 
$
(1.04
)
 
$
—

Diluted net income (loss) per share attributable to stockholders
 
$
0.29

 
$
(2.35
)
 
$
(0.38
)
 
$
(1.04
)
 
$
—

Annualized distributions declared per common share
 
$
1.000

 
$
0.910

 
$
0.884

 
$
0.875

 
$
—

Weighted-average number of common shares outstanding, basic
 
768,152,000

 
174,052,650

 
102,513,974

 
3,720,351

 
$
—

Weighted-average number of common shares outstanding, fully diluted (1)
 
798,819,000

 
174,052,650

 
102,513,974

 
3,720,351

 
$
—

______________________________
(1) For the years ended December 31, 2013, 2012, 2011 and the period ended December 31, 2010, the effect of dilutive shares were excluded from the weighted-average share calculation as the effect would be anti-dilutive.


62

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the accompanying financial statements of American Realty Capital Properties, Inc. (the “Company”) and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to American Realty Capital Properties, Inc., a Maryland corporation, and, as required by context, to ARC Properties Operating Partnership, L.P. (the “OP”), a Delaware limited partnership and its subsidiaries. As of December 31, 2013, American Realty Capital Properties, Inc. was still externally managed by ARC Properties Advisors, LLC (our “Former Manager”), a Delaware limited liability company and a wholly owned subsidiary of AR Capital, LLC (“ARC”).

Overview
We were incorporated on December 2, 2010, as a Maryland corporation that qualified as a real estate investment trust for U.S. federal income tax purposes beginning in the year ended December 31, 2011. On September 6, 2011, we completed our IPO and our shares of common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ARCP”.
We acquire, own and operate single-tenant, freestanding commercial real estate properties, primarily subject to net leases with high credit quality tenants. We focus on investing in properties that are net leased to (i) credit tenants, which are generally large public companies with investment-grade ratings and other creditworthy tenants and (ii) governmental, quasi-governmental and not-for-profit entities. Our long-term business strategy is to acquire a diverse portfolio consisting of approximately 70% long-term leases and 30% medium-term leases, with an average remaining lease term of 10 to 12 years. We expect this investment strategy to provide for stable income from credit tenants and to provide for growth opportunities from re-leasing of current below market leases.
We have advanced our investment objectives by growing our net lease portfolio through strategic mergers and acquisitions. Since January 1, 2013, we have completed mergers and portfolio acquisitions that have provided assets totaling approximately $20.0 billion. See Note 2 to the consolidated financial statements.
Substantially all of our business is conducted through our OP. We are the sole general partner and holder of 95.8% of the equity interest in the OP as of December 31, 2013. Certain affiliates of ours and certain unaffiliated investors are limited partners and owners of 3.9% and 0.3%, respectively, of the equity interest in our OP. After holding units of limited partner interests in our OP for a period of one year, holders of OP Units have the right to convert limited partner interest in the OP (“OP Units”) for the cash value of a corresponding number of shares of our common stock or, at the option of our OP, a corresponding number of shares of our common stock, as allowed by the limited partnership agreement of our OP. The remaining rights of the holders of OP Units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of our OP’s assets.
During the year ended December 31, 2013, we retained our Former Manager to manage our affairs on a day to day basis and, as a result, was generally externally managed, with the exception of certain acquisition, accounting and portfolio management services performed by our employees. In August 2013, our board of directors determined that it is in the best interests of us and our stockholders to become self-managed, and we completed our transition to self-management on January 8, 2014. In connection with becoming self-managed, we terminated the existing management agreement with our Former Manager, entered into employment and incentive compensation arrangements with our executives and acquired from our Former Manager certain assets necessary for our operations. See Note 23 — Subsequent Events for further discussion.
As of December 31, 2013, excluding one vacant property classified as held for sale, we owned 1,329 properties consisting of 34.2 million square feet, which properties were 98.1% leased with a weighted average remaining lease term of 8.5 years. In constructing our portfolio, we are committed to diversification (industry, tenant and geography). As of December 31, 2013, rental revenues derived from investment grade tenants and tenants affiliated with investment grade entities as determined by a major rating agency approximated 54% (we have attributed the rating of each parent company to its wholly owned subsidiary for purposes of this disclosure). Our strategy encompasses receiving the majority of our revenue from investment grade tenants as we further acquire properties and enter into (or assume) lease arrangements.
As of December 31, 2013, ARCP, ARCT IV, Cole and the Fortress and Inland Portfolios, on a combined basis, excluding one vacant property classified as held for sale, owned 3,710 properties consisting of 101.5 million square feet, which properties were 98.8% leased with a weighted average remaining lease term of 10.2 years as of December 31, 2013. As of December 31, 2013, rental revenues derived from investment grade tenants and tenants affiliated with investment grade entities as determined by a major rating agency approximated 49% (we have attributed the rating of each parent company to its wholly owned subsidiary for purposes of this disclosure).


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The operating results for the year ended December 31, 2013 do not address the impact of the Cole and ARCT IV Mergers and the acquisitions of the Fortress and Inland Portfolios, which closed after December 31, 2013, and do not include the other recent acquisitions for the year ended December 31, 2013. Accordingly, the operating results in 2013 are not indicative of our future operating results.
Completed Mergers and Major Acquisitions
American Realty Capital Trust III Merger
On December 14, 2012, we entered into the ARCT III Merger Agreement with ARCT III and certain subsidiaries of each company. The ARCT III Merger Agreement provided for the merger of ARCT III with and into a subsidiary of ours. The ARCT III Merger was consummated on February 28, 2013.
Pursuant to the terms and subject to the conditions set forth in the ARCT III Merger Agreement, each outstanding share of common stock of ARCT III, including restricted shares which became vested, was converted into the right to receive (i) 0.95 of a share of our common stock, or (ii) $12.00 in cash. In addition, each outstanding unit of equity ownership of the ARCT III OP was converted into the right to receive 0.95 of the same class of unit of equity ownership in our OP.
Upon the closing of the ARCT III Merger, on February 28, 2013, 29.2 million shares, or 16.5% of the then outstanding shares of ARCT III’s common stock were received in cash consideration at $12.00 per share, which is equivalent to 27.7 million shares of our common stock based on the ARCT III Exchange Ratio. In addition, 148.1 million shares of ARCT III’s common stock were converted to shares of our common stock at the Exchange Ratio, resulting in an additional 140.7 million shares of our common stock outstanding after the exchange.
Upon the consummation of the ARCT III Merger, American Realty Capital Trust III Special Limited Partner, LLC, the holder of the special limited partner interest in the ARCT III OP, was entitled to subordinated distributions of net sales proceeds from ARCT III OP which resulted in the issuance of units of limited partner interests in the ARCT III OP, when after applying the Exchange Ratio, resulted in the issuance of an additional 7.3 million OP Units to affiliates of our Former Manager. The parties had agreed that such OP Units would be subject to a minimum one-year holding period before being exchangeable into our common stock.
Also in connection with the ARCT III Merger, we entered into an agreement with ARC and its affiliates to internalize certain functions performed by them prior to the ARCT III Merger, reduce certain fees paid to affiliates, purchase certain corporate assets and pay certain merger related fees. See Note 18 — Related Party Transactions and Arrangements.
Accounting Treatment of the ARCT III Merger
We and ARCT III, from inception to the ARCT III Merger date, were considered to be entities under common control. Both entities' advisors were wholly owned subsidiaries of ARC. ARC and its related parties had significant ownership interests in us and had significant ownership of ARCT III through the ownership of shares of common stock and other equity interests. In addition, the advisors of both entities were contractually eligible to charge potential fees for their services to both of the companies including asset management fees, incentive fees and other fees and continue to charge fees to us. Due to the significance of these fees, the advisors and ultimately ARC was determined to have a significant economic interest in both companies in addition to having the power to direct the significant activities of the companies through advisory/management agreements, which qualified them as affiliated companies under common control in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT III Merger date. In addition, U.S. GAAP requires us to present historical financial information as if the merger had occurred as of the beginning of the earliest period presented. Therefore, the accompanying financial statements including the notes thereto are presented as if the ARCT III Merger had occurred on January 1, 2012.
GE Capital Portfolio Acquisition
On June 27, 2013, we, through subsidiaries of the OP, acquired, from certain affiliates of GE Capital Corp., the equity interests in the entities that own a real estate portfolio comprised of 447 properties, (the “GE Capital Portfolio”) for a purchase price of $826.3 million exclusive of closing costs. The 447 properties are subject to 409 property operating leases, as well as 38 direct financing leases.
CapLease, Inc. Merger
On May 28, 2013, we entered into the CapLease Merger Agreement with CapLease and certain subsidiaries of each company. The CapLease Merger Agreement provided for the merger of CapLease with and into a subsidiary of ours.

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On November 5, 2013, we completed the merger with CapLease based on the terms of the CapLease Merger Agreement. Pursuant to the terms set forth in the CapLease Merger Agreement, at the effective time of the CapLease Merger, each outstanding share of common stock of CapLease, other than shares owned by us, CapLease or any of their respective wholly owned subsidiaries, was converted into the right to receive $8.50. Each outstanding share of preferred stock of CapLease, other than shares owned by us, CapLease or any of their respective wholly owned subsidiaries, was converted into the right to receive an amount in cash, equal to the sum of $25.00 plus all accrued and unpaid dividends on such shares of preferred stock. In addition, in connection with the merger of CapLease, LP with and into the OP (the “CapLease Partnership Merger”), each outstanding unit of equity ownership of CapLease’s operating partnership other than units owned by CapLease or any wholly owned subsidiary of CapLease was converted into the right to receive $8.50. Shares of CapLease's outstanding restricted stock were accelerated and became fully vested, and restricted stock and any outstanding performance shares were fully earned and received $8.50 per share. In total, cash consideration of $920.7 million was paid to the common and preferred stockholders of CapLease.
Accounting Treatment for the CapLease Merger
The CapLease Merger has been accounted for under the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting, the assets acquired and liabilities assumed from CapLease have been recorded as of the acquisition date at their respective fair values. Any excess of purchase price over the fair values will be recorded as goodwill. Results of operations for CapLease will be included in our consolidated financial statements from the date of acquisition. See Note 5 — CapLease Acquisition.
American Realty Capital Trust IV Merger
On July 1, 2013, we entered into ARCT IV Merger Agreement with ARCT IV and certain subsidiaries of each company. The ARCT IV Merger Agreement provided for the merger of ARCT IV with and into a subsidiary of the OP. We consummated the ARCT IV Merger on January 3, 2014.
Pursuant to the terms of the ARCT IV Merger Agreement, as amended, each outstanding share of common stock of ARCT IV was exchanged for (i) $9.00 in cash, plus (ii) 0.5190 of a share of our common stock, par value $0.01 per share, and (iii) 0.5937 of a share of a new series of our preferred stock designated as 6.70% Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”), par value $0.01 per share. In total, we paid $650.9 million in cash and issued 36.9 million shares of common stock and 42.2 million shares of Series F Preferred Stock (as defined in Note 16 — Preferred and Common Stock) to the former ARCT IV stockholders in connection with the consummation of the ARCT IV Merger.
In addition, each outstanding Class B unit of equity ownership of the operating partnership of ARCT IV was converted into 2.3961 of our Class B OP Units and other equity units of ARCT IV received 2.3961 of our OP Units. In addition, on the date of the ARCT IV Merger, all outstanding restricted common stock of ARCT IV date will become fully vested and exchanged for shares of our common stock based on the ARCT IV Exchange Ratio.
In connection with the ARCT IV Merger and pursuant to the terms of the agreement of limited partnership of ARCT IV’s operating partnership, ARCT IV's external advisor received subordinated distributions of net sales proceeds in an approximate amount of $63.2 million. Such subordinated distributions of net sales proceeds were paid in the form of equity units of ARCT IV's operating partnership that were automatically converted into 6.7 million OP Units upon the consummation of the ARCT IV Merger and are subject to a minimum two-year holding period from the date of issuance before being exchangeable into our common stock.
Accounting Treatment of the ARCT IV Merger
We and ARCT IV were considered to be entities under common control. Both entities' advisors are wholly owned subsidiaries of ARC. ARC and its related parties had ownership interests in us and ARCT IV through the ownership of shares of common stock and other equity interests. In addition, the advisors of both entities were contractually eligible to charge potential fees for their services to both of the companies including asset management fees, incentive fees and other fees and will continue to charge fees to us following the ARCT IV Merger. Due to the significance of these fees, the advisors and ultimately ARC were determined to have a significant economic interest in both companies in addition to having the power to direct the activities of the companies through advisory/management agreements, which qualified them as affiliated companies under common control in accordance with U.S. GAAP. The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT IV Merger date. In addition, U.S. GAAP requires us to present historical financial information as if the entities were combined for each period presented. However, as the ARCT IV Merger was not consummated as of December 31, 2013, the assets and liabilities and historical financial information of ARCT IV Merger are not included in the accompanying financial statements including the notes thereto in accordance with U.S. GAAP.

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Fortress Portfolio Acquisition
On July 24, 2013, ARC and another related entity, on our behalf and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with affiliates of funds managed by Fortress Investment Group LLC ("Fortress") for the purchase and sale of 196 properties owned by Fortress for an aggregate contract purchase price of approximately $972.5 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which were allocated to us based on the pro rata fair value of the properties acquired by us relative to the fair value of all 196 properties to be acquired from Fortress. Of the 196 properties, 120 properties were allocated to us (the "Fortress Portfolio"). On October 1, 2013, we closed on 41 of the 120 properties with a total purchase price of $200.3 million, exclusive of closing costs. We closed the acquisition of the remaining 79 properties in the Fortress Portfolio on January 8, 2014, for an aggregate contract purchase price of $400.9 million, exclusive of closing costs. The total purchase price of the Fortress Portfolio was $601.2 million, exclusive of closing costs. During the year ended December 31, 2013, we deposited $72.2 million into escrow in relation to the Fortress Portfolio, which has been included in prepaid expenses and other assets in the consolidated balance sheets.
Cole Real Estate Investments, Inc. Merger
On October 22, 2013, we entered into the Cole Merger Agreement with Cole and a wholly owned subsidiaries of ours. The Cole Merger Agreement provided for the merger of Cole with and into a wholly owned subsidiary of ours. We consummated the Cole Merger on February 7, 2014.
Pursuant to the terms of the Cole Merger Agreement, each share of common stock, par value $0.01 per share, of Cole issued and outstanding on February 7, 2014, other than shares owned by us, any subsidiary of ours or any wholly owned subsidiary of Cole, was converted into the right to receive either (i) 1.0929 shares of our common stock, par value $0.01 per share (the “Stock Consideration”) or (ii) $13.82 in cash (the “Cash Consideration” and together with the Stock Consideration, the “Merger Consideration”). Approximately 98% of all outstanding Cole holders received Stock Consideration and approximately 2% of outstanding Cole shares made valid elections to receive Cash Consideration, pursuant to the terms of the Cole Merger Agreement.
In addition, as provided by the Cole Merger Agreement, all outstanding restricted stock units and performance share units held immediately prior to the consummation of the Cole Merger became fully vested and were entitled to receive the Merger Consideration, in each case, in accordance with the cash or stock elections made by the holders thereof.
Excluding stock and cash consideration issued to certain Cole executives, we issued approximately 508.0 million shares of our common stock as Stock Consideration and and paid $147.9 million as cash consideration to holders of Cole shares based on their elections.
In addition, we issued approximately 15.9 million shares of our common stock, in the aggregate, and $33.9 million in cash, in the aggregate, to certain executives of Cole pursuant to letter agreements entered into between us and such individuals concurrently with the execution of the Cole Merger Agreement, as previously disclosed.
On the Cole Acquisition Date, the fair value of the considerations transferred totaled $7.5 billion, which consisted of the following:
Fair value of consideration transferred:
 
 
Cash
 
$
147,867

Common stock
 
7,107,270

Executive consideration - cash
 
33,907

Executive consideration - common stock
 
222,287

Total
 
$
7,511,331

The fair value of the 523.9 million common shares issued, including those transferred for executive considerations, was determined based on the closing market price of our common stock on the Cole Acquisition Date.
Accounting Treatment for the Cole Merger
The Cole Merger will be accounted for under the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Cole will be recorded as of the acquisition date at their respective fair values. Any excess of purchase price over the fair values will be recorded as goodwill. Results of operations for Cole will be included in our consolidated financial statements from the date of acquisition. The initial accounting for the business combination has not been completed on the date this annual report on Form 10-K has been issued due to the significant judgments and the time necessary to complete third-party valuation of real estate and other assets.

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Inland Portfolio Acquisition
On August 8, 2013, ARC entered into a purchase and sale agreement with Inland American Real Estate Trust, Inc. ("Inland") for the purchase and sale of the equity interests of 67 companies owned by Inland for an aggregate contract purchase price of approximately $2.3 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. Of the 67 companies, the equity interests of 10 companies (the "Inland Portfolio") will be acquired, in total, by the Company from Inland for a purchase price of approximately $501.0 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to the Company based on the pro rata fair value of the Inland Portfolio relative to the fair value of all 67 companies to be acquired from Inland by the Company and the other entities sponsored directly or indirectly by ARC. The Inland Portfolio is comprised of 33 properties. As of December 31, 2013, the Company has closed on five of the 33 properties for a total purchase price of $56.4 million, exclusive of closing costs. The Company closed the acquisition of the 23 additional properties in the Inland Portfolio on February 21, 2014, for an aggregate contract purchase price of $211.0 million, exclusive of closing costs. The remaining five properties are expected to close in the first half of 2014. During the year ended December 31, 2013, the Company deposited $28.6 million into escrow in relation to the Inland Portfolio, which has been included in prepaid expenses and other assets in the consolidated balance sheets.
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 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 include:
Revenue Recognition
Upon the acquisition of real estate, certain properties will have leases where minimum rent payments increase during the term of the lease. We will record rental revenue for the full term of each lease on a straight-line basis. When we acquire a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. Cost recoveries from tenants are included in tenant reimbursement income in the period the related costs are incurred, as applicable.
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many of the leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, 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.
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 the allowance for uncollectible accounts or record a direct write-off of the receivable in the consolidated statements of operations and comprehensive loss. As of December 31, 2013 and 2012, we determined that no allowance for uncollectible accounts was necessary.
Real Estate Investments
We record acquired real estate at cost and make assessments as to the useful lives of depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful life of 40 years for buildings, five to 15 years for building fixtures and improvements and the remaining lease term for acquired intangible lease assets.
Allocation of Purchase Price of Business Combinations and Acquired Assets
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination. If the transaction is determined to be a business combination, we determine if the transaction is considered to be between entities under common control. The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the merger date. All other business combinations are accounted for by applying the acquisition method of accounting. Under the acquisition method, we recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity. In addition, we evaluate the existence of goodwill or a gain from a bargain purchase. We will immediately expense acquisition-related costs and fees associated with business combinations and asset acquisitions.

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We allocate the purchase price of acquired properties and business combinations accounted for under the acquisition method of accounting to tangible and identifiable intangible assets acquired based on their respective fair values to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, buildings, equipment and tenant improvements on an as-if vacant basis. We utilize various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships.
Amounts allocated to land, buildings, equipment and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in its portfolio.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which typically ranges from six to 18 months. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values are amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, we initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined 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.
The fair value of investments and debt are valued using techniques consistent with those disclosed in Note 9 — Fair Value of Financial Instruments, depending on the nature of the investment or debt. The fair value of all other assumed assets and liabilities based on the best information available.
The aggregate value of intangibles assets related to customer relationships is measured based on our evaluation of the specific characteristics of each tenant's lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases, which range primarily from two to 20 years. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of its pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Derivative Instruments
We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. Certain of the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.

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We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If we elect not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in gains (losses) on derivative instruments in the consolidated statements of operations and comprehensive loss. If the derivative is designated and qualifies for hedge accounting treatment the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are described in Note 3 — Summary of Significant Accounting Policies.
Results of Operations
As of December 31, 2013, we owned 1,329 properties with an aggregate original base purchase price of $5.2 billion, excluding one vacant property classified as held for sale. As of December 31, 2013, the properties comprised 34.2 million square feet and were 98.1% leased. As of December 31, 2012, we owned 653 properties with an aggregate original base purchase price of $1.8 billion, excluding one vacant property that was classified as held for sale. As of December 31, 2012, the properties comprised 15.4 million square feet and were 100% leased. Accordingly, our results of operations for the year ended December 31, 2013 as compared to the year ended December 31, 2012 reflect significant increases in most categories.
Comparison of the year ended December 31, 2013 to year ended December 31, 2012
Rental Income
Rental income increased $158.9 million to $223.7 million for the year ended December 31, 2013 compared to $64.8 million for the year ended December 31, 2012. Rental income was driven by our acquisition of 638 properties, which excludes 38 properties that are accounted for as direct financing leases, acquired during the year ended December 31, 2013 for an aggregate purchase price of $3.4 billion. The annualized rental income per square foot of the properties at December 31, 2013 was $11,554.46 with a weighted average remaining lease term of 8.5 years, compared to $9.4 per square foot at December 31, 2012.
Our properties are generally leased from two to 20 years and 54% are leased to investment grade tenants and affiliates of investment grade tenants, as determined by major credit rating agencies. All properties were 100% leased in both periods, with the exception of one vacant property classified as held for sale at December 31, 2013 and 2012. During the years ended December 31, 2013 and 2012, we experienced no property vacancies, tenant turnover or lease renegotiations. Cash same store rents on the 129 properties held for the full period in each of the years ended December 31, 2013 and 2012 increased $0.2 million, or 1.3%, to $16.2 million compared to $16.0 million for the years ended December 31, 2013 and 2012, respectively. Same store annualized average rental income per square foot was $11.37 at December 31, 2013 compared to $11.23 at December 31, 2012.
Direct Financing Lease Income
Direct financing lease income of $1.7 million was recognized for the year ended December 31, 2013. Direct financing lease income was primarily driven by our 2013 acquisition of 38 properties comprised of $55.1 million of net investments subject to direct financing leases during the second quarter of 2013.
Operating Expense Reimbursements
Operating expense reimbursements increased by approximately $13.1 million to $15.1 million for the year ended December 31, 2013 compared to $2.0 million for the year ended December 31, 2012. Operating expense reimbursements represent reimbursements for taxes, property maintenance and other charges contractually due from the tenant per their respective leases. Operating expense reimbursements were driven by our acquisition of 714 properties since December 31, 2012.

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Acquisition Related Costs
Acquisition related costs decreased by approximately $19.5 million to $23.3 million for the year ended December 31, 2013 compared to $42.8 million for the year ended December 31, 2012. Acquisition costs mainly consisted of legal costs, deed transfer costs and other costs related to real estate purchase transactions. The decrease in acquisition costs was mainly due to the agreement with our Former Manager in conjunction with the ARCT III Merger, where it was agreed that our Former Manager would no longer charge acquisition fees. Subsequent to December 31, 2013, the management agreement was terminated as a result of our transition to self-management. See Note 23 — Subsequent Events for further discussion.
Merger and Other Transaction Related Costs
Costs related to various mergers, as well as other transaction costs increased by approximately $254.1 million to $256.7 million for the year ended December 31, 2013 compared to $2.6 million for the year ended December 31, 2012. Upon the consummation of the ARCT III Merger, an affiliate of ARCT III received a subordinated incentive distribution upon the attainment of certain performance hurdles. For the year ended December 31, 2013, $98.4 million was recorded for this fee. We issued 7.3 million OP Units to the affiliate as compensation for this fee. In addition, these costs consisted of professional fees, printing fees, proxy services, debt assumption fees and other costs associated with entering into and completing the mergers. During the year ended December 31, 2013, we recorded one-time equity-based compensation totaling $64.3 million relating to accelerating vesting of equity units for merger and other transactions.
Property Operating Expenses
Property expenses increased by approximately $16.4 million to $19.9 million for the year ended December 31, 2013 compared to $3.5 million for the year ended December 31, 2012. These costs relate to expenses associated with maintaining certain properties, including real estate taxes, ground lease rent, insurance and repairs and maintenance expenses. The increase in property expenses are mainly due to our acquisition of properties with modified gross leases subsequent to December 31, 2012, and an increased number of properties for which we pay expenses, which are reimbursed by the tenant.
Operating Fees to Affiliate
Prior to the consummation of the ARCT III Merger, we paid our Former Manager an annual base management fee equal to 0.50% per annum of the average unadjusted book value of our real estate assets, calculated and payable monthly in advance, provided that the full amount of the distributions we have declared for the six immediately preceding months is equal to or greater than certain net income thresholds related to our operations. Subsequent to the consummation of the ARCT III Merger, we paid our Former Manager an annual base management fee equal to 0.50% per annum for up to $3.0 billion of unadjusted book value of assets and 0.40% of unadjusted book value of assets greater than $3.0 billion. For the years ended December 31, 2013 and 2012, our Former Manager waived base management fees earned of $6.1 million and $1.8 million, respectively.
We may have been required to pay our Former Manager a quarterly incentive fee, equal to the difference between (1) the product of (a) 20% and (b) the excess our annualized core earnings (as defined in the management agreement with our Former Manager) over the product of (i) the weighted average number of shares multiplied by the weighted average issuance price per share of common stock (ii) 8% and (2) the sum of any incentive compensation paid to the our Former Manager with respect to the first three calendar quarters of the previous 12-month period. One half of each quarterly installment of the incentive fee may have been payable in shares of common stock. The remainder of the incentive fee may have been payable in cash. No incentive fees were earned for the years ended December 31, 2013 and 2012, respectively. Subsequent to December 31, 2013, the management agreement was terminated as a result of our transition to self-management. See Note 23 — Subsequent Events for further discussion.
Operating fees to affiliate increased by $5.5 million to $5.7 million for the year ended December 31, 2013 compared to $0.2 million for the year ended December 31, 2012. The increase was the result of decisions by the Former Manager to not waive base management fees of $5.7 million million in 2012, whereas the Former Manager waived all but $0.2 million in 2012.
General and Administrative Expenses
General and administrative expenses increased by $2.8 million to $6.7 million for the year ended December 31, 2013 compared to $3.9 million for the year ended December 31, 2012. General and administrative expenses primarily included board member compensation, professional fees such as legal fees, accountant fees, financial printer services fees and insurance expense and salary-related expenses.
Equity-Based Compensation Expenses
Equity-based compensation expense was $34.9 million for the year ended December 31, 2013. Equity-based compensation expenses primarily included expenses for the OPP, which was entered into upon consummation of the ARCT III Merger, as well as the amortization of restricted stock. Equity-based compensation expense was $1.2 million for the year ended December 31, 2012, which related to the amortization of restricted stock.

70

Depreciation and Amortization Expense
Depreciation and amortization expense increased by $116.3 million to $157.0 million for the year ended December 31, 2013 compared to $40.7 million for the year ended December 31, 2012. The increase in depreciation and amortization expense was driven by our acquisition of 714 properties since December 31, 2012 for an aggregate purchase price of $3.4 billion.
Interest Expense
Interest expense increased by approximately $68.9 million to $80.8 million for the year ended December 31, 2013 compared to $11.9 million for the year ended December 31, 2012. The increase in interest expense was due to increases in debt balances used to fund portfolio acquisitions, partially offset by a decrease in the average annualized interest rate on borrowings. The average debt balances for the years ended December 31, 2013 and 2012 were $1.0 billion and $205.1 million, respectively. Additionally, the we recorded $24.6 million in interest related expenses for Series C Preferred Stock during the year ended December 31, 2013. The average annualized interest rate on all debt, including the effect of derivative instruments used to hedge the effects of interest rate volatility but excluding amortization of deferred financing costs and non-usage fees, for the years ended December 31, 2013 and 2012 was 3.79% and 4.16%, respectively.
Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the level of proceeds raised in offerings, our credit rating, the cost of borrowings, and the opportunity to acquire real estate assets which meet our investment objectives.
Other Income, Net
Other income increased by approximately $0.1 million to $0.6 million for the year ended December 31, 2013 compared to other income of $0.4 million for the year ended December 31, 2012. The increase is primarily due to investment income on certain assets acquired from CapLease during the fourth quarter of the year ended December 31, 2013.
Loss on Derivative Instruments, Net
Loss on the fair value of derivative instruments for the year ended December 31, 2013 was $67.9 million, which primarily consisted of a loss on contingent value rights. The loss pertains to the fair value of our obligation to pay certain preferred and common stockholders for the difference between the value of our shares on certain measurement dates and the value of the shares at the time of issuance as set forth by the contingent value rights agreement. The obligations were settled in full on during the year ended December 31, 2013. The loss was partially offset by a gain on derivative instruments resulting from marking our derivative instruments to fair value. No gain or loss on derivative instruments was recorded during the year ended December 31, 2012.
Loss on Sale of Investment in Affiliates
Loss on sale of investment in affiliates for the year ended December 31, 2013 was $0.4 million resulting from the sale of our investment in real estate funds sponsored by AR Capital purchased during the year ended December 31, 2013. No loss on the sale of investment in such funds was recorded during the year ended December 31, 2012.
Gain on Sale of Investments
Gain on the sale of investment securities for the year ended December 31, 2013 was $0.5 million resulting from the sale of all outstanding debt and equity securities held. Gain on the sale of investment securities for the year ended December 31, 2012 was $0.5 million, resulting from the sale of preferred debt and equity securities held.
Net Loss from Discontinued Operations
Net loss from discontinued operations decreased by approximately $0.7 million to a net loss of $20.0 thousand for the year ended December 31, 2013 compared to net loss of $0.7 million for the year ended December 31, 2012. As of the years ended December 31, 2013 and 2012, we classified one and two properties, respectively, as held for sale on the consolidated balance sheets and reported in discontinued operations on the consolidated statements of operations and comprehensive loss. The property held as of December 31, 2013 was vacant and was not encumbered, resulting in a decreased net loss for the year ended December 31, 2013.
Comparison of the Year Ended December 31, 2012 to Year Ended December 31, 2011
Rental Income
Rental income increased by $61.0 million to $64.8 million for the year ended December 31, 2012 compared to $3.8 million for the year ended December 31, 2011. Rental income was driven by our acquisition of 524 properties during the year ended December 31, 2012 for an aggregate purchase price of $1.6 billion, as well as revenue for a full year from the 129 properties held as of December 31, 2011. The annualized rental income per square foot of the properties at December 31, 2012 was $9.4 with a weighted average remaining lease term of 10.7 years, compared to $11.59 per square foot at December 31, 2011. There were no properties held for for the full period in each of the years ended December 31, 2012 and 2011.

71

Operating Expense Reimbursements
Operating expense reimbursements increased by approximately $1.8 million to $2.0 million for the year ended December 31, 2012 compared to $0.2 million for the year ended December 31, 2011. Operating expense reimbursements represent reimbursements for taxes, property maintenance and other charges contractually due from the tenant per their respective leases. Operating expense reimbursements were driven by our acquisition of 524 properties during the year ended December 31, 2012 as well as reimbursements for a full year from the 129 properties held as of December 31, 2011.
Acquisition Related Costs
Acquisition related costs increased by approximately $38.9 million to $42.8 million for the year ended December 31, 2012 compared to $3.9 million for the year ended December 31, 2011. Acquisition and related costs represent the costs related to the acquisition of properties. Acquisition costs mainly consisted of legal costs, deed transfer costs and other costs related to real estate purchase transactions.
Merger and Other Transaction Related Costs
During the year ended December 31, 2012, costs related to the merger with ARCT III announced in December 2012 and other transaction costs were $2.6 million. These costs primarily consisted of legal fees, accountants fees and other costs associated with entering into the Merger Agreement.
Property Expenses
Property expenses increased by approximately $3.3 million to $3.5 million for the year ended December 31, 2012 compared to $0.2 million for the year ended December 31, 2011. These costs relate to expenses associated with maintaining certain properties, including real estate taxes, ground lease rent, insurance and repairs and maintenance expenses. The increase in property expenses are mainly due to our acquisition of properties with modified gross leases during the year ended December 31, 2012 and an increased number of properties for which we pay expenses, which are reimbursed by the tenant.
Operating Fees to Affiliate
We paid our Former Manager an annual base management fee equal to 0.50% per annum of the average unadjusted book value of our real estate assets, calculated and payable monthly in advance, provided that the full amount of the distributions we have declared for the six immediately preceding months is equal to or greater than certain net income thresholds related to our operations. Our Former Manager waived such portion of its management fee in excess of such thresholds. For the years ended December 31, 2012 and 2011, our Former Manager waived base management fees earned of $1.8 million and $0.3 million, respectively.
We were required to pay our Former Manager a quarterly incentive fee, calculated based on 20% of the excess our annualized core earnings (as defined in the management agreement with our Former Manager) over the weighted average number of shares multiplied by the weighted average price per share of common stock. One half of each quarterly installment of the incentive fee would be payable in shares of common stock. The remainder of the incentive fee would be payable in cash. No incentive fees were earned for the years ended December 31, 2012 and 2011, respectively.
Operating fees to affiliate were $0.2 million for the year ended December 31, 2012, compared to no such fees for the year ended December 31, 2011, which was the result of decisions by the Former Manager to not waive base management fees of $0.2 million in 2012 whereas the Former Manager waived all fees in 2011.
General and Administrative Expenses
General and administrative expenses increased by $3.2 million to $3.9 million for the year ended December 31, 2012 compared to $0.7 million for the year ended December 31, 2011. General and administrative expenses primarily included board member compensation, professional fees such as legal fees, accountant fees and financial printer services fees, and insurance expense.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $38.6 million to $40.7 million for the year ended December 31, 2012 compared to $2.1 million for the year ended December 31, 2011. The increase in depreciation and amortization expense was driven by our acquisition of 524 properties during the year ended December 31, 2012 for an aggregate purchase price of $1.6 billion as well as depreciation and amortization expense for a full year from the 129 properties held as of December 31, 2011.

72

Interest Expense
Interest expense increased by approximately $10.9 million to $11.9 million for the year ended December 31, 2012 compared to $1.0 million for the year ended December 31, 2011. The increase primarily related to the increase in debt balances used to fund portfolio acquisitions as our our credit facility increased by $82.2 million during the year ended December 31, 2012. Interest expense also related to outstanding mortgage notes payable, which increased $229.8 million during the year ended December 31, 2012, offset by a slightly lower interest rate during 2012 as compared to 2011.
Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the level of proceeds raised in offerings, our credit ratings, the cost of borrowings, and the opportunity to acquire real estate assets which meet our investment objectives.
Other Income, Net
Other income increased by approximately $0.4 million to $0.4 million for the year ended December 31, 2012 compared to $2,000 for the year ended December 31, 2011. The increase was primarily due to interest income on investment securities purchased during the year ended December 31, 2012.
Net Loss from Discontinued Operations
Net loss from discontinued operations decreased by approximately $0.2 million to $0.7 million for the year ended December 31, 2012 compared to $0.9 million for the year ended December 31, 2011. As of the year ended December 31, 2012 and 2011, we had one and two vacant properties, respectively, classified as held for sale on the consolidated balance sheets and reported in discontinued operations on the consolidated statements of operations and comprehensive loss. The net losses from discontinued operations during each year were primarily due to impairments on the held for sale properties representing the difference between the carrying value and estimated proceeds from the sale of the properties less estimated selling costs. On July 3, 2012, one of the properties was sold for $0.6 million of net proceeds.
Cash Flows for the year ended December 31, 2013
During the year ended December 31, 2013, net cash used in operating activities was $7.1 million. The level of cash flows used in or provided by operating activities is affected by acquisition and transaction costs, the timing of interest payments, as well as the receipt of scheduled rent payments. Cash flows provided by operating activities during the year ended December 31, 2013 was mainly due to adjusted net income of $95.7 million (net loss of $411.7 million adjusted for non-cash items, the most significant of which were the issuance of operating partnership units, depreciation and amortization expense, amortization of deferred financing costs and premiums and discounts on debt, equity-based compensation, and the loss on derivative instruments, which totaled to $316.1 million, in the aggregate). In addition, we incurred a one-time expense related to the loss in the extinguishment of Series C Convertible Preferred Stock ("Series C Stock") of $13.7 million. Other significant adjustments related to changes in assets and liabilities including an increase in accounts payable and accrued expenses of $77.5 million, an increase in deferred rent and other liabilities of $3.7 million as well as a increase in prepaid and other assets of $8.9 million.
Net cash used in investing activities for the year ended December 31, 2013 of $2.4 billion, primarily related to the investment in real estate assets and the CapLease Merger of $2.3 billion, investments in direct financing leases of $57.6 million, deposits for real estate investments of $101.1 million, and the purchase of investment securities of $12.1 million, partially offset by the proceeds from the sales of investment securities of $52.3 million.
Net cash provided by financing activities of $2.3 billion during the year ended December 31, 2013. This was primarily driven by the issuance of stock and debt during the year most notably proceeds net of repayments from our credit facilities of $1.0 billion, $672.2 million of proceeds net of offering-related costs from the issuance of common stock, proceeds from issuance of convertible obligations to Series C Stock, net of cash payment on the settlement of Series C Stock of $3.6 million, proceeds from the issuance of Series D Preferred Stock of $288.0 million and proceeds from issuance of convertible debt of $967.8 million. These inflows were partially offset by cash outflows, the most significant of which were common stock repurchases of $359.0 million, total distributions paid of $172.3 million, payments on mortgage notes and other debt of $15.1 million and consideration paid for assets of our Former Manager in excess of carryover basis of $5.7 million.

73

Cash Flows for the Year Ended December 31, 2012
During the year ended December 31, 2012, net cash provided by operating activities was $11.6 million. The level of cash flows used in or provided by operating activities is affected by acquisition and transaction costs, the timing of interest payments, as well as the receipt of scheduled rent payments. Cash flows provided by operating activities during the year ended December 31, 2012 was primarily due to an increase in adjusted net income of $5.0 million (net loss of $39.7 million adjusted for non-cash items, the most significant of which were depreciation and amortization expense, amortization of deferred financing costs, share based compensation, which totaled $44.7 million, in the aggregate). Other significant adjustments related to changes in assets and liabilities including an increase in deferred rent and other liabilities of $3.4 million and an increase in accounts payable and accrued expenses of $8.1 million, partially offset by an increase in prepaid and other assets of $4.9 million.
Net cash used in investing activities for the year ended December 31, 2012 of $1.6 billion, primarily related to an increase in investment in real estate assets paid for with cash of approximately $1.6 billion and the purchase of investment securities of $41.7 million.
Net cash provided by financing activities of $1.8 billion during the year ended December 31, 2012 primarily related cash inflows from the issuances of stock and debt, most notably $1.5 billion of proceeds net of offering-related costs from the issuance of common and preferred stock, proceeds from mortgage notes payable of $229.8 million and $82.2 million of proceeds from our credit facility. These inflows were partially offset by cash outflows, most notably by total distributions paid of $37.9 million and payments related to deferred financing costs of $14.0 million.

74

American Realty Capital Properties, Inc.
Unaudited Pro Forma Consolidated Balance Sheet

The following unaudited pro forma consolidated balance sheet is presented as if we had acquired the following on December 31, 2013: (i) ARCT IV; (ii) the 79 properties including in the Fortress Portfolio that were acquired on January 8, 2014; (ii) the remaining 28 properties included in the Inland Portfolio that were not acquired as of December 31, 2013; 23 of which were acquired on February 21, 2014; and (iv) Cole.

Until self-management, ARCP and ARCT IV were considered to be variable interest entities under common control. Both companies’ advisors were wholly owned subsidiaries of the companies' former sponsor, AR Capital, LLC. The sponsor and its related parties have ownership interests in ARCP through the ownership of shares of common stock and other equity interests. In addition, the former advisors of both companies was contractually eligible to charge significant fees for their services to both of the companies including asset management fees, fees for the arrangement of financing and incentive fees and other fees. Due to the significance of these fees, the advisors and ultimately the former sponsor are determined to have a significant economic interest in both companies in addition to having the power to direct the activities of the companies through the advisory agreements, which qualifies them as variable interest entities under common control in accordance with U.S. GAAP. The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the merger date. The ACRT IV Merger consummated on January 3, 2014.

ARCP will account for the Cole Merger using the acquisition method of accounting with ARCP treated as the acquirer of Cole for accounting purposes. Under acquisition accounting, the assets acquired and liabilities assumed will be recorded as of the acquisition date, at their respective fair value, and added to those of ARCP. Any excess of purchase price over the fair values will be recorded as goodwill. Consolidated financial statements of ARCP issued after the merger would reflect Cole’s such fair values after the completion of the merger, but will not be restated retroactively to reflect the historical consolidated financial position or results of operations of Cole. The Cole Merger consummated on February 7, 2014.

As of the date of this report, five of the Inland Portfolio properties had not been acquired by the Company. The Inland Portfolio is comprised of 33 properties. As of December 31, 2013, the Company has closed on five of the 33 properties. The Company closed the acquisition of the 23 additional properties in the Inland Portfolio on February 21, 2014. The remaining five properties are expected to close in the first half of 2014. The purchase and sale agreement includes provisions that allow us to exclude certain properties based on criteria related to issues with obtaining clear title to the property and obtaining satisfactory environmental reports among other provisions. Therefore, no assurance can be given that all 28 properties in the Inland Portfolio presented in the accompanying unaudited pro forma consolidated balance sheet or the unaudited pro forma consolidated statement of operations will be included in the final purchased portfolio. Although the closing of the remainder of the acquisition is subject to certain conditions, including the completion of due diligence, there can be no assurance that we will acquire any or all of the remaining five properties, however, we believe that the completion of such acquisitions is probable. The five properties that were part of the Inland Portfolio, and which were acquired on September 24, 2013, are included in the ARCP consolidated balance sheets as of December 31, 2013.

The mergers with ARCT IV and Cole and the acquisitions of Fortress Portfolio and Inland Portfolio are presented in the unaudited pro forma consolidated statements of operations for the year ended December 31, 2013 as if the properties had been acquired at the beginning of the period presented. In addition other significant mergers and acquisitions during the year ended December 31, 2013, including the ARCT III Merger, the CapLease Merger, and the acquisition of the GE Capital Portfolio, as well as other organic acquisitions, are presented in the unaudited pro forma Consolidated Statement of Operation for the year ended December 31, 2013 as if the properties had been acquired at the beginning of the period presented.

This financial statement should be read in conjunction with the unaudited pro forma consolidated statement of operations and our historical financial statements and notes thereto in this Annual Report on Form 10-K. The pro forma consolidated balance sheet is unaudited and is not necessarily indicative of what the actual financial position would have been had we acquired CapLease, ARCT IV, the Fortress Portfolio, the Inland Portfolio or Cole as of December 31, 2013, nor does it purport to present our future financial position.


75

American Realty Capital Properties, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
December 31, 2013
(In thousands)
 
ARCP Historical (1)
 
ARCT IV Historical (2)
 
ARCT IV Merger Related Adjustments (3)
 
ARCP with ARCT IV Pro Forma
 
Fortress Portfolio (4)
 
Inland Portfolio (5)
 
ARCP, ARCT IV, Fortress and Inland Pro Forma
 
Cole
Historical (6)
 
Cole Merger Related Adjustments (7)
 
ARCP Pro Forma
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate investments, at cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Land
 
$
786,542

 
$
554,377

 
$
—

 
$
1,340,919

 
$
59,415

(14)
$
72,612

(14)
$
1,472,946

 
$
1,577,262

 
$
307,571

(14)
$
3,357,779

Buildings, fixtures and improvements
 
3,881,532

 
1,449,790

 
—

 
5,331,322

 
278,109

(14)
324,082

(14)
5,933,513

 
4,846,991

 
945,179

(14)
11,725,683

Construction in progress
 
21,839

 
—

 
—

 
21,839

 
—

 
—

 
21,839

 
—

 
—

 
21,839

Acquired intangible lease assets
 
536,250

 
220,499

 
—

 
756,749

 
67,565

(14)
59,933

(14)
884,247

 
1,037,596

 
202,335

(14)
2,124,178

Total real estate investments, at cost
 
5,226,163

 
2,224,666

 
—

 
7,450,829

 
405,089

 
456,627

 
8,312,545

 
7,461,849

 
1,455,085

 
17,229,479

Less: accumulated depreciation and amortization
 
(213,186
)
 
(56,497
)
 
—

 
(269,683
)
 
—

 
—

 
(269,683
)
 
(500,648
)
 
500,648

 
(269,683
)
Total real estate investments, net
 
5,012,977

 
2,168,169

 
—

 
7,181,146

 
405,089

 
456,627

 
8,042,862

 
6,961,201

 
1,955,733

 
16,959,796

Cash and cash equivalents
 
36,738

 
22,425

 
—

 
59,163

 
—

 
—

 
59,163

 
206,672

 
—

 
265,835

Investment in direct financing leases, net
 
55,079

 
14,527

 
—

 
69,606

 
—

 
—

 
69,606

 
—

 
—

 
69,606

Investment securities, at fair value
 
62,067

 
—

 
—

 
62,067

 
—

 
—

 
62,067

 
279,063

 
—

 
341,130

Investments in unconsolidated entities
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
91,242

 
—

 
91,242

Derivatives, at fair value
 
9,152

 
37

 
—

 
9,189

 
—

 
—

 
9,189

 
2,116

 
—

 
11,305

Loans held for investment, net
 
26,279

 
—

 
—

 
26,279

 
—

 
—

 
26,279

 
65,169

 
6,834

(17)
98,282

Restricted cash
 
29,483

 
—

 
—

 
29,483

 
—

 
—

 
29,483

 
18,810

 
—

 
48,293

Leasehold improvements and property and equipment, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
20,674

 
—

 
20,674

Prepaid expenses and other assets
 
175,327

 
12,603

 
949

(8)
188,879

 
—

 
—

 
188,879

 
168,950

 
(92,880
)
(18)
264,949

Deferred costs, net
 
80,625

 
686

 
9,920

(9)
91,231

 
—

 
—

 
91,231

 
55,451

 
(55,451
)
(19)
91,231

Assets held for sale
 
679

 
—

 
—

 
679

 
—

 
—

 
679

 
—

 
—

 
679

Goodwill and other intangible assets
 
89,875

 
—

 
—

 
89,875

 
—

 
—

 
89,875

 
328,729

 
1,839,293

(20)
2,257,897

        Total Assets
 
$
5,578,281

 
$
2,218,447

 
$
10,869

 
$
7,807,597

 
$
405,089

 
$
456,627

 
$
8,669,313

 
$
8,198,077

 
$
3,653,529

 
$
20,520,919

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

76

(In thousands)
 
ARCP Historical (1)
 
ARCT IV Historical (2)
 
ARCT IV Merger Related Adjustments (3)
 
ARCP with ARCT IV Pro Forma
 
Fortress Portfolio (4)
 
Inland Portfolio (5)
 
ARCP, ARCT IV, Fortress and Inland Pro Forma
 
Cole
Historical (6)
 
Cole Merger Related Adjustments (7)
 
ARCP Pro Forma
Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
 
$
1,298,990

 
$
2,124

 
$
669,336

(9)
$
1,970,450

 
$
111,603

(15)
319,676

(15)
2,401,729

 
2,637,691

 
25,274

(19)
5,064,694

Convertible debt
 
972,490

 
—

 
—

 
972,490

 
—

 
—

 
972,490

 
—

 
—

 
972,490

Secured credit agreements
 
150,000

 
760,000

 
(760,000
)
(10)
150,000

 
—

 
—

 
150,000

 
—

 
—

 
150,000

Senior corporate credit facility
 
1,059,800

 
—

 
806,388

(10)
1,866,188

 
300,185

(16)
145,744

(16)
2,312,117

 
—

 
(923,054
)
(21)
1,389,063

Credit facilities of acquired companies
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,272,000

 
(1,272,000
)
(21)
—

Other long-term debt
 
104,804

 
—

 
—

 
104,804

 
—

 
—

 
104,804

 
100,057

 
2,534,700

(21)
2,739,561

Contingent considerations
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
283,606

 
(283,606
)
(22)
—

Below-market lease liability, net
 
60,729

 
9,245

 
—

 
69,974

 
—

 
—

 
69,974

 
117,292

 
—

 
187,266

Derivatives, at fair value
 
18,387

 
68

 
—

 
18,455

 
—

 
—

 
18,455

 
16,451

 
—

 
34,906

Accounts payable, accrued expenses and other liabilities
 
134,601

 
24,294

 
—

 
158,895

 
—

 
—

 
158,895

 
75,101

 
—

 
233,996

Deferred rent and other liabilities
 
16,874

 
3,532

 
—

 
20,406

 
—

 
—

 
20,406

 
34,814

 
—

 
55,220

Distributions payable
 
141

 
10,137

 
—

 
10,278

 
—

 
—

 
10,278

 
29,546

 
—

 
39,824

        Total liabilities
 
3,816,816

 
809,400

 
715,724

 
5,341,940

 
411,788

 
465,420

 
6,219,148

 
4,566,558

 
81,314

 
10,867,020

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series D preferred stock
 
269,299

 
—

 
—

 
269,299

 
—

 
—

 
269,299

 
—

 
—

 
269,299

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
—

 
—

 
429

(11)
429

 
—

 
—

 
429

 
—

 
—

 
429

Common stock
 
2,023

 
711

 
(336
)
(11)
2,398

 
—

 
—

 
2,398

 
4,693

 
562

(23)
7,653

Additional paid-in capital
 
2,034,301

 
1,555,964

 
(651,047
)
(11)
2,939,218

 
—

 
—

 
2,939,218

 
4,196,952

 
3,148,983

(24)
10,285,153

Accumulated other comprehensive income (loss)
 
7,697

 
(31
)
 
—

 
7,666

 
—

 
—

 
7,666

 
28,287

 
(28,287
)
(25)
7,666

Accumulated deficit
 
(692,449
)
 
(186,069
)
 
(155,841
)
(12)
(1,034,359
)
 
(6,699
)
(12)
(8,793
)
(12)
(1,049,851
)
 
(614,725
)
 
450,957

(26)
(1,213,619
)
 Total stockholders equity
 
1,351,572

 
1,370,575

 
(806,795
)
 
1,915,352

 
(6,699
)
 
(8,793
)
 
1,899,860

 
3,615,207

 
3,572,215

 
9,087,282

Non-controlling interests
 
140,594

 
38,472

 
101,940

(13)
281,006

 
—

 
—

 
281,006

 
16,312

 
—

 
297,318

        Total equity
 
1,492,166

 
1,409,047

 
(704,855
)
 
2,196,358

 
(6,699
)
 
(8,793
)
 
2,180,866

 
3,631,519

 
3,572,215

 
9,384,600

Total liabilities and equity
 
$
5,578,281

 
$
2,218,447

 
$
10,869

 
$
7,807,597

 
$
405,089

 
$
456,627

 
$
8,669,313

 
$
8,198,077

 
$
3,653,529

 
$
20,520,919



77

American Realty Capital Properties, Inc.
Notes to Unaudited Pro Forma Consolidated Balance Sheet
December 31, 2013

(1)
Reflects the historical consolidated balance sheet of American Realty Capital Properties, Inc. for the period indicated.
(2)
Reflects the unaudited historical consolidated balance sheet of ARCT IV.
(3)
Adjustments and pro forma balance based on the purchase of all of the outstanding shares of ARCT IV’s common stock for (i) $9.00 to be paid in cash plus (ii) 0.5190 shares of our common stock, par value $0.01 per share and (iii) 0.5937 share of Series F Preferred Stock par value $0.01 per share, which occurred on January 3, 2014. As the acquisition of ARCT IV will be accounted for on the carryover basis, no adjustments have been made to the fair value of its assets and liabilities. Cash payments include ARCT IV Merger related costs of $44.9 million incurred in the ARCT IV Merger transaction including professional fees for investment banking, legal services and accounting and printing fees. These amounts were funded through a borrowing, which is further described in Note 10 to this unaudited pro forma consolidated balance sheet and through available cash.
(4)
Reflects the unaudited pro forma balance sheet of 79 properties from the Fortress Portfolio acquired on January 8, 2014.
(5)
Reflects the unaudited pro forma balance sheet of 28 properties from the Inland Portfolio, 23 of which were acquired on February 21, 2014.
(6)
Reflects the unaudited historical consolidated balance sheet of Cole.
(7)
Reflects pro forma adjustments to record the assets and liabilities of Cole at their fair values and the purchase of all outstanding Cole common stock as well as certain restricted stock units and performance share units outstanding and certain shares held in escrow for (i) $13.82 to be paid in cash, up to a maximum of 20% of Cole common stock outstanding or (ii) 1.0929 shares of our common stock, par value $0.01 per share. The pro forma adjustments reflect the stockholder election, which resulted in holders of approximately 2.24% of outstanding shares electing to receive cash and the remainder of the stockholders receiving stock. Cash payments include Cole Merger related costs of $163.8 million incurred in the Cole Merger transaction including professional fees for investment banking, legal services and accounting and printing fees. These amounts were funded through a borrowing, which is further described in Note 21 to this unaudited pro forma consolidated balance sheet and through available cash.
(8)
Reflects the purchase of assets with a cost basis of $0.9 million from the former external advisor.
(9)
Reflects the issuance of $669.4 million of mortgage notes at an average interest rate of 4.90% to partially fund the cash payment for the ARCT IV Merger. We deferred $9.9 million in financing costs related to the issuance of the mortgage notes.
(10)
Reflects the draw on our unsecured credit facility to partially fund the cash considerations of the ARCT IV Merger and the repayment the outstanding balance on the ARCT IV credit facility which was $760.0 million at December 31, 2013. We have commitments on our unsecured credit facility (including revolving and term loans) of $2.7 billion with an accordion feature of up to $3.0 billion, subject to borrowing base availability among other conditions.
(11)
Reflects the elimination of ARCT IV’s common stock capital balance of $0.7 million partially offset by the issuance of 37.5 million shares of common stock and the issuance of 42.9 million shares of Series F Preferred stock. Refer to Note 3 to this unaudited pro forma consolidated balance sheet for a description of the exchange of ARCT IV common stock for cash and our equity shares.
Cash of $9.00 per share for each outstanding share of ARCT IV
$
(650,954
)
Par value of ARCP shares exchanged for ARCT IV shares
(804
)
Elimination of ARCT IV common stock par value
711

 
$
(651,047
)

(12)
Reflects estimated costs of the respective merger or acquisition including professional fees for investment banking, legal services and accounting fees and, printing fees. For the ARCT IV Merger, amount includes costs of the issuance of operating partnership units described in Note 13 to this unaudited pro forma consolidated balance sheet.

78


(13)
Reflects the fair value of 0.5 million operating partnership units of ARCT IV that converted to 1.2 million operating partnership units of ARCP upon consummation of the ARCT IV Merger and the issuance of 6.8 million operating partnership units of ARCP in connection with the ARCT IV Merger and the portion of a $10.0 million payment to our formal external advisor relating to the reimbursement of certain expenses in relation to the ARCT IV Merger based on our asset purchase agreement.
(14)
We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. We utilize various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings, fixtures, and tenant improvements are based on cost segregation studies performed by independent third-parties or our analysis of comparable properties in its portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases. Depreciation is computed using the straight-line method over the estimated lives of forty years for buildings, fifteen years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as-if vacant. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which is estimated to be nine months. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. The value of in-place leases is amortized to expense over the initial term of the respective lease, which generally ranges from two to 25 years. If a tenant terminates its lease, the unamortized portion of the in-place lease value and intangible is charged to expense.
Above-market and below-market in-place lease values, if any, are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancellable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, we initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined 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 making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed. The allocations presented in the accompanying pro forma consolidated balance sheet are in progress. Certain items will be finalized once additional information is received. Accordingly, these allocations are subject to revision when final information is available, although we do not expect future revisions to have a significant impact on our financial position or results of operations.
(15)
Reflects the fair value of mortgage notes payable which we assumed upon the closing of the respective portfolio. For the Fortress Portfolio and the Inland Portfolio, the mortgage notes payable bare an annualized interest rate of 5.55% and between 5.90% and 6.34%, respectively.
(16)
Reflects the draw on our unsecured line of credit of $300.2 million and $145.8 million to fund the acquisition of the Fortress Portfolio’s assets and closing costs and the Inland Portfolio’s assets and closing costs, respectively.
(17)
Reflects an adjustment to the fair value for loans held for investment by Cole based upon discounted cash flows and estimates of current interest rates for loans with similar terms.
(18)
Reflects the elimination of the Cole’s existing straight-line rent adjustments.

79

(19)
Reflects an adjustment to the fair value of debt assumed from Cole based on discounted cash flows and estimates of current interest rates for similar debt instruments, and the write-off of the related unamortized balance of deferred financing costs incurred by Cole on the assumed debt.
(20)
Reflects preliminary adjustment to record $1.8 billion adjustment to goodwill and other intangible assets including intangibles for customer relationships. The new goodwill and intangible assets include intangibles related to the acquisition of Cole’s private capital management business that includes broker dealer activities, relationships and existing broker dealer contracts as well as asset management activities including contracts to manage other REITs day to day activities for fees. Amounts are preliminary and will be finalized once the purchase price allocation to the assets acquired and liabilities assumed is finalized.
(21)
Reflects the issuance of $2.55 billion in term debt at a weighted average interest rate of 2.84% net of deferred financing costs and issuance discounts to fund the cash payment for the Cole Merger, contingent considerations, and closing costs and to repay the outstanding balance on Cole’s existing credit facility which was $1.3 billion as of September 30, 2013. In addition, the funds will be used to paydown $0.9 million of our existing senior corporate credit facility at an assumed rate of 3.39%.
(22)
Reflects the required payout of certain obligations related to the merger of Cole Holding Corporation into Cole. Total payout of $280.0 million (excluding fair value adjustment of $3.6 million) will be paid to certain executive officers of Cole for certain obligations related to the merger of Cole Holdings Corporation into Cole as well as amounts due to executives related to the Cole Merger. The pro forma adjustment reflects the actual elections of the executives to receive $33.9 million of the considerations in cash and the remaining consideration paid through issuance of 16.2 million shares of our common stock.
(23)
Reflects the elimination of Cole’s common stock capital balance of $4.7 million, offset by an increase of $7.3 million for the par value of our common stock to be issued.
(24)
Reflects the elimination of Cole’s additional paid-in capital balance of $4.2 billion, offset by additional paid-in capital of $7.3 billion resulting from the issuance of 525.3 million shares of our common stock.
(25)
Reflects the elimination of Cole’s accumulated other comprehensive loss balance.
(26)
Reflects the elimination of Cole’s accumulated deficit of $614.7 million offset by $163.4 million of costs for the Cole Merger including professional fees for investment banking, legal services and accounting and printing fees.


80

American Realty Capital Properties, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 2013
(In thousands)
 
ARCP Historical (1)
 
Pro Forma Adjustments(2)
 
ARCP as Adjusted
 
ARCT IV Historical (3)
 
ARCT IV Pro Forma Adjustments(4)
 
ARCP as Adjusted with ARCT IV Pro Forma
 
Fortress Portfolio (5)
 
Inland Portfolio (6)
 
ARCP as Adjusted with ARCT IV, Fortress and Inland Pro Forma
 
Cole Historical (7)
 
Cole Merger Related Adjustments(8)
 
ARCP Pro Forma
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
223,701

 
$
164,199

(9)
$
387,900

 
$
86,138

 
$
72,773

(9)
$
546,811

 
$
30,215

(9)
$
39,576

(9)
$
616,602

 
$
565,337

 
$
39,560

(9)
$
1,221,499

Direct financing lease income
 
1,700

 
2,631

(9)
4,331

 
544

 
645

(9)
5,520

 
—

 
—

 
5,520

 
—

 
—

 
5,520

Operating expense reimbursements
 
15,095

 
—

 
15,095

 
2,700

 
—

 
17,795

 
—

 
2,933

 
20,728

 
56,794

 
—

 
77,522

Private capital management revenue
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
440,470

 
146,823

 
587,293

Other revenues
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
144

 
144

 
30,253

 
—

 
30,397

Total revenues
 
240,496

 
166,830

 
407,326

 
89,382

 
73,418

 
570,126

 
30,215

 
42,653

 
642,994

 
1,092,854

 
186,383

 
1,922,231

Operating expenses:
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
  
 
 
Acquisition related
 
23,295

 
(23,295
)
(10)
—

 
32,740

 
(32,740
)
(10)
—

 
—

 
—

 
—

 
4,655

 
(4,655
)
(10)
—

Merger and other transaction related
 
256,662

 
(256,662
)
(10)
—

 
53,429

 
(53,429
)
(10)
—

 
—

 
—

 
—

 
91,553

 
(91,553
)
(10)
—

Reallowed fees and commissions
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
254,413

 
—

 
254,413

Property operating
 
19,890

 
—

 
19,890

 
3,726

 
—

 
23,616

 
—

 
3,700

 
27,316

 
67,473

 
—

 
94,789

General and administrative
 
6,658

 
—

 
6,658

 
4,014

 
—

 
10,672

 
—

 
—

 
10,672

 
150,077

 
50,026

 
210,775

Equity-based compensation
 
34,935

 
—

 
34,935

 
—

 
—

 
34,935

 
—

 
—

 
34,935

 
36,792

 
(36,792
)
(11)
34,935

Depreciation and amortization
 
156,971

 
23,157

(12)
180,128

 
56,732

 
12,792

(12)
249,652

 
17,292

(12)
19,884

(12)
286,828

 
211,868

 
105,783

(12)
604,479

Operating fees to affiliates
 
5,654

 
18,251

(13)
23,905

 
—

 
8,899

(13)
32,804

 
1,620

(13)
1,827

(13)
36,251

 
15,334

 
11,417

(13)
63,002

Total operating expenses
 
504,065

 
(238,549
)
 
265,516

 
150,641

 
(64,478
)
 
351,679

 
18,912

 
25,411

 
396,002

 
832,165

 
34,226

 
1,262,393

Operating income (loss)
 
(263,569
)
 
405,379

 
141,810

 
(61,259
)
 
137,896

 
218,447

 
11,303

 
17,242

 
246,992

 
260,689

 
152,157

 
659,838

Other income (expenses):
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(80,800
)
 
(64,312
)
(14)
(145,112
)
 
(21,505
)
 
(35,362
)
(14)
(201,979
)
 
(16,370
)
(14)
(18,926
)
(14)
(237,275
)
 
(167,143
)
 
38

(14)
(404,380
)
Other income, net
 
569

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from investment securities
 
—

 
—

 
—

 
1,798

 
—

 
1,798

 
—

 
—

 
1,798

 
1,131

 
—

 
2,929

Loss on derivative instruments, net
 
(67,937
)
 
—

 
(67,937
)
 
—

 
—

 
(67,937
)
 
—

 
—

 
(67,937
)
 
(1,174
)
 
—

 
(69,111
)
Loss on sale of investments in affiliates
 
(411
)
 
—

 
(411
)
 
—

 
—

 
(411
)
 
—

 
—

 
(411
)
 
—

 
—

 
(411
)
Gain (loss) on sale of investments
 
451

 
—

 
451

 
(2,246
)
 
—

 
(1,795
)
 
—

 
—

 
(1,795
)
 
(1,331
)
 
—

 
(3,126
)
Total other expenses, net
 
(148,128
)
 
(64,312
)
 
(212,440
)
 
(21,482
)
 
(35,362
)
 
(269,284
)
 
(16,370
)
 
(18,926
)
 
(304,580
)
 
(182,793
)
 
38

 
(487,335
)
(Loss) income from continuing operations
 
(411,697
)
 
341,067

 
(70,630
)
 
(82,741
)
 
102,534

 
(50,837
)
 
(5,067
)
 
(1,684
)
 
(57,588
)
 
77,896

 
152,195

 
172,503


81

(In thousands)
 
ARCP Historical (1)
 
Pro Forma Adjustments(2)
 
ARCP as Adjusted
 
ARCT IV Historical (3)
 
ARCT IV Pro Forma Adjustments(4)
 
ARCP as Adjusted with ARCT IV Pro Forma
 
Fortress Portfolio (5)
 
Inland Portfolio (6)
 
ARCP as Adjusted with ARCT IV, Fortress and Inland Pro Forma
 
Cole Historical (7)
 
Cole Merger Related Adjustments(8)
 
ARCP Pro Forma
Net loss (income) from continuing operations attributable to non-controlling interests
 
5,211

 
(14,463
)
(15)
(9,252
)
 
504

 
12,206

(15)
3,458

 
345

(15)
115

(15)
3,918

 
(815
)
 
(6,864
)
(15)
(3,761
)
Net (loss) income from continuing operations attributable to stockholders
 
(406,486
)
 
326,604

 
(79,882
)
 
(82,237
)
 
114,740

 
(47,379
)
 
(4,722
)
 
(1,569
)
 
(53,670
)
 
77,081

 
145,331

 
168,742

Discontinued operations:
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
  
 
 
(Loss) income from operations of held for sale properties
 
(34
)
 
—

 
(34
)
 
—

 
—

 
(34
)
 
—

 
—

 
(34
)
 
4,882

 
—

 
4,848

Gain on held for sale properties
 
14

 
—

 
14

 
—

 
—

 
14

 
—

 
—

 
14

 
55,027

 
—

 
55,041

Net (loss) income from discontinued operations
 
(20
)
 
—

 
(20
)
 
—

 
—

 
(20
)
 
—

 
—

 
(20
)
 
59,909

 
—

 
59,889

Net income from discontinued operations attributable to non-controlling interests
 
1

 
—

 
1

 
—

 
—

 
1

 
—

 
—

 
1

 
—

 
—

 
1

Net (loss) income from discontinued operations attributable to stockholders
 
(19
)
 
—

 
(19
)
 
—

 
—

 
(19
)
 
—

 
—

 
(19
)
 
59,909

 
—

 
59,890

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss )income
 
(411,717
)
 
341,067

 
(70,650
)
 
(82,741
)
 
102,534

 
(50,857
)
 
(5,067
)
 
(1,684
)
 
(57,608
)
 
137,805

 
152,195

 
232,392

Net loss (income) attributable to non-controlling interests
 
5,212

 
(14,463
)
(15)
(9,251
)
 
504

 
12,206

(15)
3,459

 
345

(15)
115

(15)
3,919

 
(815
)
 
(6,864
)
(15)
(3,760
)
Net (loss) income attributable to stockholders
 
$
(406,505
)
 
$
326,604

 
$
(79,901
)
 
$
(82,237
)
 
$
114,740

 
$
(47,398
)
 
$
(4,722
)
 
$
(1,569
)
 
$
(53,689
)
 
$
136,990

 
$
145,331

 
$
228,632

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(2.35
)
 
 
 
$
(0.39
)
 
 
 
 
 
$
(0.20
)
 
 
 
 
 
$
(0.22
)
 
 
 
 
 
$
0.30

Fully diluted (16)
 
$
(2.35
)
 
 
 
$
(0.39
)
 
 
 
 
 
$
(0.20
)
 
 
 
 
 
$
(0.22
)
 
 
 
 
 
$
0.29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic (17)
 
178,412

 
26,742

 
205,154

 
37,538

 
 
 
242,692

 
 
 
 
 
242,692

 
 
 
525,460

 
768,152

Diluted (17)
 
202,619

 
33,202

 
235,821

 
37,538

 
 
 
273,359

 
 
 
 
 
273,359

 
 
 
525,460

 
798,819


82

American Realty Capital Properties, Inc.
Notes to Unaudited Pro Forma Consolidated Statement of Operations
December 31, 2013
(1)
Reflects the historical consolidated statements of operations of the Company for the period indicated.
(2)
Adjustments reflect the annualization of certain ARCP lease rental income, lease asset depreciation and amortization and interest expense on additional financing used for ARCP property acquisitions made in 2013 as if they were made at the beginning of the fiscal year presented and carried through the period presented.
(3)
Reflects the unaudited historical consolidated statements of operations of ARCT IV for the period indicated.
(4)
Adjustments reflect the annualization of certain ARCT IV lease rental income, depreciation and amortization expense and interest expense on additional financing used for ARCT IV’s property acquisitions made in 2013 as if they were made at the beginning the fiscal year presented and carried through the period presented.
(5)
Reflects the unaudited pro forma unaudited consolidated statements of operations of the Fortress Portfolio for the period indicated. Adjustments reflect the annualization of certain Fortress Portfolio lease rental income, depreciation and amortization and interest expense on financing arrangements as if the properties had been acquired as of the beginning of the fiscal year presented and carried through the period presented.
(6)
Reflects the unaudited pro forma unaudited consolidated statements of operations of the Inland Portfolio for the period indicated. Adjustments reflect the annualization of certain Inland Portfolio lease rental income, depreciation and amortization and interest expense on financing arrangements as if the properties had been acquired as of the beginning of the fiscal year presented and carried through the period presented.
(7)
Reflects the unaudited historical consolidated statements of operations of Cole for the period indicated.
(8)
Adjustments and pro forma balances reflect adjustments related our acquisition of Cole. Excludes closing costs of $163.4 million incurred for the Cole Merger, including professional fees for investment banking, legal services and accounting and printing fees.
(9)
Reflects an adjustment to rental income and direct financing lease income for each portfolio of properties as if the properties had been acquired at the beginning of each period.
(10)
Adjustment reflects the elimination of costs recorded for the acquisition and merger related costs incurred during the year ended December 31, 2013, as these costs are not ongoing costs of ours and are specifically related to the transactions presented in these pro forma financial statements.
(11)
Adjustment represents the elimination of the shares-based compensation for Cole’s equity compensation plan for outstanding restricted shares. As part of the Cole Merger agreement, all unamortized restricted shares will become fully vested and therefore this expense will no longer be recognized.
(12)
Adjustment reflects the depreciation and amortization expense that would have been recorded if each portfolio of properties had been acquired as of the beginning of each period based on the estimated fair values assigned to each asset class.
(13)
Adjustment reflects recognition of full contractual asset management fees due to our former affiliated external manager, as if we had owned the properties and the former external manager had charged these fees for the entirety of each period. Fees are 0.50% annually for average unadjusted book value of real estate assets up to $3.0 billion and 0.40% annually for assets in excess of $3.0 billion.
(14)
Adjustment reflects interest expense related to borrowings expected to be incurred on our unsecured credit facility at a 3.39% annual interest rate above and interest expense for any assumed mortgage notes on other long term debt assumed for each transaction. In the case of Cole, increases in interest expense are offset by the reduction in interest for the write-off of deferred financing costs of $10.1 million. The interest rate on our existing senior corporate credit facility is partially dependent on corporate leverage ratios and credit ratings.
(15)
Adjustment represents the allocation to ARCP’s non-controlling interests for the net effect of each respective merger and acquisition as well as adjustments related thereto based on the percentage of non-controlling interests ownership after each transaction.
(16)
When applicable, the diluted earnings per shares excludes shares that would be antidilutive.
(17)
Weighted average shares include the pro forma effect of certain transactions which occurred during the year-ended December 31, 2013 as if they occurred at the beginning of the year presented.

83

Liquidity and Capital Resources
In the normal course of business, our principal demands for funds will continue to be for property acquisitions, either directly or through investment interests, for the payment of operating expenses, distributions to our investors, and for the payment of principal and interest on our outstanding indebtedness. We expect to meet our future short-term operating liquidity requirements through net cash provided by our current property operations. Management expects that our properties will generate sufficient cash flow to cover all operating expenses and the payment of a monthly distribution. The majority of our net leases contain contractual rent escalations during the primary term of the lease. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from offerings, including our ATM program, proceeds from the sale of properties and undistributed funds from operations. With the stabilization of the investment portfolio, we expect to significantly increase the amount of cash flow generated from operating activities in future periods. Such increased cash flow will positively impact the amount of funds available for dividends.
As of December 31, 2013, we had $36.7 million of cash and cash equivalents.
Sources of Funds
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, Inc. (“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. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since 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 may be less informative. Historical accounting for real estate involves the use of U.S. 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 U.S. GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current U.S. GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under U.S. GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and AFFO measures and the adjustments to U.S. GAAP in calculating FFO and AFFO.
We consider FFO and AFFO useful indicators of the performance of a REIT. 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), they facilitate comparisons of operating performance between periods and between other REITs in our peer group. Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

84

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. While certain companies may experience significant acquisition activity, other companies may not have significant acquisition activity and management believes that excluding costs such as merger and transaction costs and acquisition related costs from property operating results provides useful information to investors and provides information that improves the comparability of operating results with other companies who do not have significant merger or acquisition activities. AFFO is not equivalent to our net income or loss as determined under GAAP, and AFFO may not be a useful measure of the impact of long-term operating performance if we continue to have such activities in the future.
We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments, gains or losses on contingent valuation rights, gains and losses on investments and early extinguishment of debt. In addition, by excluding non-cash income and expense items such as amortization of above and below market leases, amortization of deferred financing costs, straight-line rent and non-cash equity compensation from AFFO we believe we provide useful information regarding income and expense items which have no cash impact and do not provide us liquidity or require our capital resources. By providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our ongoing operating performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies that are not as involved in activities which are excluded from our calculation. 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 addition, we exclude certain interest expenses related to securities that are convertible to common stock as the shares are assumed to have converted to common stock in our calculation of weighted average common shares-fully diluted. As the Company’s convertible notes have a cash or stock settlement option and the Company has the ability and intent to settle its convertible notes in cash, the interest expense related to our convertible notes have not been excluded from AFFO, and accordingly, the shares are not assumed to have converted to common stock in our calculation of weighted average common shares-fully diluted.
In calculating AFFO, we exclude expenses, which under GAAP are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued merger and acquisition fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property and certain other expenses. Therefore, AFFO may not be an accurate indicator of our operating performance, especially during periods in which mergers are being consummated or properties are being acquired or certain other expenses are being incurred. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.
As a result, we believe that the use of FFO and AFFO, together with the required U.S. 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.

85

FFO and AFFO are non-GAAP financial measures and do not represent net income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as alternatives to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do and/or calculate AFFO differently than we do. Consequently, our presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.
The below table reflects the items deducted or added to net loss in our calculation of FFO and AFFO for the years ended December 31, 2013, 2012 and 2011 and on a pro forma basis for the year ended December 31, 2013 (amounts in thousands). Amounts are presented net of any non-controlling interest effect, where applicable.
 
 
Year Ended December 31,
 
ARCP Pro
 
 
2013
 
2012
 
2011
 
Forma
Net loss attributable to stockholders
 
$
(406,505
)
 
$
(39,399
)
 
$
(4,699
)
 
$
228,632

(Gain) loss on held for sale properties
 
(14
)
 
600

 
815

 
(55,041
)
Depreciation and amortization
 
156,971

 
40,700

 
2,111

 
604,479

FFO
 
(249,548
)
 
1,901

 
(1,773
)
 
778,070

Acquisition related
 
23,295

 
42,761

 
3,898

 
—

Merger and other transaction related
 
256,662

 
2,603

 
—

 
—

(Gain) loss on investment securities
 
(40
)
 
(534
)
 
—

 
3,537

Loss on derivative instruments, net
 
67,937

 
—

 
2

 
69,111

Interest on convertible obligation to preferred investors
 
10,802

 
—

 
—

 
—

Interest premiums and discounts on debt, net and settlement of convertible obligation to preferred investors
 
12,072

 
—

 
—

 
11,843

Amortization of above- and below-market lease assets and liabilities
 
(246
)
 
108

 
—

 
2,744

Amortization of deferred financing costs
 
11,183

 
1,985

 
186

 
16,473

Straight-line rent
 
(8,791
)
 
(2,145
)
 
(229
)
 
(65,947
)
Non-cash equity compensation expense
 
34,935

 
1,191

 
191

 
34,935

Operating fees to affiliate
 
5,654

 
212

 
—

 
$
63,002

AFFO
 
$
163,915

 
$
48,082

 
$
2,275

 
$
913,768

Capital Markets
The following are our equity offerings of common stock during the year ended December 31, 2013 (dollar amounts in millions):
Type of offering
 
Closing Date
 
Number of Shares (1)
 
Gross Proceeds
Registered follow-on offering
 
January 29, 2013
 
2,070,000

 
$
26.7

ATM
 
January 1 - September 30, 2013
 
553,300

 
8.9

Private placement offering
 
June 7, 2013
 
29,411,764

 
455.0

Private placement offering
 
November 11, 2013
 
15,126,498

 
186.0

Total - Year end December 31, 2013
 
 
 
47,161,562

 
$
676.6

_______________________________________________
(1) Excludes 140.7 million shares of common stock that were issued to the stockholders of ARCT III's common stock in conjunction with the ARCT III Merger.
On August 1, 2012, we filed a $500.0 million universal shelf registration statement and a resale registration statement with the SEC. Each registration statement became effective on August 17, 2012. As of December 31, 2013, we had issued 2.1 million shares of common stock through a registered follow on offering and an ATM offering under the $500.0 million universal shelf registration statement. No preferred stock, debt or equity-linked security had been issued under the universal shelf registration statement. The resale registration statement, as amended, registers the resale of up to 1,882,248 shares of common stock issued in connection with any future conversion of certain currently outstanding restricted shares, convertible preferred stock or limited partnership interests in the OP. As of December 31, 2013, no common stock had been issued under the resale registration statement.
On March 14, 2013, we filed a universal automatic shelf registration statement and achieved well-known seasoned issuer (“WKSI”) status. We intend to maintain both the $500.0 million universal shelf registration statement and the WKSI universal automatic shelf registration statement.

86

In January 2013, we commenced an “at the market” equity offering program (“ATM”) in which we may from time to time offer and sell shares of our common stock having an aggregate offering proceeds of up to $60.0 million. The shares will be issued pursuant to our $500.0 million universal shelf registration statement.
In addition to our common stock offerings, on June 7, 2013, we issued 28.4 million shares convertible preferred stock (the “Series C Shares”) for gross proceeds of $445.0 million. On November 8, 2013, we elected to convert all outstanding Series C Shares into our common stock. Pursuant to the Series C Articles Supplementary, the number of shares of common stock that could be issued upon conversion of Series C Shares was limited to an exchange cap. Therefore, we converted 1.1 million Series C Shares into 1.4 million shares of our common stock. With respect to the 27.3 million Series C Shares for which we could not issue shares of our common stock upon conversion due to the exchange cap, we paid holders of Series C Shares an aggregate cash amount equal to approximately $441.4 million in exchange for such Series C Shares. Based on our share price on the conversion date, the total settlement value was $458.8 million. See Note 11 — Other Debt in the consolidated financial statements for a description of the conversion features of the Series C Convertible Preferred Stock.
On September 15, 2013, we entered into definitive purchase agreements pursuant to which we agreed to issue Series D Preferred Stock, par value $0.01 per share, and common stock, par value $0.01 per share, to certain institutional holders promptly following the close of our merger with CapLease. Pursuant to the definitive purchase agreements, we issued approximately 21.7 million shares of Series D Preferred and 15.1 million shares of common stock, for gross proceeds of $288.0 million and $186.0 million, respectively, on November 8, 2013.
Upon consummation of the ARCT IV merger on January 3, 2014, 42.2 million shares of Series F Preferred Stock were issued to ARCT IV stockholders There were no shares issued and outstanding of Series F Preferred Stock as of December 31, 2013. See Note 16 — Preferred and Common Stock in the consolidated financial statements for a description of the Series D and Series F Preferred Stock.
Availability of Funds from Credit Facilities
We and our OP are parties to a credit facility with Wells Fargo, National Association , as administrative agent and other lenders party thereto (the “Credit Facility”).
At December 31, 2013, the Credit Facility has commitments of $2.42 billion. The Credit Facility has an accordion feature, which, if exercised in full, would allow us to increase borrowings under the Credit Facility to $3.0 billion, subject to additional lender commitments and borrowing base availability.
At December 31, 2013, the Credit Facility contains a $940.0 million term loan facility and a $1.5 billion revolving credit facility, of which $940.0 million and $1.48 billion was outstanding, respectively. Loans under the Credit Facility are priced at the applicable rate (at our election, either a floating interest rate based on one month LIBOR, determined on a daily basis, or LIBOR for a period of one, three or six months), plus 2.25% to 3.00%, decreasing to 1.60% to 2.20% upon the satisfaction of certain conditions set forth in the credit agreement relating to the credit facility), based upon our current leverage. To the extent that we receive an investment grade credit rating as determined by a major credit rating agency, and upon the satisfaction of certain other conditions set forth in the credit agreement relating to the Credit Facility, at our election, advances under the revolving credit facility will be priced at the applicable rate plus 0.90% to 1.75% and term loans will be priced at the applicable rate plus 1.15% to 2.00%, in each case, based upon our then current investment grade credit rating
The Credit Facility provides for monthly interest payments. Upon the occurrence of an event of default, the agent acting at the request or with the consent of lenders holding a majority of the loans and commitments under the Credit Facility, may declare the Credit Facility commitments to be terminated, and may accelerate the payment on any unpaid principal amount of all outstanding loans. We have guaranteed the obligations under the Credit Facility. The revolving credit facility will terminate on February 14, 2017 and the term loan facility will terminate on February 14, 2018, in each case, unless extended in accordance with the terms of the credit facility. At any time, upon timely notice by us, we may prepay borrowings under the credit facility. We incur an unused fee of 0.25% to 0.50% per annum on the unused amount of the revolving credit commitments, based on our usage of the revolving credit facility, which unused fee will decrease 0.12% to 0.35% per annum, based upon our then current investment grade credit rating, to the extent we have elected for the interest rate margin applicable to the outstanding advances under the credit facility to be governed by our credit rating as set forth above. To the extent that any delayed draw commitments remain undrawn, we will incur an unused fee of 0.25% per annum on the unused amount of such commitments. The Credit Facility also required us to maintain certain property available for collateral as a condition to funding, but this requirement was eliminated pursuant to an amendment effective February 7, 2014.

87

Principal Use of Funds
Acquisitions
Generally, cash needs for property acquisitions will be met through proceeds from the public or private offerings of debt and equity and other financings. We may also from time to time enter into other agreements with third parties whereby third parties will make equity investments in specific properties or groups of properties that we acquire.
We evaluate potential acquisitions of real estate and real estate-related assets and engages in negotiations with sellers and borrowers. Investors and stockholders 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 negotiation of final binding agreements. During this period, we may decide to temporarily invest any unused proceeds from equity offerings in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.
We financed the aggregate purchase prices of the recent mergers and acquisitions discussed in Note 2 —Mergers and Acquisitions in part through the assumption of outstanding indebtedness, and expect to finance the balance of the aggregate purchase prices through a combination of: (i) available cash on hand from (a) a portion of the $896.0 million in net proceeds from the sale of shares of ARCP common stock and convertible preferred stock in separate previously disclosed private placement transactions, which transactions were completed on June 7, 2013; (b) a portion of the $967.8 million in net proceeds from the sale of the Notes; (c) funds available from the issuance of common stock through our current at-the-market program or any successor program thereto; (d) financing available under our credit facility, and (e) additional alternative financing arrangements, as needed, from the issuance of additional common stock, preferred securities or other debt, equity or equity-linked financings.
Dividends
The amount of dividends payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, financial condition, capital expenditure requirements, as applicable, and annual dividend requirements needed to qualify and maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Operating cash flows are expected to increase as additional properties are acquired in our investment portfolio.
We and our board of directors share a similar philosophy with respect to paying our dividends. The dividends should principally be derived from cash flows generated from real estate operations. In order to improve our operating cash flows and our ability to pay dividends from operating cash flows, our Former Manager has in the past agreed to waive certain fees including asset management and incentive fees. Base asset management fees waived during the year ended December 31, 2013 were $6.1 million. Property management and leasing fees of $0.8 million were waived during the year ended December 31, 2013; there were no property management and leasing fees during the year ended December 31, 2013. The fees that were waived relating to the activity are not deferrals and accordingly, will not be paid. Because our Former Manager waived certain fees that we owed, cash flow from operations that would have been used to pay such fees to our Former Manager was available to pay dividends to our stockholders. See Note 18 — Related Party Transactions and Arrangements in the consolidated financial statements within this report for further information on fees paid to and forgiven by our Former Manager. Subsequent to December 31, 2013, we completed our transition to self-management and will no longer pay such fees to our Former Manager. See Note 23 — Subsequent Events for further discussion.
As of December 31, 2013, the management agreement with our Former Manager provided for payment of the asset management fee. Our management would waive such portion of its management fee that, when added to our AFFO, without regard to the waiver of the management fee, would have increase our AFFO so that it equals the dividends declared by us for the prior six months. For purposes of this determination, AFFO is FFO (as defined by NAREIT), adjusted to (i) include acquisition fees and related expenses which is deducted in computing FFO; (ii) include non-cash restricted stock grant amortization, if any, which is deducted in computing FFO; and (iii) include impairments of real estate related investments, if any (including properties, loans receivable and equity and debt investments) which are deducted in computing FFO. Our Former Manager determined if such fees were partially or fully waived in subsequent periods on a quarter-to-quarter basis. In connection with the consummation of the ARCT III Merger, we entered into an amended management agreement with our Former Manager by which the AFFO hurdle for the calculation of our asset management fee was eliminated and our management was paid an asset management fee in the amount of 0.50% of the average unadjusted book value of our real estate assets for up to $3.0 billion and 0.40% of the average unadjusted book value of our real assets greater than $3.0 billion. Subsequent to December 31, 2013, the management agreement was terminated as a result of our transition to self-management. See Note 23 — Subsequent Events for further discussion.
As our real estate portfolio matures, we expect cash flows from operations to cover our dividends.

88

The following table shows the sources for the payment of dividends to common stockholders for the year ended December 31, 2013 (dollars in thousands):
 
 
Three Months Ended
 
 
March 31, 2013
 
June 30, 2013
 
September 30, 2013
 
December 31, 2013
 
 
Dividends
 
% of
Dividends
 
Dividends
 
% of
Dividends
 
Dividends
 
% of
Dividends
 
Dividends
 
% of
Dividends
Dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions paid in cash
 
$
27,409

 
 
 
$
37,088

 
 
 
$
42,054

 
 
 
$
45,057

 
 
Distributions reinvested
 
4,895

 
 
 
—

 
 
 
—

 
 
 
—

 
 
 
 
$
32,304

 
 
 
$
37,088

 
 
 
$
42,054

 
 
 
$
45,057

 
 
Sources of dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operations (1)
 
$
—

 
—
%
 
$
5,674

 
15.3
%
 
$
16,294

 
38.7
%
 
$
—

 
—
%
Proceeds from financing activities
 
27,409

 
84.8
%
 
31,414

 
84.7
%
 
25,760

 
61.3
%
 
45,057

 
100.0
%
Common stock issued under the DRIP
 
4,895

 
15.2
%
 
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Total sources of dividends
 
$
32,304

 
100.0
%
 
$
37,088

 
100.0
%
 
$
42,054

 
100.0
%
 
$
45,057

 
100.0
%
Net loss attributable to stockholders (in accordance with U.S. GAAP)
 
$
(137,934
)
 
 
 
$
(51,679
)
 
 
 
$
(59,063
)
 
 
 
$
(162,324
)
 
 
____________________________________
(1)
Dividends paid from cash provided by operations are derived from cash flows from operations (U.S. GAAP basis) for the year ended December 31, 2013. Cash flows provided by operations include $23.3 million of acquisition related expenses and $256.7 million of merger and other transaction related expenses incurred during the year ended December 31, 2013. If we had not incurred such acquisition and merger related costs, our cash flows from operations would have sourced all dividend payments during the year ended December 31, 2013.
Loan Obligations
At December 31, 2013, our leverage ratio (net debt, excluding debt convertible to common stock, divided by enterprise value) was 57.7%.
The payment terms of our loan obligations vary. In general, only interest amounts are payable monthly with all unpaid principal and interest due at maturity. Some of our loan agreements stipulate that we comply with specific reporting and financial covenants mainly related to debt coverage ratios and loan to value ratios. Each loan that has these requirements has specific ratio thresholds that must be met. As of December 31, 2013 we were in compliance with the debt covenants under our loan agreements.
As of December 31, 2013, we had non-recourse mortgage indebtedness of $1.3 billion which was collateralized by 175 properties. Our mortgage indebtedness bore interest at weighted average rate of 3.42% per annum and had a weighted average maturity of 3.41 years. We may in the future incur additional mortgage debt on the properties we currently own or use long-term non-recourse financing to acquire additional properties in the future.
As of December 31, 2013, there was $1.1 billion outstanding on the Credit Facility, of which $544.8 million bore a floating interest rate of 3.17%, and for $515.0 million of the Credit Facility's floating base interest rate is fixed through the use of derivative instruments used to hedge interest rate volatility. Including the spread, which can vary based on our leverage, interest on this portion was 4.02% at December 31, 2013. At December 31, 2013, there was up to $1.9 billion available to us for future borrowings, subject to additional lender commitments and borrowing availability.
Our loan obligations require the maintenance of financial covenants, as well as restrictions on corporate guarantees, the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. At December 31, 2013 and 2012, we were in compliance with the debt covenants under all of our loan obligations.
Convertible Senior Note Offering
On July 29, 2013, we issued $300.0 million of 3.00% Convertible Senior Notes (“Notes”) due in 2018 in an underwritten public offering. The Notes will mature on August 1, 2018. The Notes may be converted into cash, common stock or a combination thereof in limited circumstances prior to February 1, 2018 and may be converted at any time into such consideration on or after February 1, 2018. Additionally, the underwriters have a 30-day option to purchase up to an additional $30.0 million of Notes. To date, $10.0 million of the over allotment option has been exercised. We intend to use the net proceeds of the offering (a) to repay outstanding indebtedness under its existing senior secured revolving credit facility (which will increase the availability of funds under such credit facility) and (b) for other general corporate purposes which includes investing in properties in accordance with its investment objectives.

89

Bond Offering
On February 6, 2014, the OP issued, in a private offering, $2.55 billion aggregate principal amount of senior unsecured notes consisting of $1.3 billion aggregate principal amount of 2.00% senior notes due 2017 (the "2017 Notes"), $750.0 million aggregate principal amount of 3.00% senior notes due 2019 (the "2019 Notes") and $500.0 million aggregate principal amount of 4.60% senior notes due 2024 (the "2024 Notes", and, together with the 2017 Notes and 2019 Notes, the “Notes”). The Notes are guaranteed by the Company. The Company used a portion of the net proceeds to partially fund the cash consideration, fees and expenses relating to Cole Merger and repayment of Cole’s credit facility. The Company used the remaining portion of the net proceeds from the offering to repay $900.0 million outstanding under the OP’s senior credit facility and for other general corporate purposes.

Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2013 (in thousands):
 
 
Total
 
2014
 
2015 – 2016
 
2017 – 2018
 
Thereafter
Principal payments due on mortgage notes payable
 
$
1,256,536

 
$
86,933

 
$
677,200

 
$
291,744

 
$
200,659

Interest payments due on mortgage notes payable
 
204,666

 
63,508

 
82,520

 
24,967

 
33,671

Principal payments due on senior corporate credit facility
 
1,059,800

 
—

 
—

 
1,059,800

 
—

Interest payments due on senior corporate credit facility
 
134,691

 
33,596

 
67,191

 
33,904

 
—

Principal payments due on secured credit facility
 
150,000

 
150,000

 
—

 
—

 
—

Interest payments due on secured credit facility
 
4,410

 
4,410

 
—

 
—

 
—

Principal payments due on convertible debt
 
1,000,000

 
—

 
—

 
597,500

 
402,500

Interest payments due on convertible debt
 
187,235

 
33,019

 
66,038

 
58,619

 
29,559

Principal payments due on other debt
 
108,316

 
12,851

 
24,378

 
40,157

 
30,930

Interest payments due on other debt
 
65,659

 
6,808

 
11,469

 
6,802

 
40,580

Payments due on lease obligations
 
12,674

 
261

 
1,485

 
1,493

 
9,435

Total
 
$
4,183,987

 
$
391,386

 
$
930,281

 
$
2,114,986

 
$
747,334


90

The following is a summary of ARCP's, after giving effect to ARCT IV, Cole and the Fortress and Inland Portfolios, contractual obligations as of December 31, 2013 (in thousands):
 
 
Total
 
2014
 
2015 – 2016
 
2017 – 2018
 
Thereafter
Principal payments due on mortgage notes payable
 
$
4,980,667

 
$
171,168

 
$
1,027,676

 
$
989,260

 
$
2,792,563

Interest payments due on mortgage notes payable
 
1,535,527

 
284,859

 
477,074

 
333,950

 
439,644

Principal payments due on senior corporate credit facility
 
1,000,000

 
—

 
—

 
597,500

 
402,500

Interest payments due on senior corporate credit facility
 
172,169

 
30,000

 
60,000

 
57,013

 
25,156

Principal payments due on secured credit facility
 
1,389,063

 
—

 
—

 
1,389,063

 
—

Interest payments due on secured credit facility
 
140,643

 
41,672

 
83,344

 
15,627

 
—

Principal payments due on convertible debt
 
150,000

 
150,000

 
—

 
—

 
—

Interest payments due on convertible debt
 
4,500

 
4,500

 
—

 
—

 
—

Principal payments due on other debt
 
2,758,372

 
112,908

 
1,324,377

 
790,157

 
530,930

Interest payments due on other debt
 
486,318

 
78,468

 
154,469

 
97,801

 
155,580

Payments due on lease obligations
 
12,674

 
261

 
1,485

 
1,493

 
9,435

Total
 
$
12,629,933

 
$
873,836

 
$
3,128,425

 
$
4,271,864

 
$
4,355,808

Contractual Lease Obligations
The following table reflects the minimum base rental cash payments due from the Company over the next five years and thereafter for certain ground and office lease obligations (amounts in thousands):
 
 
Future Minimum
Lease Payments
2014
 
$
2,967

2015
 
2,855

2016
 
2,658

2017
 
2,668

2018
 
1,605

Thereafter
 
9,435

 
 
$
22,188

Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with the taxable year ended December 31, 2011. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax to the extent we distribute our REIT taxable income to our stockholders, and so long as we distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gain. REITs are subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income. We believe we are organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ending December 31, 2013.
Inflation
We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. In addition, our net leases may require the tenant to pay its allocable share of operating expenses, including common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.

91

Related-Party Transactions and Agreements
We have entered into agreements with affiliates, whereby we pay or have paid in the past certain fees or reimbursements to ARC, our Former Manager or their affiliates for acquisition fees and expenses, organization and offering costs, asset management fees and reimbursement of operating costs and have in the past paid sales commissions and dealer manager fees. See Note 18 — Related Party Transactions and Arrangements in our financial statements included in this report for a discussion of the various related-party transactions, agreements and fees. In August 2013, our board of directors determined that it is in the best interests of us and our stockholders to become self-managed, and we completed our transition to self-management on January 8, 2014. In connection with becoming self-managed, we terminated the existing management agreement with our Former Manager (subject to the Former Manager’s agreement to continue to provide services, as requested, for a 60 day tail period for a payment of $10.0 million and continuing to provide certain transition services for an hourly charge), enter into appropriate employment and incentive compensation arrangements with our executives and acquired from our Former Manager certain assets necessary for our operations. See Note 23 — Subsequent Events for further discussion.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 7A. 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 market risk arises primarily from interest rate risk relating to variable-rate borrowings. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would 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 December 31, 2013, our debt included fixed-rate debt, including debt that has interest rates that are fixed with the use of derivative instruments, with a carrying and fair value of $1.5 billion. Changes in market interest rates on our fixed rate debt impact fair value of the debt, but they have no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our debt to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their December 31, 2013 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed rate debt by approximately $30.7 million A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $32.8 million.
As of December 31, 2013, our debt included variable-rate debt with a carrying value of $85.0 million. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their December 31, 2013 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate notes payable would increase or decrease our interest expense by approximately $0.9 million annually.
As the information presented above includes only those exposures that existed as of December 31, 2013, it does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and, assume no other changes in our capital structure.
Item 8. Financial Statements and Supplementary Data

The information required by Item 8 is hereby incorporated by reference to our Consolidated Financial Statements beginning on page F-1 of this Annual Report of Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.


92

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

In accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act, management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and 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.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 1992 Internal Control-Integrated Framework.

We excluded from the scope of our assessment of internal control over financial reporting the operations and related assets of the CapLease, Inc., which was acquired on November 5, 2013, as permitted by the rules and regulations of the Securities and Exchange Commission. Expressed as a percentage of our total asset and total revenues as of and for the year ended December 31, 2013, CapLease, Inc. represented 40% and 12%, respectively, of our consolidated financial statements.

Based on our assessment, our management believes that, as of December 31, 2013, our internal control over financial reporting is effective.

The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of fiscal year ended December 31, 2013, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


93

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
American Realty Capital Properties, Inc.

We have audited the internal control over financial reporting of American Realty Capital Properties, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2013, based on criteria established in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. Our audit of, and opinion on, American Realty Capital Properties, Inc.'s internal control over financial reporting does not include internal control over financial reporting of CapLease, Inc. a wholly owned subsidiary, whose financial statements reflect total assets and revenues constituting 40% and 12%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2013. As indicated in Management's Report, CapLease, Inc. was acquired during 2013 and therefore, management's assertion of the effectiveness of American Realty Capital Properties, Inc.'s internal control over financial reporting excluded internal control over financial reporting of CapLease, Inc.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2013, and our report dated February 27, 2014 expressed an unqualified opinion on those financial statements.


/s/ GRANT THORNTON LLP


Philadelphia, Pennsylvania
February 27, 2014



94

Item 9B. Other Information

None.


95

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to our principal executive officer and principal financial officer. A copy of our Code of Ethics may be obtained, free of charge, by sending a written request to our executive office - 405 Park Avenue, 12th Floor, New York, NY 10022, Attention: Chief Financial Officer.

The other information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2014 annual meeting of stockholders (the “Proxy Statement”).

Item 11. Executive Compensation.

The information required by this Item is incorporated by reference to the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is incorporated by reference to the Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated by reference to the Proxy Statement.

Item 14. Principal Accounting Fees and Services.

The information required by this Item is incorporated by reference to the Proxy Statement.


96

PART IV

EXHIBIT INDEX

The following documents are filed as part of this Annual Report on Form 10-K:
Exhibit
No.
 
Description
1.1 (1)
 
Equity Distribution Agreement between Registrant, ARC Properties Operating Partnership, L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated January 22, 2013.
1.2 (1)
 
Equity Distribution Agreement between Registrant, ARC Properties Operating Partnership, L.P. and JMP Securities LLC, dated January 22, 2013.
1.3 (1)
 
Equity Distribution Agreement between Registrant, ARC Properties Operating Partnership, L.P. and Ladenburg Thalmann & Co. Inc., dated January 22, 2013.
1.4 (1)
 
Equity Distribution Agreement between Registrant, ARC Properties Operating Partnership, L.P. and RBS Securities Inc., dated January 22, 2013.
1.5 (1)
 
Equity Distribution Agreement between Registrant, ARC Properties Operating Partnership, L.P. and Robert W. Baird & Co. Incorporated, dated January 22, 2013.
1.6 (14)

 
Underwriting Agreement, dated July 23, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P. and J.P. Morgan Securities LLC and Citigroup Global Markets Inc., as representatives of the several Underwriters listed therein.
1.7 (25)

 
Equity Distribution Agreement, dated November 25, 2013, between the Registrant, Inc., ARC Properties Operating Partnership, L.P., Barclays Capital Inc., Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Capital One Securities, Inc., Ladenburg Thalmann & Co. Inc. and JMP Securities, LLC.
1.8(27)

 
Underwriting Agreement, dated December 5, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P. and Barclays Capital Inc. and Citigroup Global Markets Inc., as representatives of the several Underwriters listed therein, with respect to the Registrant’s 3.00% Convertible Senior Notes due 2018.
1.9(27)
 
Underwriting Agreement, dated December 5, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P. and Barclays Capital Inc. and Citigroup Global Markets Inc., as representatives of the several Underwriters listed therein, with respect to the Registrant’s 3.75% Convertible Senior Notes due 2020.
2.1(2)
 
Agreement and Plan of Merger by and among Registrant, ARC Properties Operating Partnership, L.P., Tiger Acquisition LLC, American Realty Capital Trust III, Inc. and American Realty Capital Operating Partnership III, L.P.**
2.2(10)
 
Agreement and Plan of Merger, by and among, the Registrant, ARC Properties Operating Partnership, L.P., Safari Acquisition, LLC, CapLease, Inc., Caplease, LP and CLF OP General Partner LLC, dated as of May 28, 2013.**
2.3(11)
 
Purchase and Sale Agreement, by and among, CNL APF Partners, LP and Certain Affiliates as Seller Parties, and ARC Properties Operating Partnership, L.P., as Purchaser, dated May 31, 2013.**
2.4(13)

 
Agreement and Plan of Merger, dated as of July 1, 2013, among the Registrant, American Realty Capital Trust IV, Inc., Thunder Acquisition, LLC, ARC Properties Operating Partnership, L.P. and American Realty Capital Operating Partnership IV, L.P.**
2.4.1(18)

 
Amendment dated as of October 6, 2013 to the Agreement and Plan of Merger, dated as of July 1, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P., Thunder Acquisition, LLC, American Realty Capital Trust IV, Inc. and American Realty Capital Operating Partnership IV, L.P.
2.4.2(26)

  
Second Amendment dated as of October 11, 2013 to the Agreement and Plan of Merger, dated as of July 1, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P., Thunder Acquisition, LLC, American Realty Capital Trust IV, Inc. and American Realty Capital Operating Partnership IV, L.P.
2.5(17)

 
Equity Interest Purchase Agreement by and between Inland American Real Estate Trust, Inc. and AR Capital, LLC, dated as of August 8, 2013. **
2.6(19)
 
Purchase and Sale Agreement by and among ARC PADRBPA001, LLC and AR Capital, LLC and the sellers described on schedules thereto, dated as of July 24, 2013. **
2.7(20)
 
Agreement and Plan of Merger, dated as of October 22, 2013, by and among the Registrant, Cole Real Estate Investments, Inc. and Clark Acquisition, LLC.**
3.1 (3)
 
Articles of Amendment and Restatement of the Registrant.
3.2 (4)
 
Bylaws of the Registrant.
3.3 (5)
 
Articles Supplementary Relating to the Series A Convertible Preferred Stock of the Registrant, dated May 10, 2012.

97

Exhibit
No.
 
Description
3.4 (6)
 
Articles Supplementary Relating to the Series B Convertible Preferred Stock of the Registrant, dated July 24, 2012.
3.5(12)
 
Articles Supplementary for the Series C Convertible Preferred Stock of the Registrant, dated June 6, 2013.
3.6(14)
 
Articles of Amendment to Articles of Amendment and Restatement of the Registrant, effective July 2, 2013.
3.7(24)
 
Articles Supplementary for the Series D Cumulative Convertible Preferred Stock of the Registrant, filed November 8, 2013.
3.8(28)
 
Articles of Amendment to Articles of Amendment and Restatement of the Registrant, filed with the SDAT on December 9, 2013.
3.9(29)
 
Articles Supplementary to the Articles of Incorporation of the Registrant classifying and designating the 6.70% Series F Cumulative Redeemable Preferred Stock, dated January 2, 2014.
3.10(31)

 
Amendment to the Registrant’s bylaws, effective as of February 7, 2014.
4.1 *
 
Third Amended and Restated Agreement of Limited Partnership of ARC Properties Operating Partnership, L.P., effective January 3, 2014.
4.2 (14)
 
Indenture, dated as of July 29, 2013, between the Registrant and U.S. Bank National Association, as trustee.
4.3(14)

 
First Supplemental Indenture, dated as of July 29, 2013, between the Registrant and U.S. Bank National Association, as trustee.
4.4 (23)
 
Form of 3.00% Convertible Senior Notes due 2018 (included in Exhibit 4.3).
4.5(22)
 
Indenture, dated as of October 9, 2007, by and among CapLease, Inc., Caplease, LP, Caplease Debt Funding, LP, Caplease Services Corp., Caplease Credit LLC and Deutsche Bank Trust Company Americas, as trustee.
4.6(22)
 
Supplemental Indenture, dated as of November 5, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P., CapLease, Inc., Caplease, LP and Deutsche Bank Trust Company Americas, as trustee.
4.7(22)
 
Junior Subordinated Indenture, dated as of December 13, 2005, by and between Caplease, LP and The Bank of New York Mellon, as trustee, as successor-in-trust to JPMorgan Chase Bank, National Association.
4.8(22)
 
Supplemental Indenture, dated November 5, 2013, by and among ARC Properties Operating Partnership, L.P., Caplease, LP and The Bank of New York Mellon, as trustee, as successor-in-trust to JPMorgan Chase Bank, National Association.
4.9(27)
 
Second Supplemental Indenture, dated as of December 10, 2013, between the Registrant and U.S. Bank National Association, as trustee.
4.10(27)
 
Form of 3.75% Convertible Senior Notes due 2020.
4.11(31)
 
Indenture, dated as of February 6, 2014, among ARC Properties Operating Partnership, L.P., Clark Acquisition, LLC, the guarantors named therein and U.S. Bank National Association, as trustee.
4.12(31)
 
Officers’ Certificate, dated as of February 6, 2014.
4.13(31)
 
Registration Rights Agreement, dated as of February 6, 2014, among ARC Properties Operating Partnership, L.P., Clark Acquisition, LLC, the guarantors named therein, Barclays Capital Inc. and Citigroup Global Markets Inc.
10.1*
 
Amendment and Acknowledgment of Termination of Amended and Restated Management Agreement, entered into as of January 8, 2014, by and among the Registrant and ARC Properties Advisors, LLC.
10.2 (4)
 
Registrant’s Equity Plan.
10.3 (4)
 
Registrant’s Director Stock Plan.
10.4 (4)
 
Form of Restricted Stock Award Agreement for Non-Executive Directors.
10.5 (4)
 
Form of Restricted Stock Award Agreement for ARC Properties Advisors, LLC.
10.6(2)
 
Letter by and between American Realty Capital Trust III, Inc., American Realty Capital Operating Partnership III, L.P., American Realty Capital Advisors III, LLC, American Realty Capital Trust III Special Limited Partner, LLC, American Realty Capital Properties III, LLC and Registrant, dated December 14, 2012.
10.7(2)
 
Asset Purchase and Sale Agreement, by and between ARC Properties Operating Partnership, L.P. and American Realty Capital Advisors III, LLC, dated December 14, 2012.
10.8(32)
 
Indemnity Agreement, by ARC Real Estate Partners, LLC, in favor of Registrant, dated December 28, 2012.
10.9(32)
 
Indemnity Agreement, by Indemnitors, in favor of ARC Real Estate Partners, LLC, dated December 28, 2012.
10.10(32)
 
Credit Agreement, dated as of February 14, 2013, among American Realty Capital Operating Partnership III, L.P., American Realty Capital Trust III, Inc., Wells Fargo Bank, National Association, RBS Citizens, N.A., and Regions Bank, Capital One, N.A. and JPMorgan Chase Bank, N.A. and the other lenders party hereto.

98

Exhibit
No.
 
Description
10.11(8)
 
Contribution and Exchange Agreement, dated February 28, 2013, among American Realty Capital Operating Partnership III, L.P., American Realty Capital Trust III Special Limited Partner, LLC and ARC Properties Operating Partnership, L.P.
10.12(8)
 
2013 Advisor Multi-Year Outperformance Agreement, made as of February 28, 2013, the Registrant, ARC Properties Operating Partnership, L.P. and ARC Properties Advisors, LLC.
10.13(9)
 
First Amendment to Credit Agreement, dated as of March 18, 2013, by and among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the Lenders party thereto and Wells Fargo Bank, National Association.
10.14(10)
 
Voting Agreement, dated as of May 28, 2013, by and among the Registrant, Paul H. McDowell, William R. Pollert, Shawn P. Seale, Robert C. Blanz and Paul C. Hughes.
10.15(10)
 
Management Letter Agreement, dated as of May 28, 2013, among the Registrant, Paul H. McDowell, William R. Pollert, Shawn P. Seale, Robert C. Blanz, Michael J. Heneghan and Paul C. Hughes.
10.16(13)
 
Letter Agreement, dated as of July 1, 2013, among the Registrant, American Realty Capital Trust IV, Inc., American Realty Capital Operating Partnership IV, L.P., American Realty Capital Trust IV Special Limited Partner, LLC, American Realty Capital Advisors IV, LLC and American Realty Capital Properties IV, LLC.
10.17(13)
 
Asset Purchase and Sale Agreement, dated as of July 1, 2013, between ARC Properties Operating Partnership, L.P. and American Realty Capital Advisors IV, LLC.
10.18(15)
 
Augmenting Lender and Increasing Lender Supplement and Incremental Amendment, dated as of March 28, 2013, to the Credit Agreement, among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the lenders party thereto and Wells Fargo Bank, National Association.
10.19(15)
 
Third Amendment to Credit Agreement, by and among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the Lenders party thereto, and Wells Fargo Bank, National Association, dated as of May 28, 2013.
10.20(15)
 
Fourth Amendment to Credit Agreement, by and among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the Lenders party thereto, and Wells Fargo Bank, National Association, dated as of July 22, 2013.
10.21(15)
 
Augmenting Lender and Increasing Lender Supplement and Incremental Amendment to the Credit Agreement, dated as of August 1, 2013, among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the Lenders party thereto and Wells Fargo Bank, National Association.
10.22(16)
 
Convertible Preferred Stock Purchase Agreement, dated as of September 15, 2013, entered into by and between the Registrant and certain investors party thereto.
10.23(16)
 
Common Stock Purchase Agreement, dated as of September 15, 2013, entered into by and between the Registrant and certain investors party thereto.
10.24(22)
 
Credit Agreement, dated June 29, 2012, by and among CapLease, Inc., Caplease, LP, certain subsidiaries of Caplease, LP party thereto and Wells Fargo Bank, National Association, as administrative agent and sole lender.
10.25(22)
 
First Amendment to Credit Agreement, dated April 16, 2013, by and among CapLease, Inc., Caplease, LP, certain subsidiaries of Caplease, LP party thereto and Wells Fargo Bank, National Association, as administrative agent and sole lender.
10.26(22)
 
Second Amendment to Credit Agreement, dated June 21, 2013, by and among CapLease, Inc., Caplease, LP, certain subsidiaries of Caplease, LP party thereto and Wells Fargo Bank, National Association, as administrative agent and sole lender.
10.27(22)
 
Third Amendment to Credit Agreement, dated November 5, 2013, by and among the Registrant, ARC Properties Operating Partnership, L.P., Safari Acquisition, LLC, certain subsidiaries of Safari Acquisition, LLC party thereto and Wells Fargo Bank, National Association, as administrative agent and sole lender.
10.28(20)
 
Voting Agreement, dated as of October 22, 2013, by and among the Registrant, Cole Real Estate Investments, Inc., Christopher H. Cole and Marc T. Nemer.
10.29(20)
 
Letter Agreement, dated as of October 22, 2013, by and among the Registrant, Cole Real Estate Investments, Inc. and Christopher H. Cole.
10.30(20)
 
Letter Agreement, dated as of October 22, 2013, by and among the Registrant, Cole Real Estate Investments, Inc. and Marc T. Nemer.
10.31(21)
 
Letter Agreement, dated as of October 22, 2013, between the Registrant and Kirk McAllaster.
10.32(21)
 
Letter Agreement, dated as of October 22, 2013, by and among the Registrant and Stephan Keller.
10.33(21)
 
Letter Agreement, dated as of October 22, 2013, by and among the Registrant and Jeffery Holland.

99

Exhibit
No.
 
Description
10.34(23)
 
First Amendment dated as of September 30, 2013 to the Purchase and Sale Agreement dated July 24, 2013, by and among ARC DB5PROP001, LLC, ARC DBPGDYR001, LLC, ARC DBPPROP001, LLC, ARC DB5SAAB001, LLC, ARC DBGWSDG001, LLC and ARC DBGESRG001, LLC and the sellers described on the schedules thereto.
10.35(23)
 
Second Amendment dated as October 1, 2013 to the Purchase and Sale Agreement dated July 24, 2013, by and among ARC DB5PROP001, LLC, ARC DBPGDYR001, LLC, ARC DBPPROP001, LLC, ARC DB5SAAB001, LLC, ARC DBGWSDG001, LLC and ARC DBGESRG001, LLC and the sellers described on the schedules thereto.
10.36(23)
 
Third Amendment dated as of October 30, 2013 to the Purchase and Sale Agreement dated July 24, 2013, by and among ARC DB5PROP001, LLC, ARC DBPGDYR001, LLC, ARC DBPPROP001, LLC, ARC DB5SAAB001, LLC, ARC DBGWSDG001, LLC and ARC DBGESRG001, LLC and the sellers described on the schedules thereto.
10.37(23)
 
Sixth Amendment to the Credit Agreement, by and among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the Lenders party thereto, and Wells Fargo Bank, National Association, dated as of November 4, 2013.**
10.38(23)
 
Employment Agreement, dated as of October 21, 2013, by and between the Registrant and Nicholas S. Schorsch.
10.39(23)
 
Employment Agreement, dated as of October 21, 2013, by and between the Registrant and Brian S. Block.
10.40(23)
 
Employment Agreement, dated as of October 21, 2013, by and between American Realty Capital Properties Operating Partnership, L.P. and Lisa Beeson.
10.41(30)
 
Contribution and Exchange Agreement, dated as of January 3, 2014, among ARC Properties Operating Partnership, L.P., the Special Limited Partner, AREP and ARCT IV Operating Partnership.
10.42*
 
Asset Purchase and Sale Agreement, entered into as of January 8, 2014, by and among ARC Properties Operating Partnership, L.P. and ARC Properties Advisors, LLC.
10.43*
 
Employment Agreement, dated as of November 22, 2013, by and between American Realty Capital Properties Operating Partnership, L.P. and David S. Kay.
10.44*
 
Registrant’s 2014 Multi-Year Outperformance Plan.
10.45*
 
Form of Award Agreement Under the Registrant’s 2014 Multi-Year Outperformance Plan.
10.46*
 
Seventh Amendment to Credit Agreement, dated December 4, 2013, by and among, ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, issuing bank and swingline lender.
10.47*
 
Augmenting Lender and Increasing Lender Supplement, dated as of December 20, 2013, among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, issuing bank and swingline lender.**
10.48*
 
Augmenting Lender Supplement, dated as of January 17, 2014, among ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, issuing bank and swingline lender.**
10.49*
 
Tenth Amendment to Credit Agreement, dated February 4, 2014, by and among, ARC Properties Operating Partnership, L.P., Tiger Acquisition, LLC, the Registrant, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent, issuing bank and swingline lender.
10.50*
 
Assignment and Assumption Agreement, dated January 8, 2014, by and between AR Capital, LLC and American Realty Capital Properties, Inc.
12.1(33)
 
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
14(7)
 
Code of Ethics.
21*
 
List of Subsidiaries.
23.1*
 
Consent of Grant Thornton LLP.
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 Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

100

Exhibit
No.
 
Description
101*
 
XBRL (eXtensible Business Reporting Language). The following materials from Registrant's Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
_____________________________
* Filed herewith
** Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.
1.
Previously filed with Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 22, 2013.
2.
Previously filed with Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 17, 2012.
3.
Previously filed with the Pre-Effective Amendment No. 5 to Form S-11 Registration Statement (Registration No. 333-172205) filed by the Registrant with the Securities and Exchange Commission on July 5, 2011.
4.
Previously filed with the Pre-Effective Amendment No. 4 to Form S-11 Registration Statement (Registration No. 333-172205) filed by the Registrant with the Securities and Exchange Commission on June 13, 2011.
5.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2012.
6.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2012.
7.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2012.
8.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2013.
9.
Previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the Securities and Exchange Commission on May 6, 2013.
10.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2013.
11.
Previously filed with the Registrant's Amended Current Report on Form 8-K/A filed with the Securities and Exchange Commission on June 7, 2013.
12.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2013.
13.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2013.
14.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 29, 2013.
15.
Previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed with the Securities and Exchange Commission on August 6, 2013.
16.
Previously filed with the Registrant's Amended Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 19, 2013.
17.
Previously filed with the Registrant's Amended Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 25, 2013.
18.
Previously filed with the Registrant's First Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2013.
19.
Previously filed with the Registrant's Second Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2013.
20.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 23, 2013.
21.
Previously filed with the Registrant's Amended Current Report on Form 8-K/A filed with the Securities and Exchange Commission on October 25, 2013.
22.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2013.
23.
Previously filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed with the Securities and Exchange Commission on November 7, 2013.
24.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2013.
25.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 26, 2013.
26.
Previously filed as Annex E with the Registrant's Final Prospectus Filed Pursuant to Rule 424(b)(3) with the Securities and Exchange Commission on December 4 2013.

101

27.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 10, 2013.
28.
Previously filed with the Registrant's Amended Current Report on Form 8-K/A filed with the Securities and Exchange Commission on December 19, 2013.
29.
Previously filed with the Registrant's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on January 3, 2014.
30.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2014.
31.
Previously filed with the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2014.
32.
Previously filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on February 28, 2013.
33.
Previously filed with Pre-Effective Amendment No. 7 to the Registrant's Registration Statement on Form S-4/A filed with the Securities and Exchange Commission on December 3, 2013.

102

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 27th day of February, 2014.

 
 
AMERICAN REALTY CAPITAL PROPERTIES, INC.
 
 
By: /s/ NICHOLAS S. SCHORSCH

NICHOLAS S. SCHORSCH
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name
 
Capacity
 
Date
 
 
 
 
 
/s/ Nicholas S. Schorsch
 
Chief Executive Officer and
 
February 27, 2014
Nicholas S. Schorsch
 
Chairman of the Board of Directors (Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Lisa Beeson
 
Executive Vice President and Chief Operating Officer
 
February 27, 2014
Lisa Beeson
 
 
 
 
 
 
 
 
 
/s/ Brian S. Block
 
Executive Vice President, Chief Financial Officer, Treasurer
 
February 27, 2014
Brian S. Block
 
and Secretary (Principal Financial Officer)
 
 
 
 
 
 
 
/s/ David S. Kay
 
President
 
February 27, 2014
David S. Kay
 
 
 
 
 
 
 
 
 
/s/ Lisa P. McAlister
 
Senior Vice President and
 
February 27, 2014
Lisa P. McAlister
 
Chief Accounting Officer
 
 
 
 
 
 
 
/s/ Leslie D. Michelson
 
Lead Independent Director
 
February 27, 2014
Leslie D. Michelson
 
 
 
 
 
 
 
 
 
/s/ William G. Stanley
 
Independent Director
 
February 27, 2014
William G. Stanley
 
 
 
 
 
 
 
 
 
/s/ Scott J. Bowman
 
Independent Director
 
February 27, 2014
Scott J. Bowman
 
 
 
 
 
 
 
 
 
/s/ Edward G. Rendell
 
Independent Director
 
February 27, 2014
Edward G. Rendell
 
 
 
 
 
 
 
 
 
/s/ Thomas A. Andruskevich
 
Independent Director
 
February 27, 2014
Thomas A. Andruskevich
 
 
 
 
 
 
 
 
 
/s/ Scott P. Sealy, Sr.
 
Independent Director
 
February 27, 2014
Scott P. Sealy, Sr.
 
 
 
 
 
 
 
 
 

103

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
American Realty Capital Properties, Inc.

We have audited the accompanying consolidated balance sheets of American Realty Capital Properties, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, changes in equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits of the basic consolidated financial statements included the financial statement schedules listed in the index. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Realty Capital Properties, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2014 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP


Philadelphia, Pennsylvania
February 27, 2014


F-2

AMERICAN REALTY CAPITAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
 
 
December 31,
 
 
2013
 
2012
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
786,542

 
$
249,541

Buildings, fixtures and improvements
 
3,881,532

 
1,336,726

Land and construction in progress
 
21,839

 
—

Acquired intangible lease assets
 
536,250

 
212,223

Total real estate investments, at cost
 
5,226,163

 
1,798,490

Less: accumulated depreciation and amortization
 
(213,186
)
 
(56,110
)
Total real estate investments, net
 
5,012,977

 
1,742,380

Cash and cash equivalents
 
36,738

 
156,873

Investment in direct financing leases, net
 
55,079

 
—

Investment securities, at fair value
 
62,067

 
41,654

Loans held for investment, net
 
26,279

 
—

Derivative assets, at fair value
 
9,152

 
—

Restricted cash
 
29,483

 
1,108

Prepaid expenses and other assets
 
175,327

 
7,416

Goodwill
 
89,875

 
—

Deferred costs, net
 
80,625

 
15,356

Assets held for sale
 
679

 
665

Total assets
 
$
5,578,281

 
$
1,965,452

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable, net
 
$
1,298,990

 
$
265,118

Convertible debt, net
 
972,490

 
—

Senior secured revolving credit facility
 
—

 
124,604

Senior corporate credit facility
 
1,059,800

 
—

Secured credit facility
 
150,000

 
—

Other debt
 
104,804

 
—

Below-market lease liabilities, net
 
60,729

 
—

Derivative liabilities, at fair value
 
18,387

 
3,830

Accounts payable and accrued expenses
 
134,601

 
9,459

Deferred rent and other liabilities
 
16,874

 
4,336

Distributions payable
 
141

 
9,946

Total liabilities
 
3,816,816

 
417,293

 
 
 
 
 
Series D Preferred Stock, $0.01 par value, 21,735,008 shares (part of 100,000,000 aggregate preferred shares authorized) and zero shares authorized and 21,735,008 and zero shares issued and outstanding at December 31, 2013 and 2012, respectively
 
269,299

 
—

 
 
 
 
 
Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 and 100,000,000 shares authorized and zero and 828,472 shares issued and outstanding at December 31, 2013 and 2012, respectively
 
—

 
8

Common stock, $0.01 par value, 750,000,000 and 240,000,000 shares authorized and 202,344,455 and 179,167,112 issued and outstanding at December 31, 2013 and 2012, respectively
 
2,023

 
1,792

Additional paid-in capital
 
2,034,301

 
1,653,900

Accumulated other comprehensive income (loss)
 
7,697

 
(3,934
)
Accumulated deficit
 
(692,449
)
 
(120,072
)
Total stockholders’ equity
 
1,351,572

 
1,531,694

Non-controlling interests
 
140,594

 
16,465

Total equity
 
1,492,166

 
1,548,159

Total liabilities and equity
 
$
5,578,281

 
$
1,965,452


The accompanying notes are an integral part of these statements.

F-3

AMERICAN REALTY CAPITAL PROPERTIES, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for per share data)
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Revenues:
 
 
 
 
 
 
Rental income
 
$
223,701

 
$
64,791

 
$
3,762

Direct financing lease income
 
1,700

 
—

 
—

Operating expense reimbursements
 
15,095

 
2,002

 
208

Total revenues
 
240,496

 
66,793

 
3,970

Operating expenses:
 
 
 
 
 
 
Acquisition related
 
23,295

 
42,761

 
3,898

Merger and other transaction related
 
256,662

 
2,603

 
—

Property operating
 
19,890

 
3,484

 
220

Operating fees to affiliate
 
5,654

 
212

 
—

General and administrative
 
6,658

 
3,901

 
735

Equity based compensation
 
34,935

 
1,191

 
—

Depreciation and amortization
 
156,971

 
40,700

 
2,111

Total operating expenses
 
504,065

 
94,852

 
6,964

Operating loss
 
(263,569
)
 
(28,059
)
 
(2,994
)
Other (expense) income:
 
 
 
 
 
 
Interest expense
 
(80,800
)
 
(11,856
)
 
(960
)
Other income, net
 
569

 
426

 
2

Loss on derivative instruments, net
 
(67,937
)
 
—

 
—

Loss on sale of investments in affiliates
 
(411
)
 
—

 
—

Gain on sale of investments
 
451

 
534

 
—

Total other expenses, net
 
(148,128
)
 
(10,896
)
 
(958
)
Loss from continuing operations
 
(411,697
)
 
(38,955
)
 
(3,952
)
Net loss from continuing operations attributable to non-controlling interests
 
5,211

 
255

 
69

Net loss from continuing operations attributable to stockholders
 
(406,486
)
 
(38,700
)
 
(3,883
)
Discontinued operations:
 
 
 
 
 
 
Loss from operations of held for sale properties
 
(34
)
 
(145
)
 
(37
)
Gain (loss) on held for sale properties
 
14

 
(600
)
 
(815
)
Net loss from discontinued operations
 
(20
)
 
(745
)
 
(852
)
Net loss from discontinued operations attributable to non-controlling interest
 
1

 
46

 
36

Net loss from discontinued operations attributable to stockholders
 
(19
)
 
(699
)
 
(816
)
Net loss
 
(411,717
)
 
(39,700
)
 
(4,804
)
Net loss attributable to non-controlling interests
 
5,212

 
301

 
105

Net loss attributable to stockholders
 
(406,505
)
 
(39,399
)
 
(4,699
)
Other comprehensive loss:
 
 
 
 
 
 
Designated derivatives, fair value adjustments
 
11,511

 
(3,743
)
 
(98
)
Unrealized gain (loss) on investment securities, net
 
119

 
(93
)
 
—

Comprehensive loss
 
$
(394,875
)
 
$
(43,235
)
 
$
(4,797
)
Basic and diluted net loss per share from continuing operations attributable to common stockholders
 
$
(2.35
)
 
$
(0.38
)
 
$
(1.04
)
Basic and diluted net loss per share attributable to common stockholders
 
$
(2.36
)
 
$
(0.39
)
 
$
(1.26
)

The accompanying notes are an integral part of these statements.

F-4

AMERICAN REALTY CAPITAL PROPERTIES, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except for share data)
 
 
Convertible Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total Stock-holders' Equity
 
Non-Controlling Interests
 
Total Equity
Balance, December 31, 2010
 
—

 
—

 
20,000

 
—

 
200

 
—

 
—

 
200

 
—

 
200

Issuance of common stock
 
—

 
—

 
16,929,184

 
170

 
185,957

 
—

 
—

 
186,127

 
—

 
186,127

Offering costs, commissions and dealer manager fees
 
—

 
—

 
—

 
—

 
(21,752
)
 
—

 
—

 
(21,752
)
 
—

 
(21,752
)
Common stock issued through distribution reinvestment plan
 
—

 
—

 
27,169

 
—

 
271

 
—

 
—

 
271

 
—

 
271

Equity-based compensation
 
—

 
—

 
185,663

 
2

 
223

 
—

 
—

 
225

 
—

 
225

Distributions declared
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,519
)
 
(2,519
)
 
—

 
(2,519
)
Common stock repurchases
 
—

 
—

 
—

 
—

 
(25
)
 
—

 
—

 
(25
)
 
—

 
(25
)
Contribution transactions
 
—

 
—

 
—

 
—

 
(16,769
)
 
—

 
—

 
(16,769
)
 
—

 
(16,769
)
Contributions from non-controlling interest holders
 
—

 
—

 
—

 
—

 
(3,875
)
 
—

 
—

 
(3,875
)
 
3,875

 
—

Distributions to non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(68
)
 
(68
)
Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
(4,699
)
 
(4,699
)
 
(105
)
 
(4,804
)
Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(98
)
 
—

 
(98
)
 
—

 
(98
)
Balance, December 31, 2011
 
—

 
—

 
17,162,016

 
172

 
144,230

 
(98
)
 
(7,218
)
 
137,086

 
3,702

 
140,788

Issuance of preferred stock
 
828,472

 
8

 
—

 
—

 
8,992

 
—

 
—

 
9,000

 
—

 
9,000

Issuance of common stock
 
—

 
—

 
159,396,558

 
1,594

 
1,656,213

 
—

 
—

 
1,657,807

 
—

 
1,657,807

Offering costs, commissions and dealer manager fees
 
—

 
—

 
—

 
—

 
(181,643
)
 
—

 
—

 
(181,643
)
 
—

 
(181,643
)
Common stock issued through distribution reinvestment plan
 
—

 
—

 
2,678,451

 
27

 
26,757

 
—

 
—

 
26,784

 
—

 
26,784

Equity based compensation
 
—

 
—

 
111,566

 
1

 
1,223

 
—

 
—

 
1,224

 
—

 
1,224

Distributions declared
 
—

 
—

 
—

 
—

 
—

 
—

 
(73,455
)
 
(73,455
)
 
—

 
(73,455
)
Common stock repurchases
 
—

 
—

 
(181,479
)
 
(2
)
 
(1,872
)
 
—

 
—

 
(1,874
)
 
—

 
(1,874
)
OP Units issued to acquire real estate investment
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,352

 
6,352

Contributions from non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7,375

 
7,375

Distributions to non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(663
)
 
(663
)
Designated derivatives, fair value adjustment
 
—

 
—

 
—

 
—

 
—

 
(3,743
)
 
 
 
(3,743
)
 
—

 
(3,743
)
Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
(39,399
)
 
(39,399
)
 
(301
)
 
(39,700
)
Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(93
)
 
—

 
(93
)
 
—

 
(93
)
Balance, December 31, 2012
 
828,472

 
8

 
179,167,112

 
1,792

 
1,653,900

 
(3,934
)
 
(120,072
)
 
1,531,694

 
16,465

 
1,548,159

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-5

 
 
Convertible Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total Stock-holders' Equity
 
Non-Controlling Interests
 
Total Equity
Issuances of common stock
 
—

 
—

 
47,161,562

 
471

 
675,917

 
—

 
—

 
676,388

 
—

 
676,388

Offering costs, commissions and dealer manager fees
 
—

 
—

 
—

 
—

 
(5,102
)
 
—

 
—

 
(5,102
)
 
—

 
(5,102
)
Common stock issued through dividend reinvestment plan
 
—

 
—

 
489,000

 
5

 
4,890

 
—

 
—

 
4,895

 
—

 
4,895

Common stock repurchases
 
—

 
—

 
(28,315,016
)
 
(283
)
 
(357,520
)
 
—

 
—

 
(357,803
)
 
—

 
(357,803
)
Conversion of Convertible Preferred Stock Series A and B to common stock
 
(828,472
)
 
(8
)
 
829,629

 
8

 
—

 
—

 
—

 
—

 
—

 
—

Issuance of common stock in conversion of Convertible Preferred Stock Series C
 
—

 
—

 
1,411,030

 
14

 
17,382

 
—

 
—

 
17,396

 
—

 
17,396

Conversion of OP Units to common stock
 
—

 
—

 
599,233

 
6

 
5,794

 
—

 
—

 
5,800

 
(5,800
)
 
—

Equity based compensation
 
—

 
—

 
1,001,905

 
10

 
661

 
—

 
—

 
671

 
32,900

 
33,571

Amortization of restricted shares
 
—

 
—

 
—

 
—

 
7,116

 
—

 
—

 
7,116

 
—

 
7,116

Equity component of convertible debt
 
—

 
—

 
—

 
—

 
28,559

 
—

 
—

 
28,559

 
—

 
28,559

Consideration to Former Manager for internalization
 
—

 
—

 
—

 
—

 
2,704

 
—

 
(5,738
)
 
(3,034
)
 
—

 
(3,034
)
 Distributions declared
 
—

 
—

 
—

 
—

 
—

 
—

 
(160,134
)
 
(160,134
)
 
—

 
(160,134
)
Issuance of OP Units to affiliate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
108,247

 
108,247

 Contributions from non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,831

 
1,831

 Distributions to non-controlling interest holders
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7,252
)
 
(7,252
)
Non-controlling interests retained in CapLease Merger
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
567

 
567

 Redemption of OP Units
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,152
)
 
(1,152
)
Net loss
 
—

 
—

 
—

 
—

 
—

 
 
 
(406,505
)
 
(406,505
)
 
(5,212
)
 
(411,717
)
Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
11,631

 
—

 
11,631

 
—

 
11,631

Balance, December 31, 2013
 
—

 
$
—

 
202,344,455

 
$
2,023

 
$
2,034,301

 
$
7,697

 
$
(692,449
)
 
$
1,351,572

 
$
140,594

 
$
1,492,166


The accompanying notes are an integral part of this statement.


F-6

AMERICAN REALTY CAPITAL PROPERTIES, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Cash flows from operating activities:
 
 

 
 

 
 
Net loss
 
$
(411,717
)
 
$
(39,700
)
 
$
(4,804
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
 
 
 
Issuance of OP Units for ARCT III Merger
 
108,247

 
—

 
—

Depreciation
 
120,095

 
32,799

 
1,879

Amortization of intangible lease assets
 
36,876

 
7,901

 
244

Amortization of deferred costs
 
11,183

 
2,031

 
200

Amortization of above- and below-market lease asset
 
(245
)
 
116

 
—

Amortization of discounts and premiums
 
(1,700
)
 
—

 
—

(Gain) loss on held for sale properties
 
(14
)
 
600

 
815

Equity based compensation
 
43,391

 
1,224

 
225

Unrealized gain on derivative instruments
 
(1,739
)
 
—

 
—

Gain on sale of investments, net
 
(40
)
 
—

 
—

Loss in extinguishment of Series C Stock
 
13,749

 
—

 
—

Changes in assets and liabilities:
 
 
 
 
 
 
Investment in direct financing leases
 
2,472

 
—

 
—

Prepaid expenses and other assets
 
(8,878
)
 
(4,932
)
 
(546
)
Accounts payable and accrued expenses
 
77,516

 
8,122

 
843

Deferred rent and other liabilities
 
3,671

 
3,449

 
887

Net cash (used in) provided by operating activities
 
(7,133
)
 
11,610

 
(257
)
Cash flows from investing activities:
 
 
 
 
 
 
Investments in real estate and other assets
 
(1,377,078
)
 
(1,582,758
)
 
(89,981
)
Acquisition of a real estate business, net of cash acquired of $41,779
 
(878,898
)
 
—

 
—

Investment in direct financing leases
 
(57,551
)
 
—

 
—

Capital expenditures
 
(9,755
)
 
(54
)
 
—

Principal repayments received from borrowers
 
442

 
—

 
—

Purchase of assets from Manager
 
(1,584
)
 
—

 
—

Proceeds from sale of property held for sale
 
—

 
553

 
—

Deposits for real estate investments
 
(101,107
)
 
(500
)
 
—

Purchases of investment securities
 
(12,130
)
 
(41,747
)
 
—

Proceeds from sale of investment securities
 
52,328

 
—

 
—

Net cash used in investing activities
 
(2,385,333
)
 
(1,624,506
)
 
(89,981
)
Cash flows from financing activities:
 
 
 
 
 
 
Proceeds from mortgage notes payable
 
4,800

 
229,798

 
21,470

Payments on mortgage notes payable
 
(5,711
)
 
—

 
—

Payments on other debt
 
(9,368
)
 
—

 
—

Proceeds from senior secured revolving credit facility
 
—

 
82,319

 
2,066

Payments on senior secured revolving credit facility
 
(124,604
)
 
(122
)
 
(11,159
)
Proceeds from senior corporate credit facility
 
1,889,800

 
—

 
—

Payments on senior corporate credit facility
 
(830,000
)
 
—

 
—

Proceeds from secured credit facility
 
29,000

 
—

 
—

Payments of deferred financing costs
 
(78,870
)
 
(13,974
)
 
(3,108
)
Proceeds from issuance of convertible debt
 
967,786

 
—

 
—

Common stock repurchases
 
(358,955
)
 
(1,534
)
 
—

Proceeds from issuances of preferred shares
 
—

 
9,000

 
—

Proceeds from issuance of Series C Stock
 
445,000

 
—

 
—

Cash payment on settlement of Series C Stock
 
(441,353
)
 
—

 
—

Proceeds from issuance of Series D Preferred Stock
 
287,991

 
—

—

—

Proceeds from issuances of common stock
 
676,388

 
1,658,776

 
122,993

Payments of offering costs and fees related to stock issuances
 
(4,154
)
 
(182,226
)
 
(20,884
)
Consideration to Former Manager for internalization
 
(5,738
)
 
—

 
—

Contributions from affiliate
 
—

 
—

 
2

Contributions from non-controlling interest holders
 
1,831

 
7,375

 
—

Distributions to non-controlling interest holders
 
(7,252
)
 
(663
)
 
(68
)
Distributions paid
 
(165,044
)
 
(37,223
)
 
(1,743
)
Advances from affiliates, net
 
—

 
20

 
—

Change in restricted cash
 
784

 
(1,108
)
 
—

Net cash provided by financing activities
 
2,272,331

 
1,750,438

 
109,569

Net change in cash and cash equivalents
 
(120,135
)
 
137,542

 
19,331

Cash and cash equivalents, beginning of period
 
156,873

 
19,331

 
—

Cash and cash equivalents, end of period
 
$
36,738

 
$
156,873

 
$
19,331

Supplemental Disclosures:
 
 
 
 
 
 
Cash paid for interest
 
$
44,280

 
$
8,983

 
$
622

Cash paid for income taxes
 
$
1,355

 
$
129

 
$
—

Non-cash investing and financing activities:
 
 
 
 
 
 
OP units issued to acquire real estate investments
 
$
—

 
$
6,352

 
$
—

Common stock issued through distribution reinvestment plan
 
4,895

 
26,784

 
271

Initial proceeds from credit facility used to pay down mortgages assumed at formation
 
—

 
—

 
51,500

Mortgage note payable contributed in formation
 
—

 
—

 
13,850

The accompanying notes are an integral part of these statements.

F-7
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013




Note 1 — Organization
American Realty Capital Properties, Inc. (the “Company” or “ARCP”) is a Maryland corporation incorporated on December 2, 2010 that qualified as a real estate investment trust for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. On September 6, 2011, the Company completed its initial public offering (the “IPO”). The Company's common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ARCP”.
The Company is primarily in the business of acquiring, owning and operating single-tenant, freestanding commercial real estate properties. The Company focuses on investing in properties that are net leased to (i) credit tenants, which are generally large public companies with investment-grade ratings and other creditworthy tenants and (ii) governmental, quasi-governmental and not-for-profit entities. The Company's long-term business strategy is to acquire a diverse portfolio consisting of approximately 70% long-term leases and 30% medium-term leases, with an average portfolio remaining lease term of approximately 10 to 12 years. The Company considers properties that are leased on a “medium-term” basis to mean properties originally leased long-term (ten years or longer) that currently have a primary remaining lease duration of generally three to eight years, on average. The Company expects this investment strategy to provide for stable income from credit tenants and to provide for growth opportunities from re-leasing of current below market leases.
The Company has advanced its investment objectives by growing its net lease portfolio through strategic mergers and acquisitions. Since January 1, 2013, the Company has completed mergers and portfolio acquisitions that have provided assets totaling approximately $20.0 billion as of the date of this annual report on Form 10-K. See Note 2 —Mergers and Acquisitions.
Substantially all of the Company's business is conducted through ARC Properties Operating Partnership, L.P., a Delaware limited partnership (the “OP”). The Company is the sole general partner and holder of 95.8% of the equity interests in the OP as of December 31, 2013. As of December 31, 2013, certain affiliates of the Company and certain unaffiliated investors are limited partners and owners of 3.9% and 0.3%, respectively, of the equity interests in the OP. Under the limited partnership agreement of the OP, after holding units of limited partner interests in the OP (“OP Units”) for a period of one year, unless otherwise consented to by the Company, holders of OP Units have the right to redeem the OP Units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the Company, as general partner of the OP, a corresponding number of shares of the Company's common stock. The remaining rights of the holders of OP Units are limited and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP’s assets.
During the year ended December 31, 2013, ARC Properties Advisors, LLC (the Company’s “Former Manager”), a wholly owned subsidiary of AR Capital LLC (“ARC”), managed the Company's affairs on a day to day basis and, as a result, the Company was generally externally managed, with the exception of certain acquisition, accounting and portfolio management services performed by employees of the Company. In August 2013, the Company's board of directors determined that it was in the best interests of the Company and its stockholders to become self-managed, and the Company completed its transition to self-management on January 8, 2014 (see Note 23 — Subsequent Events). In connection with becoming self-managed, the Company terminated the management agreement with its Former Manager, entered into employment and incentive compensation arrangements with its executives and acquired from its Former Manager certain assets necessary for its operations.
Note 2 — Mergers and Acquisitions
Completed Mergers and Significant Acquisitions
American Realty Capital Trust III Merger
On December 14, 2012, the Company entered into an Agreement and Plan of Merger (the “ARCT III Merger Agreement”) with American Realty Capital Trust III, Inc. ("ARCT III") and certain subsidiaries of each company. The ARCT III Merger Agreement provided for the merger of ARCT III with and into a subsidiary of the Company (the “ARCT III Merger”). The ARCT III Merger was consummated on February 28, 2013.
Pursuant to the terms and subject to the conditions set forth in the ARCT III Merger Agreement, each outstanding share of common stock of ARCT III, including restricted shares which became vested, was converted into the right to receive (i) 0.95 of a share of the Company's common stock, (the “ARCT III Exchange Ratio”) or (ii) $12.00 in cash. In addition, each outstanding unit of equity ownership of the ARCT III Operating Partnership ("ARCT III OP") was converted into the right to receive 0.95 of the same class of unit of equity ownership in the OP.

F-8
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Upon the closing of the ARCT III Merger on February 28, 2013, the Company paid an aggregate of $350 million in cash for the 29.2 million shares, or 16.5% of the then outstanding shares of ARCT III's common stock (which is equivalent to 27.7 million shares of the Company's common stock based on the ARCT III Exchange Ratio). In addition, 140.7 million shares of the Company's common stock were issued in exchange for 148.1 million shares of ARCT III's common stock adjusted for the ARCT III Exchange Ratio.
Upon the consummation of the ARCT III Merger, American Realty Capital Trust III Special Limited Partner, LLC, the holder of the special limited partner interest in the ARCT III OP, was entitled to subordinated distributions of net sales proceeds from ARCT III OP which resulted in the issuance of units of limited partner interests in the ARCT III OP, when after applying the ARCT III Exchange Ratio, resulting in the issuance of an additional 7.3 million OP Units to affiliates of the the Company’s Former Manager. The parties had agreed that such OP Units would be subject to a minimum one-year holding period from the date of issuance before being exchangeable into the Company's common stock.
Also in connection with the ARCT III Merger, the Company entered into an agreement with ARC and its affiliates to internalize certain functions performed by them prior to the ARCT III Merger, reduce certain fees paid to affiliates, purchase certain corporate assets and pay certain merger related fees. See Note 18 — Related Party Transactions and Arrangements.
Accounting Treatment for the ARCT III Merger
The Company and ARCT III, from inception to the ARCT III Merger date, were considered to be entities under common control. Both entities' advisors were wholly owned subsidiaries of ARC. ARC and its related parties had significant ownership interests in the Company and ARCT III through the ownership of shares of common stock and other equity interests. In addition, the advisors of both entities were contractually eligible to receive potential fees for their services to both of the companies including asset management fees, incentive fees and other fees and continued to receive fees from the Company prior to the Company's transition to self-management. Due to the significance of these fees, the advisors and ultimately ARC were determined to have a significant economic interest in both companies in addition to having the power to direct the significant activities of the companies through advisory/management agreements, which qualified them as affiliated companies under common control in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The acquisition of an entity under common control is accounted for on the carryover basis of accounting, whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT III Merger date. In addition, U.S. GAAP requires the Company to present historical financial information as if the merger had occurred as of the beginning of the earliest period presented. Therefore, the accompanying financial statements including the notes thereto are presented as if the ARCT III Merger had occurred on January 1, 2011.
GE Capital Portfolio Acquisition
On June 27, 2013, the Company acquired, through subsidiaries of the OP, from certain affiliates of GE Capital Corp., the equity interests in the entities that own a real estate portfolio comprised of 447 properties (the “GE Capital Portfolio”) for a purchase price of $773.9 million, exclusive of closing costs, with no liabilities assumed. The 447 properties are subject to 409 property operating leases, as well as 38 direct financing leases.
CapLease, Inc. Merger
On May 28, 2013, the Company entered into an Agreement and Plan of Merger (the “CapLease Merger Agreement”) with CapLease, Inc., a Maryland corporation (“CapLease”), and certain subsidiaries of each company. The CapLease Merger Agreement provided for the merger of CapLease with and into a subsidiary of the Company (the “CapLease Merger”).
On November 5, 2013, the Company completed the merger with CapLease pursuant to the CapLease Merger Agreement. Pursuant to the terms of the CapLease Merger Agreement, each outstanding share of common stock of CapLease, other than shares owned by the Company, CapLease or any of their respective wholly owned subsidiaries, was converted into the right to receive $8.50. Each outstanding share of preferred stock of CapLease, other than shares owned by the Company, CapLease or any of their respective wholly owned subsidiaries, was converted into the right to receive an amount in cash equal to the sum of $25.00 plus all accrued and unpaid dividends on such shares of preferred stock. In addition, in connection with the merger of CapLease, LP with and into the OP (the “CapLease Partnership Merger”), each outstanding unit of equity ownership of CapLease's operating partnership, other than units owned by CapLease or any wholly owned subsidiary of CapLease, was converted into the right to receive $8.50. Shares of CapLease's outstanding restricted stock were accelerated and became fully vested, and restricted stock and any outstanding performance shares were fully earned and received $8.50 per share. In total, cash consideration of $920.7 million was paid to the common and preferred shareholders.

F-9
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Accounting Treatment for the CapLease Merger
The CapLease Merger has been accounted for under the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting, the assets acquired and liabilities assumed from CapLease have been recorded as of the acquisition date at their respective fair values. Any excess of purchase price over the fair values is recorded as goodwill. Results of operations for CapLease are included in the Company’s consolidated financial statements from the date of acquisition. See Note 5 — CapLease Acquisition.
American Realty Capital Trust IV Merger
On July 1, 2013, the Company entered into an Agreement and Plan of Merger, as amended on October 6, 2013 and October 11, 2013, (the “ARCT IV Merger Agreement”) with American Realty Capital Trust IV, Inc., a Maryland corporation (“ARCT IV”), and certain subsidiaries of each company. The ARCT IV Merger Agreement provided for the merger of ARCT IV with and into a subsidiary of the OP (the “ARCT IV Merger”). The Company consummated the ARCT IV Merger on January 3, 2014.
Pursuant to the terms of the ARCT IV Merger Agreement, as amended, each outstanding share of common stock of ARCT IV was exchanged for (i) $9.00 in cash, (ii) 0.5190 of a share of the Company’s common stock, ("the ARCT IV Exchange Ratio") and (iii) 0.5937 of a share of a new series of preferred stock of the Company designated as the 6.70% Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”). In total, the Company paid $650.9 million in cash and issued 36.9 million shares of common stock and 42.2 million shares of Series F Preferred Stock to the former ARCT IV shareholders in connection with the consummation of the ARCT IV Merger.
In addition, each outstanding Class B unit of equity ownership of the operating partnership of ARCT IV was converted into 2.3961 Class B OP Units of the Company and other equity units of ARCT IV received 2.3961 OP Units of the Company. In addition, on the date of the ARCT IV Merger, all outstanding restricted common stock of ARCT IV become fully vested and exchanged for shares of Company common stock based on the ARCT IV Exchange Ratio.
In connection with the ARCT IV Merger and pursuant to the terms of the agreement of limited partnership of ARCT IV’s operating partnership, ARCT IV's external advisor received subordinated distributions of net sales proceeds in an approximate amount of $63.2 million. Such subordinated distributions of net sales proceeds were paid in the form of equity units of ARCT IV's operating partnership that were automatically converted into 6.7 million OP Units upon the consummation of the ARCT IV Merger and are subject to a minimum two-year holding period from the date of issuance before being exchangeable into the Company's common stock.
Accounting Treatment for the ARCT IV Merger
The Company and ARCT IV, from inception to the ARCT IV Merger date, were considered to be entities under common control. Both entities' advisors were wholly owned subsidiaries of ARC. ARC and its related parties had ownership interests in the Company and ARCT IV through the ownership of shares of common stock and other equity interests. In addition, the advisors of both entities were contractually eligible to receive potential fees for their services to both of the companies including asset management fees, incentive fees and other fees and had continued to receive fees from the Company prior to the Company's transition to self-management. Due to the significance of these fees, the advisors and ultimately ARC were determined to have a significant economic interest in both companies in addition to having the power to direct the activities of the companies through advisory/management agreements, which qualified them as affiliated companies under common control in accordance with U.S. GAAP. The acquisition of an entity under common control is accounted for on the carryover basis of accounting, whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT IV Merger date. In addition, U.S. GAAP requires the Company to present historical financial information as if the entities were combined for each period presented. However, as the ARCT IV Merger was not consummated as of December 31, 2013, the assets and liabilities and historical financial information of ARCT IV Merger are not included in the accompanying financial statements including the notes thereto in accordance with U.S. GAAP.

F-10
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Fortress Portfolio Acquisition
On July 24, 2013, ARC and another related entity, on behalf of the Company and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with affiliates of funds managed by Fortress Investment Group LLC ("Fortress") for the purchase of 196 properties owned by Fortress, for an aggregate contract purchase price of $972.5 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which were allocated to the Company based on the pro rata fair value of the properties acquired by the Company relative to the fair value of all 196 properties to be acquired from Fortress. Of the 196 properties, 120 properties were allocated to the Company (the "Fortress Portfolio"). On October 1, 2013, the Company closed on 41 of the 120 properties with a total purchase price of $200.3 million, exclusive of closing costs. The Company closed the acquisition of the remaining 79 properties in the Fortress Portfolio on January 8, 2014, for an aggregate contract purchase price of $400.9 million, exclusive of closing costs. The total purchase price of the Fortress Portfolio was $601.2 million, exclusive of closing costs. During the year ended December 31, 2013, the Company deposited $72.2 million into escrow in relation to the Fortress Portfolio, which has been included in prepaid expenses and other assets in the consolidated balance sheets.
Cole Real Estate Investments, Inc. Merger
On October 22, 2013, the Company entered into an agreement and plan of merger (the “Cole Merger Agreement”) with Cole Real Estate Investments, Inc. (“Cole”), a Maryland corporation, and a wholly owned subsidiary of the Company. The Cole Merger Agreement provided for the merger of Cole with and into a wholly owned subsidiary of the Company (the “Cole Merger”). The Company consummated the Cole Merger on February 7, 2014 (the "Cole Acquisition Date").
Pursuant to the terms of the Cole Merger Agreement, each share of common stock, par value $0.01 per share, of Cole issued and outstanding on February 7, 2014, other than shares owned by the Company, any subsidiary of the Company or any wholly owned subsidiary of Cole, was converted into the right to receive either (i) 1.0929 shares of common stock, par value $0.01 per share, of the Company (the “Stock Consideration”) or (ii) $13.82 in cash (the “Cash Consideration” and together with the Stock Consideration, the “Merger Consideration”). Approximately 98% of all outstanding Cole holders received Stock Consideration and approximately 2% of outstanding Cole shares elected to receive Cash Consideration, pursuant to the terms of the Cole Merger Agreement.
In addition, as provided by the Cole Merger Agreement, all outstanding restricted stock units and performance share units held immediately prior to the consummation of the Cole became fully vested and were entitled to receive the Merger Consideration, in each case, in accordance with the cash or stock elections made by the holders thereof.
Excluding stock and cash consideration issued to certain Cole executives, the Company issued approximately 508.0 million shares of Company common stock as Stock Consideration and paid $147.9 million as Cash Consideration to holders of Cole shares based on their elections.
In addition, the Company issued approximately 15.9 million shares of Company common stock, in the aggregate, and $33.9 million in cash, in the aggregate, to certain executives of Cole pursuant to letter agreements entered into between the Company and such individuals concurrently with the execution of the Cole Merger Agreement, as previously disclosed by the Company.
On the Cole Acquisition Date, the fair value of the considerations transferred totaled $7.5 billion, which consisted of the following (amounts in thousands):
Fair value of consideration transferred:
 
 
Cash
 
$
147,867

Common stock
 
7,107,270

Executive consideration - cash
 
33,907

Executive consideration - common stock
 
222,287

 
 
$
7,511,331

The fair value of the 523.9 million common shares issued, including those transferred for executive considerations, was determined based on the closing market price of the Company's common stock on the Cole Acquisition Date.

F-11
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Accounting Treatment for the Cole Merger
The Cole Merger will be accounted for under the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Cole will be recorded as of the acquisition date at their respective fair values. Any excess of purchase price over the fair values will be recorded as goodwill. Results of operations for Cole will be included in the Company’s consolidated financial statements subsequent to the Cole Acquisition Date. The initial accounting for the business combination has not been completed due to the significant judgments and time necessary to complete third-party valuation of real estate and other assets.
Pending Significant Acquisition
Inland Portfolio Acquisition
On August 8, 2013, ARC and another related entity, on behalf of the Company and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with Inland American Real Estate Trust, Inc. ("Inland") for the purchase of the equity interests of 67 companies owned by Inland for an aggregate contract purchase price of approximately $2.3 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. Of the 67 companies, the equity interests of 10 companies (the "Inland Portfolio") will be acquired, in total, by the Company from Inland for a purchase price of approximately $501.0 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to the Company based on the pro rata fair value of the Inland Portfolio relative to the fair value of all 67 companies to be acquired from Inland by the Company and the other entities sponsored directly or indirectly by ARC. The Inland Portfolio is comprised of 33 properties. As of December 31, 2013, the Company has closed on five of the 33 properties for a total purchase price of $56.4 million, exclusive of closing costs. The Company closed the acquisition of the 23 additional properties in the Inland Portfolio on February 7, 2014, for an aggregate contract purchase price of $211.0 million, exclusive of closing costs. The remaining five properties are expected to close in the first half of 2014. During the year ended December 31, 2013, the Company deposited $28.6 million into escrow in relation to the Inland Portfolio, which has been included in prepaid expenses and other assets in the consolidated balance sheets.
Note 3 — Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with U.S. GAAP.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, consolidated joint venture arrangement and its subsidiaries. The portions of the consolidated joint venture arrangement not owned by the Company are presented as noncontrolling interests. In addition, as described in Note 1 — Organization, certain affiliates and non-affiliated third parties have been issued OP Units. Holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interest is reflected as equity in the consolidated balance sheets. In addition, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Furthermore, upon conversion of OP Units to common stock, any difference between the fair value of common shares issued and the carrying value of the OP Units converted is recorded as a component of equity. As of December 31, 2013 and 2012, there were 8,960,485 and 1,621,349 OP Units outstanding, respectively. In addition, as discussed in Note 2 — Mergers and Acquisitions, the historical information of ARCT III has been presented as if the merger had occurred as of the beginning of the earliest period presented.
All intercompany accounts and transactions have been eliminated in consolidation. 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 variable interest entity of which the Company is the primary beneficiary.
Reclassification
Certain reclassifications have been made to the previously issued historical financial statements of the Company to conform to this presentation.

F-12
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, investments in real estate, business combinations, and derivative financial instruments and hedging activities, as applicable.
Real Estate Investments
The Company records acquired real estate at costs and makes assessments as to the useful lives of depreciable assets. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. Depreciation is computed using a straight-line method over the estimated useful life of 40 years for buildings, five to 15 years for building fixtures and improvements and the remaining lease term for acquired intangible lease assets.
Assets Held for Sale
The Company classifies real estate investments as held for sale when the Company has entered into a contract to sell the property, all material due diligence requirements have been satisfied, and the Company believes it is probable that the disposition will occur, or the Company is actively marketing the property and management has the intent to sell the property, among other conditions. Assets held for sale are recorded at the lower of carrying value or estimated fair value, less estimated cost to dispose of the asset. The results of operations and the related gain or loss on sale of properties that have been sold or that are classified as held for sale are included in discontinued operations in the consolidated statements of operations and comprehensive loss for all periods presented. At December 31, 2013 and 2012, the Company had one and two properties, respectively, that were classified as properties held for sale. See Note 21 — Discontinued Operations and Properties Held for Sale.
If circumstances arise that the Company previously considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the Company will reclassify the property as held and used. The Company measures and records a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used or (ii) the estimated fair value at the date of the subsequent decision not to sell.
Development Activities
Project costs and expenses, which include interest expense, associated with the development, construction and lease-up of a real estate project are capitalized as construction in progress. Once the development and construction of the building is substantially completed, the amounts capitalized to construction in progress are transferred to (i) land and (ii) buildings and improvements. As required by U.S. GAAP, the Company computes interest expense on the full amount it has invested in the project, whether or not such investment is externally financed.
Impairment of Long Lived Assets
Periodically, or when circumstances indicate the carrying value of a property may not be recoverable, the Company assesses real estate investments 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 impairment exists due to the inability to recover 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. The Company has determined that the significant inputs used to estimate the fair value of the property full within Level 2 or Level 3 of fair value hierarchy. The Company did not record any impairment charges on real estate investments from continuing operations during the years ended December 31, 2013, 2012 and 2011. The Company did not record any impairment charges on real estate investments from discontinued operations during the year ended December 31, 2013. For the years ended December 31, 2012 and 2011, the Company recorded $0.6 million and $0.8 million as impairment charges from discontinued operations.

F-13
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The Company reviews its direct financing leases at least annually to determine whether there has been an other-than-temporary decline in the current estimate of residual value of the property. The Company has determined that the significant inputs used to value these investments fall within Level 3 for fair value accounting. The residual value is an estimate of what the Company could realize upon the sale of the property at the end of the lease term, based on market information. If this review indicates that a decline in residual value has occurred that is other-than-temporary, the Company recognizes an impairment charge equal to the difference between the fair value and carrying value, which is discounted at the internal rate of return of the direct financing lease. The Company did not record any impairment charges on direct financing leases during the years ended December 31, 2013, 2012 and 2011.
Allocation of Purchase Price of Business Combinations including Acquired Properties
In accordance with the guidance for business combinations, the Company determines whether a transaction or other event is a business combination. If the transaction is determined to be a business combination, the Company determines if the transaction is considered to be between entities under common control. The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the merger date. All other business combinations are accounted for by applying the acquisition method of accounting. Under the acquisition method, the Company recognizes the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity. In addition, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company will immediately expense acquisition-related costs and fees associated with business combinations and asset acquisitions.
The Company allocates the purchase price of acquired properties and businesses accounted for under the acquisition method of accounting to tangible and identifiable intangible assets acquired based on their respective fair values to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, buildings, equipment and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships.
Amounts allocated to land, buildings, equipment and fixtures are based on cost segregation studies performed by independent third parties or on the Company's analysis of comparable properties in its portfolio.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which typically ranges from six to 18 months. The Company also estimates costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term of the lease and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined 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.
The fair value of investments and debt are valued using techniques consistent with those disclosed in Note 9 — Fair Value of Financial Instruments, depending on the nature of the investment or debt. The fair value of all other assumed assets and liabilities based on the best information available.

F-14
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The aggregate value of intangibles assets related to customer relationships is measured based on the Company's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of the Company's existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases, which range primarily from two to 20 years. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Intangible lease assets and liabilities of the Company consist of the following as of December 31, 2013 and 2012 (amounts in thousands):
 
 
December 31,
Intangible Lease Assets:
 
2013
 
2012
In-place leases, gross
 
$
532,683

 
$
210,959

Accumulated amortization on in-place leases
 
(48,059
)
 
(11,183
)
In-place leases, net of accumulated amortization
 
484,624

 
199,776

Above market leases, gross
 
3,567

 
1,264

Accumulated amortization on above market leases
 
(400
)
 
(116
)
Above market leases, net of accumulated amortization
 
3,167

 
1,148

Total intangible lease assets, net
 
$
487,791

 
$
200,924

 
 
 
 
 
Intangible Lease Liabilities:
 
 
 
 
Below market leases, gross
 
$
(61,258
)
 
$
—

Accumulated amortization on below market leases
 
529

 
—

Below market leases, net of accumulated amortization
 
(60,729
)
 
—

Total intangible lease liabilities, net
 
$
(60,729
)
 
$
—

The following table provides the remaining weighted-average amortization period as of December 31, 2013 for intangible assets and liabilities and the projected amortization expense and adjustments to rental income for the next five years (amounts in thousands):
 
 
Remaining Weighted-Average Amortization Period in Years
 
2014
 
2015
 
2016
 
2017
 
2018
In-place leases:
 
 
 
 
 
 
 
 
 
 
 
 
Total to be included in amortization expense
 
9.4
 
$
81,977

 
$
75,933

 
$
70,613

 
$
65,434

 
$
63,259

Above market lease assets:
 
 
 
 
 
 
 
 
 
 
 
 
Total to be included in rental income
 
4.7
 
$
433

 
$
433

 
$
433

 
$
340

 
$
323

Below market lease liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Total to be deducted from rental income
 
23.1
 
$
(2,744
)
 
$
(2,744
)
 
$
(2,744
)
 
$
(2,837
)
 
$
(2,854
)

F-15
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Goodwill
For business combinations accounted for under the acquisition method, after identifying all tangible assets and intangible assets and liabilities, the excess consideration paid for the fair value of the assets acquired and liabilities assumed represents goodwill. The Company allocates goodwill to the respective reporting units in which such goodwill arose. Goodwill acquired in the CapLease Merger comprises one reporting unit.
Cash and Cash Equivalents
Cash and cash equivalents include cash in bank accounts, as well as investments in highly-liquid money market funds with original maturities of three months or less.
The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company (“FDIC”) up to an insurance limit. At December 31, 2013 and 2012, the Company had deposits of $36.7 million and $156.9 million, respectively, of which $28.8 million and $154.8 million were in excess of the amount insured by the FDIC. Although the Company bears risk to amounts in excess of those insured by the FDIC, it does not anticipate any losses as a result due to the high quality of the institutions.
Restricted Cash
Restricted cash primarily consists of reserves related to lease expirations, as well as maintenance, structural and debt service reserves.
Investment in Direct Financing Leases
The Company has acquired certain properties that are subject to leases that qualify as direct financing leases in accordance with U.S. GAAP due to the significance of the lease payments from the inception of the leases compared to the fair value of the property. Investments in direct financing leases represent the fair value of the remaining lease payments on the leases and the estimated fair value of any expected residual property value at the end of the lease term. The fair value of the remaining lease payments is estimated using a discounted cash flow based on interest rates that would represent the Company's incremental borrowing rate for similar types of debt. The expected residual property value at the end of the lease term is estimated using market data and assessments of the remaining useful lives of the properties at the end of the lease terms, among other factors. Income from direct financing leases is calculated using the effective interest method over the remaining term of the lease.
As part of the update to the provisional allocation of the purchase price for the GE Capital Portfolio during the measurement period, the Company reclassified approximately $9.9 million from investment in direct financing leases receivables to investments in real estate, at cost.
Loans Held for Investments
The Company classifies its loans as long-term investments, as the Company intends to hold the loans for the foreseeable future or until maturity. Loan investments are carried on the Company's consolidated balance sheets at amortized cost (unpaid principal balance adjusted for unearned discount or premium and loan origination fees), net of any allowance for loan losses. Unearned discounts or premiums and loan origination fees are amortized as a component of interest income using the effective interest method over the life of the loan.
From time to time, the Company may determine to sell a loan in which case it must reclassify the asset as held for sale. Loans held for sale are carried at lower of cost or estimated fair value. From the period the Company acquired the loan investments through December 31, 2013, the Company has not sold or reclassified any loans as held for sale.
The Company evaluates its loan investments for possible impairment on a quarterly basis. Refer to Note 6 — Investment Securities, at Fair Value.
Commercial Mortgage-Backed Securities
The Company classifies all of its commercial mortgage-backed securities ("CMBS") as available for sale for financial accounting purposes. Under U.S. GAAP, securities classified as available for sale are carried on the consolidated balance sheet at fair value with the net unrealized gains or losses included in Accumulated Other Comprehensive Income (Loss), a component of Stockholders’ Equity.
Any premiums or discounts on securities are amortized as a component of interest income using the effective interest method.

F-16
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The Company estimates fair value on all securities investments quarterly based on a variety of inputs. Under applicable accounting guidance, securities where the fair value is less than the Company’s cost are deemed impaired, and, therefore, must be measured for other-than-temporary impairment. If an impaired security (i.e., fair value below cost) is intended to be sold or required to be sold prior to expected recovery of the impairment loss, the full amount of the loss must be charged to earnings as other-than-temporary impairment. Otherwise, temporary impairment losses are charged to other comprehensive income (loss).
In estimating credit or other-than-temporary impairment losses, management considers a variety of factors including (1) the financial condition and near-term prospects of the credit, including credit rating of the security and the underlying tenant and an estimate of the likelihood, amount and expected timing of any default, (2) whether the Company expects to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value, (3) the length of time and the extent to which the fair value has been below cost, (4) current market conditions, (5) expected cash flows from the underlying collateral and an estimate of underlying collateral values, and (6) subordination levels within the securitization pool. These estimates are highly subjective and could differ materially from actual results. From the period the Company acquired the CMBS through December 31, 2013, the Company had no other-than-temporary impairment losses.
Deferred Costs, Net
Deferred costs, net consists of deferred financing costs net of accumulated amortization, deferred leasing costs net of accumulated amortization and deferred offering costs.
Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. These costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined the financing will not close. At December 31, 2013 and 2012, the Company had $80.4 million and $15.1 million, respectively, of deferred financing costs net of accumulated amortization.
Deferred leasing costs, consisting primarily of lease commissions and payments made to assume existing leases, are deferred and amortized over the term of the lease. At December 31, 2013 and 2012, the Company had $0.2 million and $0.2 million, respectively, of deferred leasing costs, net of accumulated amortization.
Deferred offering costs represent professional fees, fees paid to various regulatory agencies, and other costs incurred in connection with registering to sell shares of the Company's common stock. As of December 31, 2013, the Company had no deferred offering costs. As of December 31, 2012, the Company had $0.1 million of deferred offering costs related to the Company's $500.0 million universal shelf and resale registration statements filed with the SEC in August 2012.
Convertible Obligation to Series C Convertible Preferred Stockholders
On June 7, 2013, the Company issued, through a private placement, 28.4 million shares of Series C Convertible Preferred Stock (the “Series C Stock”) for gross proceeds of $445.0 million. Due to an unconditional obligation to either redeem or convert the Series C Stock into a variable number of shares of common stock that is predominantly based on a fixed monetary amount, the preferred securities were classified as an obligation under U.S. GAAP and were presented in the consolidated balance sheets as a liability prior to their settlement in November 2013. Promptly following the closing of the CapLease Merger, which, as discussed in Note 2 — Mergers and Acquisitions, was consummated on November 5, 2013, the Company converted the Series C Stock. In accordance with the terms of the original agreement, the Series C Stock was converted into 1.4 million shares of common stock with the remaining balance of Series C Stock settled in cash consideration of $441.4 million.
Contingent Valuation Rights
On June 7, 2013, the Company issued to certain common stock investors 29.4 million contingent value rights (“Common Stock CVRs”) and to the Series C Stock investors 28.4 million contingent value rights (“Preferred Stock CVRs”). In September 2013, certain investors holding the Common Stock CVRs received $20.4 million representing the maximum payment of $1.50 per share as defined in the agreement. The remaining Common Stock CVR holders received settlement of the amount owed to them of $23.7 million promptly following the CapLease Merger, which consummated on November 5, 2013, representing the maximum payment of $1.50 per share.
The Company elected to settle the Preferred Stock CVRs promptly following the closing of the CapLease Merger on November 5, 2013. The Company settled the Preferred Stock CVRs for $0.90 per Preferred Stock CVR for total cash consideration of $25.6 million.

F-17
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Changes in the fair value of the contingent valuation rights obligation subsequent to issuance date were recorded in the consolidated statements of operations and comprehensive loss within gain/loss on derivatives, net in the period incurred. For the year-ended December 31, 2013, the Company recorded a loss on the CVRs of $69.7 million, representing the settled value.
Convertible Debt
On July 29, 2013, the Company issued $300.0 million of Convertible Senior Notes (the "2018 Notes") and, pursuant to an over-allotment exercise by the underwriters of such 2018 Notes offering, issued an additional $10.0 million of its 2018 Notes on August 1, 2013. On December 10, 2013, the Company issued an additional $287.5 million of the 2018 Notes through a reopening of the 2018 Notes indenture agreement. Also on December 10, 2013, the Company issued $402.5 million of Convertible Senior Notes (the "2020 Notes", collectively with the 2018 Notes, the "Convertible Notes"). The 2018 Notes mature August 1, 2018 and the 2020 Notes mature on December 15, 2020. The Convertible Notes are convertible to cash or shares of the Company's common stock at the Company's option. In accordance with U.S GAAP, the notes are accounted for as a liability with a separate equity component recorded for the conversion option. A liability was recorded for the Convertible Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The debt discount is being amortized to interest expense over the expected lives of the Convertible Notes.
Derivative Instruments
The Company may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with its borrowings. Certain of the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions.
The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in gains (losses) on derivative instruments in the consolidated statements of operations and comprehensive loss. If the derivative is designated and qualifies for hedge accounting treatment the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
Share Repurchase Program
ARCT III's board of directors had adopted a Share Repurchase Program (“SRP”) that enabled stockholders to sell their shares to ARCT III in limited circumstances. The SRP permitted investors to sell their shares back to ARCT III after they had held them for at least one year, subject to the significant conditions and limitations described below.
The purchase price per share depended on the length of time investors had held such shares as follows: after one year from the purchase date — the lower of $9.25 and 92.5% of the amount they actually paid for each share; after two years from the purchase date —the lower of $9.50 and 95.0% of the amount they actually paid for each share; after three years from the purchase date — the lower of $9.75 and 97.5% of the amount they actually paid for each share; and after four years from the purchase date — the lower of $10.00 and 100% of the amount they actually paid for each share.

F-18
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

ARCT III was only authorized to repurchase shares pursuant to the SRP up to the value of shares issued under the DRIP (as defined below) and limited the amount spent to repurchase shares in a given quarter to the value of the shares issued under the DRIP in that same quarter.
When a stockholder requested repurchases and the repurchases were approved by ARCT III’s board of directors, it reclassified such obligation from equity to a liability based on the settlement value of the obligation. The following table reflects the number of shares repurchased for the years ended December 31, 2013, 2012 and 2011.
 
 
Number of Requests
 
Number of Shares
 
Average Price per Share
2011
 
1
 
2,375

 
$
10.00

2012
 
73
 
179,104

 
9.93

2013
 
—
 
—

 
—

Cumulative repurchase requests as of December 31, 2013
 
74
 
181,479

 
$
9.93

Upon the ARCT III Merger, the SRP was terminated.
Upon the closing of the ARCT III Merger on February 28, 2013, pursuant to the terms of the ARCT III Merger Agreement, 29.2 million shares, or 16.5% of the then outstanding shares of ARCT III's common stock, were paid in cash at $12.00 per share, which is equivalent to 27.7 million shares of the Company's common stock based on the ARCT III Exchange Ratio. See Note 2 —Mergers and Acquisitions.
On August 20, 2013, the Company's board of directors reauthorized its $250 million share repurchase program which was originally authorized in February 2013. During the year ended December 31, 2013, the Company repurchased approximately 0.6 million shares at an average price of $13.06 per share or $7.5 million in total.
Distribution Reinvestment Plan
Pursuant to the ARCT III distribution reinvestment plan or ("DRIP"), stockholders could have elected to reinvest distributions by purchasing shares of ARCT III common stock in lieu of receiving cash. No dealer manager fees or selling commissions were paid with respect to shares purchased pursuant to the DRIP. Participants purchasing shares pursuant to the DRIP had the same rights and were treated in the same manner as if such shares were issued pursuant to ARCT III's initial public offering (the "ARCT III IPO"). Shares issued under the DRIP were recorded within stockholders’ equity in the accompanying consolidated balance sheets in the period distributions were declared. During the years ended December 31, 2013, 2012 and 2011, ARCT III issued 0.5 million, 2.7 million and 27,169 shares of common stock, respectively, with a value of $4.9 million, $26.8 million and $0.3 million, respectively, in each case with a par value per share of $0.01, pursuant to the DRIP. Upon the closing of the ARCT III Merger, the DRIP was terminated.
Revenue Recognition
Upon the acquisition of real estate, certain properties will have leases where minimum rent payments increase during the term of the lease. The Company will record rental revenue for the full term of each lease on a straight-line basis. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. Cost recoveries from tenants are included in tenant reimbursement income in the period the related costs are incurred, as applicable.
The Company's revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many of the leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Straight-line rent receivables are included in prepaid expenses and other assets on the consolidated balance sheets. See Note 7 — Prepaid Expenses and Other Assets. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. As of December 31, 2013 and 2012, the Company had $16.8 million and $4.3 million, respectively, of deferred rental income, which is included in deferred rent and other liabilities on the consolidated balance sheets.

F-19
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The Company continually reviews receivables related to rent and unbilled rent receivables and determines 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, the Company will record an increase in the allowance for uncollectible accounts or record a direct write-off of the receivable in the consolidated statements of operations and comprehensive loss. As of December 31, 2013 and 2012, the Company determined that no allowance for uncollectible accounts was necessary.
Contingent Rental Income
The Company owns certain properties that have associated leases that require the tenant to pay contingent rental income based on a percentage of the tenant's sales after the achievement of certain sales thresholds, which may be monthly, quarterly or annual targets. As a lessor, the Company defers 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.
Offering and Related Costs
Offering and related costs include costs incurred in connection with the Company's issuance of common stock. These costs include, but are not limited to, (i) legal, accounting, printing, mailing and filing fees; (ii) escrow related fees, and (iii) reimbursement to the dealer manager for amounts they paid to reimburse the bonified due diligence expenses of broker-dealers.
Acquisition Related Expenses and Merger and Other Transaction Related Expenses
Acquisition related expenses include legal and other transaction related costs incurred in connection with self-originated acquisitions including purchases of portfolios. Merger and other transaction related expenses include the following costs (amounts in thousands):
 
 
Year Ended December 31,
 
 
2013
 
2012
Incentive fee paid to a subsidiary of the Former Sponsor in connection with the ARCT III Merger
 
$
98,360

 
$
—

Legal and other transaction related costs incurred in connection with mergers
 
87,771

 
2,603

Accelerated vesting of operating partnership units due to internalization
 
59,400

 
—

Acceleration of restricted share amortization resulting from our consummation of the Cole Merger
 
2,657

 
—

Other internalization costs
 
8,474

 
—

Total
 
$
256,662

 
$
2,603

Equity Based Compensation
The Company has an equity based incentive award plan for its affiliated Manager, non-executive directors, officers, other employees and independent contractors who are providing services to the Company, as applicable, and a non-executive director restricted share plan, which are accounted for under the guidance for share-based payments. The expense for such awards is recognized over the vesting period or when the requirements for exercise of the award have been met. See Note 17 — Equity Based Compensation for additional information on these plans.
Per Share Data
Income (loss) per basic share of common stock is calculated by dividing net income (loss) less dividends on unvested restricted stock and dividends on preferred shares by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted income (loss) per share of common stock considers the effect of potentially dilutive shares of common stock outstanding during the period. As the Company has the ability and intent to settle all outstanding convertible debt in cash, the Company has excluded the if-converted shares from its calculation of diluted shares.

F-20
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Income Taxes
Each of the Company and ARCT III qualified as REITs under Sections 856 through 860 of the Internal Revenue Code (the “Code”) commencing with the taxable year ended December 31, 2011. Being qualified for taxation as a REIT, each of the Company and ARCT III generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, and so long as it distributes at least 90% of its REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gain. REITs are subject to a number of other organizational and operational requirements. Each of the Company and ARCT III may still be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.
As of December 31, 2013, the Company had no material uncertain income tax positions. The tax years subsequent to and including the fiscal year ended December 31, 2010 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Reportable Segments
The Company has determined that it has one reportable segment with activities related to investing in real estate and real estate-related assets. The Company's investments in real estate generate rental revenue and other income through the leasing of properties, which comprised 100% of its total consolidated revenues. Although the Company's investments in real estate will be geographically diversified throughout the United States, management evaluates operating performance on an individual property level. The Company's properties have been aggregated into one reportable segment.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance regarding disclosures about offsetting assets and liabilities, which requires entities to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance was effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented. The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Refer to Note 6 — Derivatives and Hedging Activities for the Company's disclosure of information about offsetting and related arrangements.
In July 2012, the FASB issued revised guidance intended to simplify how an entity tests indefinite-lived intangible assets for impairment. The amendments allow an entity to initially assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. An entity is no longer required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative test unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments were effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In February 2013, the FASB issued guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance was effective for annual and interim periods beginning after December 15, 2012. The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Refer to Note 6 — Derivatives and Hedging Activities for the Company's disclosure of the information about the amounts reclassified out of accumulated other comprehensive income by component.
In February 2013, the FASB issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

F-21
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Note 4 — Real Estate Investments
Excluding the CapLease Merger, the following table presents the allocation of the assets acquired and liabilities assumed during the periods presented (dollar amounts in thousands):
 
 
Year Ended December 31,
 
 
2013(1)
 
2012
Real estate investments, at cost:
 
 
 
 
Land
 
$
301,167

 
$
223,917

Buildings, fixtures and improvements
 
948,048

 
1,174,747

Total tangible assets
 
1,249,215

 
1,398,664

Acquired intangible assets:
 
 
 
 
In-place leases
 
132,063

 
189,182

Above market leases
 
—

 
1,264

Total assets acquired, net
 
1,381,278

 
1,589,110

Assumed intangible liabilities:
 
 
 
 
Below market leases
 
(4,200
)
 
—

Total liabilities acquired, net
 
(4,200
)
 
—

OP Units issued to acquire real estate investments
 
—

 
(6,352
)
Cash paid for acquired real estate investments
 
$
1,377,078

 
$
1,582,758

Number of properties acquired
 
569

 
524

_______________________________________________
(1) Excludes 38 properties comprised of $55.1 million of net investments subject to direct financing leases.
The following table presents unaudited pro forma information as if the acquisitions, including the CapLease Merger discussed in Note 5 — CapLease Acquisition, during the year ended December 31, 2013 had been consummated on January 1, 2012. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of acquisitions to reflect the additional depreciation and amortization and interest expense that would have been charged had the acquisitions occurred on January 1, 2012. Additionally, the unaudited pro forma net loss attributable to stockholders was adjusted to exclude acquisition related expenses of $23.3 million and $42.8 million for the years ended December 31, 2013 and 2012, respectively, and merger and other transaction related expenses of $256.7 million and $2.6 million for the years ended December 31, 2013 and 2012, respectively.
 
 
Year Ended December 31,
(Amounts in thousands)
 
2013
 
2012
Pro forma revenues
 
$
407,326

 
$
394,233

Pro forma net income (loss) attributable to stockholders
 
$
(79,901
)
 
$
33,695


F-22
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Future Lease Payments
The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (amounts in thousands):
 
 
Future Minimum
Operating Lease
Base Rent Payments
 
Future Minimum
Direct Financing Lease Payments (1)
2014
 
$
375,070

 
$
4,410

2015
 
366,798

 
4,324

2016
 
351,326

 
4,280

2017
 
317,136

 
3,975

2018
 
291,292

 
3,015

Thereafter
 
1,615,750

 
9,242

Total
 
$
3,317,372

 
$
29,246

_______________________________________________
(1) 38 properties are subject to direct financing leases and, therefore, revenue is recognized as direct financing lease income on the discounted cash flows of the lease payments. Amounts reflected are the cash rent on these respective properties.
Net Investment in Direct Financing Leases
The components of the Company's net investment in direct financing leases as of December 31, 2013 are as follows (amounts in thousands):
 
 
December 31, 2013
Future minimum lease payments receivable
 
$
29,247

Unguaranteed residual value of property
 
37,674

Unearned income
 
(11,842
)
Net investment in direct financing leases
 
$
55,079

The Company had no investments in direct financing leases as of December 31, 2012.
Development Activities
Prior to the CapLease Acquisition Date (as defined below), Caplease entered into an agreement to construct a distribution warehouse in Columbia, South Carolina on a build-to-suit basis for a large private company tenant. The new build-to-suit project has an estimated total investment of $22.0 million. Construction activity and funding of the project commenced during June 2013.
Also prior to the CapLease Acquisition Date, CapLease entered into an agreement with a major Texas-based developer to develop a 150,000 square foot speculative office building in The Woodlands, Texas, adjacent to and part of the same development as an existing office building owned by CapLease and purchased in 2012. Costs of the project which are budgeted to be $34.0 million are scheduled to be funded by equity contributions from the Company and its developer partner, and $17.0 million of advances during the construction period under a development loan entered into with Amegy Bank. All equity contributions are scheduled to be borne as follows: the Company, 90%; and the developer, 10%; except for cost overruns, which will be borne 50% by each. Because the Company has a controlling financial interest in the investment, it consolidates the investment for financial accounting purposes. The Company has an option to purchase, and the developer the option to sell to the Company, in each case at fair market value, the developer’s interest in the project upon (i) substantial completion of the project and (ii) leases being entered into for 95% of the square footage of the project. Construction activity and funding of the project commenced during the quarter ended September 30, 2013.

F-23
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The table below details the Company’s investment in its pending development projects as of December 31, 2013. The information included in the table below represents management’s estimates and expectations at December 31, 2013 which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results (dollar amounts in thousands).
Location
 
Tenant
 
Property
Type 
 
Approximate
Square Feet
 
Lease
Term
(years)
 
Percent
Owned
 
Investment
through
12/31/13
 
Estimated
Remaining Investment
 
Estimated
Total
Investment
 
Estimated
Completion
Date
Columbia, South Carolina
 
Large private company
 
Warehouse
 
450,000
 
10.5(1)
 
100%
 
$14,745
 
$7,325
 
$22,033
 
Q1 2014
The Woodlands, Texas
 
N/A - speculative development
 
Office building
 
150,000
 
N/A
 
90%
 
$7,257
 
$26,775
 
$33,987
 
Q3 2014
_______________________________________________
(1) The lease is in force and the 10.5 year lease term will commence upon substantial completion of the building.
The amount of the “Investment” as of December 31, 2013 includes capitalized interest of $37,000 for the Columbia, South Carolina project and $45,000 for The Woodlands, Texas project. The amount of capitalized interest subsequent to the CapLease Acquisition Date through December 31, 2013 was not significant.
Tenant Concentration
The following table lists the tenants of the Company whose annualized rental income on a straight-line basis represented greater than 10% of consolidated annualized rental income on a straight-line basis as of December 31, 2013. Annualized rental income for net leases is rental income on a straight-line basis as of the period reported, which includes the effect of tenant concessions such as free rent, as applicable. There were no tenants exceeding 10% of consolidated annualized rental income on a straight-line basis at December 31, 2013.
 
 
Year Ended December 31,
 
 
2013
 
2012
Dollar General
 
*
 
12.3%
Citizens Bank
 
*
 
11.8%
FedEx
 
*
 
10.2%
_______________________________________________
* The tenants' annualized rental income was not greater than 10% of total consolidated annualized rental income for all portfolio properties as of the period specified.
No other tenant represents more than 10% of total consolidated annualized rental income on a straight-line basis for the periods presented.
Geographic Concentration
The following table lists the states where the Company has concentrations of properties where annual rental income on a straight-line basis represented greater than 10% of consolidated annualized rental income on a straight-line basis as of December 31, 2013 and 2012.
 
 
Year Ended December 31,
 
 
2013
 
2012
Texas
 
10.8%
 
*
Illinois
 
*
 
11.2%
_______________________________________________
* The tenants' annualized rental income was not greater than 10% of total consolidated annualized rental income for all portfolio properties as of the period specified.

F-24
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Note 5 — CapLease Acquisition
On November 5, 2013 (the "CapLease Acquisition Date"), the Company completed its acquisition of CapLease, a real estate investment trust that primarily owned and managed a diversified portfolio of single tenant commercial real estate properties subject to long-term leases, the majority of which were net leases, to high credit quality tenants, by acquiring 100% of the outstanding common shares and voting interests of CapLease. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The Company's consolidated financial statements include the results of operations of CapLease subsequent to the CapLease Acquisition Date.
The purchase price includes a cash payment of $920.7 million, which was funded by the Company through additional borrowings under its revolving credit facility and the credit facility assumed from CapLease, see Note 11 — Other Debt and Note 12 — Credit Facilities.
The purchase price allocation for the CapLease Merger is considered preliminary, and additional adjustments may be recorded during the measurement period in accordance with U.S. GAAP. The purchase price allocation will be finalized as the Company receives additional information relevant to the acquisition, including a final valuation of the assets purchased and liabilities assumed.
The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair value. The following table presents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the CapLease Acquisition Date (in thousands):
Fair value of consideration given
 
$
920,697

 
 
 
Assets purchased, at fair value:
 
 
Land
 
$
235,843

Buildings, fixtures and improvements
 
1,596,481

Land and construction in process
 
12,352

Acquired intangible lease assets
 
191,964

Total real estate investments
 
2,036,640

Cash and cash equivalents
 
41,799

Investment securities
 
60,730

Loans held for investment
 
26,457

Restricted cash
 
29,159

Prepaid expenses and other assets
 
21,564

Deferred costs
 
325

Total identifiable assets purchased
 
2,216,674

Liabilities assumed, at fair value:
 
 
Mortgage notes payable
 
1,037,510

Secured credit facility
 
121,000

Other debt
 
114,208

Below-market leases
 
57,058

Derivative liabilities
 
158

Accounts payable and accrued expenses
 
46,484

Deferred rent and other liabilities
 
8,867

Total liabilities assumed
 
1,385,285

Non-controlling interest retained by third party
 
567

Net identifiable assets acquired by Company
 
830,822

Goodwill
 
$
89,875

 
 
 

F-25
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Management is in the process of evaluating the purchase price accounting. The fair value of real estate investments and below-market leases have been estimated by the Company with the assistance of third-party valuation firms. Based on a preliminary analyses received to date, the estimated fair value of these assets and liabilities total $2.0 billion and $57.1 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analyses, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result.
The fair value of the noncontrolling interest has been estimated based on the fair value of the percentage ownership of The Woodlands, Texas development activity not held by the Company. Refer to Note 4 — Real Estate Investments.
The fair value of the remaining CapLease assets and liabilities have been calculated in accordance with the Company's policy on purchase price allocation, as disclosed in Note 3 — Summary of Significant Accounting Policies.
The $89.9 million of goodwill is expected to be assigned to the real estate segment upon completion of the external valuation. The goodwill recognized is attributed to the enhancement of the Company's year-round rental revenue stream, expected synergies, and the assembled work force at CapLease.
The amounts of revenue and net loss of CapLease included in the Company’s consolidated statements of operations and comprehensive loss from the CapLease Acquisition Date to the period ended December 31, 2013 was $28.5 million and $5.8 million, respectively.
The pro forma consolidated statement of operation as if CapLease had been included in the consolidated results of the Company for the entire years ended December 31, 2013 and 2012 have been reflected in Note 4 — Real Estate Investments.

Note 6 — Investment Securities, at Fair Value
Investment securities are considered available-for-sale and, therefore, increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income (loss) as a component of equity on the consolidated balance sheets unless the securities are considered to be other than temporarily impaired at which time the losses are reclassified to expense.
The following table details the unrealized gains and losses on investment securities as of December 31, 2013 and 2012 (amounts in thousands):
As of December 31, 2013
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Investments in real estate fund
 
$
1,589

 
$
—

 
$
(105
)
 
$
1,484

CMBS
 
60,452

 
498

 
(367
)
 
60,583

 
 
$
62,041

 
$
498

 
$
(472
)
 
$
62,067

 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
 
 
 
 
 
 
 
Preferred securities
 
$
41,747

 
$
223

 
$
(316
)
 
$
41,654

Investment in Real Estate Fund
On June 4, 2013, the Company invested $10.0 million in a real estate fund that is sponsored by an affiliate of the Former Manager of the Company and which invests primarily in equity securities of other publicly traded REITs. During the year-ended December 31, 2013, the Company reinvested distributions totaling $0.1 million into the real estate fund. During the fourth quarter of 2013, the Company sold investments with an original cost of $8.5 million for total proceeds of $8.1 million. The realized loss of $0.4 million has been recorded to losses on investments in affiliates within the consolidated statements of operations and comprehensive loss. Refer to Note 18 — Related Party Transactions and Arrangements.
Commercial Mortgage-Backed Securities ("CMBS")
In connection with the CapLease Merger, the Company acquired 10 commercial mortgage-backed securities, with a fair value of $60.7 million. At December 31, 2013, the commercial mortgage-backed securities had a carrying value of $60.5 million and carried interest rates ranging from 5.88% to 8.95%. The Company had no commercial mortgage-backed securities as of December 31, 2012.

F-26
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

As of December 31, 2013, the fair value of four commercial mortgage-backed securities was below its carrying value. The Company evaluated each of its securities for other-than-temporary impairment at December 31, 2013, and determined that no other-than-temporary impairment charges on its securities were appropriate. The Company believes that none of the unrealized losses on investment securities are other-than-temporary because management expects the Company will receive all contractual principal and interest related to these investments. In addition, the Company did not have the intent to sell the securities or believe it would be required to sell them as of December 31, 2013.
Redeemable Preferred Stock
At December 31, 2012, the Company had investments in redeemable preferred stock, accounted for as debt securities, with a fair value of $41.7 million. These investment securities were sold during the year ended December 31, 2013, resulting in a gain on sale of investments of $0.5 million.
Note 7 — Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):
 
 
Year Ended December 31,
 
 
2013
 
2012
Restricted escrow deposits
 
$
101,034

 
$
—

Accounts receivable
 
11,628

 
2,422

Straight line rent receivable
 
12,636

 
3,718

Prepaid expenses
 
43,114

 
856

Other assets
 
6,915

 
420

 
 
$
175,327

 
$
7,416


Note 8 — Loans Held for Investment
Loans Held for Investment
In connection with the CapLease Merger, the Company acquired 12 loans held for investment, which consist predominantly of mortgage loans on properties subject to leases to investment grade tenants, with a fair value of $26.5 million at the CapLease Merger Date. At December 31, 2013, the loans held for investment had a carrying value of $26.3 million and carried interest rates ranging from 5.28% to 7.24%. The fair value adjustment is being amortized to to interest expense in the consolidated statements of operations and comprehensive loss over the life of the Secured Term. The Company had no loans held for investment as of December 31, 2012.
The Company’s loan portfolio is comprised primarily of fully amortizing or nearly fully amortizing first mortgage loans on commercial real estate leased to a single tenant. Payments of debt service on the Company’s loans is, in substantially all cases, funded directly by rent payments paid into a lockbox account by the underlying tenant. Therefore, the Company’s monitoring of the credit quality of its loans held for investment is focused primarily on an analysis of the tenant, including review of tenant credit ratings (including changes in ratings) and other measures of tenant credit quality, trends in the tenant’s industry and general economic conditions, and an analysis of measures of collateral coverage, such as an estimate of the loan’s loan-to-value ("LTV") ratio (principal amount outstanding divided by estimated value of the property) and its remaining term until maturity. As of December 31, 2013, the Company did not record a reserve for loan loss.

Note 9 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The guidance defines three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

F-27
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

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 about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of December 31, 2013, the Company’s interest rate cap derivative measured at fair value on a recurring basis was zero and was classified in Level 2 of the fair value hierarchy.
The following table presents information about the Company’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of December 31, 2013 and 2012, aggregated by the level in the fair value hierarchy within which those instruments fall (amounts in thousands):
 
 
Quoted Prices
in Active
Markets
Level 1
 
Significant Other
Observable
Inputs
Level 2
 
Significant
Unobservable
Inputs
Level 3
 
Total
December 31, 2013
 
 
 
 
 
 
 
 
Investments in real estate fund
 
$
—

 
1,484

 
$
—

 
$
1,484

CMBS
 
—

 
—

 
60,583

 
60,583

Interest rate swap assets
 
—

 
9,152

 
—

 
9,152

Interest rate swap liabilities
 
—

 
(1,651
)
 
—

 
(1,651
)
Series D Preferred Stock embedded derivative
 
—

 
—

 
(16,736
)
 
(16,736
)
Total
 
$
—

 
$
8,985

 
$
43,847

 
$
52,832

 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
Investment securities
 
$
41,654

 
$
—

 
$
—

 
$
41,654

Interest rate swaps
 
—

 
(3,830
)
 
—

 
(3,830
)
Total
 
$
41,654

 
$
(3,830
)
 
$
—

 
$
37,824


F-28
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Investment in real estate fund — The fair value of the Company’s investments in real estate fund are based published pricing.
Commercial mortgage-backed securities — The fair values of the Company's CMBS are valued using broker quotations, collateral values, subordination levels, and liquidity of the individual securities.
Derivatives — The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments, are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.
Series D Preferred Stock embedded derivative — The valuation of this derivative instrument is determined using a binomial option pricing model. Key inputs in the model include the expected term, risk-free interest rate, volatility, and dividend yield.
The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, due to affiliates and accounts payable approximate their carrying value on the accompanying consolidated balance sheets due to their short-term nature and are classified as Level 1 under the fair value hierarchy.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between Level 1 and Level 2 or Level 3 of the fair value hierarchy during the year ended December 31, 2013.
The following is a reconciliation of the beginning and ending balance for the changes in instruments with Level 3 inputs in the fair value hierarchy for the year ended December 31, 2013:
 
 
CMBS
 
Series D Preferred Stock embedded derivative
 
Total
Beginning balance
 
$
—

 
$
—

 
$
—

Fair value at purchase/issuance
 
60,730

 
(18,692
)
 
42,038

Sales of CMBS
 
(278
)
 
—

 
(278
)
Fair value adjustment(1)
 
131

 
1,956

 
2,087

Ending balance
 
$
60,583

 
$
(16,736
)
 
$
43,847

(1) The change in fair value in the CMBS and Series D Preferred Stock embedded derivative is recorded in unrealized gain (loss) on investment securities, net and loss on derivative instruments, net, respectively, on the consolidated statement of operations and comprehensive loss.

F-29
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The fair values of the Company’s financial instruments that are not reported at fair value on the consolidated balance sheets are reported below (amounts in thousands):
 
 
 
 
Carrying Amount at
 
Fair Value at
 
Carrying Amount at
 
Fair Value at
 
 
Level
 
December 31, 2013
 
December 31, 2013
 
December 31, 2012
 
December 31, 2012
Assets:
 
 
 
 
 
 
 
 
 
 
Loans held for investment
 
3
 
$
26,279

 
$
26,435

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Convertible debt
 
3
 
$
972,490

 
$
976,629

 
$
—

 
$
—

Mortgage notes payable
 
3
 
1,298,990

 
1,303,742

 
265,118

 
271,056

Senior secured revolving credit facility
 
3
 
—

 
—

 
124,604

 
124,604

Senior corporate credit facility
 
3
 
1,059,800

 
1,059,800

 
—

 
—

Secured credit facility
 
3
 
150,000

 
150,000

 
—

 
—

Trust preferred notes
 
3
 
26,548

 
23,345

 
—

 
—

Secured term loan
 
3
 
58,979

 
59,049

 
—

 
—

Other debt
 
3
 
19,278

 
19,350

 
—

 
—

Total liabilities
 
 
 
$
3,586,085

 
$
3,591,915

 
$
389,722

 
$
395,660

Loans held for investment — The fair value of the Company’s fixed-rate loan portfolio is estimated with a discounted cash flow analysis, utilizing scheduled cash flows and discount rates estimated by management to approximate those that a willing buyer and seller might use.
Credit facilities — Management believes that the stated interest rates (which float based on short-term interest rates) approximates market rates. As such, the fair values of these obligations is estimated to be equal to the outstanding principal amounts.
Convertible notes, mortgage notes payable and secured term loan — The fair value of mortgages payable on real estate investments and the secured term loan is estimated using a discounted cash flow analysis, based on management’s estimates of market interest rates. For mortgages where the Company has an early prepayment right, management also considers the prepayment amount to evaluate the fair value.
Trust preferred notes — The fair value of the Company’s other long-term debt is estimated using a discounted cash flow analysis, based on management’s estimates of market interest rates.

Note 10 — Mortgage Notes Payable
The Company’s mortgage notes payable consist of the following as of December 31, 2013 and December 31, 2012 (dollar amounts in thousands):
 
 
Encumbered Properties
 
Outstanding Loan Amount
 
Weighted Average
Effective Interest Rate (1)
 
Weighted Average Maturity (2)
2013
 
175

 
$
1,256,537

 
3.42
%
 
3.41
2012
 
164

 
$
265,118

 
4.28
%
 
5.51
_______________________________________________
(1)
Mortgage notes payable have fixed rates or are fixed by way of interest rate swap arrangements. Effective interest rates range from 1.83% to 6.28% at December 31, 2013 and 3.32% to 6.13% at December 31, 2012.
(2)
Weighted average remaining years until maturity as of December 31, 2013 and December 31, 2012, respectively.

F-30
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

In conjunction with the CapLease Merger, aggregate net premiums totaling $45.2 million were recorded upon assumption of the mortgages for above-market interest rates. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgages using a method that approximates the effective-interest method. As of December 31, 2013, there was $42.5 million in unamortized net premiums included in mortgage notes payable, net on the consolidated balance sheets.
The following table summarizes the scheduled aggregate principal repayments subsequent to December 31, 2013 (amounts in thousands):
 
 
Principal Repayment
2014
 
$
86,933

2015
 
381,574

2016
 
295,627

2017
 
257,658

2018
 
34,086

Thereafter
 
200,659

 
 
$
1,256,537

The Company’s mortgage loan agreements generally require restrictions on corporate guarantees and the maintenance of financial covenants including maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). As of December 31, 2013, the Company was in compliance with the debt covenants under the mortgage loan agreements.

Note 11 — Other Debt
Convertible Obligation to Series C Convertible Preferred Stockholders
On June 7, 2013, the Company issued 28.4 million shares of Series C Stock through a private placement for gross proceeds of $445.0 million. Due to an unconditional obligation to either redeem or convert the Series C Stock into a variable number of shares of common stock that is predominantly based on a fixed monetary amount, the preferred securities were classified as an obligation under U.S. GAAP and were presented in the consolidated balance sheets as a liability prior to their conversion on November 8, 2013. On November 8, 2013, the Company converted all outstanding Series C Stock into common shares of the Company. Pursuant to the Series C Articles Supplementary, the number of common shares that could be issued upon conversion of Series C Stock was limited by the exchange cap. Therefore, the Company converted 1.1 million shares of Series C Stock into 1.4 million common shares of the Company. With respect to the 27.3 million shares of Series C Stock for which Common Shares could not be issued upon conversion due to the exchange cap, the Company paid holders of Series C Stock an aggregate cash amount equal to approximately $441.4 million in exchange for such Series C Stock. Based on the Company's share price on the conversion date, the total settlement value was $458.8 million. Settlement of the Series C Stock resulted in a loss of $13.8 million, which is recorded as interest expense in the consolidated statements of operations and comprehensive loss.
Convertible Senior Note Offering
On July 29, 2013, the Company issued $300.0 million of the 2018 Notes and, pursuant to an over-allotment exercise by the underwriters of such 2018 Notes offering, issued an additional $10.0 million of its 2018 Notes on August 1, 2013 (collectively, the "Original 2018 Notes"). On December 10, 2013, the Company issued an additional $287.5 million through a reopening of the 2018 Notes indenture agreement (the "Reopened 2018 Notes," together with the Original 2018 Notes, the "2018 Notes"). The 2018 Notes mature on August 1, 2018. The fair value of the Original 2018 Notes and Reopened 2018 Notes was determined at issuance to be $299.6 million and $282.1 million, respectively, resulting in a debt discount of $10.4 million and $5.4 million, respectively, with an offset recorded to additional paid-in capital representing the equity component of the notes for the conversion options. The discount is being amortized to interest expense over the expected lives of the 2018 Notes. As of December 31, 2013, the carrying value of the Original 2018 Notes and Reopened 2018 Notes was $300.5 million and $282.2 million, respectively. The holders may elect to convert the 2018 Notes into cash, common stock of the Company or a combination thereof, at the Company’s option, in limited circumstances prior to February 1, 2018 and may convert the 2018 Notes at any time into such consideration on or after February 1, 2018. The initial conversion rate is 59.805 shares of the Company's common stock per $1,000 principal amount of 2018 Notes.

F-31
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

On December 10, 2013, the Company issued $402.5 million of 3.75% Convertible Senior Notes (the "2020 Notes"). The 2020 Notes mature on December 15, 2020. The fair value of the 2020 Notes was determined at issuance to be $389.7 million, resulting in a debt discount of $12.8 million with an offset recorded to additional paid-in capital representing the equity component of the notes for the conversion options. The discount is being amortized to interest expense over the expected life of the 2020 Notes. As of December 31, 2013, the carrying value of the 2020 Notes was $389.8 million. The holders may elect to convert the 2020 Notes into cash, common stock of the Company or a combination thereof, at the Company’s option, in limited circumstances prior to June 15, 2020 and may convert the 2020 Notes at any time into such consideration on or after June 15, 2020. The initial conversion rate is 66.0262 shares of ARCP’s common stock per $1,000 principal amount of 2020 Notes.
In connection with the 2018 Notes and 2020 Notes, the remaining unamortized discount totaled $27.5 million.
Trust Preferred Notes
As part of the CapLease Merger, the Company assumed $30.9 million in aggregate principal amount of fixed/floating rate preferred notes with a fair value of $26.5 million at the CapLease Merger Date. The trust preferred securities represent an unsecured subordinated recourse debt obligation of the Company and require quarterly interest payments calculated at a fixed interest rate equal to 7.68% per annum through January 30, 2016, and subsequently at a variable interest rate equal to LIBOR plus 2.60% per annum. The notes must be redeemed on January 30, 2036, and may be redeemed, in whole or in part, at par, at the Company’s option, at any time. The discount recorded on the notes is being amortized to interest expense on the consolidated statements of operations and comprehensive loss over the life of the preferred notes. As of December 31, 2013, the carrying value of the preferred securities was $26.5 million.
Secured Term Loan
As part of the CapLease Merger, the Company assumed a secured term loan with KBC Bank, N.V. with a principal balance of $59.8 million and a fair value of $60.7 million at the CapLease Merger Date. The interest coupon on the loan is fixed at 5.81% annually until the loan matures in January 2018. The loan is non-recourse to the Company, subject to limited non-recourse exceptions. During the period between the CapLease Acquisition Date and December 31, 2013, the Company made principal payments of $1.7 million. The premium is being amortized to interest expense on the consolidated statements of operations and comprehensive loss over the life of the secured term loan. As of December 31, 2013, the carrying value of the secured term loan was $58.2 million.
Amounts related to the secured term loan as of December 31, 2013 were as follows (amounts in thousands):
 
 
Borrowings
 
Collateral Carrying Value
Loans held for investment
 
$
14,065

 
$
22,496

Intercompany mortgage loans on CapLease properties
 
9,195

 
21,114

Commercial mortgage-backed securities
 
34,915

 
46,054

 
 
$
58,175

 
$
89,664

Other Debt
As part of the CapLease Merger, the Company assumed $19.2 million of senior notes (the "Senior Notes") that bear interest at an annual interest rate of 7.50%, payable semi-annually on April 1 and October 1, with a fair value of $19.3 million at the CapLease Merger Date. The Senior Notes mature on October 1, 2027. The Company has the right to redeem the Senior Notes in whole or in part for cash at any time or from time to time at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus any accrued and unpaid interest. Holders of the Senior Notes may require the Company to repurchase their Senior Notes, in whole or in part, on October 1, 2017 and October 1, 2022, for a cash price equal to 100% of the principal amount of the Senior Notes to be repurchased, plus any accrued and unpaid interest. The discount is being amortized to interest expense on the consolidated statements of operations and comprehensive loss over the life of the Senior Notes. As of December 31, 2013, the carrying value of the Senior Notes was $19.3 million.
In conjunction with the CapLease Merger, aggregate net discounts totaling $3.5 million were recorded upon assumption of the trust preferred notes, secured term loan and senior notes. As of December 31, 2013, unamortized net discounts were $3.5 million in unamortized net discounts included in other debt on the consolidated balance sheets.

F-32
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Future Minimum Repayments
The following table summarizes the scheduled aggregate principal repayments subsequent to December 31, 2013 (amounts in thousands):
 
 
Principal Repayment
2014
 
$
12,851

2015
 
11,862

2016
 
12,516

2017
 
26,890

2018
 
610,767

Thereafter
 
433,430

 
 
$
1,108,316

Barclay's Facility
As of December 31, 2013, the Company had available commitments from Barclays Bank PLC, and other committed parties, for up to $2.1 billion in senior secured term loans (the "Barclays Facility") in order to fund cash amounts payable in connection with the Cole Merger, which were subject to certain conditions, including the absence of a material adverse effect in respect of Cole, the negotiation of definitive documentation and pro forma compliance with financial covenants. Any other long-term debt obtained by the Company would have reduced the commitments under the Barclays Facility. The Barclays Facility contained an accordion feature to allow the Company, under certain circumstances, to increase commitments thereunder by up to $350.0 million.
The Company could have elected to use the Barclays Facility to fund a portion of the consideration to be paid pursuant to the Cole Merger, to refinance existing indebtedness of Cole and to pay related fees and expenses. The commitments received in the Barclays Facility were schedule to terminate upon the occurrence of certain customary events, and in any event on April 22, 2014, which date may be extended by an additional three months under certain circumstances. The Barclays Facility was terminated upon the issuance of the senior unsecured notes in February 2014, as discussed below.
Bond Offering
On February 6, 2014, the OP issued, in a private offering, $2.55 billion aggregate principal amount of senior unsecured notes consisting of $1.3 billion aggregate principal amount of 2.00% senior notes due 2017 (the "2017 Notes", $750.0 million aggregate principal amount of 3.00% senior notes due 2019 (the "2019 Notes") and $500.0 million aggregate principal amount of 4.60% senior notes due 2024 (the "2024 Notes", and, together with the 2017 Notes and 2019 Notes, the “Notes”). The Notes are guaranteed by the Company. The OP may redeem all or a part of any series of the Notes at any time at its option at the redemption prices set forth in the indenture governing the Notes, plus accrued and unpaid interest on the principal amount of the Notes of such series being redeemed to, but excluding, the applicable redemption date. With respect to the 2019 Notes and the 2024 Notes, if such Notes are redeemed on or after January 6, 2019, with respect to the 2019 Notes, or November 6, 2023, with respect to the 2024 Notes, the redemption price will equal 100% of the principal amount of the Notes of the applicable series to be redeemed, plus accrued and unpaid interest on the amount being redeemed to, but excluding, the applicable redemption date.

Note 12 — Credit Facilities
Senior Corporate Credit Facility
The Company and the OP are parties to a credit facility with Wells Fargo, National Association (the "Credit Facility"), as administrative agent and other lenders party thereto.
At December 31, 2013, the Credit Facility had commitments of $2.4 billion. The Credit Facility has an accordion feature, which, if exercised in full, would allow the Company to increase borrowings under the Credit Facility to $3.0 billion, subject to additional lender commitments, borrowing base availability and other conditions.

F-33
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

At December 31, 2013, the Credit Facility contained a $940.0 million term loan facility and a $1.5 billion revolving credit facility, of which $940.0 million and $119.8 million was outstanding, respectively. In November 2013, the Credit Facility was amended and certain modifications were made to the terms of the agreement. Loans under the Credit Facility are priced at the applicable rate (at the Company's election, either a floating interest rate based on one month LIBOR, determined on a daily basis) plus 2.25% to 3.00%, or a prime-based interest rate, based upon the Company’s current leverage. From the amendment date until the first completed fiscal quarter, the applicable LIBOR rate is increased by 3.00%. To the extent that the Company receives an investment grade credit rating as determined by a major credit rating agency, at the Company's election, advances under the revolving credit facility will be priced at their applicable rate plus 0.90% to 1.75% and term loans will be priced at a floating interest rate of LIBOR plus 1.15% to 2.00%, based upon the Company’s then current investment grade credit rating. The Company may also make fixed rate borrowings under the Credit Facility. At December 31, 2013, the Company had undrawn commitments of $1.4 billion under the Credit Facility.
The Credit Facility provides for monthly interest payments. In event of a default, each lender has the right to terminate its obligations under the Credit Facility, and to accelerate the payment on any unpaid principal amount of all outstanding loans. The Company has guaranteed the obligations under the Credit Facility. The revolving credit facility will terminate on February 14, 2017, unless extended for an additional year pursuant to the terms of the agreement. The Company may prepay borrowings under the Credit Facility and the Company may incur an unused fee of 0.15% to 0.25% per annum on the unused amount depending on the unused balance as a percentage of the total facility and the type of funding. As of December 31, 2013, the Credit Facility also required the Company to maintain certain property available for collateral as a condition to funding.
As of December 31, 2013, the outstanding balance on the Credit Facility was $1.1 billion, of which $544.8 million bore interest at a floating rate of 3.17%. $515.0 million outstanding on the Credit Facility is fixed through the use of derivative instruments used to hedge interest rate volatility. Including the spread, which can vary based on the Company's leverage, interest on this portion was 4.02% at December 31, 2013. At December 31, 2013, there was up to $1.9 billion available to the Company for future borrowings, subject to additional lender commitments and borrowing availability.
The Credit Facility requires restrictions on corporate guarantees as well as the maintenance of financial covenants including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) and the maintenance of a minimum net worth. At December 31, 2013, the Company was in compliance with the debt covenants under the Credit Facility.
Secured Credit Facility
As part of the CapLease Merger, the Company assumed a secured credit facility with Wells Fargo, National Association (the "Secured Credit Facility"), which had commitments of up to $150.0 million at December 31, 2013. The Secured Credit Facility was fully drawn with $150.0 million outstanding at December 31, 2013.
The borrowings under the Secured Credit Facility bear interest at an annual rate of one-month LIBOR or LIBOR based on an interest period of one, three or six months, at the Company’s election, plus an applicable margin of 2.75%, payable quarterly in arrears. The Secured Credit Facility matures on December 31, 2014 and may be prepaid, in whole or in part, without premium or penalty, at the Company’s option, at any time.
The obligations under the Secured Credit Facility are secured by mortgages on certain real property assets acquired from CapLease comprising the borrowing base. The Secured Credit Facility includes affirmative and negative covenants and financial performance covenants. At December 31, 2013, the Company was in compliance with the debt covenants under the Secured Credit Facility.
Repayment of Previous Credit Facilities
On February 28, 2013, the Company repaid all of the outstanding borrowings under its previous senior secured revolving credit facility in the amount of $124.6 million, and the credit agreement for such facility was terminated. The average interest rate on the borrowings during the period the balance was outstanding was 3.11%. On February 14, 2013, simultaneous with entering into the Credit Facility, the Company terminated its secured credit facility agreement, which had been unused.

F-34
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Note 13 — Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of December 31, 2013 and 2012 (amounts in thousands):
 
 
Year Ended December 31,
 
 
2013
 
2012
Accounts payable
 
$
7,363

 
$
2,266

Accrued interest
 
13,665

 
1,032

Accrued real estate taxes
 
13,445

 
873

Accrued OPP obligation
 
59,400

 
—

Accrued merger costs
 
23,092

 
—

Accrued other
 
17,636

 
5,288

 
 
$
134,601

 
$
9,459


Note 14 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
Cash Flow Hedges of Interest Rate Risk
The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next twelve months, the Company estimates that an additional $5.6 million will be reclassified from other comprehensive income as an increase to interest expense. During the year ended December 31, 2013, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur. The accelerated amounts were a loss of less than $27.0 thousand.

F-35
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

As of December 31, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
Interest rate swaps
 
13
 
$
698,266

The table below presents the fair value of the company's derivative financial instruments as well as their classification on the consolidated balance sheets as of the years ended December 31, 2013 and 2012 (dollar amounts in thousands):
 
 
 
 
Year Ended December 31,
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
2013
 
2012
Interest rate products
 
Derivative assets, at fair value
 
$
9,152

 
$
—

Interest rate products
 
Derivative liabilities, at fair value
 
$
(1,651
)
 
$
(3,830
)
The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the years ended December 31, 2013 and 2012, respectively (amounts in thousands):
 
 
Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships
 
2013
 
2012
Amount of gain (loss) recognized in accumulated other comprehensive income on interest rate derivatives (effective portion)
 
$
6,989

 
$
(4,684
)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as interest expense (effective portion)
 
$
(4,523
)
 
$
(941
)
Amount of gain (loss) recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)
 
$
(79
)
 
$
(1
)
Derivatives Not Designated as Hedging Instruments
Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements to be classified as hedging instruments. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and were approximately $10,000 for the year ended December 31, 2013. The company did not have any derivatives that were not designated as of December 31, 2012.
As of December 31, 2013, the Company had the following outstanding interest rate derivatives that were not designated as hedges of in qualifying hedging relationships:
Interest Rate Derivative
 
Number of Instruments
 
Notional Amount
Interest Rate Cap
 
1

 
$
500,000

The table below presents the fair value of the Company's derivate financial instruments not designated as hedges as well as their classification as liabilities on the consolidated balance sheets as of December 31, 2013 and 2012. There were no derivatives classified as not hedging instruments as assets as of December 31, 2013 and 2012:
 
 
 
 
Year Ended December 31,
Derivatives Not Designated as Hedging Instruments
 
Balance Sheet Location
 
2013
 
2012
Series D Preferred Stock embedded derivative
 
Derivative liabilities, at fair value
 
$
(16,736
)
 
$
—

Refer to Note 16 — Preferred and Common Stock for additional information for the Series D Preferred Stock embedded derivative.

F-36
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Tabular Disclosure Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of December 31, 2013 and 2012. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.
Offsetting of Derivative Assets and Liabilities
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts of Assets Presented in the Consolidated Balance Sheets
 
Net Amounts of Liabilities Presented in the Consolidated Balance Sheets
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
December 31, 2013
 
$
9,152

 
$
(18,387
)
 
$
—

 
$
9,152

 
$
(18,387
)
 
$
—

 
$
—

 
$
(9,235
)
December 31, 2012
 
$
—

 
$
(3,830
)
 
$
—

 
$
—

 
$
(3,830
)
 
$
—

 
$
—

 
$
(3,830
)
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of December 31, 2013, the fair value of the interest rate derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $1.6 million. As of December 31, 2013, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $1.6 million at December 31, 2013.
Note 15— Commitments and Contingencies
Contractual Lease Obligations
The following table reflects the minimum base rental cash payments due from the Company over the next five years and thereafter for certain ground and office lease obligations (amounts in thousands):
 
 
Future Minimum
Lease Payments
2014
 
$
2,967

2015
 
2,855

2016
 
2,658

2017
 
2,668

2018
 
1,605

Thereafter
 
9,435

 
 
$
22,188

Litigation
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company, except as follows:

F-37
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

ARCT III Litigation Matters
Since the announcement of the ARCT III Merger Agreement on December 17, 2012, Randell Quaal filed a putative class action lawsuit filed on January 30, 2013 against the Company, the OP, ARCT III, ARCT III OP, the members of the board of directors of ARCT III and certain subsidiaries of the Company in the Supreme Court of the State of New York. The plaintiff alleges, among other things, that the board of ARCT III breached its fiduciary duties in connection with the transactions contemplated under the ARCT III Merger Agreement. In February 2013, the parties agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of ARCT III stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required ARCT III to make certain additional disclosures related to the ARCT III Merger, which were included in a Current Report on Form 8-K filed by ARCT III with the SEC on February 21, 2013. The memorandum of understanding also added that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to ARCT III’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.
CapLease Litigation Matters
Since the announcement of the CapLease Merger Agreement on May 28, 2013, the following lawsuits have been filed:
On May 28, 2013, Jacquelyn Mizani filed a putative class action lawsuit in the Supreme Court for the State of New York against ARCP, ARC Operating Partnership, L.P., Safari Acquisition LLC, CapLease, Inc. (“CapLease”), CapLease LP, CLF OP General Partner, LLC and the members of the CapLease, Inc. board of directors (the “Mizani Action”). The complaint alleges, among other things, that the merger agreement at issue was the product of breaches of fiduciary duty by the CapLease directors because the proposed merger transaction (the “CapLease Transaction”) purportedly does not provide for full and fair value for the CapLease shareholders, the CapLease Transaction allegedly was not the result of a competitive bidding process, the merger agreement allegedly contains coercive deal protection measures, and the merger agreement and the CapLease Transaction purportedly were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleges that CapLease, ARCP, ARC Operating Partnership, L.P. and Safari Acquisition LLC aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.
On July 3, 2013, Fred Carach filed a putative class action and derivative lawsuit in the Supreme Court for the State of New York against ARCP, ARC Properties Operating Partnership, L.P., Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease, Inc. board of directors (the “Carach Action”). The complaint alleges, among other things, that the merger agreement was the product of breaches of fiduciary duty by the CapLease directors because the merger purportedly does not provide for full and fair value for the CapLease shareholders, the CapLease Transaction allegedly was not the result of a competitive bidding process, the merger agreement allegedly contains coercive deal protection measures, and the merger agreement and the CapLease Transaction purportedly were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleges that with respect to the Registration Statement and draft joint proxy statement issued in connection with the proposed CapLease Transaction on July 2, 2013 that disclosures made therein were insufficient or otherwise improper. The complaint also alleges that CapLease, ARCP, ARC Properties Operating Partnership, L.P. and Safari Acquisition LLC aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.
On June 25, 2013, Dewey Tarver filed a putative class action and derivative lawsuit in the Circuit Court for Baltimore City against ARCP, ARC Properties Operating Partnership, L.P., Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease, Inc. board of directors (the “Tarver Action”). The complaint alleges, among other things, that the merger agreement was the product of breaches of fiduciary duty by the CapLease directors because the CapLease Transaction purportedly does not provide for full and fair value for the CapLease shareholders, the CapLease Transaction allegedly was not the result of a competitive bidding process, the merger agreement allegedly contains coercive deal protection measures, and the merger agreement and the CapLease Transaction purportedly were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleges that CapLease, ARCP, ARC Properties Operating Partnership, L.P. and Safari Acquisition LLC aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.

F-38
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Counsel who filed each of these three cases reached an agreement with each other as to who will serve as lead plaintiff and lead plaintiffs’ counsel in the cases and where they will be prosecuted. Thus, on August 9, 2013, counsel in the Tarver Action filed a motion for stay in the Baltimore Court, informing the court that they had agreed to join and participate in the prosecution of the Mizani and Carach Actions in the New York Court. The Defendants consented to the stay of the Tarver Action in the Baltimore Court, and on September 5, 2013, Judge Pamela J. White issued an order granting that stay. Consequently, there has been no subsequent activity in the Baltimore Court in the Tarver Action. Also on August 9, 2013, all counsel involved in the Mizani and Carach Actions filed a joint stipulation in the New York Court, reflecting agreement among all parties that the Mizani and Carach Actions should be consolidated (jointly, “the Consolidated Actions”) and setting out a schedule for early motion practice in response to the complaints filed (the “Consolidation Stipulation”). Pursuant to the Consolidation Stipulation, an amended complaint was also filed in the New York court on August 9, 2013 and was designated as the operative complaint in the Consolidated Actions (“Operative Complaint”). Pursuant to the Consolidation Stipulation, all Defendants filed a motion to dismiss all claims asserted in the Operative Complaint on September 23, 2013. Plaintiffs’ response was due on or before November 7, 2013. On November 7, 2013, Plaintiffs filed a motion seeking leave to file a second amended complaint, which the Defendants have opposed. A hearing has been scheduled on these motions for March 25, 2014. Pursuant to the Consolidation Stipulation, certain discovery has been conducted in the Consolidated Actions.
On October 8, 2013, John Poling filed a putative class action lawsuit in the Circuit Court for Baltimore City against ARCP, ARC Operating Partnership, L.P., Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease, Inc. board of directors (the “Poling Action”). The complaint alleges, that the merger agreement breaches the terms of the CapLease’ 8.375% Series B Cumulative Redeemable Preferred Stock and the terms of the 7.25% Series C Cumulative Redeemable Preferred Stock and is in violation of the Series B Articles Supplementary and the Series C Articles Supplementary. The Complaint alleges theories of breach of contract and breach of fiduciary duty against the CapLease entities and the CapLease, Inc. board of directors. The complaint also alleges that ARCP, ARC Operating Partnership, L.P. and Safari Acquisition LLC aided and abetted CapLease and the CapLease directors’ alleged breach of contract and breach of fiduciary duty.
On November 13, 2013, all counsel involved in the Poling Action filed a joint stipulation, reflecting agreement among all parties concerning a schedule for early motion practice in response to the complaint filed (the “Scheduling Stipulation”). Pursuant to the Scheduling Stipulation, all Defendants filed a motion to dismiss all claims asserted in the Operative Complaint on December 20, 2013. Plaintiffs’ counsel timely filed an opposition to the motion to dismiss, and Defendants will complete briefing on the motion via a reply memorandum due to be around February 21, 2014. A hearing on the motion to dismiss has been requested, but no such hearing is currently scheduled.
Cole Litigation Matters
Three outstanding putative class action and/or derivative lawsuits, which were filed earlier this year, assert claims for breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment, aiding and abetting breach of fiduciary duty and other claims relating to the merger between a wholly owned subsidiary of Cole and Cole Holdings, pursuant to which Cole became a self-managed REIT. The Court in one of the lawsuits has granted defendants’ motion to dismiss with prejudice, but the plaintiffs have filed a notice of appeal of this dismissal. The other two lawsuits, which also purport to assert claims under the Securities Act, are pending in the United States District Court for the District of Arizona. Defendants filed a motion to dismiss both complaints on January 10, 2014.

F-39
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

To date, eleven lawsuits have been filed in connection with the Cole Merger. Two of these suits - Wunsch v. Cole Real Estate Investments, Inc., et al (“Wunsch”), No. 13-CV-2186, and Sobon v. Cole Real Estate Investments, Inc. et al (“Sobon”), were filed as putative class actions on October 25, 2013 and November 18, 2013, respectively, in the U.S. District Court for the District of Arizona. Between October 30, 2013 and November 14, 2013, eight other putative stockholder class action or derivative lawsuits were filed in the Circuit Court for Baltimore City, Maryland, captioned as: (i) Operman v. Cole Real Estate Investments, Inc., et al; (ii) Branham v. Cole Real Estate Investments, Inc., et al; (iii) Wilfong v. Cole Real Estate Investments, Inc., et al.; (iv) Polage v. Cole Real Estate Investments, Inc., et al.; (v) Corwin v. Cole Real Estate Investments, Inc., et al; (vi) Green v. Cole Real Estate Investments, Inc., et al; (vii) Flynn v. Cole Real Estate Investments, Inc., et al and (viii) Morgan v. Cole Real Estate Investments, Inc., et al. All of these lawsuits name the Company, Cole and Cole’s board of directors as defendants; Wunsch, Sobon, Branham, Wilfong, Flynn, Green, Morgan and Polage also name Merger Sub as a defendant. All of the named plaintiffs claim to be Cole stockholders and purport to represent all holders of Cole’s stock. Each complaint generally alleges that the individual defendants breached fiduciary duties owed to plaintiff and the other public stockholders of Cole in connection with the Cole Merger, and that certain entity defendants aided and abetted those breaches. The breach of fiduciary duty claims asserted include claims that the Cole Merger does not provide for full and fair value for the Cole shareholders, that the Cole Merger was the produce of an “inadequate sale process,” that the Cole Merger Agreement contains coercive deal protection measures, and the Cole Merger Agreement and that the Cole Merger were approved as a result of or in a manner which facilitates improper self-dealing by certain defendants. In addition, the Operman, Flynn, Corwin, Green and Branham lawsuits claim that the individual defendants breached their duty of candor to shareholders and the Branham and Polage lawsuits assert claims derivatively against the individual defendants for their alleged breach of fiduciary duties owed to Cole. The Polage lawsuit also asserts derivative claims for waste of corporate assets and unjust enrichment. The Wunsch and Sobon lawsuits also assert claims against Cole and the individual defendants under Section 14(a) of the Exchange Act based on allegations that the proxy materials omitted to disclose allegedly material information, and a claim against the individual defendants under Section 20(a) of the Exchange Act based on the same allegations. Among other remedies, the complaints seek unspecified money damages, costs and attorneys’ fees.
In January 2014, the parties to the eight lawsuits filed in the Circuit Court for Baltimore City, Maryland entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of Cole stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required Cole to make certain additional disclosures related to the Cole Merger, which were included in a Current Report on Form 8-K filed by Cole with the SEC on January 14, 2014. The memorandum of understanding also contemplated that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to Cole’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.
The Sobon lawsuit was voluntarily dismissed on February 3, 2014. The Company believes that the Wunsch lawsuit in connection with the Cole Merger is without merit and that it has substantial meritorious defenses to the claims set forth in the complaint.
On December 27, 2013, Realistic Partners filed a putative class action lawsuit against the Company and the members of its board of directors in the Supreme Court for the State of New York. Cole was later added as a defendant also. The plaintiff alleges, among other things, that the board of ARCP breached its fiduciary duties in connection with the transactions contemplated under the Cole Merger Agreement and that Cole aided and abetted those breaches. In January 2014, the parties entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of ARCP stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required ARCP to make certain additional disclosures related to the Cole Merger, which were included in a Current Report on Form 8-K filed by ARCP with the SEC on January 17, 2014. The memorandum of understanding also contemplated that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to ARCP’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.

F-40
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The Company maintains directors and officers liability insurance, which the Company believes should provide coverage to the Company and its officers and directors for most or all of any costs, settlements or judgments resulting from the lawsuits.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company 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, in each case, that it believes will have a material adverse effect on the results of operations.

Note 16 — Preferred and Common Stock
Series A and Series B Convertible Preferred Stock
During the year ended December 31, 2013, the Company converted all 545,454 outstanding shares of its Series A Convertible Preferred Stock and all 283,018 outstanding shares of Series B Convertible Preferred Stock into 829,629 shares of the Company's common stock, which included dividends on the Series A Convertible Preferred Stock.
Series D and Series E Preferred Stock
On September 16, 2013, the Company's board of directors unanimously approved the issuance of Series D Cumulative Convertible Preferred Stock ("Series D Preferred Stock") and the issuance of Series E Cumulative Preferred Stock ("Series E Preferred Stock").
On September 15, 2013, the Company entered into definitive purchase agreements pursuant to which it agreed to issue Series D Preferred Stock, par value $0.01 per share, and common stock, par value $0.01 per share, to certain institutional holders promptly following the close of the Company's merger with CapLease, via a private placement. Pursuant to the definitive purchase agreements, the Company issued approximately 21.7 million shares of Series D Preferred and 15.1 million shares of common stock, for gross proceeds of $288.0 million and $186.0 million, respectively, on November 8, 2013. The Series D Preferred Stock will pay dividends at the rate of 5.81% per annum on its face amount of $13.59 per share (equivalent to $0.79 per share on an annualized basis). The Series D Preferred Stock is redeemable by the Company on August 31, 2014 (the "Redemption Date"). Subsequent to that date, or in certain other circumstances, the Series D Preferred Stock is convertible into common stock or Series E Preferred Stock or redeemable into cash, at the discretion of the Company upon such request for conversion by the holders of Series D Preferred Stock.
In the event of a liquidation, the holders of Series D Preferred Stock are entitled to receive the greater of (a) $13.59 per share plus accrued and unpaid dividends (the "Liquidation Preference") plus a 20% premium and (b) an amount the Preferred Shares holders would have received had they converted into shares of common stock immediately prior to the liquidation event.
If the Company elects to redeem the Series D Preferred Stock on the Redemption Date, the Company shall pay the greater of (a) the product of the number of Series D Preferred Stock and the 102% of the Liquidation Preference and (b) product of the number of common shares that would be issued if the Series D Preferred Stock converted immediately prior to the Redemption Date and 102% of the one-day VWAP.
At any time after the Redemption Date, the holders of Series D Preferred Stock may convert some or all of their outstanding Series D Preferred Stock into shares of common stock. Upon such an election to convert, the Company may elect the following settlement options (1) convert the shares of Series D Preferred Stock into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate Liquidation Preference of such Series D Preferred Stock by the Conversion Price, as defined below, (2) convert the shares of Series D Preferred Stock into an equal number shares of Series E Preferred Stock, additional shares of Seres E Preferred Stock may be issued under certain circumstances, or (3) an amount equal to the product of the number of shares of Series D Preferred Stock and the Cash Conversion Price, as defined below.
The Conversion Price shall be the lowest of (i) a 2% discount to the VWAP of the common stock for the 10 Trading Days prior to the Conversion Election Date, (ii) a 2% discount to the closing price on the Conversion Election Date, and (iii) $13.59. The Cash Conversion Price shall be the greater of (i) 102% of the Liquidation Preference and (ii) the one day VWAP of the Common Shares on the date of the election.

F-41
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The Company has concluded that the conversion option qualifies as a derivative and should be bifurcated from the host instrument. At issuance, the conversion option had a fair value of $18.7 million. As of December 31, 2013, the fair value of the conversion option had a fair value of $16.7 million. The Company recorded the change in fair value of $2.0 million in gain (loss) on derivative instruments in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2013.
As the holders of Series D Preferred Stock are entitled to receive liquidation preferences that other equity holders are not entitled to, the Company determined the Series D Preferred Stock meets the definition of a deemed liquidation event and therefore should be classified as temporary equity under U.S. GAAP. At the date of issuance, the fair value of the Series D Preferred Stock was $269.3 million. As of December 31, 2013, the Company has determined that a liquidation event is not probable; therefore, the Company has concluded that the Series D Preferred Stock is not currently redeemable or likely to become redeemable. As such, the Company has not accreted the initial value of the Series D Preferred Stock.
As of December 31, 2013, there were 21,735,008 authorized and issued shares of Series D Preferred Stock and no authorized and issued shares of Series E Preferred Stock, respectively.
Series F Preferred Stock
On October 6, 2013, in connection with the modification to the ARCT IV Merger, the Company's board of directors unanimously approved the issuance of Series F Preferred Stock. Upon consummation of the ARCT IV Merger on January 3, 2014, 42.2 million shares of Series F Preferred Stock were issued to ARCT IV shareholders. There were no shares issued and outstanding of Series F Preferred Stock as of December 31, 2013.
The Series F Preferred Stock will pay cumulative cash dividends at the rate of 6.70% per annum on its liquidation preference of $25.00 per share (equivalent to $1.675 per share on an annual basis). The Series F Preferred Stock will not be redeemable by the Company before the fifth anniversary of the date on which such Series F Preferred Stock is issued (the “Initial Redemption Date”), except under circumstances intended to preserve the Company’s status as a real estate investment trust for federal and/or state income tax purposes and except upon the occurrence of a change of control. On and after the Initial Redemption Date, the Company may, at its option, redeem shares of the Series F Preferred Stock, in whole or from time to time in part, at a redemption price of $25.00 per share plus, subject to exceptions, any accrued and unpaid dividends thereon to the date fixed for redemption. The shares of Series F Preferred Stock have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company redeems or otherwise repurchases them or they become convertible and are converted into common stock (or, if applicable, alternative consideration). The Series F Preferred Stock trades on the NASDAQ under the symbol "ARCPP".
Increases in Authorized Common Stock
On July 2, 2013, the Company filed articles of amendment to its charter to increase the number of authorized shares of common stock to 750,000,000 shares.
Offerings
On August 1, 2012, the Company filed a $500.0 million universal shelf registration statement and a resale registration statement with the SEC. Each registration statement became effective on August 17, 2012. As of December 31, 2013, the Company had issued 2.1 million shares of common stock under the $500.0 million universal shelf registration statement. No preferred stock, debt or equity-linked security had been issued under this $500.0 million universal shelf registration statement. The resale registration statement, as amended, registers the resale of up to 1,882,248 shares of common stock issued in connection with any future conversion of certain currently outstanding restricted shares, convertible preferred stock or limited partnership interests in the OP.
In January 2013, the Company commenced its “at the market” equity offering program (“ATM”) in which it may from time to time offer and sell shares of its common stock having an aggregate offering proceeds of up to $60.0 million. The shares will be issued pursuant to the Company's $500.0 million universal shelf registration statement.
On March 13, 2013, the Company filed a universal automatic shelf registration statement that was automatically declared effective and achieved well-known seasoned issuer (“WKSI”) status. The Company intends to maintain both the $500.0 million universal shelf registration statement and the WKSI universal automatic shelf registration statement.

F-42
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The following are the Company's equity offerings of common stock and the gross proceeds of the equity offering for the years ended December 31, 2013, 2012 and 2011 (dollar amounts in millions):
Type of offering
 
Closing Date
 
Number of Shares(1)
 
Gross Proceeds
IPO
 
September 7, 2011
 
5,574,131

 
$
67.4

Follow-on offering
 
November 2, 2011
 
1,497,924

 
15.8

Underwriters' over allotment
 
November 7, 2011
 
74,979

 
0.8

Total - Year end December 31, 2011(2)
 
 
 
7,147,034

 
84.0

 
 
 
 
 
 
 
Follow on offering
 
June 18, 2012
 
3,250,000

 
30.3

Underwriters' over allotment
 
July 9, 2012
 
487,500

 
4.6

Total - Year end December 31, 2012(3)
 
 
 
3,737,500

 
34.9

 
 
 
 
 
 
 
Registered follow-on offering
 
January 29, 2013
 
2,070,000

 
26.7

ATM
 
January 1 - September 30, 2013
 
553,300

 
8.9

Private placement offering
 
June 7, 2013
 
29,411,764

 
455.0

Private placement offering
 
November 11, 2013
 
15,126,498

 
186.0

Total - Year end December 31, 2013
 
 
 
47,161,562

 
$
676.6

_______________________________________________
(1) Excludes 140.7 million shares of common stock that were issued to the stockholders of ARCT III's common stock in conjunction with the ARCT III Merger.
(2) Excludes 9.8 million shares of common stock that were issued by ARCT III for gross proceeds of $102.2 million.
(3) Excludes 155.7 million shares of common stock that were issued by ARCT III for gross proceeds of $1.6 billion.
Dividends
In October 2011, the Company began paying dividends on the fifteenth day of each month to stockholders of record on the eighth day of such month. Since inception, the board of directors of the Company has authorized the following increases in the Company's dividend.
Dividend increase declaration date
 
Annualized dividend per share
 
Effective date
September 7, 2011
 
$0.875
 
October 9, 2011
February 27, 2012
 
$0.880
 
March 9, 2012
March 16, 2012
 
$0.885
 
June 9, 2012
June 27, 2012
 
$0.890
 
September 9, 2012
September 30, 2012
 
$0.895
 
November 9, 2012
November 29, 2012
 
$0.900
 
February 9, 2013
March 17, 2013
 
$0.910
 
June 8, 2013
May 28, 2013
 
$0.940
 
December 8, 2013*
October 23, 2013
 
$1.000
 
February 10, 2014**
_______________________________________________
* The dividend increase became effective at the close of the CapLease Merger, which was consummated on November 5, 2013.
** The dividend increase was contingent upon, and became effective with, the close of the Cole Merger, which was consummated on February 7, 2014.
The annualized dividend rate at December 31, 2013 was $0.940 per share.

F-43
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Common Stock Repurchases
On August 20, 2013, the Company's board of directors reauthorized its $250 million share repurchase program which was originally authorized in February 2013. During the year ended December 31, 2013, the Company repurchased approximately 0.6 million shares at an average price of $13.06 per share or $7.5 million in total.
Upon the closing of the ARCT III Merger, on February 28, 2013, $29.2 million shares, or 16.5% of the then outstanding shares of ARCT III's common stock, were paid in cash at $12.00 per share, which is equivalent to 27.7 million shares of the Company's common stock based on the Exchange Ratio. In addition, 148.1 million shares of ARCT III's common stock were converted to shares of the Company's common stock at the Exchange Ratio, resulting in an additional 140.7 million shares of the Company's common stock outstanding after the exchange.
Note 17 — Equity Based Compensation
Equity Plan
The Company has adopted the American Realty Capital Properties, Inc. Equity Plan (the “Equity Plan”), which provides for the grant of stock options, restricted shares of common stock, restricted stock units, dividend equivalent rights and other equity-based awards to the Company's and its affiliates' non-executive directors, officers and other employees and advisors and consultants who are providing services to the Company or its affiliates.
The Company authorized and reserved a total number of shares equal to 10.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis assuming the redemption of all OP Units for shares of common stock) to be issued at any time under the Equity Plan for equity incentive awards excluding an initial grant of 167,400 shares to its Former Manager in connection with the IPO, all of which were vested as of December 31, 2013.
Director Stock Plan
The Company has adopted the American Realty Capital Properties, Inc. Non-Executive Director Stock Plan (the “Director Stock Plan”), which provides for the grant of restricted shares of common stock to each of the Company's independent directors, each of whom is a non-executive director. Awards of restricted stock will vest ratably over a five-year period following the date of grant in increments of 20.0% per annum, subject to the director’s continued service on the board of directors, and shall provide for “distribution equivalents” with respect to this restricted stock, whether or not vested, at the same time and in the same amounts as distributions are paid to the stockholders. At December 31, 2013, a total of 99,000 shares of common stock are reserved for issuance under the Director Stock Plan.
The fair value of restricted common stock awards under the Equity Plan and Director Stock Plan is determined on the grant date using the closing stock price on NASDAQ that day. The fair value of restricted common stock awarded to the non-employees under the Equity Plan is remeasured at the end of each quarter based on the current quarter end closing stock price through the final vesting date.
ARCT III Restricted Share Plan
ARCT III had an employee and director incentive restricted share plan (the “RSP”), which provided for the automatic grant of 3,000 restricted shares of common stock to each of its independent directors, without any further action by ARCT III’s board of directors or its stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder’s meeting thereafter. Restricted stock issued to independent directors vested over a five-year period following the date of grant in increments of 20.0% per annum. The RSP provided ARCT III with the ability to grant awards of restricted shares to its directors, officers and employees (if ARCT III ever had employees), employees of ARCT III's advisor and its affiliates, employees of entities that provided services to ARCT III, directors of the ARCT III Advisor or of entities that provided services to ARCT III, certain consultants to ARCT III and the ARCT III Advisor and its affiliates or to entities that provided services to ARCT III.
Immediately prior to the effective time of the ARCT III Merger, each then-outstanding share of ARCT III restricted stock fully vested. All shares of ARCT III common stock then-outstanding as a result of the full vesting of shares of ARCT III restricted stock, and the satisfaction of any applicable withholding taxes, had the right to receive a number of shares of the Company's common stock based on the ARCT III Exchange Ratio.

F-44
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The following tables detail the restricted shares activity within the Equity Plan, Director Stock Plan and RSP during the years ended December 31, 2013, 2012 and 2011:
Restricted Share Awards
 
Equity Plan
 
RSP & Director Stock Plan
 
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
Awarded, January 1, 2011
 
—

 
$
—

 
—

 
$
—

Granted
 
167,400

 
12.50

 
14,700

 
11.50

Awarded December 31, 2011
 
167,400

 
12.50

 
14,700

 
11.50

Granted
 
93,683

 
10.65

 
23,250

 
10.45

Forfeited
 
(1,174
)
 
10.65

 
(7,650
)
 
11.54

Awarded December 31, 2012
 
259,909

 
11.84

 
30,300

 
10.68

Granted
 
932,527

 
13.82

 
18,000

 
14.58

Forfeited
 
(1,085
)
 
12.85

 
—

 
—

Awarded December 31, 2013
 
1,191,351

 
$
13.39

 
48,300

 
$
12.13

Unvested Restricted Shares
 
Equity Plan
 
RSP & Director Stock Plan
 
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
Unvested, January 1, 2011
 
—

 
$
—

 
—

 
$
—

Granted
 
167,400

 
12.50

 
14,700

 
11.50

Vested
 
(13,950
)
 
12.50

 
—

 
—

Unvested, December 31, 2011
 
153,450

 
12.50

 
14,700

 
11.50

Granted
 
93,683

 
10.65

 
23,250

 
10.45

Vested
 
(59,556
)
 
12.42

 
(2,370
)
 
11.88

Forfeited
 
(1,174
)
 
10.65

 
(7,650
)
 
11.54

Unvested, December 31, 2012
 
186,403

 
11.62

 
27,930

 
10.58

Granted
 
932,527

 
13.82

 
18,000

 
14.58

Vested
 
(186,403
)
 
11.62

 
(30,930
)
 
11.03

Forfeited
 
(1,085
)
 
12.85

 
—

 
—

Unvested, December 31, 2013
 
931,442

 
$
13.82

 
15,000

 
$
14.45

For the years ended December 31, 2013, 2012 and 2011, compensation expense for restricted shares was $2.0 million, $1.2 million and $0.2 million, respectively. For the year ended December 31, 2013, merger and other transaction related costs includes compensation expense of $2.7 million due to the Company's pending Cole Merger; compensation expense of $2.2 million for the accelerated vesting of restricted shares in conjunction with the ARCT III Merger; and compensation expense of $0.7 million from the issuance of 52.5 thousand fully vested shares to certain employees of the Company's Former Manager. In addition, the Company recognized $2.7 million as a distribution to its Former Manager, which is included in consideration to Former Manager for internalization in the accompanying consolidated statements of changes in equity.
Multi-Year Performance Plan
Upon consummation of the ARCT III Merger, the Company entered into the 2013 Advisor Multi-Year Outperformance Agreement (the “OPP”) with its Former Manager, whereby its Former Manager was able to potentially earn compensation upon the attainment of stockholder value creation targets.

F-45
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Under the OPP, the Company's Former Manager was granted 8,241,101 long term incentive plan units (“LTIP Units”) of the OP, which are earned or forfeited based on the Company's total return to stockholders (including both share price appreciation and common stock distributions) (“Total Return”), for the three-year period consisting of:
•
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle of 7% for each annual measurement period, non-compounded, 14% for the interim measurement period and 21% for the full performance period; and
•
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance period of a peer group comprised of the following companies: EPR Properties; Getty Realty Corporation; Lexington Realty Trust; National Retail Properties, Inc.; and Realty Income Corporation.
The award was funded (“OPP Pool”) up to a maximum award opportunity equal to 5% of the Company's equity market capitalization at the ARCT III Merger date of $2.1 billion (the “OPP Cap”). Awards under the OPP are dependent on achieving an annual hurdle that commenced December 11, 2012, an interim (two-year) hurdle and then the aforementioned three-year hurdle ending on December 31, 2015, the final valuation date.
In order to further ensure that the interests of the Company's Former Manager are aligned with its investors, the Relative Component is subject to a ratable sliding scale factor as follows:
•
100% will be earned if the Company attains a median Total Return of at least 6% for each annual measurement period, non-compounded, at least 12% for the interim measurement period and at least 18% for the full performance period;
•
50% will be earned if the Company attains a median Total Return of at least 0% for each measurement period;
•
0% will be earned if the Company attains a median Total Return of less than 0% for each measurement period; and
•
A percentage from 50% to 100% calculated by linear interpolation will be earned if the Company's median Total Return is between 0% and the percentage set for each measurement period.
For each year during the performance period a portion of the OPP Cap equal to a maximum of up to 1.25% of the Company's equity market capitalization of $2.1 billion will be “locked-in” based upon the attainment of the performance hurdles set forth above for each annual measurement period. In addition, a portion of the OPP Cap equal to a maximum of up to 3% of the Company's equity market capitalization will be “locked-in” based upon the attainment of the performance hurdles set forth above for the interim measurement period, which if achieved, will supersede and negate any prior “locked-in” portion based upon annual performance through the first and second valuation dates on December 31, 2013 and 2014, respectively (i.e., a maximum award opportunity equal to a maximum of up to 3% of the Company's equity market capitalization may be “locked-in” through December 31, 2014). Since certain awards under the OPP plan are dependent on the comparison of the Company's current market capitalization to the Company's market capitalization at the inception of plan, the issuance of additional common shares by the Company may result in higher awards.
Following the performance period, the Absolute Component and the Relative Component will be calculated separately and then added together to determine the aggregate award earned under the OPP, which in no event may exceed the OPP Cap. The OPP Pool will be used to determine the number of LTIP Units that vest. Any unvested LTIP Units will be immediately forfeited on December 31, 2015. At December 31, 2013, 100% of the OPP Pool has been allocated.
Pursuant to previous authorization of the Company's board of directors, as a result of the termination of the Management Agreement, all 8,241,101 LTIP Units vested upon the consummation of the Company’s transition to self-management on January 8, 2014. However, such LTIP Units are earned as of each respective valuation date according to the terms of the OPP and shall be forfeited if not earned through December 31, 2015.
The Company's Former Manager is generally entitled to convert any of the LTIP Units earned on a valuation date into OP Units within 30 days following the date on which the calculations are performed following the applicable valuation date. In addition, the OPP provides for accelerated earning and vesting of LTIP Units and redemption of vested LTIP Units for cash if the Company's Former Manager is terminated or if the Company experiences a change in control. The Company's Former Manager is entitled to receive a tax gross-up in the event that any amounts paid to it under the OPP constitute “parachute payments” as defined in Section 280G of the Code.

F-46
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

During the year ended December 31, 2013, the Company has recorded expenses of $92.3 million for the OPP, of which $32.9 million and $59.4 million is recorded in restricted equity based compensation and merger and other transaction expense on the consolidated statements of operations and comprehensive loss. As of December 31, 2013, 2.3 million LTIP Units were earned and $32.9 million of the expense was locked-in and has been included in non-controlling interest on the consolidated balance sheets. The remaining $59.4 million is included in accounts payable and accrued expenses.
New Multi-Year Outperformance Plan
On October 21, 2013, the Company approved a multi-year outperformance plan (the “New OPP”), to be effective as of the Company’s transition to self-management, which occurred on January 8, 2014. Under the New OPP, individual agreements will be entered into between the Company and the participants selected by the Company's board of directors (the “Participants”) that set forth the Participant’s participation percentage in the New OPP and the number of LTIP Units subject to the award (“OPP Agreements”). Under the OPP Agreements, the Participants will be eligible to earn performance-based bonus awards equal to the Participant’s participation percentage of a pool that will be funded up to a maximum award opportunity (the “New OPP Cap”) of $222.1 million, which is equal to approximately 5% of the Company's equity market capitalization (“the Initial Market Cap”). Subject to the New OPP Cap, the pool will equal an amount to be determined based on the Company's achievement of total return to stockholders, including both share price appreciation and common stock distributions (“Total Return”), for a three-year performance period (the “Performance Period”); each 12-month period during the Performance Period (each an “Annual Period”) and the initial 24-month period of the Performance Period (the “Interim Period”), as follows:
 
 
Performance Period
 
Annual Period
 
Interim Period
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the beginning of such period:
21%
 
7%
 
14%
Relative Component: 4% of any excess Total Return attained above the median Total Return for the performance period of the Peer Group(1), subject to a ratable sliding scale factor as follows based on achievement of cumulative Total Return measured from the beginning of such period:
 
 
 
 
 
•
100% will be earned if cumulative Total Return achieved is at least:
18%
 
6%
 
12%
•
50% will be earned if a cumulative Total Return achieved is:
—%
 
—%
 
—%
•
0% will be earned if cumulative Total Return achieved is less than:
—%
 
—%
 
—%
•
a percentage from 50% to 100% calculated by linear interpolation will be earned if cumulative Total Return achieved is if between:
0% - 18%
 
0% - 6%
 
0%- 12%
(1) The “Peer Group” is comprised of the following companies: EPR Properties; Getty Realty Corporation; Lexington Realty Trust; National Retail Properties, Inc.; Realty Income Corporation; and Spirit Realty Capital, Inc.

The New OPP provides for early calculation and vesting of the award in the event of a change in control of the Company, prior to the end of the Performance Period. Under the New OPP, treatment of a Participant’s award upon a termination of service will be governed by the terms of the Participants’ OPP Agreement or service agreement with the Company. In the event a Participant’s OPP Agreement or service agreement does not provide for treatment of the award upon the Participant’s termination, then the award will be forfeited upon such termination. The Participant’s will be entitled to receive a tax gross-up in the event that any amounts paid to the Participant under the OPP constitute “parachute payments” as defined in Section 280G of the Code. The LTIP Units granted under the New OPP represent units of equity ownership in the OP that are structured as a profits interest therein. Subject to the Participant’s continued service through each vesting date, 1/3 of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of January 8, 2014. The Participant will be entitled to receive distributions on their LTIP Units to the extent provided for in the limited partnership agreement of the OP, as amended from time to time.

Note 18 — Related Party Transactions and Arrangements
Ownership by Affiliates
Certain affiliates of the Company have ownership in the Company through ownership of shares of the Company's common stock, shares of unvested restricted common stock and OP units. As of December 31, 2013 and 2012, 5.12% and 1.39%, respectively, of the total equity units issued by the Company were owned by affiliates.

F-47
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Fees Paid in Connection with Common Stock Offerings
RCS served as the dealer manager of the ARCT III IPO. RCS received fees and compensation in connection with the sale of ARCT III’s common stock in the ARCT III IPO. RCS received a selling commission of up to 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers in the ARCT III IPO. In addition, RCS received up to 3% of the gross proceeds from the sale of common stock, before reallowance to participating broker-dealers, as a dealer-manager fee in the ARCT III IPO. RCS was permitted to reallow its dealer-manager fee to such participating broker-dealers, based on such factors as the volume of shares sold by respective participating broker-dealers and marketing support incurred as compared to those of other participating broker-dealers. RCS has also received compensation for various other Company equity transactions.
The following table details the results of such activities related to RCS, which are recorded as offering costs on the consolidated statement of changes in equity (amounts in thousands):
 
 
Year Ended December 31,
 
Payable as of December 31,
 
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Total commissions and fees paid to RCS
 
$
475

 
$
160,614

 
$
11,434

 
$
—

 
$
—

 
$
92

The Company reimbursed its Former Manager, the ARCT III Advisor and RCS for services relating to the ARCT III IPO, and other significant transactions such as the ARCT III Merger, for which its Former Manager provided assistance. The following table details the results of such activities related to offering and other significant transactions costs reimbursed to the Company's Former Manager, the ARCT III Advisor and RCS, which are recorded in general and administrative, and merger and other transaction related costs in the consolidated statements of operations and comprehensive loss (amounts in thousands):
 
 
Year Ended December 31,
 
Payable as of December 31,
 
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Offering expense and other significant transactions reimbursements
 
$
2,080

 
$
16,264

 
$
4,383

 
$
—

 
$
—

 
$
220

Fees Paid in Connection with the Operations of the Company
Each of the Company and ARCT III paid the Company's Former Manager and the ARCT III Advisor, as applicable, an acquisition fee equal to 1.0% of the contract purchase price (including assumed indebtedness) of each property the Company or ARCT III, as applicable, acquired. The acquisition fee was payable in cash at the closing of each acquisition. In conjunction with the ARCT III Merger, it was agreed that these fees would no longer be paid to either party. Acquisition fees are recorded in Acquisition related costs in the consolidated statements of operations and comprehensive loss.
Each of the Company and ARCT III paid the Company's former Manager and the ARCT III Advisor, as applicable, a financing fee equal to 0.75% of the amount available under any secured mortgage financing or refinancing that the Company or ARCT III, as applicable, obtained and used for the acquisition of properties that was arranged by the Company's Former Manager or ARCT III Advisor, as applicable. The financing coordination fee was payable in cash at the closing of each financing. In conjunction with the ARCT III Merger, it was agreed that these fees would no longer be paid to either party.
The Company paid its Former Manager an annual base management fee equal to 0.50% per annum of the average unadjusted book value of the Company's real estate assets, calculated and payable monthly in advance. The management fee was payable in cash. In conjunction with the ARCT III Merger, the base management fee was reduced to 0.40% per annum for the unadjusted book value of assets over $3.0 billion. The Company's Former Manager waived such portion of its management fee in excess of certain net income thresholds related to the Company's operations during the first three fiscal quarters of 2013. Management fees, if accrued, are recorded in Operating fees to affiliates in the consolidated statements of operations and comprehensive loss.
Until July 1, 2012, ARCT III paid the ARCT III Advisor an asset management fee of 0.75% per annum of the cost of its assets (cost includes the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs, but excludes acquisition fees) plus costs and expenses incurred by the ARCT III Advisor in providing asset management services; provided, however, that the asset management fee was reduced by any amounts payable to ARCT III's property manager as an oversight fee, such that the aggregate of the asset management fee and the oversight fee did not exceed 0.75% per annum of the cost of ARCT III's assets plus costs and expenses incurred by the ARCT III Advisor in providing asset management services.

F-48
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Prior to July 1, 2012, this fee was payable in monthly installments at the discretion of ARCT III's board of directors in cash, common stock or restricted stock grants, or any combination thereof. Asset management fees, if accrued, are recorded in Operating fees to affiliates in the consolidated statements of operations and comprehensive loss. The Company also pays fees for transfer agent services to an affiliate, American National Stock Transfer, LLC.
Effective July 1, 2012, the payment of asset management fees in monthly installments in cash, shares or restricted stock grants, or any combination thereof to the ARCT III Advisor was eliminated. Instead, ARCT III issued (subject to periodic approval by its board of directors) to the ARCT III Advisor performance-based restricted partnership units of the ARCT III OP designated as “Class B units,” which were intended to be profits interests and to vest, and no longer be subject to forfeiture, at such time as: (x) the value of the ARCT III OP’s assets plus all distributions made equal or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “economic hurdle”); and (y) a liquidity event has occurred.
The ARCT III Advisor received distributions on unvested Class B units equal to the distribution rate received on ARCT III common stock. Such distributions on issued Class B units were included as general and administrative expense in the consolidated statements of operations and comprehensive loss until the performance condition is considered probable to occur. 145,022 Class B units were approved by ARCT III's board of directors as of December 31, 2012. During January and February 2013, ARCT III's board of directors approved, and ARCT III issued, 603,599 Class B units to the ARCT III Advisor for its asset management services provided. As of December 31, 2012, ARCT III did not consider achievement of the performance condition to be probable as the shareholder vote for the ARCT III Merger, which would allow vesting of these Class B Units, was not completed. The performance condition related to these Class B units was satisfied upon the completion of the ARCT III Merger and expense of $9.9 million was recorded at that time. The Class B units then converted to ARCT III OP units which converted to 711,190 OP Units after the application of the ARCT III Exchange Ratio. These expenses were recorded in merger and other transaction related in the consolidated statements of operations and comprehensive loss.
At December 31, 2013, the Company was required to pay its Former Manager a quarterly incentive fee, calculated based on 20% of the excess Company annualized core earnings (as defined in the management agreement with its Former Manager) over the weighted average number of shares multiplied by the weighted average price per share of common stock. One half of each quarterly installment of the incentive fee will be payable in shares of common stock. The remainder of the incentive fee will be payable in cash. No such incentive fees have been incurred or paid to the Company's Former Manager since inception.
ARCT III paid an affiliate of ARC, unless it contracted with a third party, a property management fee of up to 2% of gross revenues from ARCT III's stand-alone single-tenant net leased properties and 4% of gross revenues from its multi-tenant properties, plus, in each case, market-based leasing commissions applicable to the geographic location of the property. ARCT III also reimbursed the affiliate for property level expenses. If ARCT III contracted directly with third parties for such services, it paid them customary market fees and paid the affiliated property manager, an oversight fee of up to 1% of the gross revenues of the property managed. Property management fees are recorded in Operating fees to affiliates in the consolidated statements of operations and comprehensive loss.
In order to facilitate the smooth transition of property management services following the consummation of the ARCT III Merger, the Company, the OP and ARC agreed that the Property Management and Leasing Agreement will be extended for a 60-day period following the consummation of the ARCT III Merger for which the Company paid ARC $2.3 million. These fees were recorded in merger and transaction related in the consolidated statements of operations and comprehensive loss.
The Company was required to reimburse its Former Manager for all out-of-pocket costs actually incurred by its Former Manager, including without limitation, legal fees and expenses, due diligence fees and expenses, other third party fees and expenses, costs of appraisals, travel expenses, nonrefundable option payments and deposits on properties not acquired, accounting fees and expenses, title insurance premiums and other closing costs, personnel costs and miscellaneous expenses relating to the selection, acquisition and due diligence of properties. The Company's reimbursement obligation is not subject to any dollar limitation. Expenses will be reimbursed in cash on a monthly basis following the end of each month. However, the Company will not reimburse its Former Manager for the salaries and other compensation of its personnel. Reimbursements are recorded based on the related activity to which the expense relates.
The Company receives financial advisory and strategic services prior to the consummation of certain of its mergers and acquisitions pursuant to an investment banking services agreement, to which the Company and RCS are parties. Under this agreement, during the year ended December 31, 2013, the Company has incurred $17.8 million for the various mergers and transactions that were completed.

F-49
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

The following table details amounts incurred by the Company or ARCT III and contractually due to ARC, ARCT III Advisor or the Company's Former Manager and forgiven in connection with the operations related services described above (amounts in thousands):
 
 
Year Ended December 31,
 
Payable as of December 31,
 
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
 
 
One-time fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees (1)
 
$
3,190

 
$
—

 
$
27,138

 
$
—

 
$
1,692

 
$
—

 
$
—

 
$
364

 
$
37

Financing fees and related cost reimbursements
 
7,500

 
—

 
3,350

 
—

 
182

 
—

 
—

 
—

 
—

Other expense reimbursements
 
16,215

 
—

 
592

 
—

 
148

 
—

 
—

 
18

 
—

On-going fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Base management fees (2)
 
13,978

 
6,109

 
2,035

 
1,823

 
274

 
274

 
5,654

 
—

 
—

Transfer agent fees
 
314

 
—

 
—

 
—

 
—

 
—

 
57

 
—

 
—

Property management and leasing fees (2)
 
799

 
799

 
918

 
918

 
15

 
15

 
—

 
—

 
—

Total operational fees and reimbursements
 
$
41,996

 
$
6,908

 
$
34,033

 
$
2,741

 
$
2,311

 
$
289

 
$
5,711

 
$
382

 
$
37

_______________________________________________
(1) In conjunction with the ARCT III Merger, the payment of acquisition fees was terminated, however for properties that were in ARCP's or ARCT III's pipeline at the ARCT III Merger date, the fees were paid as the Company's Former Manager had sourced and negotiated the purchase price prior to the ARCT III Merger.
(2) The amounts incurred and paid were recognized in merger and other transaction related costs during the year ended December 31, 2013 as they relate to the ARCT III Merger. The amounts incurred during the quarter ended December 31, 2013 and payable as of December 31, 2013 were accrued through January 7, 2014, the date prior to transition to self management.
Under an administrative support agreement between the Company and ARC, ARC was to pay or reimburse the Company for its general administrative expenses, including, without limitation, legal fees, audit fees, board of directors fees, insurance, marketing and investor relation fees, until September 6, 2012, which was one year after the closing of the IPO, to the extent the amount of certain net earnings from operations thresholds, as specified in the agreement, were less than the amount of the distributions declared by the Company during this one-year period. To the extent these amounts were paid by ARC, they would not be subject to reimbursement by the Company. These costs are presented net in the accompanying consolidated statements of operations and comprehensive loss. In addition, the ARCT III Advisor provided expense support to ARCT III from time to time to assist ARCT III with operating cash flow, distributions or other operational purposes.
The following table details general and administrative expenses absorbed by ARC and the ARCT III Advisor and paid to the Company or ARCT III during the years ended December 31, 2013, 2012 and 2011(amounts in thousands):
 
 
Year Ended December 31,
 
Receivable as of December 31,
 
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
General and administrative expenses absorbed
 
$
—

 
$
234

 
$
20

 
$
—

 
$
—

 
$
—

Upon consummation of the ARCT III Merger, the Company entered into the OPP with its Former Manager, whereby its Former Manager was able to potentially earn compensation upon the attainment of stockholder value creation targets. Pursuant to previous authorization of the Company's board of directors, as a result of the termination of the Management Agreement, all LTIP Units vested upon the consummation of the Company’s transition to self-management on January 8, 2014. On October 21, 2013, the Company approved the New OPP, to be effective as of the Company’s transition to self-management. Under the New OPP, individual agreements will be entered into between the Company and the participants selected by the Participants that set forth the Participant’s participation percentage in the New OPP and the number of LTIP Units subject to the award. Under the OPP Agreements, the Participants will be eligible to earn performance-based bonus awards equal to the Participant’s participation percentage of a pool that will be funded up to a maximum award opportunity. See Note 17 — Equity Based Compensation for a more detailed description of these plans.

F-50
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Fees Paid in Connection with the ARCT III Merger
ARCT III entered into an agreement with an affiliate, ARC Advisory Services, LLC, to provide legal support services up to the date that ARCT III entered into the ARCT III Merger Agreement and until the ARCT III Merger was consummated for $0.5 million. This amount was fully accrued as of December 31, 2012 and was paid in February 2013 in conjunction with the consummation of the ARCT III Merger.
ARCT III entered into an agreement with an affiliate, ARC Advisory Services, LLC, to provide support services including legal, accounting, marketing, human resources and information technology, among other services, until the earlier of the ARCT III Merger closing date or one year for $2.0 million pursuant to this contract. As of December 31, 2012, $0.3 million was accrued and the remaining $1.7 million was paid in February 2013 in conjunction with the consummation of the ARCT III Merger.
ARCT III entered into an agreement with affiliates RCS and ARC Advisory Services, LLC, to provide financial advisory and information agent services related to the proxy solicitation seeking approval of the ARCT III Merger by ARCT III's stockholders for $0.6 million. Services provided include facilitation of the preparation, distribution and accumulation and tabulation of proxy materials, stockholder, analyst and financial advisor communications and consultation on materials and communications made to the public and regulatory agencies regarding the ARCT III Merger. The Company recorded $0.5 million for the year ended December 31, 2013 in addition to the $0.1 million that was accrued in the prior year and paid the full amount in conjunction with the consummation of the ARCT III Merger.
The Company entered into an Asset Purchase and Sale Agreement with ARC pursuant to which, concurrently with the closing of the ARCT III Merger and in connection with the internalization by the Company of certain property level management and accounting activities, ARC sold to the OP certain furniture, fixtures, equipment and other assets used by ARC in connection with managing the property level business and operations and accounting functions of the Company and the OP, and included at the cost of such assets, for an aggregate price of $5.8 million, which includes the reimbursement of certain costs and expenses incurred by ARC in connection with the ARCT III Merger. Fees paid in connection with the ARCT III Merger were recorded in merger and transaction related in the consolidated statements of operations and comprehensive loss. Additionally, the Company acquired fixed assets with a carryover basis of $1.0 million from the Advisor; the consideration paid to the Advisor in excess of the carryover basis was approximately $3.0 million .
On February 28, 2013, the OP entered into a Contribution and Exchange Agreement (the “Contribution and Exchange Agreement”) with the ARCT III OP and American Realty Capital Trust III Special Limited Partner, LLC, the holder of the special limited partner interest in the ARCT III OP . The Special Limited Partner was entitled to receive certain distributions from the ARCT III OP, including the subordinated distribution of net sales proceeds resulting from an “investment liquidity event” (as defined in the agreement of limited partnership of the ARCT III OP). The ARCT III Merger constituted an “investment liquidity event,” as a result of which the Special Limited Partner, in connection with management's successful attainment of the 6.0% performance hurdle and the return to ARCT III's stockholders of approximately $557.3 million in addition to their initial investment, was entitled to receive a subordinated distribution of net sales proceeds from the ARCT III OP equal to approximately $98.4 million. Pursuant to the Contribution and Exchange Agreement, the Special Limited Partner contributed its interest in the ARCT III OP, inclusive of the subordinated distribution proceeds received, to the ARCT III OP in exchange for 7.6 million ARCT III OP Units. Upon consummation of the ARCT III Merger, these ARCT III OP Units were immediately converted to 7.3 million OP Units after application of the ARCT III Exchange Ratio. In conjunction with the ARCT III Merger Agreement, the Special Limited Partner agreed to a minimum one year holding period for these OP units before converting them to shares of Company common stock.
Fees Paid in Connection with the ARCT IV Merger
The Company entered into an agreement with affiliates RCS and ARC Advisory Services, LLC, to provide financial advisory and information agent services related to the proxy solicitation seeking approval of the ARCT IV Merger by ARCT IV's stockholders for $0.6 million . Services provided include facilitation of the preparation, distribution and accumulation and tabulation of proxy materials, stockholder, analyst and financial advisor communications and consultation on materials and communications made to the public and regulatory agencies regarding the ARCT IV Merger.
Pursuant to an agreement with an affiliate, ARC Advisory Services, LLC, to provide legal support services up to the date that ARCT IV entered into the ARCT IV Merger Agreement, and until the ARCT IV Merger was consummated, for $0.5 million, the Company recorded approximately $0.3 million of these expenses during the year ended December 31, 2013.

F-51
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Investment by Affiliate
In connection with the ARCT III Merger, the Special Limited Partner invested $0.8 million in exchange for 56,797 OP Units after the effect of the ARCT III Exchange Ratio.
Investment in Affiliate
During the year ended December 31, 2013, the Company invested $10.0 million in an affiliated real estate fund, American Real Estate Income Fund, which invests primarily in equity securities of other publicly traded REITs, and subsequently reinvested dividends totaling $0.1 million. During the fourth quarter of 2013, the Company sold investments with an original cost of $8.5 million. The fair value of the investment at December 31, 2013 was $1.5 million.

Note 19 — Economic Dependency
Prior to transitioning to self-management on January 8, 2014, the Company engaged, under various agreements, its Former Manager and its affiliates to provide certain services that are essential to the Company, including asset management services and supervision of the management and leasing of properties owned by the Company, the sale of shares of the Company’s common stock, as well as other administrative responsibilities for the Company including information technology, legal services and investor relations. See Note 23 — Subsequent Events for additional information on the Company's transition to self-management.
As a result of these relationships, the Company was dependent upon its Former Manager, the Sponsor and their affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would have been required to find alternative providers of these services. As a result of the ARCT III Merger, the Company internalized certain accounting and property acquisition services previously performed by its Former Manager and its affiliates. The Company may from time to time engage its Former Manager for legal, information technology or other support services for which it will pay a fee.

Note 20 — Net Loss Per Share 
The following is a summary of the basic and diluted net loss per share computation for the years ended December 31, 2013, 2012 and 2011 (amounts in thousands, expect for shares and per share data):
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Net loss from continuing operations attributable to stockholders
 
$
(406,486
)
 
$
(38,700
)
 
$
(3,883
)
Less: dividends declared on preferred shares and RSUs
 
(3,631
)
 
(368
)
 
—

Net loss from continuing operations attributable to common stockholders
 
(410,117
)
 
(39,068
)
 
(3,883
)
Net income (loss) from discontinued operations attributable to common stockholders
 
(19
)
 
(699
)
 
(816
)
Net loss attributable to common stockholders
 
$
(410,136
)
 
$
(39,767
)
 
$
(4,699
)
 
 
 
 
 
 
 
Weighted average common shares outstanding (1)
 
174,052,650

 
102,513,974

 
3,720,351

Basic and diluted net loss per share from continuing operations attributable to common stockholders
 
$
(2.35
)
 
$
(0.38
)
 
$
(1.04
)
Basic and diluted net loss per share from discontinued operations attributable to common stockholders
 
$
(0.00
)
 
$
(0.01
)
 
$
(0.22
)
Basic and diluted net loss per share attributable to common stockholders
 
$
(2.36
)
 
$
(0.39
)
 
$
(1.26
)
_______________________________________________
(1) Weighted average shares for the year ended December 31, 2013 are adjusted on a pro forma basis as if the purchase of 27.7 million shares of ARCT III common stock for cash, purchased in conjunction with the ARCT III Merger, had been completed at the beginning of the period. Weighted average shares for the year ended December 31, 2013, excluding this pro forma adjustment, were 178,411,547 and net loss was $2.30 per share, basic and diluted.

F-52
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

For the year ended December 31, 2013, the Company excluded 8,960,485 OP Units outstanding, which are convertible to an equal number of shares of the Company's common stock, 946,442 shares of unvested restricted stock outstanding and 21,735,008 shares of the Company's Series D Convertible Preferred Stock outstanding as of December 31, 2013 from the calculation of diluted net loss per share as the effect would have been antidilutive.

Note 21 — Discontinued Operations and Properties Held for Sale
The Company separately classifies properties held for sale in the accompanying consolidated balance sheets and operating results for those properties as discontinued operations in the accompanying consolidated statements of operations and comprehensive loss. In the normal course of business, changes in the market or changes in credit risk of certain tenants, among other factors, may compel the Company to decide to classify a property as held for sale or reclassify a property that is designated as held for sale back to held for investment. In these situations, the property is transferred to held for sale or back to held for investment at the lesser of fair value or depreciated cost. As of December 31, 2013 and 2012, the Company held one and two properties, respectively, classified as held for sale on the accompanying respective consolidated balance sheets.
On March 5, 2013, the Company executed a purchase and sale agreement to sell a Citizens Bank branch in Worth, IL classified as held for sale as of December 31, 2013. The sale price of the asset is $0.7 million in cash, which approximates the carrying value of the property.
Note 22 — Quarterly Results (Unaudited)
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2013 and 2012 (in thousands, except share and per share amounts):
 
 
Quarters Ended(1)
 
 
March 31,
2013
 
June 30,
2013
 
September 30,
2013
 
December 31,
2013
Revenues
 
$
40,200

 
$
45,170

 
$
61,012

 
$
94,114

Net loss from continuing operations attributable to stockholders
 
(137,933
)
 
(51,678
)
 
(59,030
)
 
(157,845
)
Less: dividends declared on preferred shares and RSUs
 
(193
)
 
(233
)
 
(199
)
 
(3,007
)
Net loss from continuing operations attributable to common stockholders
 
(138,126
)
 
(51,911
)
 
(59,229
)
 
(160,852
)
Net loss from discontinued operations attributable to stockholders
 
(2
)
 
—

 
(30
)
 
13

Net loss attributable to common stockholders, net of dividends on preferred shares
 
$
(138,128
)
 
$
(51,911
)
 
$
(59,259
)
 
$
(160,839
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
153,339,174

 
162,368,538

 
184,807,219

 
195,068,633

 
 
 
 
 
 
 
 
 
Basic and diluted loss per share from continuing operations attributable to common stockholders
 
$
(0.90
)
 
$
(0.32
)
 
$
(0.32
)
 
$
(0.82
)
Basic and diluted loss per share from discontinued operations attributable to common stockholders
 
$
—

 
$
—

 
$
—

 
$
—

Basic and diluted loss per share attributable to common stockholders
 
$
(0.90
)
 
$
(0.32
)
 
$
(0.32
)
 
$
(0.82
)


F-53
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

 
 
Quarters Ended(1)
 
 
March 31,
2012
 
June 30,
2012
 
September 30,
2012
 
December 31,
2012
Revenues
 
$
6,240

 
$
11,534

 
$
18,944

 
$
30,075

Net loss from continuing operations attributable to stockholders
 
(4,706
)
 
(6,993
)
 
(12,650
)
 
(14,351
)
Less: dividends declared on preferred shares and RSUs
 
—

 
(70
)
 
(140
)
 
(158
)
Net loss from continuing operations attributable to common stockholders
 
(4,706
)
 
(7,063
)
 
(12,790
)
 
(14,509
)
Net loss from discontinued operations attributable to stockholders
 
(322
)
 
(77
)
 
(41
)
 
(259
)
Net loss attributable to common stockholders, net of dividends on preferred shares
 
$
(5,028
)
 
$
(7,140
)
 
$
(12,831
)
 
$
(14,768
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
23,609,509

 
68,312,582

 
138,323,562

 
178,480,894

 
 
 
 
 
 
 
 
 
Basic and diluted loss per share from continuing operations attributable to common stockholders
 
$
(0.21
)
 
$
(0.10
)
 
$
(0.09
)
 
$
(0.08
)
Basic and diluted loss per share from discontinued operations attributable to common stockholders
 
$
0.01

 
$
—

 
$
—

 
$
—

Basic and diluted loss per share attributable to common stockholders
 
$
(0.20
)
 
$
(0.10
)
 
$
(0.09
)
 
$
(0.08
)
(1) Certain historical balances have been restated for discontinue operations.
Note 23 — Subsequent Events
In addition to those items discussed in Note 2 —Mergers and Acquisitions, Note 11 — Other Debt and Note 17 — Equity Based Compensation and the following events occurred subsequent to December 31, 2013 that require adjustments to the disclosures in the consolidated financial statements:
Completion of Acquisition of Assets
The following table presents certain information about the properties that the Company acquired from January 1, 2014 to February 26, 2014 (dollar amounts in thousands):
 
 
No. of Buildings
 
Square Feet
 
Base Purchase Price (1)
Total Portfolio – December 31, 2013 (2)
 
1,329

 
34,185,054

 
$
5,162,688

Acquisitions
 
1,390

 
22,194,026

 
2,999,222

Cole Merger
 
1,052

 
46,416,973

 
*

Total Portfolio – February 26, 2014 (2)
 
3,771

 
102,796,053

 
*

____________________________
(1)Contract purchase price, excluding acquisition and transaction related costs.
(2)
Total portfolio excludes one vacant property contributed in September 2011, which was classified as held for sale as of December 31, 2013.
* As discussed in Note 2 — Mergers and Acquisitions, the Company has not completed its premium purchase price allocation. As such the Company has yet to determine the base purchase price that will be assigned to the real estate investments acquired in the Cole Merger.
Transition to Self-Management
On January 8, 2014, the Company completed its transition to self-management. In connection with becoming self-managed, ARCP terminated its management agreement with its Former Manager and certain former executives and employees of its Former Manager became employees of the Company.

F-54
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 31, 2013

Termination of Management Agreement
In connection with the transition by the Company to self-management, on January 8, 2014, the Company and its Former Manager entered into an Amendment and Acknowledgment of Termination of Amended and Restated Management Agreement (the “Termination Agreement”), dated January 8, 2014. The Termination Agreement provided for termination of the Amended and Restated Management Agreement, dated February 28, 2013, between the Company and its Former Manager, effective January 8, 2014. Pursuant to the Termination Agreement, the Company's Former Manager agreed to continue to provide services previously provided under the Management Agreement, to the extent required by the Company, for a period of 60 days following January 8, 2014 and received a payment in the amount of $10.0 million for providing such services.
Pursuant to an Assignment and Assumption Agreement (the “Assignment”) dated January 8, 2014 between AR Capital, LLC, an affiliate of the Company's Former Manager (“AR Capital”) and RCS Advisory Services, LLC, AR Capital assigned to the Company, and the Company assumed, certain of the rights and obligations under that certain Services Agreement dated as of June 10, 2013 between AR Capital and RCS Advisory Services, LLC (the “Services Agreement”). Under the Services Agreement, RCS Advisory Services, LLC and its affiliates had been providing to the Company certain transaction management services and other services, employees and other resources. The Assignment enables the Company to continue to receive the services and resources contemplated under the Services Agreement, at the Company’s discretion.
In addition, pursuant to a separate Transition Services Agreement (the “Transition Services Agreement”), dated October 21, 2013, affiliates of the Company's Former Manager agreed to provide certain transition services, including accounting support, acquisition support, investor relations support, public relations support, human resources and administration, general human resources duties, payroll services, benefits services, insurance and risk management, information technology, telecommunications and internet and services relating to office supplies. The Transition Services Agreement will be in effect for a 60-day term beginning on the date the Company became self-managed, and may be extended by the Company at its discretion. Should the Company request any services, the Company will pay a fee at an hourly rate or flat rate to be agreed on, not to exceed a market rate for the services to be provided pursuant to the Transition Services Agreement.
Purchase of Furniture, Fixtures and Equipment
On January 8, 2014, the OP entered into the Asset Purchase and Sale Agreement with the Company's Former Manager (the “Purchase Agreement”), pursuant to which the Former Manager transferred to the OP furniture, fixtures and equipment used by the Former Manager in connection with the business of the Company. Under the Purchase Agreement, the OP paid the Company's Former Manager $10.0 million for the furniture, fixtures and equipment and certain unreimbursed expenses.


F-55

Real Estate and Accumulated Depreciation
Schedule III
December 31, 2013
(in thousands)

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 24 Hour Fitness
 
 Woodlands
 
 TX
 
—

(1) 
2,690

 
8,312

 
—

 
11,002

 
146

 
9/24/2013
 
2001
 7-Eleven
 
 Sarasota
 
 FL
 
—

(1) 
1,312

 
1,312

 
—

 
2,624

 
80

 
11/19/2012
 
2000
 7-Eleven
 
 Gloucester
 
 VA
 
—

(1) 
144

 
578

 
—

 
722

 
32

 
12/24/2012
 
1985
 7-Eleven
 
 Hampton
 
 VA
 
—

(1) 
69

 
624

 
—

 
693

 
35

 
12/24/2012
 
1986
 7-Eleven
 
 Hampton
 
 VA
 
—

(1) 
161

 
644

 
—

 
805

 
36

 
12/24/2012
 
1959
 Abbott Laboratories
 
 Waukegan
 
 IL
 
13,649

 
4,734

 
20,465

 
—

 
25,199

 
156

 
11/5/2013
 
2000
 Abbott Laboratories
 
 Columbus
 
 OH
 
—

(2) 
800

 
10,658

 
—

 
11,458

 
81

 
11/5/2013
 
2004
 Academy Sports
 
 Fayetteville
 
 AR
 
—

 
1,900

 
7,601

 
—

 
9,501

 
534

 
12/28/2012
 
2012
 Academy Sports
 
 Dalton
 
 GA
 
—

 
998

 
5,656

 
—

 
6,654

 
331

 
2/20/2013
 
2012
 Advance Auto
 
 Birmingham
 
 AL
 
—

(1) 
330

 
494

 
—

 
824

 
23

 
2/28/2013
 
1999
 Advance Auto
 
 Birmingham
 
 AL
 
—

(1) 
455

 
373

 
—

 
828

 
17

 
2/28/2013
 
1997
 Advance Auto
 
 Calera
 
 AL
 
—

(1) 
723

 
723

 
—

 
1,446

 
41

 
12/27/2012
 
2008
 Advance Auto
 
 Dothan
 
 AL
 
—

(1) 
326

 
326

 
—

 
652

 
18

 
12/31/2012
 
1997
 Advance Auto
 
 Enterprise
 
 AL
 
—

(1) 
280

 
420

 
—

 
700

 
24

 
12/31/2012
 
1995
 Advance Auto
 
 Albany
 
 GA
 
—

(1) 
210

 
629

 
—

 
839

 
35

 
12/31/2012
 
1995
 Advance Auto
 
 Cairo
 
 GA
 
—

(1) 
140

 
326

 
—

 
466

 
18

 
12/31/2012
 
1993
 Advance Auto
 
 Hazlehurst
 
 GA
 
—

(1) 
113

 
451

 
—

 
564

 
25

 
12/31/2012
 
1998
 Advance Auto
 
 Hinesville
 
 GA
 
—

(1) 
352

 
430

 
—

 
782

 
24

 
12/31/2012
 
1994
 Advance Auto
 
 Perry
 
 GA
 
—

(1) 
209

 
487

 
—

 
696

 
27

 
12/31/2012
 
1994
 Advance Auto
 
 Thomasville
 
 GA
 
—

(1) 
251

 
377

 
—

 
628

 
21

 
12/31/2012
 
1997
 Advance Auto
 
 Auburn
 
 IN
 
—

 
337

 
1,347

 
—

 
1,684

 
132

 
3/29/2012
 
2007
 Advance Auto
 
 Clinton
 
 IN
 
—

(1) 
182

 
729

 
—

 
911

 
24

 
6/5/2013
 
2004
 Advance Auto
 
 Fort Wayne
 
 IN
 
—

(1) 
193

 
450

 
—

 
643

 
21

 
2/28/2013
 
1998
 Advance Auto
 
 Fort Wayne
 
 IN
 
—

(1) 
200

 
371

 
—

 
571

 
17

 
2/28/2013
 
1998
 Advance Auto
 
 Salina
 
 KS
 
—

(1) 
195

 
782

 
—

 
977

 
29

 
4/30/2013
 
2006
 Advance Auto
 
 Barbournville
 
 KY
 
—

(1) 
194

 
1,098

 
—

 
1,292

 
46

 
4/15/2013
 
2006
 Advance Auto
 
 Bardstown
 
 KY
 
—

(1) 
272

 
1,090

 
—

 
1,362

 
66

 
12/10/2012
 
2005
 Advance Auto
 
 Brandenburg
 
 KY
 
—

(1) 
186

 
742

 
—

 
928

 
45

 
12/10/2012
 
2005

F-56

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Advance Auto
 
 Hardinsburg
 
 KY
 
—

(1) 
94

 
845

 
—

 
939

 
51

 
12/10/2012
 
2007
 Advance Auto
 
 Inez
 
 KY
 
—

(1) 
130

 
1,174

 
—

 
1,304

 
88

 
8/22/2012
 
2010
 Advance Auto
 
 Leitchfield
 
 KY
 
—

(1) 
104

 
939

 
—

 
1,043

 
57

 
12/10/2012
 
2005
 Advance Auto
 
 West Liberty
 
 KY
 
—

(1) 
249

 
996

 
—

 
1,245

 
42

 
4/15/2013
 
2006
 Advance Auto
 
 Rayne
 
 LA
 
—

(1) 
122

 
490

 
—

 
612

 
16

 
5/21/2013
 
2000
 Advance Auto
 
 Caro
 
 MI
 
—

(8) 
117

 
665

 
—

 
782

 
78

 
11/23/2011
 
2002
 Advance Auto
 
 Charlotte
 
 MI
 
—

(8) 
123

 
697

 
—

 
820

 
82

 
11/23/2011
 
2002
 Advance Auto
 
 Flint
 
 MI
 
—

(1) 
133

 
534

 
—

 
667

 
62

 
11/23/2011
 
2002
 Advance Auto
 
 Livonia
 
 MI
 
—

(8) 
210

 
629

 
14

 
853

 
74

 
12/12/2011
 
2003
 Advance Auto
 
 Manistee
 
 MI
 
—

(1) 
348

 
1,043

 
—

 
1,391

 
44

 
4/15/2013
 
2007
 Advance Auto
 
 Sault Ste. Marie
 
 MI
 
—

(8) 
75

 
671

 
—

 
746

 
78

 
11/23/2011
 
2003
 Advance Auto
 
 Ypsilanti
 
 MI
 
—

(1) 
85

 
483

 
—

 
568

 
57

 
11/23/2011
 
2002
 Advance Auto
 
 Eden
 
 NC
 
—

(1) 
320

 
746

 
—

 
1,066

 
17

 
7/16/2013
 
2004
 Advance Auto
 
 Granite Falls
 
 NC
 
—

(1) 
251

 
1,005

 
—

 
1,256

 
80

 
8/9/2012
 
2010
 Advance Auto
 
 Lakewood
 
 NJ
 
—

(1) 
750

 
1,750

 
—

 
2,500

 
131

 
8/22/2012
 
2010
 Advance Auto
 
 Woodbury
 
 NJ
 
—

(1) 
446

 
1,784

 
—

 
2,230

 
150

 
6/20/2012
 
2007
 Advance Auto
 
 Eaton
 
 OH
 
—

(1) 
157

 
471

 
—

 
628

 
15

 
6/13/2013
 
1987
 Advance Auto
 
 Franklin
 
 OH
 
—

(1) 
218

 
873

 
—

 
1,091

 
69

 
8/9/2012
 
1984
 Advance Auto
 
 Springfield
 
 OH
 
—

(1) 
461

 
1,075

 
—

 
1,536

 
60

 
12/31/2012
 
2005
 Advance Auto
 
 Van Wert
 
 OH
 
—

(1) 
33

 
630

 
—

 
663

 
21

 
6/13/2013
 
1998
 Advance Auto
 
 Warren
 
 OH
 
—

 
83

 
745

 
—

 
828

 
73

 
4/12/2012
 
2003
 Advance Auto
 
 Oklahoma City
 
 OK
 
—

(1) 
208

 
1,178

 
—

 
1,386

 
94

 
8/9/2012
 
2007
 Advance Auto
 
 Chambersburg
 
 PA
 
—

(1) 
553

 
830

 
—

 
1,383

 
39

 
2/28/2013
 
1997
 Advance Auto
 
 Selinsgrove
 
 PA
 
—

(1) 
99

 
891

 
—

 
990

 
29

 
6/3/2013
 
2003
 Advance Auto
 
 Titusville
 
 PA
 
—

(1) 
207

 
1,172

 
—

 
1,379

 
71

 
12/12/2012
 
2010
 Advance Auto
 
 Chapin
 
 SC
 
—

(1) 
395

 
922

 
—

 
1,317

 
78

 
6/20/2012
 
2007
 Advance Auto
 
 Chesterfield
 
 SC
 
—

(1) 
131

 
745

 
—

 
876

 
63

 
6/27/2012
 
2008
 Advance Auto
 
 Greenwood
 
 SC
 
—

 
210

 
630

 
—

 
840

 
65

 
3/9/2012
 
1995
 Advance Auto
 
 Sweetwater
 
 TN
 
—

(1) 
360

 
839

 
—

 
1,199

 
51

 
11/29/2012
 
2006
 Advance Auto
 
 Alton
 
 TX
 
—

(1) 
169

 
958

 
—

 
1,127

 
63

 
10/18/2012
 
2006
 Advance Auto
 
 Houston
 
 TX
 
—

(3) 
248

 
991

 
—

 
1,239

 
125

 
9/30/2011
 
2006
 Advance Auto
 
 Houston
 
 TX
 
—

(3) 
343

 
1,029

 
—

 
1,372

 
130

 
9/30/2011
 
2006

F-57

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Advance Auto
 
 Houston
 
 TX
 
—

(1) 
837

 
685

 
—

 
1,522

 
51

 
8/21/2012
 
2007
 Advance Auto
 
 Pasadena
 
 TX
 
—

(1) 
382

 
1,146

 
—

 
1,528

 
97

 
7/6/2012
 
2008
 Advance Auto
 
 Fort Atkinson
 
 WI
 
—

(1) 
353

 
824

 
—

 
1,177

 
15

 
8/26/2013
 
2004
 Advance Auto
 
 Kenosha
 
 WI
 
—

(1) 
569

 
465

 
—

 
1,034

 
22

 
3/13/2013
 
2004
 Advance Auto
 
 St. Marys
 
 WY
 
—

(1) 
309

 
928

 
—

 
1,237

 
52

 
12/28/2012
 
2007
 Aetna Life Insurance Company
 
 Fresno
 
 CA
 
16,043

 
3,405

 
21,546

 
—

 
24,951

 
164

 
11/5/2013
 
2008
 Ale House
 
 Orlando
 
 FL
 
—

(1
)
290

 
3,647

 
—

 
3,937

 
105

 
6/27/2013
 
1994
 Ale House
 
 Orlando
 
 FL
 
—

(1
)
270

 
3,668

 
—

 
3,938

 
105

 
6/27/2013
 
1993
 Ale House
 
 Saint Petersburg
 
 FL
 
—

 
930

 
3,116

 
—

 
4,046

 
89

 
6/27/2013
 
1998
 Allstate Insurance Company
 
 Charlotte
 
 NC
 
18,846

 
8,320

 
22,163

 
—

 
30,483

 
169

 
11/5/2013
 
1990
 Allstate Insurance Company
 
 Roanoke
 
 VA
 
20,064

 
6,176

 
26,007

 
—

 
32,183

 
198

 
11/5/2013
 
1981
 AMCOR
 
 Alhambra
 
 MI
 
—

(1) 
7,143

 
8,730

 
—

 
15,873

 
488

 
1/24/2013
 
1966
 AMEC plc
 
 Houston
 
 TX
 
15,765

 
2,524

 
28,919

 
—

 
31,443

 
221

 
11/5/2013
 
2003
 Ameriprise
 
 Ashwaubenon
 
 WI
 
—

 
751

 
14,260

 
—

 
15,011

 
631

 
1/25/2013
 
2000
 AON Corporation
 
 Lincolnshire
 
 IL
 
—

 
5,336

 
101,378

 
—

 
106,714

 
5,125

 
11/16/2012
 
1998
 Applebee's
 
 Clinton
 
 IA
 
—

(1) 
490

 
1,184

 
—

 
1,674

 
34

 
6/27/2013
 
1997
 Applebee's
 
 Fort Dodge
 
 IA
 
—

(1) 
—

 
1,363

 
—

 
1,363

 
39

 
6/27/2013
 
1997
 Applebee's
 
 Marshalltown
 
 IA
 
—

(1) 
660

 
1,175

 
—

 
1,835

 
34

 
6/27/2013
 
1997
 Applebee's
 
 Mason City
 
 IA
 
—

(1) 
340

 
1,495

 
—

 
1,835

 
43

 
6/27/2013
 
1997
 Applebee's
 
 Muscatine
 
 IA
 
—

(1) 
330

 
1,266

 
—

 
1,596

 
36

 
6/27/2013
 
1996
 Applebee's
 
 Sterling
 
 IL
 
—

(1) 
390

 
1,291

 
—

 
1,681

 
37

 
6/27/2013
 
1996
 Applebee's
 
 Hopkinsville
 
 KY
 
—

(1) 
460

 
1,265

 
—

 
1,725

 
36

 
6/27/2013
 
1997
 Applebee's
 
 Greenville
 
 SC
 
—

(1) 
600

 
2,166

 
—

 
2,766

 
62

 
6/27/2013
 
1999
 Applebee's
 
 Antioch
 
 TN
 
—

(1) 
470

 
878

 
—

 
1,348

 
25

 
6/27/2013
 
1991
 Applebee's
 
 Clarksville
 
 TN
 
—

(1) 
570

 
1,729

 
—

 
2,299

 
50

 
6/27/2013
 
1995
 Applebee's
 
 Columbia
 
 TN
 
—

(1) 
590

 
1,823

 
—

 
2,413

 
52

 
6/27/2013
 
1996
 Applebee's
 
 Cookeville
 
 TN
 
—

(1) 
410

 
1,128

 
—

 
1,538

 
32

 
6/27/2013
 
1993
 Applebee's
 
 Hermitage
 
 TN
 
—

(1) 
530

 
1,491

 
—

 
2,021

 
43

 
6/27/2013
 
1992
 Applebee's
 
 Lebanon
 
 TN
 
—

(1) 
460

 
1,120

 
—

 
1,580

 
32

 
6/27/2013
 
1998
 Applebee's
 
 Madison
 
 TN
 
—

(1) 
460

 
772

 
—

 
1,232

 
22

 
6/27/2013
 
1995

F-58

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Arby's
 
 Arab
 
 AL
 
—

(1) 
40

 
887

 
—

 
927

 
25

 
6/27/2013
 
1988
 Arby's
 
 Hampton Cove
 
 AL
 
—

(1) 
310

 
986

 
—

 
1,296

 
27

 
6/27/2013
 
2007
 Arby's
 
 Sacramento
 
 CA
 
—

(1) 
520

 
195

 
—

 
715

 
5

 
6/27/2013
 
1981
 Arby's
 
 Arvada
 
 CO
 
—

(1) 
190

 
1,465

 
—

 
1,655

 
41

 
6/27/2013
 
1994
 Arby's
 
 Orange Park
 
 FL
 
—

(1) 
420

 
1,256

 
—

 
1,676

 
35

 
6/27/2013
 
1998
 Arby's
 
 Canton
 
 GA
 
—

(1) 
370

 
1,200

 
—

 
1,570

 
33

 
6/27/2013
 
1998
 Arby's
 
 Douglasville
 
 GA
 
—

(1) 
370

 
1,692

 
—

 
2,062

 
47

 
6/27/2013
 
1999
 Arby's
 
 Suwanee
 
 GA
 
—

(1) 
370

 
1,561

 
—

 
1,931

 
43

 
6/27/2013
 
1998
 Arby's
 
 Avon
 
 IN
 
—

(1) 
500

 
812

 
—

 
1,312

 
22

 
6/27/2013
 
1996
 Arby's
 
 Indianapolis
 
 IN
 
—

(1) 
530

 
1,236

 
—

 
1,766

 
34

 
6/27/2013
 
2000
 Arby's
 
 Indianapolis
 
 IN
 
—

(1) 
370

 
1,130

 
—

 
1,500

 
31

 
6/27/2013
 
1978
 Arby's
 
 Kansas City
 
 KS
 
—

(1) 
280

 
364

 
—

 
644

 
10

 
6/27/2013
 
1970
 Arby's
 
 Salina
 
 KS
 
—

(1) 
540

 
300

 
—

 
840

 
8

 
6/27/2013
 
1980
 Arby's
 
 Topeka
 
 KS
 
—

(1) 
240

 
291

 
—

 
531

 
8

 
6/27/2013
 
1979
 Arby's
 
 Topeka
 
 KS
 
—

(1) 
270

 
433

 
—

 
703

 
12

 
6/27/2013
 
1979
 Arby's
 
 Alma
 
 MI
 
—

(1) 
380

 
408

 
—

 
788

 
11

 
6/27/2013
 
1994
 Arby's
 
 Chesterfield
 
 MI
 
—

(1) 
210

 
841

 
—

 
1,051

 
23

 
6/27/2013
 
1990
 Arby's
 
 Davison
 
 MI
 
—

(1) 
420

 
631

 
—

 
1,051

 
17

 
6/27/2013
 
1980
 Arby's
 
 Flint
 
 MI
 
—

(1) 
110

 
1,422

 
—

 
1,532

 
39

 
6/27/2013
 
1979
 Arby's
 
 Flint
 
 MI
 
—

(1) 
230

 
1,428

 
—

 
1,658

 
40

 
6/27/2013
 
1962
 Arby's
 
 Midland
 
 MI
 
—

(1) 
340

 
753

 
—

 
1,093

 
21

 
6/27/2013
 
1994
 Arby's
 
 Pontiac
 
 MI
 
—

(1) 
180

 
962

 
—

 
1,142

 
27

 
6/27/2013
 
1968
 Arby's
 
 Port Huron
 
 MI
 
—

(1) 
210

 
868

 
—

 
1,078

 
24

 
6/27/2013
 
1975
 Arby's
 
 Saginaw
 
 MI
 
—

(1) 
310

 
1,110

 
—

 
1,420

 
31

 
6/27/2013
 
1970
 Arby's
 
 South Haven
 
 MI
 
—

(1) 
260

 
573

 
—

 
833

 
16

 
6/27/2013
 
1988
 Arby's
 
 Walker
 
 MI
 
—

(1) 
360

 
1,002

 
—

 
1,362

 
28

 
6/27/2013
 
1999
 Arby's
 
 Fayetteville
 
 NC
 
—

(1) 
420

 
2,001

 
—

 
2,421

 
55

 
6/27/2013
 
2006
 Arby's
 
 Greensboro
 
 NC
 
—

(1) 
300

 
906

 
—

 
1,206

 
25

 
6/27/2013
 
1990
 Arby's
 
 Greenville
 
 NC
 
—

(1) 
310

 
681

 
—

 
991

 
19

 
6/27/2013
 
1995
 Arby's
 
 Jonesville
 
 NC
 
—

(1) 
350

 
908

 
—

 
1,258

 
25

 
6/27/2013
 
1995
 Arby's
 
 Kernersville
 
 NC
 
—

(1) 
280

 
774

 
—

 
1,054

 
21

 
6/27/2013
 
1994
 Arby's
 
 Kinston
 
 NC
 
—

(1) 
350

 
832

 
—

 
1,182

 
23

 
6/27/2013
 
1995

F-59

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Arby's
 
 Lexington
 
 NC
 
—

(1) 
360

 
873

 
—

 
1,233

 
24

 
6/27/2013
 
1992
 Arby's
 
 Columbus
 
 OH
 
—

(1) 
400

 
1,155

 
—

 
1,555

 
32

 
6/27/2013
 
1999
 Arby's
 
 Reynoldsburg
 
 OH
 
—

(1) 
370

 
945

 
—

 
1,315

 
26

 
6/27/2013
 
1998
 Arby's
 
 Willard
 
 OH
 
—

(1) 
230

 
599

 
—

 
829

 
17

 
6/27/2013
 
2005
 Arby's
 
 Allentown
 
 PA
 
—

(1) 
600

 
1,652

 
—

 
2,252

 
46

 
6/27/2013
 
1978
 Arby's
 
 Carlisle
 
 PA
 
—

(1) 
200

 
472

 
—

 
672

 
13

 
6/27/2013
 
1992
 Arby's
 
 Hanover
 
 PA
 
—

(1) 
400

 
921

 
—

 
1,321

 
26

 
6/27/2013
 
1994
 Arby's
 
 Myrtle Beach
 
 SC
 
—

(1) 
370

 
1,132

 
—

 
1,502

 
31

 
6/27/2013
 
1999
 Arby's
 
 Amarillo
 
 TX
 
—

(1) 
260

 
627

 
—

 
887

 
17

 
6/27/2013
 
1992
 AT&T
 
 Richardson
 
 TX
 
20,224

 
1,891

 
29,797

 
—

 
31,688

 
227

 
11/5/2013
 
1987
 Auto Zone
 
 Chicago
 
 IL
 
—

(1) 
698

 
1,047

 
—

 
1,745

 
39

 
4/30/2013
 
2007
 Bandana's Bar-B-Q Restaurant
 
 Collinsville
 
 IL
 
—

(1) 
340

 
627

 
—

 
967

 
18

 
6/27/2013
 
1987
 Bandana's Bar-B-Q Restaurant
 
 Arnold
 
 MO
 
—

(1) 
460

 
433

 
—

 
893

 
12

 
6/27/2013
 
1999
 Baxter International, Inc.
 
 Bloomington
 
 IN
 
—

(2) 
1,310

 
8,216

 
—

 
9,526

 
84

 
11/5/2013
 
2004
 Bed Bath & Beyond
 
 Stockton
 
 CA
 
—

 
2,761

 
52,454

 
—

 
55,215

 
4,266

 
8/17/2012
 
2003
 Big O Tires
 
 Los Lunas
 
 NM
 
—

(1) 
316

 
1,265

 
—

 
1,581

 
116

 
6/1/2012
 
2006
 BJ's Wholesale Club
 
 Canton
 
 OH
 
—

 
456

 
8,668

 
—

 
9,124

 
507

 
2/20/2013
 
1998
 Black Angus
 
 Dublin
 
 CA
 
—

(1) 
620

 
2,467

 
—

 
3,087

 
71

 
6/27/2013
 
1999
 Bojangles
 
 Winder
 
 GA
 
—

(1) 
645

 
1,198

 
—

 
1,843

 
120

 
7/30/2012
 
2011
 Bojangles
 
 Biscoe
 
 NC
 
—

(1) 
247

 
986

 
—

 
1,233

 
75

 
11/29/2012
 
2010
 Bojangles
 
 Boone
 
 NC
 
—

(1) 
278

 
833

 
—

 
1,111

 
83

 
7/27/2012
 
1980
 Bojangles
 
 Dobson
 
 NC
 
—

(1) 
251

 
1,004

 
—

 
1,255

 
100

 
7/30/2012
 
2010
 Bojangles
 
 Indian Trail
 
 NC
 
—

(1) 
655

 
1,217

 
—

 
1,872

 
121

 
7/27/2012
 
2011
 Bojangles
 
 Morganton
 
 NC
 
—

 
566

 
1,321

 
—

 
1,887

 
132

 
7/27/2012
 
2010
 Bojangles
 
 Roanoke Rapids
 
 NC
 
—

(1) 
442

 
1,032

 
—

 
1,474

 
103

 
7/27/2012
 
2011
 Bojangles
 
 Southport
 
 NC
 
—

(1) 
505

 
1,179

 
—

 
1,684

 
118

 
7/30/2012
 
2011
 Bojangles
 
 Chapin
 
 SC
 
—

(1) 
577

 
1,071

 
—

 
1,648

 
107

 
8/9/2012
 
2009
 Bojangles
 
 Clinton
 
 SC
 
—

(1) 
397

 
926

 
—

 
1,323

 
92

 
7/27/2012
 
2009
 Bojangles
 
 Greenwood
 
 SC
 
—

(1) 
440

 
1,320

 
—

 
1,760

 
77

 
2/28/2013
 
2011
 Bojangles
 
 Moncks Corner
 
 SC
 
—

(1) 
505

 
1,179

 
—

 
1,684

 
90

 
11/29/2012
 
2010
 Bojangles
 
 Walterboro
 
 SC
 
—

(1) 
454

 
1,363

 
—

 
1,817

 
104

 
11/29/2012
 
2010

F-60

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Boston Market
 
 Indianapolis
 
 IN
 
—

(1) 
930

 
—

 
—

 
930

 
—

 
6/27/2013
 
1997
 Boston Market
 
 Indianapolis
 
 IN
 
—

(1) 
410

 
1,070

 
—

 
1,480

 
30

 
6/27/2013
 
1997
 Boston Market
 
 Fayetteville
 
 NC
 
—

(1) 
460

 
1,520

 
—

 
1,980

 
42

 
6/27/2013
 
1996
 Boston Market
 
 Raleigh
 
 NC
 
—

(1) 
280

 
1,015

 
—

 
1,295

 
28

 
6/27/2013
 
1994
 Brangus Steakhouse
 
 Jasper
 
 AL
 
—

(1) 
140

 
219

 
—

 
359

 
6

 
6/27/2013
 
1986
 Bruegger's Bagels
 
 Iowa City
 
 IA
 
—

(1) 
40

 
379

 
—

 
419

 
10

 
6/27/2013
 
2013
 Bruegger's Bagels
 
 Raleigh
 
 NC
 
—

(1) 
230

 
654

 
—

 
884

 
18

 
6/27/2013
 
1997
 Buca di Beppo Italian
 
 Wheeling
 
 IL
 
—

(1) 
450

 
1,272

 
—

 
1,722

 
36

 
6/27/2013
 
1975
 Buca di Beppo Italian
 
 Westlake
 
 OH
 
—

(1) 
370

 
887

 
—

 
1,257

 
25

 
6/27/2013
 
1900
 Bunge North America, Inc.
 
 Fort Worth
 
 TX
 
6,262

 
1,100

 
7,734

 
—

 
8,834

 
67

 
11/5/2013
 
2005
 Burger King
 
 Tucson
 
 AZ
 
—

(1) 
300

 
1,307

 
—

 
1,607

 
36

 
6/27/2013
 
1980
 Burger King
 
 Atlanta
 
 GA
 
—

(1) 
380

 
499

 
—

 
879

 
14

 
6/27/2013
 
1984
 Burger King
 
 Fort Oglethorpe
 
 GA
 
—

(1) 
170

 
2,175

 
—

 
2,345

 
60

 
6/27/2013
 
1979
 Burger King
 
 Marietta
 
 GA
 
—

(1) 
350

 
916

 
—

 
1,266

 
25

 
6/27/2013
 
1983
 Burger King
 
 Chicago
 
 IL
 
—

(1) 
580

 
1,413

 
—

 
1,993

 
39

 
6/27/2013
 
1996
 Burger King
 
 Highland
 
 IN
 
—

(1) 
410

 
992

 
—

 
1,402

 
27

 
6/27/2013
 
1996
 Burger King
 
 Madisonville
 
 KY
 
—

(1) 
550

 
1,067

 
—

 
1,617

 
30

 
6/27/2013
 
1980
 Burger King
 
 Caribou
 
 ME
 
—

(1) 
770

 
440

 
—

 
1,210

 
12

 
6/27/2013
 
1978
 Burger King
 
 Grand Rapids
 
 MI
 
—

(1) 
490

 
545

 
—

 
1,035

 
15

 
6/27/2013
 
1968
 Burger King
 
 Grand Rapids
 
 MI
 
—

(1) 
260

 
780

 
—

 
1,040

 
22

 
6/27/2013
 
1993
 Burger King
 
 Holland
 
 MI
 
—

(1) 
420

 
707

 
—

 
1,127

 
20

 
6/27/2013
 
1978
 Burger King
 
 Sparta
 
 MI
 
—

(1) 
640

 
570

 
—

 
1,210

 
16

 
6/27/2013
 
1992
 Burger King
 
 Walled Lake
 
 MI
 
—

(1) 
470

 
433

 
—

 
903

 
12

 
6/27/2013
 
1982
 Burger King
 
 Durham
 
 NC
 
—

(1) 
170

 
352

 
—

 
522

 
10

 
6/27/2013
 
1990


F-61

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Burger King
 
 Rockingham
 
 NC
 
—

 
430

 
1,171

 
—

 
1,601

 
32

 
6/27/2013
 
1980
 Burger King
 
 Edison
 
 NJ
 
—

(1) 
480

 
1,075

 
—

 
1,555

 
30

 
6/27/2013
 
1985
 Burger King
 
 Manahawkin
 
 NJ
 
—

(1) 
310

 
748

 
—

 
1,058

 
21

 
6/27/2013
 
1980
 Burger King
 
 Elko
 
 NV
 
—

(1) 
260

 
1,001

 
—

 
1,261

 
28

 
6/27/2013
 
1982
 Burger King
 
 Albany
 
 NY
 
—

(1) 
330

 
850

 
—

 
1,180

 
24

 
6/27/2013
 
1980
 Burger King
 
 Central Square
 
 NY
 
—

(1) 
500

 
1,189

 
—

 
1,689

 
33

 
6/27/2013
 
1992
 Burger King
 
 Cohoes
 
 NY
 
—

(1) 
270

 
563

 
—

 
833

 
16

 
6/27/2013
 
1989
 Burger King
 
 Montgomery
 
 NY
 
—

(1) 
480

 
1,042

 
—

 
1,522

 
29

 
6/27/2013
 
1981
 Burger King
 
 Schenectady
 
 NY
 
—

(1) 
380

 
936

 
—

 
1,316

 
26

 
6/27/2013
 
1984
 Burger King
 
 Willoughby
 
 OH
 
—

(1) 
410

 
1,005

 
—

 
1,415

 
28

 
6/27/2013
 
1980
 Burger King
 
 Ardmore
 
 OK
 
—

(1) 
270

 
1,023

 
—

 
1,293

 
28

 
6/27/2013
 
1979
 Burger King
 
 Corvallis
 
 OR
 
—

(1) 
170

 
195

 
—

 
365

 
5

 
6/27/2013
 
1977
 Burger King
 
 Roseburg
 
 OR
 
—

(1) 
350

 
886

 
—

 
1,236

 
25

 
6/27/2013
 
1981
 Burger King
 
 Old Forge
 
 PA
 
—

(1) 
390

 
905

 
—

 
1,295

 
25

 
6/27/2013
 
1977
 Burger King
 
 Gaffney
 
 SC
 
—

(1) 
370

 
880

 
—

 
1,250

 
24

 
6/27/2013
 
1979
 Burger King
 
 Greenville
 
 SC
 
—

(1) 
420

 
571

 
—

 
991

 
16

 
6/27/2013
 
1982
 Burger King
 
 Chattanooga
 
 TN
 
—

(1) 
740

 
1,591

 
—

 
2,331

 
44

 
6/27/2013
 
1997
 Burger King
 
 Cleburne
 
 TX
 
—

(1) 
300

 
603

 
—

 
903

 
17

 
6/27/2013
 
1985
 Burger King
 
 Bluefield
 
 WV
 
—

(1) 
210

 
1,163

 
—

 
1,373

 
32

 
6/27/2013
 
1982
 Cadbury Holdings Limited
 
 Whippany
 
 NJ
 
31,793

 
2,767

 
37,046

 
—

 
39,813

 
282

 
11/5/2013
 
2005
 Capital One Financial Corporation
 
 Plano
 
 TX
 
—

(2) 
8,440

 
22,179

 
191

 
30,810

 
169

 
11/5/2013
 
2005
 Captain D's
 
 Statesboro
 
 GA
 
—

(1) 
350

 
401

 
—

 
751

 
11

 
6/27/2013
 
1974
 Captain D's
 
 Southaven
 
 MS
 
—

(1) 
270

 
564

 
—

 
834

 
16

 
6/27/2013
 
1992
 Captain D's
 
 Memphis
 
 TN
 
—

(1) 
230

 
338

 
—

 
568

 
9

 
6/27/2013
 
2000
 Captain D's
 
 Dallas
 
 TX
 
—

(1) 
160

 
535

 
—

 
695

 
15

 
6/27/2013
 
1979
 Captain D's
 
 Grand Prairie
 
 TX
 
—

(1) 
260

 
338

 
—

 
598

 
9

 
6/27/2013
 
1987
 Caribou Coffee
 
 Grosse Pointe Woods
 
 MI
 
—

(1) 
140

 
1,046

 
—

 
1,186

 
29

 
6/27/2013
 
1982
 Carlos O'Kelly's
 
 Mason City
 
 IA
 
—

(1) 
290

 
1,255

 
—

 
1,545

 
36

 
6/27/2013
 
1955
 Carlos O'Kelly's
 
 Bloomington
 
 IL
 
—

(1) 
270

 
1,375

 
—

 
1,645

 
39

 
6/27/2013
 
1990
 Carlos O'Kelly's
 
 Springfield
 
 MO
 
—

(1) 
840

 
730

 
—

 
1,570

 
21

 
6/27/2013
 
1992
 Charleston's
 
 Carmel
 
 IN
 
—

(1) 
140

 
3,016

 
—

 
3,156

 
86

 
6/27/2013
 
1999

F-62

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Check City
 
 Taylorsville
 
 UT
 
—

(1) 
180

 
953

 
—

 
1,133

 
27

 
6/27/2013
 
1997
 Checkers
 
 Huntsville
 
 AL
 
—

(1) 
689

 
—

 
—

 
689

 
—

 
6/27/2013
 
1993
 Checkers
 
 Hollywood
 
 FL
 
—

(1) 
160

 
2,220

 
—

 
2,380

 
64

 
6/27/2013
 
1993
 Checkers
 
 Lauderhill
 
 FL
 
—

(1) 
280

 
1,951

 
—

 
2,231

 
56

 
6/27/2013
 
1996
 Checkers
 
 Plantation
 
 FL
 
—

(1) 
220

 
1,461

 
—

 
1,681

 
42

 
6/27/2013
 
1994
 Checkers
 
 Fayetteville
 
 GA
 
—

(1) 
681

 
—

 
—

 
681

 
—

 
6/27/2013
 
1992
 Chevys
 
 Greenbelt
 
 MD
 
—

(1) 
530

 
2,399

 
—

 
2,929

 
69

 
6/27/2013
 
1994
 Chevys
 
 Lake Oswego
 
 OR
 
—

(1) 
590

 
1,693

 
—

 
2,283

 
49

 
6/27/2013
 
1995
 Chili's
 
 Fayetteville
 
 AR
 
—

(1) 
1,370

 
1,714

 
—

 
3,084

 
49

 
6/27/2013
 
1991
 Chili's
 
 Boise
 
 ID
 
—

(1) 
400

 
751

 
—

 
1,151

 
22

 
6/27/2013
 
1992
 Chili's
 
 Riverdale
 
 UT
 
—

(1) 
800

 
899

 
—

 
1,699

 
26

 
6/27/2013
 
1993
 Chili's
 
 Cheyenne
 
 WY
 
—

(1) 
270

 
815

 
—

 
1,085

 
23

 
6/27/2013
 
1994
 Chipper's Grill
 
 Streator
 
 IL
 
—

(1) 
190

 
255

 
—

 
445

 
7

 
6/27/2013
 
1988
 Cimarex Energy Company
 
 Tulsa
 
 OK
 
30,676

 
2,801

 
66,590

 
—

 
69,391

 
508

 
11/5/2013
 
In process
 Circle K
 
 Phoenix
 
 AZ
 
—

(1) 
344

 
1,377

 
—

 
1,721

 
129

 
5/4/2012
 
1986
 Circle K
 
 Martinez
 
 GA
 
—

(1) 
348

 
813

 
—

 
1,161

 
61

 
8/28/2012
 
2003
 Circle K
 
 Akron
 
 OH
 
—

(1) 
675

 
1,254

 
—

 
1,929

 
88

 
9/27/2012
 
1996
 Citizens Bank
 
 Colchester
 
 CT
 
—

(1) 
185

 
1,049

 
—

 
1,234

 
70

 
9/26/2012
 
1981
 Citizens Bank
 
 Deep River
 
 CT
 
—

(1) 
453

 
1,812

 
—

 
2,265

 
121

 
9/26/2012
 
1851
 Citizens Bank
 
 East Hampton
 
 CT
 
—

(7) 
312

 
935

 
—

 
1,247

 
84

 
4/26/2012
 
1984
 Citizens Bank
 
 East Lyme
 
 CT
 
—

(1) 
258

 
1,032

 
—

 
1,290

 
69

 
9/26/2012
 
1972
 Citizens Bank
 
 Hamden
 
 CT
 
—

(1) 
581

 
475

 
—

 
1,056

 
32

 
9/26/2012
 
1893
 Citizens Bank
 
 Higganum
 
 CT
 
—

(9) 
171

 
971

 
—

 
1,142

 
219

 
10/1/2008
 
1983
 Citizens Bank
 
 Montville
 
 CT
 
—

(1) 
413

 
2,342

 
—

 
2,755

 
157

 
9/26/2012
 
1984
 Citizens Bank
 
 New London
 
 CT
 
—

(1) 
94

 
534

 
—

 
628

 
121

 
10/1/2008
 
1900
 Citizens Bank
 
 Stonington
 
 CT
 
—

(1) 
104

 
937

 
—

 
1,041

 
54

 
12/14/2012
 
1982
 Citizens Bank
 
 Stonington
 
 CT
 
—

(1) 
190

 
1,079

 
—

 
1,269

 
72

 
9/26/2012
 
1960
 Citizens Bank
 
 Lewes
 
 DE
 
—

(1) 
102

 
916

 
—

 
1,018

 
41

 
2/22/2013
 
1968
 Citizens Bank
 
 Smyrna
 
 DE
 
—

(9) 
183

 
1,036

 
—

 
1,219

 
215

 
3/1/2009
 
1940
 Citizens Bank
 
 Wilmington
 
DE
 
—

(7) 
250

 
464

 
—

 
714

 
41

 
4/26/2012
 
1950
 Citizens Bank
 
 Wilmington
 
DE
 
—

(7) 
299

 
299

 
—

 
598

 
27

 
4/26/2012
 
1981
 Citizens Bank
 
 Alsip
 
 IL
 
—

(1) 
226

 
1,280

 
—

 
1,506

 
289

 
10/1/2008
 
1981

F-63

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Citizens Bank
 
 Calumet City
 
 IL
 
—

(7) 
168

 
393

 
—

 
561

 
35

 
4/26/2012
 
1975
 Citizens Bank
 
 Chicago
 
 IL
 
—

(7) 
189

 
81

 
—

 
270

 
7

 
4/26/2012
 
1990
 Citizens Bank
 
 Chicago
 
 IL
 
—

(1) 
267

 
1,511

 
—

 
1,778

 
341

 
10/1/2008
 
1923
 Citizens Bank
 
 Chicago
 
 IL
 
—

(1) 
191

 
1,082

 
—

 
1,273

 
244

 
10/1/2008
 
1979
 Citizens Bank
 
 Elmwood Park
 
 IL
 
—

(1) 
431

 
2,441

 
—

 
2,872

 
481

 
6/1/2009
 
1977
 Citizens Bank
 
 Evergreen Park
 
 IL
 
—

(1) 
167

 
944

 
—

 
1,111

 
213

 
10/1/2008
 
1982
 Citizens Bank
 
 Lyons
 
 IL
 
—

(1) 
214

 
1,212

 
—

 
1,426

 
274

 
10/1/2008
 
1957
 Citizens Bank
 
 Olympia Fields
 
 IL
 
—

(7) 
426

 
1,704

 
—

 
2,130

 
152

 
4/26/2012
 
1974
 Citizens Bank
 
 Wilmington
 
 IL
 
—

(1) 
330

 
1,872

 
—

 
2,202

 
349

 
9/1/2009
 
1964
 Citizens Bank
 
 Dorchester
 
 MA
 
—

 
386

 
386

 
—

 
772

 
34

 
4/26/2012
 
1960
 Citizens Bank
 
 Ludlow
 
 MA
 
—

(1) 
810

 
540

 
—

 
1,350

 
36

 
9/26/2012
 
1948
 Citizens Bank
 
 Malden
 
 MA
 
—

(1) 
488

 
596

 
—

 
1,084

 
40

 
9/26/2012
 
1920
 Citizens Bank
 
 Malden
 
 MA
 
—

 
484

 
1,935

 
—

 
2,419

 
130

 
9/26/2012
 
1988
 Citizens Bank
 
 Medford
 
 MA
 
—

 
589

 
1,094

 
—

 
1,683

 
73

 
9/26/2012
 
1938
 Citizens Bank
 
 New Bedford
 
 MA
 
—

(1) 
297

 
694

 
—

 
991

 
46

 
9/26/2012
 
1983
 Citizens Bank
 
 Randolph
 
 MA
 
—

 
480

 
1,439

 
—

 
1,919

 
96

 
9/26/2012
 
1979
 Citizens Bank
 
 Somerville
 
 MA
 
—

(1) 
561

 
561

 
—

 
1,122

 
38

 
9/26/2012
 
1940
 Citizens Bank
 
 South Dennis
 
 MA
 
—

(1) 
—

 
1,294

 
—

 
1,294

 
75

 
12/14/2012
 
1986
 Citizens Bank
 
 Springfield
 
 MA
 
—

(1) 
187

 
747

 
—

 
934

 
27

 
5/10/2013
 
1975
 Citizens Bank
 
 Tewksbury
 
 MA
 
—

(7) 
266

 
1,063

 
—

 
1,329

 
95

 
4/26/2012
 
1998
 Citizens Bank
 
 Watertown
 
 MA
 
—

(1) 
443

 
542

 
—

 
985

 
36

 
9/26/2012
 
1950
 Citizens Bank
 
 Wilbraham
 
 MA
 
—

(7) 
148

 
591

 
—

 
739

 
53

 
4/26/2012
 
1967
 Citizens Bank
 
 Winthrop
 
 MA
 
—

(1) 
390

 
724

 
—

 
1,114

 
48

 
9/26/2012
 
1974
 Citizens Bank
 
 Woburn
 
 MA
 
—

(1) 
350

 
816

 
—

 
1,166

 
47

 
12/14/2012
 
1991


F-64

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Citizens Bank
 
 Clinton Township
 
 MI
 
—

(1) 
574

 
3,250

 
—

 
3,824

 
746

 
9/1/2008
 
1970
 Citizens Bank
 
 Dearborn
 
 MI
 
—

(1) 
434

 
2,461

 
—

 
2,895

 
459

 
9/1/2009
 
1977
 Citizens Bank
 
 Dearborn
 
 MI
 
—

(1) 
385

 
2,184

 
—

 
2,569

 
407

 
9/1/2009
 
1974
 Citizens Bank
 
 Detroit
 
 MI
 
—

(1) 
112

 
636

 
—

 
748

 
148

 
8/1/2008
 
1958
 Citizens Bank
 
 Detroit
 
 MI
 
—

(1) 
204

 
1,159

 
—

 
1,363

 
270

 
8/1/2008
 
1956
 Citizens Bank
 
 Grosse Pointe
 
 MI
 
—

(1) 
410

 
2,322

 
—

 
2,732

 
508

 
12/1/2008
 
1975
 Citizens Bank
 
 Harper Woods
 
 MI
 
—

(1) 
207

 
1,171

 
—

 
1,378

 
273

 
8/1/2008
 
1983
 Citizens Bank
 
 Highland Park
 
 MI
 
—

(1) 
150

 
848

 
—

 
998

 
198

 
8/1/2008
 
1967
 Citizens Bank
 
 Lathrup Village
 
 MI
 
—

(1) 
283

 
1,602

 
—

 
1,885

 
362

 
10/1/2008
 
1980
 Citizens Bank
 
 Livonia
 
 MI
 
—

(1) 
261

 
1,476

 
—

 
1,737

 
344

 
8/1/2008
 
1959
 Citizens Bank
 
 Richmond
 
 MI
 
—

(1) 
168

 
951

 
—

 
1,119

 
222

 
8/1/2008
 
1980
 Citizens Bank
 
 Southfield
 
 MI
 
—

(1) 
283

 
1,605

 
—

 
1,888

 
368

 
9/1/2008
 
1975
 Citizens Bank
 
 St. Clair Shores
 
 MI
 
—

(1) 
309

 
1,748

 
—

 
2,057

 
407

 
8/1/2008
 
1961
 Citizens Bank
 
 Utica
 
 MI
 
—

(1) 
376

 
2,133

 
—

 
2,509

 
466

 
12/1/2008
 
1982
 Citizens Bank
 
 Warren
 
 MI
 
—

(1) 
178

 
1,009

 
—

 
1,187

 
228

 
10/1/2008
 
1963
 Citizens Bank
 
 Keene
 
 NH
 
—

 
132

 
2,511

 
—

 
2,643

 
146

 
12/14/2012
 
1900
 Citizens Bank
 
 Manchester
 
 NH
 
—

(1) 
—

 
1,568

 
—

 
1,568

 
91

 
12/14/2012
 
1985
 Citizens Bank
 
 Manchester
 
 NH
 
—

(1) 
640

 
782

 
—

 
1,422

 
52

 
9/26/2012
 
1941
 Citizens Bank
 
 Ossipee
 
 NH
 
—

(7) 
176

 
264

 
—

 
440

 
24

 
4/26/2012
 
1980
 Citizens Bank
 
 Pelham
 
 NH
 
—

(7) 
113

 
340

 
—

 
453

 
30

 
4/26/2012
 
1983
 Citizens Bank
 
 Pittsfield
 
 NH
 
—

(1) 
160

 
908

 
—

 
1,068

 
205

 
10/1/2008
 
1976
 Citizens Bank
 
 Rollinsford
 
 NH
 
—

(1) 
78

 
444

 
—

 
522

 
100

 
10/1/2008
 
1977
 Citizens Bank
 
 Salem
 
 NH
 
—

(1) 
328

 
1,312

 
—

 
1,640

 
76

 
12/14/2012
 
1980
 Citizens Bank
 
 Haddon Heights
 
 NJ
 
—

(1) 
316

 
948

 
—

 
1,264

 
21

 
7/23/2013
 
1960
 Citizens Bank
 
 Marlton
 
 NJ
 
—

(7) 
444

 
825

 
—

 
1,269

 
74

 
4/26/2012
 
1988
 Citizens Bank
 
 Albany
 
 NY
 
—

(9) 
232

 
1,315

 
—

 
1,547

 
245

 
9/1/2009
 
1994
 Citizens Bank
 
 Amherst (Buffalo)
 
 NY
 
—

(9) 
238

 
1,348

 
—

 
1,586

 
266

 
6/1/2009
 
1995
 Citizens Bank
 
 East Aurora
 
 NY
 
—

(9) 
162

 
919

 
—

 
1,081

 
181

 
6/1/2009
 
1996
 Citizens Bank
 
 Greene
 
 NY
 
—

(9) 
216

 
1,227

 
—

 
1,443

 
229

 
9/1/2009
 
1994
 Citizens Bank
 
 Johnstown
 
 NY
 
—

(9) 
163

 
923

 
—

 
1,086

 
172

 
9/1/2009
 
1994
 Citizens Bank
 
 Port Jervis
 
 NY
 
—

(9) 
143

 
811

 
—

 
954

 
169

 
3/1/2009
 
1964
 Citizens Bank
 
 Rochester
 
 NY
 
—

(9) 
166

 
943

 
—

 
1,109

 
186

 
6/1/2009
 
1962

F-65

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Citizens Bank
 
 Schenectady
 
 NY
 
—

(9) 
292

 
1,655

 
—

 
1,947

 
309

 
9/1/2009
 
1994
 Citizens Bank
 
 Vails Gate
 
 NY
 
—

(9) 
284

 
1,610

 
—

 
1,894

 
300

 
9/1/2009
 
1968
 Citizens Bank
 
 Whitesboro
 
 NY
 
—

(9) 
130

 
739

 
—

 
869

 
138

 
9/1/2009
 
1994
 Citizens Bank
 
 Alliance
 
 OH
 
—

(1) 
204

 
1,156

 
—

 
1,360

 
274

 
7/1/2008
 
1972
 Citizens Bank
 
 Bedford
 
 OH
 
—

(7) 
175

 
699

 
—

 
874

 
62

 
4/26/2012
 
2005
 Citizens Bank
 
 Boardman
 
 OH
 
—

(1) 
280

 
1,589

 
—

 
1,869

 
376

 
7/1/2008
 
1984
 Citizens Bank
 
 Broadview Heights
 
 OH
 
—

(1) 
201

 
1,140

 
—

 
1,341

 
237

 
3/1/2009
 
2000
 Citizens Bank
 
 Brunswick
 
 OH
 
—

(1) 
186

 
1,057

 
—

 
1,243

 
250

 
7/1/2008
 
2004
 Citizens Bank
 
 Cleveland
 
 OH
 
—

(1) 
239

 
1,357

 
—

 
1,596

 
321

 
7/1/2008
 
2003
 Citizens Bank
 
 Cleveland
 
 OH
 
—

(1) 
210

 
1,190

 
—

 
1,400

 
282

 
7/1/2008
 
1950
 Citizens Bank
 
 Cleveland
 
 OH
 
—

(1) 
182

 
1,031

 
—

 
1,213

 
244

 
7/1/2008
 
1960
 Citizens Bank
 
 Fairlawn
 
 OH
 
—

 
511

 
2,045

 
—

 
2,556

 
119

 
12/14/2012
 
1979
 Citizens Bank
 
 Lakewood
 
 OH
 
—

(1) 
196

 
1,111

 
—

 
1,307

 
207

 
9/1/2009
 
1965
 Citizens Bank
 
 Louisville
 
 OH
 
—

(1) 
191

 
1,080

 
—

 
1,271

 
255

 
7/1/2008
 
1960
 Citizens Bank
 
 Massillon
 
 OH
 
—

(1) 
287

 
1,624

 
—

 
1,911

 
384

 
7/1/2008
 
1976
 Citizens Bank
 
 Massillon
 
 OH
 
—

(1) 
212

 
1,202

 
—

 
1,414

 
284

 
7/1/2008
 
1958
 Citizens Bank
 
 Mentor
 
 OH
 
—

(1) 
178

 
1,011

 
—

 
1,189

 
228

 
10/1/2008
 
1976
 Citizens Bank
 
 Northfield
 
 OH
 
—

(1) 
317

 
1,797

 
—

 
2,114

 
406

 
10/1/2008
 
1960
 Citizens Bank
 
 Parma
 
 OH
 
—

(7) 
248

 
744

 
—

 
992

 
66

 
4/26/2012
 
1972
 Citizens Bank
 
 Parma
 
 OH
 
—

(1) 
475

 
581

 
—

 
1,056

 
34

 
12/14/2012
 
1971
 Citizens Bank
 
 Rocky River
 
 OH
 
—

(1) 
283

 
1,602

 
—

 
1,885

 
299

 
9/1/2009
 
1965
 Citizens Bank
 
 South Russell
 
 OH
 
—

(1) 
106

 
957

 
—

 
1,063

 
56

 
12/14/2012
 
1981
 Citizens Bank
 
 Wadsworth
 
 OH
 
—

(1) 
158

 
893

 
—

 
1,051

 
211

 
7/1/2008
 
1994
 Citizens Bank
 
 Willoughby
 
 OH
 
—

(1) 
395

 
2,239

 
—

 
2,634

 
506

 
10/1/2008
 
1920
 Citizens Bank
 
 Allison Park
 
 PA
 
—

(1) 
314

 
733

 
—

 
1,047

 
49

 
9/26/2012
 
1972
 Citizens Bank
 
 Altoona
 
 PA
 
—

(1) 
153

 
459

 
—

 
612

 
27

 
12/14/2012
 
1971
 Citizens Bank
 
 Ambridge
 
 PA
 
—

(9) 
215

 
1,217

 
—

 
1,432

 
227

 
9/1/2009
 
1925
 Citizens Bank
 
 Ashley
 
 PA
 
—

(1) 
225

 
675

 
—

 
900

 
39

 
12/14/2012
 
1928
 Citizens Bank
 
 Beaver Falls
 
 PA
 
—

(1) 
138

 
553

 
—

 
691

 
37

 
9/26/2012
 
1968
 Citizens Bank
 
 Carlisle
 
 PA
 
—

(7) 
234

 
546

 
—

 
780

 
49

 
4/26/2012
 
1960+
 Citizens Bank
 
 Dallas
 
 PA
 
—

(1) 
213

 
1,205

 
—

 
1,418

 
81

 
9/26/2012
 
1949
 Citizens Bank
 
 Dillsburg
 
 PA
 
—

(1) 
232

 
926

 
—

 
1,158

 
54

 
12/14/2012
 
1935

F-66

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Citizens Bank
 
 Drexel Hill
 
 PA
 
—

(1) 
266

 
1,064

 
—

 
1,330

 
62

 
12/14/2012
 
1950
 Citizens Bank
 
 Erie
 
 PA
 
—

(1) 
168

 
671

 
—

 
839

 
39

 
12/14/2012
 
1954
 Citizens Bank
 
 Glenside
 
 PA
 
—

 
343

 
1,370

 
—

 
1,713

 
43

 
5/22/2013
 
1958
 Citizens Bank
 
 Grove City
 
 PA
 
—

(7) 
292

 
239

 
—

 
531

 
21

 
4/26/2012
 
1977
 Citizens Bank
 
 Grove City
 
 PA
 
—

(7) 
41

 
782

 
—

 
823

 
70

 
4/26/2012
 
1920
 Citizens Bank
 
 Harrisburg
 
 PA
 
—

(7) 
512

 
419

 
—

 
931

 
37

 
4/26/2012
 
1967
 Citizens Bank
 
 Havertown
 
 PA
 
—

(1) 
219

 
875

 
—

 
1,094

 
59

 
9/26/2012
 
2003
 Citizens Bank
 
 Homestead
 
 PA
 
—

(1) 
202

 
807

 
—

 
1,009

 
54

 
9/26/2012
 
1960
 Citizens Bank
 
 Kingston
 
 PA
 
—

(1) 
404

 
943

 
—

 
1,347

 
55

 
12/14/2012
 
1977
 Citizens Bank
 
 Kutztown
 
 PA
 
—

(7) 
81

 
725

 
—

 
806

 
65

 
5/11/2012
 
1974
 Citizens Bank
 
 Lancaster
 
 PA
 
—

(7) 
368

 
552

 
—

 
920

 
49

 
4/26/2012
 
1965
 Citizens Bank
 
 Lancaster
 
 PA
 
—

(1) 
383

 
468

 
—

 
851

 
31

 
9/26/2012
 
1967
 Citizens Bank
 
 Latrobe
 
 PA
 
—

(1) 
148

 
591

 
—

 
739

 
34

 
12/14/2012
 
1969
 Citizens Bank
 
 Lititz
 
 PA
 
—

(7) 
37

 
708

 
—

 
745

 
63

 
4/26/2012
 
1964
 Citizens Bank
 
 Lower Burrell
 
 PA
 
—

(1) 
180

 
722

 
—

 
902

 
42

 
12/14/2012
 
1980
 Citizens Bank
 
 Mechanicsburg
 
 PA
 
—

 
288

 
2,590

 
—

 
2,878

 
174

 
9/26/2012
 
1900
 Citizens Bank
 
 Mercer
 
 PA
 
—

(1) 
105

 
314

 
—

 
419

 
18

 
12/14/2012
 
1964
 Citizens Bank
 
 Metamoras
 
 PA
 
—

(1) 
509

 
946

 
—

 
1,455

 
55

 
12/14/2012
 
1920
 Citizens Bank
 
 Milford
 
 PA
 
—

(1) 
513

 
769

 
—

 
1,282

 
45

 
12/14/2012
 
1981
 Citizens Bank
 
 Monesson
 
 PA
 
—

(9) 
198

 
1,123

 
—

 
1,321

 
209

 
9/1/2009
 
1930
 Citizens Bank
 
 Mount Lebanon
 
 PA
 
—

 
215

 
1,939

 
—

 
2,154

 
130

 
9/26/2012
 
1960
 Citizens Bank
 
 Mountain Top
 
 PA
 
—

(1) 
111

 
631

 
—

 
742

 
37

 
12/14/2012
 
1980
 Citizens Bank
 
 Munhall
 
 PA
 
—

(7) 
191

 
191

 
—

 
382

 
17

 
4/26/2012
 
1973
 Citizens Bank
 
 Narberth
 
 PA
 
—

(9) 
420

 
2,381

 
—

 
2,801

 
444

 
9/1/2009
 
1935
 Citizens Bank
 
 New Stanton
 
 PA
 
—

(7) 
330

 
612

 
—

 
942

 
55

 
4/26/2012
 
1975
 Citizens Bank
 
 Oakmont
 
 PA
 
—

(1) 
199

 
1,127

 
—

 
1,326

 
65

 
12/14/2012
 
1967
 Citizens Bank
 
 Philadelphia
 
 PA
 
—

(7) 
184

 
735

 
—

 
919

 
66

 
4/26/2012
 
1904

F-67

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Citizens Bank
 
 Philadelphia
 
 PA
 
—

(1) 
127

 
722

 
—

 
849

 
42

 
12/14/2012
 
1920
 Citizens Bank
 
 Pittsburgh
 
 PA
 
—

(1) 
185

 
1,051

 
—

 
1,236

 
61

 
12/14/2012
 
1960
 Citizens Bank
 
 Pittsburgh
 
 PA
 
—

(1) 
389

 
1,168

 
—

 
1,557

 
68

 
12/14/2012
 
1940
 Citizens Bank
 
 Pittsburgh
 
 PA
 
—

(1) 
146

 
2,770

 
—

 
2,916

 
161

 
12/14/2012
 
1900
 Citizens Bank
 
 Pittsburgh
 
 PA
 
—

 
470

 
2,661

 
—

 
3,131

 
154

 
12/14/2012
 
1980
 Citizens Bank
 
 Pittsburgh
 
 PA
 
—

(1) 
215

 
1,219

 
—

 
1,434

 
82

 
9/26/2012
 
1970
 Citizens Bank
 
 Pittsburgh
 
 PA
 
—

(1) 
256

 
767

 
—

 
1,023

 
51

 
9/26/2012
 
1970
 Citizens Bank
 
 Shippensburg
 
 PA
 
—

(7) 
143

 
429

 
—

 
572

 
38

 
4/26/2012
 
1985
 Citizens Bank
 
 Slovan
 
 PA
 
—

(7) 
217

 
117

 
—

 
334

 
10

 
4/26/2012
 
1975
 Citizens Bank
 
 State College
 
 PA
 
—

(7) 
256

 
475

 
—

 
731

 
42

 
4/26/2012
 
1966
 Citizens Bank
 
 Temple
 
 PA
 
—

(1) 
268

 
626

 
—

 
894

 
42

 
9/26/2012
 
1936
 Citizens Bank
 
 Turtle Creek
 
 PA
 
—

(1) 
308

 
923

 
—

 
1,231

 
62

 
9/26/2012
 
1970
 Citizens Bank
 
 Tyrone
 
 PA
 
—

(1) 
146

 
583

 
—

 
729

 
34

 
12/14/2012
 
1967
 Citizens Bank
 
 Upper Darby
 
 PA
 
—

(1) 
411

 
617

 
—

 
1,028

 
36

 
12/14/2012
 
1966
 Citizens Bank
 
 Verona
 
 PA
 
—

(7) 
264

 
616

 
—

 
880

 
55

 
4/26/2012
 
1972
 Citizens Bank
 
 West Grove
 
 PA
 
—

(7) 
181

 
725

 
—

 
906

 
65

 
4/26/2012
 
1980
 Citizens Bank
 
 West Hazelton
 
 PA
 
—

(1) 
279

 
2,509

 
—

 
2,788

 
168

 
9/26/2012
 
1900
 Citizens Bank
 
 York
 
 PA
 
—

(7) 
337

 
626

 
—

 
963

 
56

 
4/26/2012
 
1955
 Citizens Bank
 
 Coventry
 
 RI
 
—

(1) 
559

 
559

 
—

 
1,118

 
37

 
9/26/2012
 
1968
 Citizens Bank
 
 Johnston
 
 RI
 
—

(1) 
343

 
1,030

 
—

 
1,373

 
69

 
9/26/2012
 
1972
 Citizens Bank
 
 North Providence
 
 RI
 
—

 
200

 
1,800

 
—

 
2,000

 
96

 
12/31/2012
 
1971
 Citizens Bank
 
 Wakefield
 
 RI
 
—

(1) 
517

 
959

 
—

 
1,476

 
64

 
9/26/2012
 
1976
 Citizens Bank
 
 Warren
 
 RI
 
—

(1) 
328

 
609

 
—

 
937

 
41

 
9/26/2012
 
1980
 Citizens Bank
 
 Warwick
 
 RI
 
—

(1) 
1,570

 
5,544

 
—

 
7,114

 
67

 
9/24/2013
 
1996
 Citizens Bank
 
 Warwick
 
 RI
 
—

(1) 
1,870

 
9,662

 
—

 
11,532

 
117

 
9/24/2013
 
1995
 Citizens Bank
 
 Middlebury
 
 VT
 
—

(1) 
363

 
544

 
—

 
907

 
32

 
12/14/2012
 
1969
 Citizens Bank
 
 Poultney
 
 VT
 
—

(1) 
149

 
847

 
—

 
996

 
176

 
3/1/2009
 
1860
 Citizens Bank
 
 St. Albans
 
 VT
 
—

(1) 
141

 
798

 
—

 
939

 
166

 
3/1/2009
 
1989
 Citizens Bank
 
 White River Junction
 
 VT
 
—

(1) 
183

 
1,039

 
—

 
1,222

 
216

 
3/1/2009
 
1975
 Comcast Corporation
 
 Englewood
 
 CO
 
—

 
1,490

 
4,661

 
—

 
6,151

 
36

 
11/5/2013
 
2011
 Community Bank
 
 Whitehall
 
 NY
 
—

(9) 
106

 
600

 
—

 
706

 
112

 
9/1/2009
 
1950
 Community National Bank
 
 Lake Mary
 
 FL
 
—

 
1,230

 
1,504

 
—

 
2,734

 
20

 
10/1/2013
 
1990

F-68

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Cooper Tire & Rubber Company
 
 Franklin
 
 IN
 
16.998

 
4,438

 
33,994

 
—

 
38,432

 
346

 
11/5/2013
 
2009
 County of Yolo, California
 
 Woodland
 
 CA
 
10.332

 
2,640

 
13,271

 
—

 
15,911

 
101

 
11/5/2013
 
2001
 Cracker Barrel
 
 Braselton
 
 GA
 
—

 
1,294

 
2,403

 
—

 
3,697

 
197

 
11/13/2012
 
2005
 Cracker Barrel
 
 Bremen
 
 GA
 
—

 
1,012

 
2,361

 
—

 
3,373

 
194

 
11/13/2012
 
2006
 Cracker Barrel
 
 Mebane
 
 NC
 
—

 
1,106

 
2,054

 
—

 
3,160

 
169

 
11/13/2012
 
2004
 Cracker Barrel
 
 Emporia
 
 VA
 
—

 
972

 
2,267

 
—

 
3,239

 
186

 
11/13/2012
 
2004
 Cracker Barrel
 
 Woodstock
 
 VA
 
—

 
928

 
2,164

 
—

 
3,092

 
178

 
11/13/2012
 
2005
 Crozer-Keystone Health System
 
 Ridley Park
 
 PA
 
2.332

 
—

 
5,966

 
—

 
5,966

 
46

 
11/5/2013
 
2004
 CVS
 
 Phoenix
 
 AZ
 
—

 
1,511

 
4,533

 
—

 
6,044

 
68

 
10/1/2013
 
2012
 CVS
 
 Phoenix
 
 AZ
 
—

 
901

 
2,704

 
—

 
3,605

 
41

 
10/1/2013
 
2012
 CVS
 
 Fresno
 
 CA
 
—

 
1,890

 
4,409

 
—

 
6,299

 
66

 
10/1/2013
 
2012
 CVS
 
 Palmdale
 
 CA
 
—

 
2,493

 
4,630

 
—

 
7,123

 
69

 
10/1/2013
 
2012
 CVS
 
 Sacramento
 
 CA
 
—

 
2,163

 
4,016

 
—

 
6,179

 
60

 
10/1/2013
 
2012
 CVS
 
 Norwich
 
 CT
 
—

 
1,998

 
5,995

 
—

 
7,993

 
90

 
10/1/2013
 
2011
 CVS
 
 Lakeland
 
 FL
 
—

 
587

 
2,347

 
—

 
2,934

 
35

 
10/1/2013
 
2012
 CVS
 
 St. Cloud
 
 FL
 
—

 
1,534

 
1,875

 
—

 
3,409

 
84

 
4/12/2013
 
2002
 CVS
 
 Alpharetta
 
 GA
 
—

(1) 
572

 
858

 
—

 
1,430

 
64

 
9/28/2012
 
1994
 CVS
 
 Stockbridge
 
 GA
 
—

(1) 
855

 
1,283

 
—

 
2,138

 
64

 
2/28/2013
 
1998
 CVS
 
 Vidalia
 
 GA
 
—

(1) 
368

 
1,105

 
—

 
1,473

 
83

 
9/28/2012
 
2000
 CVS
 
 Franklin
 
 IN
 
—

(1) 
310

 
2,787

 
—

 
3,097

 
293

 
3/29/2012
 
1999
 CVS
 
 Mandeville
 
 LA
 
—

 
2,385

 
2,915

 
—

 
5,300

 
44

 
10/1/2013
 
2012
 CVS
 
 Metairie
 
 LA
 
—

 
1,895

 
3,519

 
—

 
5,414

 
53

 
10/1/2013
 
2012
 CVS
 
 New Orleans
 
 LA
 
—

 
2,439

 
2,439

 
—

 
4,878

 
37

 
10/1/2013
 
2012
 CVS
 
 Slidell
 
 LA
 
—

 
1,142

 
4,568

 
—

 
5,710

 
69

 
10/1/2013
 
2012
 CVS
 
 Hingham
 
 MA
 
—

 
1,873

 
5,619

 
—

 
7,492

 
84

 
10/1/2013
 
2012
 CVS
 
 Malden
 
 MA
 
—

 
1,757

 
5,271

 
—

 
7,028

 
79

 
10/1/2013
 
2012
 CVS
 
 Detroit
 
 MI
 
—

(1) 
270

 
2,427

 
—

 
2,697

 
121

 
2/28/2013
 
1999
 CVS
 
 Harper Woods
 
 MI
 
—

(1) 
499

 
2,829

 
—

 
3,328

 
141

 
2/28/2013
 
1999
 CVS
 
 St. Joseph
 
 MO
 
—

 
1,022

 
3,067

 
—

 
4,089

 
46

 
10/1/2013
 
2012
 CVS
 
 Beaufort
 
 NC
 
—

 
378

 
3,404

 
—

 
3,782

 
51

 
10/1/2013
 
2011
 CVS
 
 Albuquerque
 
 NM
 
—

 
975

 
3,899

 
—

 
4,874

 
58

 
10/1/2013
 
2011

F-69

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 CVS
 
 Albuquerque
 
 NM
 
—

 
1,029

 
4,118

 
—

 
5,147

 
62

 
10/1/2013
 
2011
 CVS
 
 Las Cruces
 
 NM
 
—

 
1,295

 
5,178

 
—

 
6,473

 
78

 
10/1/2013
 
2012
 CVS
 
 Las Vegas
 
 NV
 
—

 
1,374

 
3,207

 
—

 
4,581

 
257

 
8/22/2012
 
2004
 CVS
 
 Rochester
 
 NY
 
—

(1) 
965

 
1,180

 
—

 
2,145

 
83

 
11/8/2012
 
1997
 CVS
 
 Tulsa
 
 OK
 
—

 
950

 
2,216

 
—

 
3,166

 
33

 
10/1/2013
 
2010
 CVS
 
 Freeland
 
 PA
 
—

 
122

 
1,096

 
—

 
1,218

 
93

 
8/8/2012
 
2004
 CVS
 
 Mechanicsburg
 
 PA
 
—

 
1,155

 
3,465

 
—

 
4,620

 
225

 
11/29/2012
 
2008
 CVS
 
 Shippensburg
 
 PA
 
—

 
351

 
1,988

 
—

 
2,339

 
109

 
2/8/2013
 
2002
 CVS
 
 Greenville
 
 SC
 
—

(1) 
169

 
1,520

 
—

 
1,689

 
76

 
2/28/2013
 
1997
 CVS
 
 Jackson
 
 TN
 
—

 
1,209

 
2,822

 
—

 
4,031

 
42

 
10/1/2013
 
2012
 CVS
 
 Knoxville
 
 TN
 
—

 
1,190

 
2,210

 
—

 
3,400

 
33

 
10/1/2013
 
2011
 CVS
 
 Nashville
 
 TN
 
—

(1) 
203

 
1,148

 
—

 
1,351

 
86

 
9/28/2012
 
1996
 CVS
 
 Converse
 
 TX
 
—

 
1,390

 
3,243

 
—

 
4,633

 
49

 
10/1/2013
 
2011
 CVS
 
 Dumas
 
 TX
 
—

 
846

 
2,537

 
—

 
3,383

 
38

 
10/1/2013
 
2011
 CVS
 
 Elsa
 
 TX
 
—

 
915

 
2,744

 
—

 
3,659

 
41

 
10/1/2013
 
2011
 CVS
 
 Fort Worth
 
 TX
 
—

 
2,453

 
3,679

 
—

 
6,132

 
55

 
10/1/2013
 
2011
 CVS
 
 San Antonio
 
 TX
 
—

 
1,996

 
2,993

 
—

 
4,989

 
45

 
10/1/2013
 
2011
 CVS
 
 San Antonio
 
 TX
 
—

 
2,034

 
3,778

 
—

 
5,812

 
57

 
10/1/2013
 
2011
 CVS
 
 San Antonio
 
 TX
 
—

 
868

 
2,605

 
—

 
3,473

 
39

 
10/1/2013
 
2012
 CVS
 
 San Juan
 
 TX
 
—

 
610

 
2,441

 
—

 
3,051

 
37

 
10/1/2013
 
2012
 CVS
 
 Norfolk
 
 VA
 
—

 
697

 
2,789

 
—

 
3,486

 
42

 
10/1/2013
 
2011
 CVS
 
 Portsmouth
 
 VA
 
—

 
1,230

 
3,690

 
—

 
4,920

 
55

 
10/1/2013
 
2012
 CVS
 
 Roanoke
 
 VA
 
—

 
825

 
2,474

 
—

 
3,299

 
37

 
10/1/2013
 
2011
 CVS
 
 Virginia Beach
 
 VA
 
—

 
683

 
3,868

 
—

 
4,551

 
58

 
10/1/2013
 
2012
 CVS
 
 Williamsburg
 
 VA
 
—

 
907

 
5,137

 
—

 
6,044

 
77

 
10/1/2013
 
2011
 Dairy Queen
 
 Mauldin
 
 SC
 
—

(1) 
133

 
—

 
—

 
133

 
—

 
6/27/2013
 
1979
 Dairy Queen
 
 Alto
 
 TX
 
—

(1) 
50

 
110

 
—

 
160

 
3

 
6/27/2013
 
1972


F-70

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dairy Queen
 
 Pineland
 
 TX
 
—

(1) 
40

 
120

 
—

 
160

 
3

 
6/27/2013
 
1989
 Dairy Queen
 
 Silsbee
 
 TX
 
—

(1) 
60

 
100

 
—

 
160

 
3

 
6/27/2013
 
1988
 DaVita Dialysis
 
 Osceola
 
 AR
 
—

(1) 
137

 
1,232

 
—

 
1,369

 
43

 
3/28/2013
 
2009
 DaVita Dialysis
 
 Allen Park
 
 MI
 
—

(1) 
209

 
1,885

 
—

 
2,094

 
102

 
12/31/2012
 
1955
 DaVita Dialysis
 
 St. Pauls
 
 NC
 
—

(1) 
138

 
1,246

 
—

 
1,384

 
24

 
8/2/2013
 
2006
 DaVita Dialysis
 
 Beeville
 
 TX
 
—

(1) 
99

 
1,879

 
—

 
1,978

 
102

 
12/31/2012
 
2002
 DaVita Dialysis
 
 Federal Way
 
 WA
 
—

 
1,929

 
17,357

 
—

 
19,286

 
1,017

 
11/21/2012
 
2000
 DC Sports Bar & Steakhouse
 
 Eunice
 
 LA
 
—

(1) 
500

 
262

 
—

 
762

 
8

 
6/27/2013
 
1987
 Del Monte Corporation
 
 Lathrop
 
 CA
 
32,694

 
—

 
41,318

 
—

 
41,318

 
420

 
11/5/2013
 
1994
 Denny's
 
 Winter Springs
 
 FL
 
—

(1) 
550

 
1,668

 
—

 
2,218

 
48

 
6/27/2013
 
1994
 Denny's
 
 Merriam
 
 KS
 
—

(1) 
390

 
1,150

 
—

 
1,540

 
33

 
6/27/2013
 
1981
 Denny's
 
 Topeka
 
 KS
 
—

(1) 
630

 
446

 
—

 
1,076

 
13

 
6/27/2013
 
1989
 Denny's
 
 Branson
 
 MO
 
—

(1) 
620

 
2,209

 
—

 
2,829

 
63

 
6/27/2013
 
1995
 Denny's
 
 Kansas City
 
 MO
 
—

(1) 
750

 
686

 
—

 
1,436

 
20

 
6/27/2013
 
1997
 Denny's
 
 North Kansas City
 
 MO
 
—

(1) 
630

 
937

 
—

 
1,567

 
27

 
6/27/2013
 
1979
 Denny's
 
 Sedalia
 
 MO
 
—

(1) 
500

 
783

 
—

 
1,283

 
22

 
6/27/2013
 
1985
 Denny's
 
 Black Mountain
 
 NC
 
—

(1) 
210

 
505

 
—

 
715

 
14

 
6/27/2013
 
1992
 Denny's
 
 Mooresville
 
 NC
 
—

(1) 
250

 
841

 
—

 
1,091

 
24

 
6/27/2013
 
1992
 Denny's
 
 Watertown
 
 NY
 
—

(1) 
330

 
1,107

 
—

 
1,437

 
32

 
6/27/2013
 
1987
 Denny's
 
 Fremont
 
 OH
 
—

(1) 
320

 
975

 
—

 
1,295

 
28

 
6/27/2013
 
1992
 Denny's
 
 Ontario
 
 OR
 
—

(1) 
240

 
1,067

 
—

 
1,307

 
31

 
6/27/2013
 
1978
 Denny's
 
 Columbia
 
 SC
 
—

(1) 
490

 
1,115

 
—

 
1,605

 
32

 
6/27/2013
 
1998
 Denny's
 
 Greenville
 
 SC
 
—

(1) 
570

 
554

 
—

 
1,124

 
16

 
6/27/2013
 
1985
 Denny's
 
 Pasadena
 
 TX
 
—

(1) 
500

 
1,316

 
—

 
1,816

 
38

 
6/27/2013
 
1981
 Dollar General
 
 Birmingham
 
 AL
 
—

(1) 
156

 
882

 
—

 
1,038

 
78

 
6/6/2012
 
2012
 Dollar General
 
 Chunchula
 
 AL
 
—

(1) 
174

 
697

 
—

 
871

 
65

 
4/25/2012
 
2012
 Dollar General
 
Moulton
 
 AL
 
—

(1) 
517

 
1,207

 
—

 
1,724

 
113

 
4/26/2012
 
2012
 Dollar General
 
 Gardendale
 
 AL
 
—

(1) 
142

 
805

 
—

 
947

 
64

 
8/9/2012
 
2012
 Dollar General
 
 Red Level
 
 AL
 
—

 
120

 
680

 
—

 
800

 
83

 
10/31/2011
 
2010
 Dollar General
 
 Tarrant
 
 AL
 
—

(5) 
217

 
869

 
—

 
1,086

 
102

 
12/12/2011
 
2011
 Dollar General
 
 Tuscaloosa
 
 AL
 
—

 
133

 
756

 
—

 
889

 
85

 
12/30/2011
 
2011
 Dollar General
 
 Ash Flat
 
 AR
 
—

(1) 
44

 
132

 
—

 
176

 
11

 
6/19/2012
 
1997

F-71

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Batesville
 
 AR
 
—

(1) 
32

 
285

 
—

 
317

 
7

 
7/25/2013
 
1998
 Dollar General
 
 Batesville
 
 AR
 
—

(1) 
42

 
374

 
—

 
416

 
9

 
7/25/2013
 
1999
 Dollar General
 
 Beebe
 
 AR
 
—

(1) 
51

 
458

 
—

 
509

 
11

 
7/25/2013
 
1999
 Dollar General
 
 Bella Vista
 
 AR
 
—

(1) 
129

 
302

 
—

 
431

 
37

 
11/10/2011
 
2005
 Dollar General
 
 Bergman
 
 AR
 
—

(1) 
113

 
639

 
—

 
752

 
54

 
7/2/2012
 
2011
 Dollar General
 
 Blytheville
 
 AR
 
—

(1) 
30

 
274

 
—

 
304

 
6

 
7/25/2013
 
2000
 Dollar General
 
 Carlisle
 
 AR
 
—

(1) 
13

 
245

 
—

 
258

 
30

 
11/10/2011
 
2005
 Dollar General
 
 Des Arc
 
 AR
 
—

(1) 
56

 
508

 
—

 
564

 
12

 
7/25/2013
 
1999
 Dollar General
 
 Dumas
 
 AR
 
—

(1) 
46

 
412

 
—

 
458

 
10

 
7/25/2013
 
1998
 Dollar General
 
 Flippin
 
 AR
 
—

(1) 
53

 
64

 
—

 
117

 
5

 
6/19/2012
 
1994
 Dollar General
 
 Gassville
 
 AR
 
—

(1) 
54

 
305

 
—

 
359

 
7

 
7/25/2013
 
1999
 Dollar General
 
 Green Forest
 
 AR
 
—

(1) 
52

 
293

 
—

 
345

 
36

 
11/10/2011
 
2005
 Dollar General
 
 Higdon
 
 AR
 
—

(1) 
52

 
469

 
—

 
521

 
11

 
7/25/2013
 
1999
 Dollar General
 
 Lake Village
 
 AR
 
—

(1) 
64

 
362

 
—

 
426

 
8

 
7/25/2013
 
1998
 Dollar General
 
 Lepanto
 
 AR
 
—

(1) 
43

 
389

 
—

 
432

 
9

 
7/25/2013
 
1998
 Dollar General
 
 Little Rock
 
 AR
 
—

(1) 
73

 
412

 
—

 
485

 
10

 
7/25/2013
 
1999
 Dollar General
 
 Marvell
 
 AR
 
—

(1) 
40

 
358

 
—

 
398

 
8

 
7/25/2013
 
1999
 Dollar General
 
 Maynard
 
 AR
 
—

(1) 
73

 
654

 
—

 
727

 
40

 
12/4/2012
 
2011
 Dollar General
 
 McGehee
 
 AR
 
—

(1) 
25

 
228

 
—

 
253

 
5

 
7/25/2013
 
1998
 Dollar General
 
 Quitman
 
 AR
 
—

(1) 
45

 
405

 
—

 
450

 
9

 
7/25/2013
 
2001
 Dollar General
 
 Searcy
 
 AR
 
—

(1) 
29

 
263

 
—

 
292

 
6

 
7/25/2013
 
1998
 Dollar General
 
 Tuckerman
 
 AR
 
—

(1) 
49

 
280

 
—

 
329

 
7

 
7/25/2013
 
1999
 Dollar General
 
 Whitehall
 
 AR
 
—

(1) 
43

 
388

 
—

 
431

 
9

 
7/25/2013
 
1999
 Dollar General
 
 Wooster
 
 AR
 
—

(1) 
74

 
664

 
—

 
738

 
40

 
12/4/2012
 
2011
 Dollar General
 
 Grand Ridge
 
 FL
 
—

 
76

 
684

 
—

 
760

 
77

 
12/30/2011
 
2010
 Dollar General
 
 Molina
 
 FL
 
—

 
178

 
1,007

 
—

 
1,185

 
123

 
10/31/2011
 
2010
 Dollar General
 
 Panama City
 
 FL
 
—

(1) 
139

 
258

 
—

 
397

 
22

 
6/19/2012
 
1987
 Dollar General
 
 Chariton
 
 IA
 
—

(1) 
165

 
934

 
—

 
1,099

 
70

 
8/31/2012
 
2012
 Dollar General
 
 Estherville
 
 IA
 
—

(1) 
226

 
903

 
—

 
1,129

 
59

 
10/25/2012
 
2012
 Dollar General
 
 Hampton
 
 IA
 
—

(5) 
188

 
751

 
—

 
939

 
81

 
2/1/2012
 
2012
 Dollar General
 
 Lake Milles
 
 IA
 
—

(5) 
81

 
728

 
—

 
809

 
78

 
2/1/2012
 
2012
 Dollar General
 
 Nashua
 
 IA
 
—

(1) 
136

 
768

 
—

 
904

 
58

 
9/6/2012
 
2012

F-72

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Ottumwa
 
 IA
 
—

(1) 
143

 
812

 
—

 
955

 
42

 
1/31/2013
 
2012
 Dollar General
 
 Altamont
 
 IL
 
—

(6) 
211

 
844

 
—

 
1,055

 
87

 
3/9/2012
 
2012
 Dollar General
 
 Carthage
 
 IL
 
—

(1) 
48

 
908

 
—

 
956

 
68

 
8/31/2012
 
2012
 Dollar General
 
 Jacksonville
 
 IL
 
—

(1) 
145

 
823

 
—

 
968

 
62

 
8/31/2012
 
2012
 Dollar General
 
 Jonesboro
 
 IL
 
—

(1) 
77

 
309

 
—

 
386

 
38

 
11/10/2011
 
2007
 Dollar General
 
 Lexington
 
 IL
 
—

(1) 
100

 
899

 
—

 
999

 
63

 
9/21/2012
 
2012
 Dollar General
 
 Marion
 
 IL
 
—

(1) 
153

 
867

 
—

 
1,020

 
61

 
9/24/2012
 
2012
 Dollar General
 
 Mt Morris
 
 IL
 
—

(1) 
97

 
877

 
—

 
974

 
49

 
12/17/2012
 
2012
 Dollar General
 
 Monroeville
 
 IN
 
—

(5) 
112

 
636

 
—

 
748

 
71

 
12/22/2011
 
2011
 Dollar General
 
 Auburn
 
 KS
 
—

(1) 
42

 
801

 
—

 
843

 
60

 
8/31/2012
 
2009
 Dollar General
 
 Caney
 
 KS
 
—

(1) 
31

 
178

 
—

 
209

 
15

 
6/19/2012
 
2002
 Dollar General
 
 Cottonwood Falls
 
 KS
 
—

(1) 
89

 
802

 
—

 
891

 
60

 
8/31/2012
 
2009
 Dollar General
 
 Erie
 
 KS
 
—

(1) 
42

 
790

 
—

 
832

 
59

 
8/31/2012
 
2009
 Dollar General
 
 Garden City
 
 KS
 
—

(1) 
136

 
771

 
—

 
907

 
58

 
8/31/2012
 
2010
 Dollar General
 
 Harper
 
 KS
 
—

(1) 
91

 
818

 
—

 
909

 
61

 
8/31/2012
 
2009
 Dollar General
 
 Humboldt
 
 KS
 
—

(1) 
44

 
828

 
—

 
872

 
62

 
8/31/2012
 
2009
 Dollar General
 
 Kingman
 
 KS
 
—

(1) 
142

 
804

 
—

 
946

 
60

 
8/31/2012
 
2010
 Dollar General
 
 Medicine Lodge
 
 KS
 
—

(1) 
40

 
765

 
—

 
805

 
57

 
8/31/2012
 
2010
 Dollar General
 
 Minneapolis
 
 KS
 
—

(1) 
43

 
816

 
—

 
859

 
61

 
8/31/2012
 
2010
 Dollar General
 
 Pomona
 
 KS
 
—

(1) 
42

 
796

 
—

 
838

 
60

 
8/31/2012
 
2009
 Dollar General
 
 Sedan
 
 KS
 
—

(1) 
42

 
792

 
—

 
834

 
59

 
8/31/2012
 
2009
 Dollar General
 
 Syracuse
 
 KS
 
—

(1) 
43

 
817

 
—

 
860

 
61

 
8/31/2012
 
2010
 Dollar General
 
 Nancy
 
 KY
 
—

(1) 
81

 
733

 
—

 
814

 
69

 
4/26/2012
 
2011


F-73

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Choudrant
 
 LA
 
—

 
83

 
745

 
—

 
828

 
80

 
2/6/2012
 
2011
 Dollar General
 
 Converse
 
 LA
 
—

(1) 
84

 
756

 
—

 
840

 
53

 
9/26/2012
 
2012
 Dollar General
 
 Doyline
 
 LA
 
—

(1) 
88

 
793

 
—

 
881

 
48

 
11/27/2012
 
2012
 Dollar General
 
 Gardner
 
 LA
 
—

(6) 
138

 
784

 
—

 
922

 
81

 
3/8/2012
 
2012
 Dollar General
 
 Jonesville
 
 LA
 
—

(1) 
103

 
929

 
—

 
1,032

 
65

 
9/27/2012
 
2012
 Dollar General
 
Keithville
 
 LA
 
—

(1) 
83

 
750

 
—

 
833

 
60

 
7/26/2012
 
2012
 Dollar General
 
 Lake Charles
 
 LA
 
—

 
102

 
919

 
—

 
1,021

 
95

 
2/29/2012
 
2012
 Dollar General
 
 Mangham
 
 LA
 
—

 
40

 
759

 
—

 
799

 
82

 
2/6/2012
 
2011
 Dollar General
 
 Mt. Hermon
 
 LA
 
—

(1) 
94

 
842

 
—

 
936

 
91

 
2/6/2012
 
2011
 Dollar General
 
 New Iberia
 
 LA
 
—

(1) 
315

 
736

 
—

 
1,051

 
69

 
4/26/2012
 
2011
 Dollar General
 
 Patterson
 
 LA
 
—

 
259

 
1,035

 
—

 
1,294

 
97

 
4/26/2012
 
2011
 Dollar General
 
 Richwood
 
 LA
 
—

(1) 
97

 
869

 
—

 
966

 
94

 
2/6/2012
 
2011
 Dollar General
 
 Sarepta
 
 LA
 
—

(1) 
131

 
743

 
—

 
874

 
59

 
8/9/2012
 
2011
 Dollar General
 
 West Monroe
 
 LA
 
—

(1) 
153

 
869

 
—

 
1,022

 
89

 
3/9/2012
 
2012
 Dollar General
 
 Zachary
 
 LA
 
—

(1) 
248

 
743

 
—

 
991

 
70

 
4/26/2012
 
2011
 Dollar General
 
 Bangor
 
 MI
 
—

(1) 
173

 
691

 
—

 
864

 
58

 
7/10/2012
 
2012
 Dollar General
 
 Cadillac
 
 MI
 
—

(6) 
187

 
747

 
—

 
934

 
73

 
3/16/2012
 
2012
 Dollar General
 
 Carleton
 
 MI
 
—

(6) 
222

 
666

 
—

 
888

 
65

 
3/16/2012
 
2011
 Dollar General
 
 Covert
 
 MI
 
—

(1) 
37

 
704

 
—

 
741

 
53

 
8/30/2012
 
2012
 Dollar General
 
 Durand
 
 MI
 
—

(1) 
181

 
726

 
—

 
907

 
65

 
5/18/2012
 
2012
 Dollar General
 
 East Jordan
 
 MI
 
—

(1) 
125

 
709

 
—

 
834

 
60

 
7/10/2012
 
2012
 Dollar General
 
 Flint
 
 MI
 
—

(6) 
83

 
743

 
—

 
826

 
66

 
5/18/2012
 
2012
 Dollar General
 
 Flint
 
 MI
 
—

(1) 
91

 
820

 
—

 
911

 
54

 
10/31/2012
 
2012
 Dollar General
 
 Gaylord
 
 MI
 
—

(1) 
172

 
687

 
—

 
859

 
58

 
7/10/2012
 
2012
 Dollar General
 
 Iron River
 
 MI
 
—

(1) 
86

 
777

 
—

 
863

 
58

 
8/30/2012
 
2012
 Dollar General
 
 Melvindale
 
 MI
 
—

(1) 
242

 
967

 
—

 
1,209

 
81

 
6/26/2012
 
2012
 Dollar General
 
 Negaunee
 
 MI
 
—

(1) 
87

 
779

 
—

 
866

 
58

 
8/30/2012
 
2012
 Dollar General
 
 Roscommon
 
 MI
 
—

(1) 
87

 
781

 
—

 
868

 
58

 
8/30/2012
 
2012
 Dollar General
 
 Melrose
 
 MN
 
—

(1) 
96

 
863

 
—

 
959

 
48

 
12/17/2012
 
2012
 Dollar General
 
 Montgomery
 
 MN
 
—

(1) 
87

 
783

 
—

 
870

 
44

 
12/17/2012
 
2012
 Dollar General
 
 Olivia
 
 MN
 
—

(1) 
98

 
884

 
—

 
982

 
46

 
1/31/2013
 
2012
 Dollar General
 
 Rush City
 
 MN
 
—

(1) 
126

 
716

 
—

 
842

 
57

 
7/25/2012
 
2012

F-74

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Springfield
 
 MN
 
—

(1) 
88

 
795

 
—

 
883

 
45

 
12/26/2012
 
2012
 Dollar General
 
 Virginia
 
 MN
 
—

(1) 
147

 
831

 
—

 
978

 
47

 
1/14/2013
 
2012
 Dollar General
 
 Appleton City
 
 MO
 
—

(1) 
22

 
124

 
—

 
146

 
15

 
11/10/2011
 
2004
 Dollar General
 
 Ash Grove
 
 MO
 
—

(1) 
35

 
315

 
—

 
350

 
38

 
11/10/2011
 
2006
 Dollar General
 
 Ashland
 
 MO
 
—

(1) 
70

 
398

 
—

 
468

 
48

 
11/10/2011
 
2006
 Dollar General
 
 Auxvasse
 
 MO
 
—

(2) 
72

 
650

 
—

 
722

 
76

 
11/22/2011
 
2011
 Dollar General
 
 Belton
 
 MO
 
—

(1) 
105

 
948

 
—

 
1,053

 
75

 
8/3/2012
 
2012
 Dollar General
 
 Berkeley
 
 MO
 
—

(1) 
132

 
748

 
—

 
880

 
53

 
10/9/2012
 
2012
 Dollar General
 
 Bernie
 
 MO
 
—

(1) 
35

 
314

 
—

 
349

 
38

 
11/10/2011
 
2007
 Dollar General
 
 Bloomfield
 
 MO
 
—

(1) 
23

 
209

 
—

 
232

 
25

 
11/10/2011
 
2005
 Dollar General
 
 Cardwell
 
 MO
 
—

(1) 
89

 
805

 
—

 
894

 
60

 
8/24/2012
 
2012
 Dollar General
 
 Carterville
 
 MO
 
—

(8) 
10

 
192

 
—

 
202

 
23

 
11/10/2011
 
2004
 Dollar General
 
 Caruthersville
 
 MO
 
—

(1) 
98

 
878

 
—

 
976

 
62

 
9/27/2012
 
2012
 Dollar General
 
 Clarkton
 
 MO
 
—

(1) 
19

 
354

 
—

 
373

 
43

 
11/10/2011
 
2007
 Dollar General
 
 Clever
 
 MO
 
—

(1) 
136

 
542

 
—

 
678

 
46

 
6/19/2012
 
2010
 Dollar General
 
 Concordia
 
 MO
 
—

(1) 
40

 
161

 
—

 
201

 
14

 
6/19/2012
 
1998
 Dollar General
 
 Conway
 
 MO
 
—

(2) 
37

 
694

 
—

 
731

 
81

 
11/22/2011
 
2011
 Dollar General
 
 Diamond
 
 MO
 
—

(1) 
44

 
175

 
—

 
219

 
21

 
11/10/2011
 
2005
 Dollar General
 
 Edina
 
 MO
 
—

(1) 
127

 
722

 
—

 
849

 
54

 
9/13/2012
 
2012
 Dollar General
 
 Ellsinore
 
 MO
 
—

(8) 
30

 
579

 
—

 
609

 
70

 
11/10/2011
 
2010
 Dollar General
 
 Gower
 
 MO
 
—

(1) 
118

 
668

 
—

 
786

 
50

 
8/31/2012
 
2012
 Dollar General
 
 Greenfield
 
 MO
 
—

(1) 
42

 
378

 
—

 
420

 
32

 
6/19/2012
 
2000
 Dollar General
 
 Hallsville
 
 MO
 
—

(8) 
29

 
263

 
—

 
292

 
32

 
11/10/2011
 
2004
 Dollar General
 
 Hawk Point
 
 MO
 
—

(1) 
177

 
709

 
—

 
886

 
53

 
8/24/2012
 
2012
 Dollar General
 
 Humansville
 
 MO
 
—

(1) 
69

 
277

 
—

 
346

 
23

 
6/19/2012
 
2007
 Dollar General
 
 Jennings
 
 MO
 
—

(1) 
445

 
826

 
—

 
1,271

 
70

 
7/13/2012
 
2012
 Dollar General
 
 Kansas City
 
 MO
 
—

(1) 
313

 
731

 
—

 
1,044

 
51

 
9/21/2012
 
2012
 Dollar General
 
 King City
 
 MO
 
—

(2) 
33

 
625

 
—

 
658

 
73

 
11/22/2011
 
2010
 Dollar General
 
 Lawson
 
 MO
 
—

(1) 
29

 
162

 
—

 
191

 
20

 
11/10/2011
 
2003
 Dollar General
 
 Lebanon
 
 MO
 
—

(1) 
278

 
835

 
—

 
1,113

 
59

 
9/26/2012
 
2012
 Dollar General
 
 Lebanon
 
 MO
 
—

(1) 
177

 
708

 
—

 
885

 
50

 
9/24/2012
 
2012
 Dollar General
 
 Licking
 
 MO
 
—

(2) 
76

 
688

 
—

 
764

 
80

 
11/22/2011
 
2010

F-75

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Lilbourne
 
 MO
 
—

(8) 
62

 
554

 
—

 
616

 
67

 
11/10/2011
 
2010
 Dollar General
 
 Marble Hill
 
 MO
 
—

(1) 
104

 
935

 
—

 
1,039

 
70

 
9/11/2012
 
2012
 Dollar General
 
 Marionville
 
 MO
 
—

(1) 
89

 
797

 
—

 
886

 
52

 
10/31/2012
 
2012
 Dollar General
 
 Marthasville
 
 MO
 
—

 
41

 
782

 
—

 
823

 
84

 
2/1/2012
 
2011
 Dollar General
 
 Maysville
 
 MO
 
—

(2) 
107

 
607

 
—

 
714

 
74

 
10/31/2011
 
2010
 Dollar General
 
 Morehouse
 
 MO
 
—

(1) 
87

 
783

 
—

 
870

 
59

 
9/7/2012
 
2012
 Dollar General
 
 New Haven
 
 MO
 
—

(1) 
176

 
702

 
—

 
878

 
66

 
4/27/2012
 
2012
 Dollar General
 
 Oak Grove
 
 MO
 
—

(1) 
27

 
106

 
—

 
133

 
9

 
6/19/2012
 
1999
 Dollar General
 
 Oran
 
 MO
 
—

(6) 
83

 
747

 
—

 
830

 
73

 
3/30/2012
 
2012
 Dollar General
 
 Osceola
 
 MO
 
—

(1) 
93

 
835

 
—

 
928

 
39

 
2/19/2013
 
2012
 Dollar General
 
 Ozark
 
 MO
 
—

(6) 
190

 
758

 
—

 
948

 
71

 
4/27/2012
 
2012
 Dollar General
 
 Ozark
 
 MO
 
—

(1) 
149

 
842

 
—

 
991

 
59

 
9/24/2012
 
2012
 Dollar General
 
 Pacific
 
 MO
 
—

(1) 
151

 
853

 
—

 
1,004

 
76

 
6/6/2012
 
2012
 Dollar General
 
 Palmyra
 
 MO
 
—

(1) 
40

 
225

 
—

 
265

 
19

 
6/19/2012
 
2003
 Dollar General
 
 Plattsburg
 
 MO
 
—

(1) 
44

 
843

 
—

 
887

 
67

 
8/9/2012
 
2012
 Dollar General
 
 Qulin
 
 MO
 
—

(8) 
30

 
573

 
—

 
603

 
70

 
11/10/2011
 
2009
 Dollar General
 
 Robertsville
 
 MO
 
—

(1) 
131

 
744

 
—

 
875

 
56

 
8/24/2012
 
2011
 Dollar General
 
 Rocky Mount
 
 MO
 
—

(1) 
88

 
789

 
—

 
877

 
59

 
8/31/2012
 
2012
 Dollar General
 
 Sedalia
 
 MO
 
—

(1) 
273

 
637

 
—

 
910

 
48

 
9/7/2012
 
2012
 Dollar General
 
 Senath
 
 MO
 
—

(1) 
61

 
552

 
—

 
613

 
47

 
6/19/2012
 
2010
 Dollar General
 
 Seneca
 
 MO
 
—

(1) 
47

 
189

 
—

 
236

 
16

 
6/19/2012
 
1962
 Dollar General
 
 Sikeston
 
 MO
 
—

(6) 
56

 
1,056

 
—

 
1,112

 
109

 
2/24/2012
 
2011
 Dollar General
 
 Sikeston
 
 MO
 
—

(1) 
144

 
819

 
—

 
963

 
61

 
8/24/2012
 
2012
 Dollar General
 
 Springfield
 
 MO
 
—

(1) 
378

 
702

 
—

 
1,080

 
62

 
6/14/2012
 
2012
 Dollar General
 
 St James
 
 MO
 
—

(1) 
81

 
244

 
—

 
325

 
21

 
6/19/2012
 
1999
 Dollar General
 
 St. Clair
 
 MO
 
—

 
220

 
879

 
—

 
1,099

 
99

 
12/30/2011
 
2011


F-76

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 St. Louis
 
 MO
 
—

(1) 
372

 
692

 
—

 
1,064

 
52

 
8/31/2012
 
2012
 Dollar General
 
 St. Louis
 
 MO
 
—

(1) 
260

 
606

 
—

 
866

 
43

 
9/26/2012
 
2012
 Dollar General
 
 Stanberry
 
 MO
 
—

(3) 
111

 
629

 
—

 
740

 
74

 
11/22/2011
 
2010
 Dollar General
 
 Steele
 
 MO
 
—

(8) 
31

 
598

 
—

 
629

 
73

 
11/10/2011
 
2009
 Dollar General
 
 Strafford
 
 MO
 
—

(8) 
51

 
461

 
10

 
522

 
56

 
11/10/2011
 
2009
 Dollar General
 
 Vienna
 
 MO
 
—

(6) 
78

 
704

 
—

 
782

 
72

 
2/24/2012
 
2011
 Dollar General
 
 Willow Springs
 
 MO
 
—

(1) 
24

 
213

 
—

 
237

 
18

 
6/19/2012
 
2002
 Dollar General
 
 Winona
 
 MO
 
—

(1) 
52

 
155

 
—

 
207

 
13

 
6/19/2012
 
2001
 Dollar General
 
 Edwards
 
 MS
 
—

 
75

 
671

 
—

 
746

 
75

 
12/30/2011
 
2011
 Dollar General
 
 Greensville
 
 MS
 
—

 
82

 
739

 
—

 
821

 
83

 
12/30/2011
 
2011
 Dollar General
 
 Hickory
 
 MS
 
—

(1) 
77

 
692

 
—

 
769

 
58

 
7/2/2012
 
2011
 Dollar General
 
 Jackson
 
 MS
 
—

(1) 
198

 
793

 
—

 
991

 
56

 
9/27/2012
 
2011
 Dollar General
 
 Meridian
 
 MS
 
—

(1) 
178

 
713

 
—

 
891

 
53

 
9/13/2012
 
2011
 Dollar General
 
 Meridian
 
 MS
 
—

(1) 
40

 
754

 
—

 
794

 
56

 
9/13/2012
 
2011
 Dollar General
 
 Moorhead
 
 MS
 
—

(6) 
107

 
606

 
—

 
713

 
57

 
5/1/2012
 
2011
 Dollar General
 
 Natchez
 
 MS
 
—

(1) 
166

 
664

 
—

 
830

 
59

 
6/11/2012
 
2012
 Dollar General
 
 Soso
 
 MS
 
—

(6) 
116

 
658

 
—

 
774

 
65

 
4/12/2012
 
2011
 Dollar General
 
 Stonewall
 
 MS
 
—

(1) 
116

 
655

 
—

 
771

 
55

 
7/2/2012
 
2011
 Dollar General
 
 Stringer
 
 MS
 
—

(1) 
116

 
655

 
—

 
771

 
55

 
7/2/2012
 
2011
 Dollar General
 
 Walmut Grove
 
 MS
 
—

 
71

 
641

 
—

 
712

 
72

 
12/30/2011
 
2011
 Dollar General
 
 Fayetteville
 
 NC
 
—

 
216

 
647

 
—

 
863

 
70

 
2/6/2012
 
2011
 Dollar General
 
 Hickory
 
 NC
 
—

(1) 
89

 
804

 
—

 
893

 
64

 
8/13/2012
 
2012
 Dollar General
 
 Ocean Isle Beach
 
 NC
 
—

 
341

 
633

 
—

 
974

 
68

 
2/6/2012
 
2011
 Dollar General
 
 Tryon
 
 NC
 
—

(1) 
139

 
789

 
—

 
928

 
63

 
8/13/2012
 
2012
 Dollar General
 
 Vass
 
 NC
 
—

 
226

 
528

 
—

 
754

 
57

 
2/6/2012
 
2011
 Dollar General
 
 Farmington
 
 NM
 
—

(1) 
269

 
807

 
—

 
1,076

 
60

 
9/6/2012
 
2012
 Dollar General
 
 Forest
 
 OH
 
—

 
76

 
681

 
—

 
757

 
83

 
10/31/2011
 
2010
 Dollar General
 
 Greenfield
 
 OH
 
—

 
110

 
986

 
—

 
1,096

 
102

 
2/23/2012
 
2011
 Dollar General
 
 Loudonville
 
 OH
 
—

(1) 
236

 
945

 
—

 
1,181

 
84

 
6/6/2012
 
2012
 Dollar General
 
 Lucasville
 
 OH
 
—

(1) 
223

 
893

 
—

 
1,116

 
79

 
5/16/2012
 
2012
 Dollar General
 
 New Carlisle
 
 OH
 
—

(1) 
215

 
860

 
—

 
1,075

 
72

 
7/10/2012
 
2012
 Dollar General
 
 New Matamoras
 
 OH
 
—

 
123

 
696

 
—

 
819

 
85

 
10/31/2011
 
2010

F-77

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Payne
 
 OH
 
—

(3) 
81

 
729

 
—

 
810

 
89

 
10/31/2011
 
2010
 Dollar General
 
 Pleasant City
 
 OH
 
—

(3) 
131

 
740

 
—

 
871

 
90

 
10/31/2011
 
2010
 Dollar General
 
 Calera
 
 OK
 
—

(1) 
136

 
770

 
—

 
906

 
58

 
8/31/2012
 
2010
 Dollar General
 
 Commerce
 
 OK
 
—

(1) 
38

 
341

 
—

 
379

 
41

 
11/10/2011
 
2006
 Dollar General
 
 Hartshorne
 
 OK
 
—

(1) 
100

 
898

 
—

 
998

 
67

 
8/31/2012
 
2010
 Dollar General
 
 Lexington
 
 OK
 
—

(1) 
85

 
761

 
—

 
846

 
57

 
8/31/2012
 
2010
 Dollar General
 
 Maud
 
 OK
 
—

(1) 
76

 
688

 
—

 
764

 
51

 
8/31/2012
 
2010
 Dollar General
 
 Maysville
 
 OK
 
—

(1) 
41

 
785

 
—

 
826

 
59

 
8/31/2012
 
2010
 Dollar General
 
 Nowata
 
 OK
 
—

(1) 
43

 
128

 
—

 
171

 
11

 
6/19/2012
 
1998
 Dollar General
 
 Rush Spring
 
 OK
 
—

(1) 
87

 
779

 
—

 
866

 
58

 
8/31/2012
 
2010
 Dollar General
 
 Doyle
 
 TN
 
—

(1) 
75

 
679

 
—

 
754

 
51

 
8/22/2012
 
2012
 Dollar General
 
 Manchester
 
 TN
 
—

(1) 
114

 
646

 
—

 
760

 
51

 
7/26/2012
 
2012
 Dollar General
 
 McMinnville
 
 TN
 
—

(1) 
120

 
679

 
—

 
799

 
57

 
7/12/2012
 
2012
 Dollar General
 
 Pleasant Hill
 
 TN
 
—

 
39

 
747

 
—

 
786

 
84

 
12/30/2011
 
2011
 Dollar General
 
 Academy
 
 TX
 
—

(1) 
122

 
693

 
—

 
815

 
65

 
4/27/2012
 
2012
 Dollar General
 
 Alto Bonito
 
 TX
 
—

(5) 
163

 
652

 
—

 
815

 
70

 
2/1/2012
 
2011
 Dollar General
 
 Blessing
 
 TX
 
—

(1) 
83

 
745

 
—

 
828

 
42

 
12/18/2012
 
2012
 Dollar General
 
 Bryan
 
 TX
 
—

(1) 
148

 
840

 
—

 
988

 
63

 
9/14/2012
 
2012
 Dollar General
 
 Bryan
 
 TX
 
—

(1) 
193

 
772

 
—

 
965

 
58

 
9/14/2012
 
2012
 Dollar General
 
 Bryan
 
 TX
 
—

(1) 
185

 
740

 
—

 
925

 
55

 
8/31/2012
 
2009
 Dollar General
 
 Canyon Lake
 
 TX
 
—

(1) 
149

 
843

 
—

 
992

 
59

 
10/12/2012
 
2012
 Dollar General
 
 Como
 
 TX
 
—

(6) 
76

 
683

 
—

 
759

 
64

 
4/20/2012
 
2012
 Dollar General
 
 Corpus Christi
 
 TX
 
—

(1) 
270

 
809

 
—

 
1,079

 
45

 
12/26/2012
 
2012
 Dollar General
 
 Dickinson
 
 TX
 
—

(1) 
87

 
786

 
—

 
873

 
55

 
9/25/2012
 
2012
 Dollar General
 
 Donna
 
 TX
 
—

(1) 
136

 
768

 
—

 
904

 
58

 
9/11/2012
 
2012
 Dollar General
 
 Donna
 
 TX
 
—

(1) 
200

 
799

 
—

 
999

 
56

 
10/12/2012
 
2012
 Dollar General
 
 Donna
 
 TX
 
—

(1) 
145

 
820

 
—

 
965

 
42

 
1/31/2013
 
2012
 Dollar General
 
 Edinburg
 
 TX
 
—

(1) 
136

 
769

 
—

 
905

 
58

 
9/7/2012
 
2012
 Dollar General
 
 Elemdorf
 
 TX
 
—

(1) 
94

 
847

 
—

 
941

 
56

 
10/23/2012
 
2012
 Dollar General
 
 Gladewater
 
 TX
 
—

(1) 
184

 
736

 
—

 
920

 
55

 
8/31/2012
 
2009
 Dollar General
 
 Gordonville
 
 TX
 
—

(6) 
38

 
717

 
—

 
755

 
67

 
4/20/2012
 
2012
 Dollar General
 
 Kyle
 
 TX
 
—

(1) 
132

 
747

 
—

 
879

 
52

 
9/26/2012
 
2012

F-78

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 LaMarque
 
 TX
 
—

(1) 
102

 
917

 
—

 
1,019

 
69

 
8/31/2012
 
2010
 Dollar General
 
 Laredo
 
 TX
 
—

(1) 
253

 
758

 
—

 
1,011

 
60

 
7/31/2012
 
2012
 Dollar General
 
 Lubbock
 
 TX
 
—

(1) 
267

 
801

 
—

 
1,068

 
60

 
8/31/2012
 
2010
 Dollar General
 
 Lyford
 
 TX
 
—

 
80

 
724

 
—

 
804

 
81

 
12/30/2011
 
2010
 Dollar General
 
 Morgans Point
 
 TX
 
—

(1) 
145

 
821

 
—

 
966

 
61

 
9/13/2012
 
2012
 Dollar General
 
 Mount Pleasant
 
 TX
 
—

(1) 
214

 
858

 
—

 
1,072

 
64

 
8/31/2012
 
2010
 Dollar General
 
 New Braunfels
 
 TX
 
—

(1) 
205

 
818

 
—

 
1,023

 
61

 
8/31/2012
 
2012
 Dollar General
 
 Poteet
 
 TX
 
—

(3) 
96

 
864

 
—

 
960

 
105

 
10/31/2011
 
2010
 Dollar General
 
 Progreso
 
 TX
 
—

(3) 
169

 
957

 
—

 
1,126

 
116

 
10/31/2011
 
2009
 Dollar General
 
 Rio Grande City
 
 TX
 
—

(3) 
137

 
779

 
—

 
916

 
95

 
10/31/2011
 
2010
 Dollar General
 
 Roma
 
 TX
 
—

(3) 
253

 
1,010

 
—

 
1,263

 
123

 
10/31/2011
 
2010
 Dollar General
 
 San Antonio
 
 TX
 
—

(1) 
252

 
756

 
—

 
1,008

 
50

 
10/22/2012
 
2012
 Dollar General
 
 San Antonio
 
 TX
 
—

(1) 
222

 
888

 
—

 
1,110

 
58

 
10/22/2012
 
2012
 Dollar General
 
 Silsbee
 
 TX
 
—

(1) 
43

 
810

 
—

 
853

 
68

 
7/6/2012
 
2012
 Dollar General
 
 Troy
 
 TX
 
—

(1) 
93

 
841

 
—

 
934

 
63

 
9/12/2012
 
2012
 Dollar General
 
 Tyler
 
 TX
 
—

(1) 
219

 
875

 
—

 
1,094

 
66

 
8/31/2012
 
2010
 Dollar General
 
 Victoria
 
 TX
 
—

(1) 
91

 
817

 
—

 
908

 
42

 
1/31/2013
 
2013
 Dollar General
 
 Waco
 
 TX
 
—

(1) 
192

 
767

 
—

 
959

 
57

 
8/31/2012
 
2012
 Dollar General
 
 Weslaco
 
 TX
 
—

(1) 
215

 
862

 
—

 
1,077

 
61

 
9/24/2012
 
2012
 Dollar General
 
 Burkeville
 
 VA
 
—

(1) 
160

 
906

 
—

 
1,066

 
85

 
5/8/2012
 
2012
 Dollar General
 
 Chesterfield
 
 VA
 
—

 
242

 
726

 
—

 
968

 
78

 
2/6/2012
 
2011
 Dollar General
 
 Danville
 
 VA
 
—

 
155

 
621

 
—

 
776

 
67

 
2/6/2012
 
2011
 Dollar General
 
 Hopewell
 
 VA
 
—

 
584

 
713

 
—

 
1,297

 
77

 
2/6/2012
 
2011
 Dollar General
 
 Hot Springs
 
 VA
 
—

 
283

 
661

 
—

 
944

 
71

 
2/6/2012
 
2011
 Dollar General
 
 Mellen
 
 WI
 
—

 
79

 
711

 
—

 
790

 
80

 
12/30/2011
 
2011
 Dollar General
 
 Minong
 
 WI
 
—

 
38

 
727

 
—

 
765

 
82

 
12/30/2011
 
2011


F-79

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Dollar General
 
 Solon Springs
 
 WI
 
—

 
76

 
685

 
—

 
761

 
77

 
12/30/2011
 
2011
 Dunkin' Donuts/Baskin-Robbins
 
 Dearborn Heights
 
 MI
 
—

(1) 
230

 
846

 
—

 
1,076

 
23

 
6/27/2013
 
1998
 Einstein Bros. Bagels
 
 Dearborn
 
 MI
 
—

(1) 
190

 
724

 
—

 
914

 
20

 
6/27/2013
 
1997
 Exelis
 
 Herndon
 
 VA
 
39,519

 
1,384

 
52,497

 
—

 
53,881

 
400

 
11/5/2013
 
2006
 Express Scripts
 
 St. Louis
 
 MO
 
—

(4) 
5,706

 
32,333

 
—

 
38,039

 
3,661

 
1/25/2012
 
2011
 Family Dollar
 
 Rangeley
 
 CO
 
—

(6) 
66

 
593

 
—

 
659

 
56

 
5/4/2012
 
2010
 Family Dollar
 
 Middleburg
 
 FL
 
—

(1) 
274

 
822

 
—

 
1,096

 
27

 
6/4/2013
 
2008
 Family Dollar
 
 Ormond Beach
 
 FL
 
—

 
573

 
860

 
—

 
1,433

 
28

 
6/4/2013
 
2008
 Family Dollar
 
 Lenox
 
 GA
 
—

(1) 
90

 
809

 
—

 
899

 
53

 
11/9/2012
 
2012
 Family Dollar
 
 Arco
 
 ID
 
—

(1) 
76

 
684

 
—

 
760

 
48

 
9/18/2012
 
2012
 Family Dollar
 
 Kimberly
 
 ID
 
—

(1) 
219

 
657

 
—

 
876

 
28

 
4/10/2013
 
2013
 Family Dollar
 
 Brookston
 
 IN
 
—

(1) 
126

 
715

 
—

 
841

 
50

 
10/1/2012
 
2012
 Family Dollar
 
 Greensburg
 
 KS
 
—

(1) 
80

 
718

 
—

 
798

 
13

 
9/9/2013
 
2012
 Family Dollar
 
 Chalmette
 
 LA
 
—

(1) 
751

 
615

 
—

 
1,366

 
58

 
5/3/2012
 
2011
 Family Dollar
 
 Tickfaw
 
 LA
 
—

(1) 
181

 
543

 
—

 
724

 
53

 
3/30/2012
 
2011
 Family Dollar
 
 Detroit
 
 MI
 
—

(1) 
130

 
1,169

 
—

 
1,299

 
71

 
11/27/2012
 
2011
 Family Dollar
 
 Detroit
 
 MI
 
—

(1) 
106

 
956

 
—

 
1,062

 
36

 
5/2/2013
 
1964
 Family Dollar
 
 Jackson
 
 MI
 
—

(1) 
93

 
525

 
—

 
618

 
10

 
9/12/2013
 
2007
 Family Dollar
 
 St Louis
 
 MO
 
—

(1) 
445

 
1,039

 
—

 
1,484

 
63

 
12/14/2012
 
2012
 Family Dollar
 
 St. Louis
 
 MO
 
—

(1) 
168

 
671

 
—

 
839

 
66

 
4/2/2012
 
2006
 Family Dollar
 
 St. Louis
 
 MO
 
—

(1) 
445

 
1,038

 
—

 
1,483

 
68

 
10/23/2012
 
2012
 Family Dollar
 
 St. Louis
 
 MO
 
—

(1) 
215

 
1,219

 
—

 
1,434

 
46

 
4/30/2013
 
2013
 Family Dollar
 
 Biloxi
 
 MS
 
—

(6) 
310

 
575

 
—

 
885

 
57

 
3/30/2012
 
2012
 Family Dollar
 
 Carriere
 
 MS
 
—

(6) 
200

 
599

 
—

 
799

 
59

 
3/30/2012
 
2012
 Family Dollar
 
 D'Iberville
 
 MS
 
—

(1) 
241

 
561

 
—

 
802

 
50

 
5/21/2012
 
2011
 Family Dollar
 
 Gulfport
 
 MS
 
—

(6) 
209

 
626

 
—

 
835

 
56

 
5/21/2012
 
2012
 Family Dollar
 
 Gulfport
 
 MS
 
—

(1) 
270

 
629

 
—

 
899

 
44

 
9/20/2012
 
2012
 Family Dollar
 
 Gulfport
 
 MS
 
—

(1) 
218

 
654

 
—

 
872

 
43

 
11/15/2012
 
2012
 Family Dollar
 
 Hattiesburg
 
 MS
 
—

(1) 
225

 
674

 
—

 
899

 
35

 
1/30/2013
 
2012
 Family Dollar
 
 Horn Lake
 
 MS
 
—

(1) 
225

 
676

 
—

 
901

 
51

 
8/22/2012
 
2012
 Family Dollar
 
 Kiln
 
 MS
 
—

(1) 
106

 
650

 
—

 
756

 
43

 
11/14/2012
 
2012

F-80

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Family Dollar
 
 Okolona
 
 MS
 
—

(1) 
64

 
578

 
—

 
642

 
46

 
7/31/2012
 
2012
 Family Dollar
 
 Winona
 
 MS
 
—

(1) 
146

 
585

 
—

 
731

 
47

 
7/31/2012
 
2012
 Family Dollar
 
 Fairmont
 
 NC
 
—

 
151

 
603

 
—

 
754

 
11

 
9/11/2013
 
2006
 Family Dollar
 
 Fort Yates
 
 ND
 
—

(5) 
126

 
715

 
—

 
841

 
77

 
1/31/2012
 
2010
 Family Dollar
 
 New Town
 
 ND
 
—

(5) 
105

 
942

 
—

 
1,047

 
101

 
1/31/2012
 
2011
 Family Dollar
 
 Rolla
 
 ND
 
—

(5) 
83

 
525

 
—

 
608

 
25

 
1/31/2012
 
2010
 Family Dollar
 
 Madison
 
 NE
 
—

(5) 
37

 
703

 
—

 
740

 
79

 
12/30/2011
 
2011
 Family Dollar
 
 Chimayo
 
 NM
 
—

(1) 
158

 
632

 
—

 
790

 
33

 
1/30/2013
 
2009
 Family Dollar
 
 Mountainair
 
 NM
 
—

(1) 
84

 
752

 
—

 
836

 
63

 
7/6/2012
 
2011
 Family Dollar
 
 Hawthorne
 
 NV
 
—

(6) 
191

 
764

 
—

 
955

 
68

 
6/1/2012
 
2012
 Family Dollar
 
 Lovelock
 
 NV
 
—

(6) 
185

 
742

 
—

 
927

 
69

 
5/4/2012
 
2012
 Family Dollar
 
 Silver Spring
 
 NV
 
—

(1) 
202

 
808

 
—

 
1,010

 
57

 
9/21/2012
 
2012
 Family Dollar
 
 Wells
 
 NV
 
—

(6) 
84

 
755

 
—

 
839

 
71

 
5/11/2012
 
2011
 Family Dollar
 
 Toledo
 
 OH
 
—

(1) 
306

 
917

 
—

 
1,223

 
43

 
2/25/2013
 
2012
 Family Dollar
 
 Warren
 
 OH
 
—

(1) 
170

 
681

 
—

 
851

 
51

 
9/11/2012
 
2012
 Family Dollar
 
 Stillwell
 
 OK
 
—

(5) 
40

 
768

 
—

 
808

 
86

 
1/6/2012
 
2011
 Family Dollar
 
 Tulsa
 
 OK
 
—

(6) 
220

 
878

 
—

 
1,098

 
70

 
7/30/2012
 
2012
 Family Dollar
 
 Martin
 
 SD
 
—

(5) 
85

 
764

 
—

 
849

 
82

 
1/31/2012
 
2009
 Family Dollar
 
 Harrison
 
 TN
 
—

(1) 
74

 
420

 
—

 
494

 
10

 
7/23/2013
 
2006
 Family Dollar
 
 Avinger
 
 TX
 
—

(1) 
40

 
761

 
—

 
801

 
50

 
10/22/2012
 
2012
 Family Dollar
 
 Caldwell
 
 TX
 
—

(1) 
138

 
552

 
—

 
690

 
49

 
5/29/2012
 
2012
 Family Dollar
 
 Chireno
 
 TX
 
—

(1) 
50

 
943

 
—

 
993

 
57

 
12/10/2012
 
2012
 Family Dollar
 
 Eagle Lake
 
 TX
 
—

(1) 
100

 
566

 
—

 
666

 
48

 
7/6/2012
 
2012
 Family Dollar
 
 Floydada
 
 TX
 
—

(5) 
36

 
681

 
—

 
717

 
77

 
12/30/2011
 
2010
 Family Dollar
 
 Kerens
 
 TX
 
—

(6) 
73

 
658

 
—

 
731

 
68

 
2/29/2012
 
2011
 Family Dollar
 
 Oakhurst
 
 TX
 
—

(1) 
36

 
683

 
—

 
719

 
42

 
12/12/2012
 
2012
 Family Dollar
 
 Plano
 
 TX
 
—

(1) 
468

 
869

 
—

 
1,337

 
20

 
8/1/2013
 
2013
 Family Dollar
 
 Kemmerer
 
 WY
 
—

(1) 
45

 
853

 
—

 
898

 
40

 
2/22/2013
 
2013
 Famous Dave's
 
 Independence
 
 MO
 
—

(1) 
620

 
422

 
—

 
1,042

 
12

 
6/27/2013
 
1999
 Farmers Group, Inc.
 
 Simi Valley
 
 CA
 
25,620

 
11,849

 
29,334

 
—

 
41,183

 
224

 
11/5/2013
 
1982
 Farmers New World Life Insurance Company
 
 Mercer Island
 
 WA
 
29,161

 
24,285

 
27,201

 
—

 
51,486

 
207

 
11/5/2013
 
1982

F-81

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 FedEx
 
 Lowell
 
 AR
 
—

(1) 
396

 
7,521

 
—

 
7,917

 
382

 
3/15/2013
 
2012
 FedEx
 
 Yuma
 
 AZ
 
—

 
—

 
2,076

 
—

 
2,076

 
148

 
10/17/2012
 
2011
 FedEx
 
 Chico
 
 CA
 
—

(1) 
308

 
2,776

 
—

 
3,084

 
198

 
11/9/2012
 
2006
 FedEx
 
 Commerce City
 
 CO
 
—

(4) 
6,556

 
26,224

 
—

 
32,780

 
2,799

 
3/20/2012
 
2007
 FedEx
 
 Melbourne
 
 FL
 
—

(1) 
159

 
1,433

 
—

 
1,592

 
36

 
7/26/2013
 
1989
 FedEx
 
 Kankakee
 
 IL
 
—

(1) 
195

 
1,103

 
—

 
1,298

 
107

 
5/31/2012
 
2003
 FedEx
 
 Mt. Vernon
 
 IL
 
—

(1) 
222

 
1,259

 
—

 
1,481

 
122

 
5/31/2012
 
2009
 FedEx
 
 Quincy
 
 IL
 
—

 
371

 
2,101

 
—

 
2,472

 
160

 
9/28/2012
 
2012
 FedEx
 
 Evansville
 
 IN
 
—

(1) 
665

 
2,661

 
—

 
3,326

 
257

 
5/31/2012
 
2003
 FedEx
 
 Kokomo
 
 IN
 
—

 
186

 
3,541

 
—

 
3,727

 
378

 
3/16/2012
 
2012
 FedEx
 
 Hazard
 
 KY
 
—

 
215

 
4,085

 
—

 
4,300

 
312

 
9/28/2012
 
2012
 FedEx
 
 London
 
 KY
 
—

(1) 
191

 
1,081

 
—

 
1,272

 
104

 
5/31/2012
 
2000
 FedEx
 
 Grand Rapids
 
 MI
 
4,800

 
1,797

 
7,189

 
—

 
8,986

 
694

 
6/14/2012
 
2012
 FedEx
 
 Port Huron
 
 MI
 
—

(1) 
125

 
1,121

 
—

 
1,246

 
40

 
5/31/2013
 
2003
 FedEx
 
 Roseville
 
 MN
 
—

 
1,462

 
8,282

 
—

 
9,744

 
547

 
11/30/2012
 
2012
 FedEx
 
 Butte
 
 MT
 
5,060

 
403

 
7,653

 
—

 
8,056

 
1,050

 
9/27/2011
 
2011
 FedEx
 
 Belmont
 
 NH
 
—

(4) 
265

 
2,386

 
—

 
2,651

 
291

 
12/29/2011
 
2011
 FedEx
 
 Wendover
 
 NV
 
—

(1) 
262

 
1,483

 
—

 
1,745

 
75

 
2/25/2013
 
2012
 FedEx
 
 Winnemucca
 
 NV
 
—

(1) 
280

 
1,585

 
—

 
1,865

 
81

 
2/25/2013
 
2012
 FedEx
 
 Blauvelt
 
 NY
 
—

 
14,420

 
26,779

 
—

 
41,199

 
2,859

 
4/5/2012
 
2012
 FedEx
 
 Chillicothe
 
 OH
 
—

(1) 
143

 
1,284

 
—

 
1,427

 
124

 
5/31/2012
 
2000
 FedEx
 
 Mt. Pleasant
 
 PA
 
—

(1) 
454

 
1,814

 
98

 
2,366

 
175

 
5/31/2012
 
2001
 FedEx
 
 Blountville
 
 TN
 
—

(4) 
562

 
5,056

 
—

 
5,618

 
591

 
2/3/2012
 
2009
 FedEx
 
 Humboldt
 
 TN
 
—

 
239

 
4,543

 
—

 
4,782

 
416

 
7/11/2012
 
2008
 FedEx
 
 Bryan
 
 TX
 
—

(1) 
1,422

 
3,318

 
—

 
4,740

 
320

 
6/15/2012
 
2011
 FedEx
 
 Omak
 
 WA
 
—

 
252

 
1,425

 
—

 
1,677

 
109

 
9/27/2012
 
2012
 FedEx
 
 Wenatchee
 
 WA
 
—

 
266

 
2,393

 
—

 
2,659

 
183

 
9/28/2012
 
2012
 FedEx
 
 Parkersburg
 
 WV
 
—

 
193

 
3,671

 
—

 
3,864

 
280

 
9/20/2012
 
2012
 FedEx Ground
 
 Greenville
 
 NC
 
—

(5) 
363

 
6,903

 
—

 
7,266

 
772

 
2/22/2012
 
2011


F-82

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 FedEx Ground
 
 Tulsa
 
 OK
 
—

(5) 
458

 
8,695

 
—

 
9,153

 
972

 
2/22/2012
 
2011
 First Bank
 
 Pinellas Park
 
 FL
 
—

 
630

 
1,470

 
—

 
2,100

 
20

 
10/1/2013
 
1981
 Fresenius
 
 Aurora
 
 IL
 
—

 
287

 
2,584

 
—

 
2,871

 
182

 
7/13/2012
 
2009
 Fresenius
 
 Chicago
 
 IL
 
—

 
588

 
1,764

 
—

 
2,352

 
117

 
7/31/2012
 
2009
 Fresenius
 
 Waukegan
 
 IL
 
—

 
94

 
1,792

 
—

 
1,886

 
119

 
7/31/2012
 
2011
 Fresenius
 
 Peru
 
 IN
 
—

 
69

 
1,305

 
—

 
1,374

 
92

 
6/27/2012
 
1982
 Fresenius
 
 Bossier City
 
 LA
 
—

(1) 
120

 
682

 
—

 
802

 
29

 
1/30/2013
 
2008
 Fresenius
 
 Caro
 
 MI
 
—

(1) 
92

 
1,744

 
—

 
1,836

 
130

 
6/5/2012
 
2009
 Fresenius
 
 Jackson
 
 MI
 
—

 
137

 
2,603

 
—

 
2,740

 
194

 
6/5/2012
 
2008
 Fresenius
 
 Albermarle
 
 NC
 
—

(1) 
139

 
1,253

 
—

 
1,392

 
39

 
4/30/2013
 
2008
 Fresenius
 
 Angier
 
 NC
 
—

(1) 
203

 
1,152

 
—

 
1,355

 
36

 
4/30/2013
 
2012
 Fresenius
 
 Asheboro
 
 NC
 
—

 
323

 
2,903

 
—

 
3,226

 
91

 
4/30/2013
 
2012
 Fresenius
 
 Taylorsville
 
 NC
 
—

(1) 
275

 
1,099

 
—

 
1,374

 
34

 
4/30/2013
 
2011
 Fresenius
 
 Warsaw
 
 NC
 
—

(1) 
75

 
1,428

 
—

 
1,503

 
78

 
11/13/2012
 
2003
 Fresenius
 
 Kings Mills
 
 OH
 
—

(1) 
399

 
598

 
—

 
997

 
45

 
6/5/2012
 
2007
 Fresenius
 
 Dallas
 
 TX
 
—

(1) 
377

 
1,132

 
—

 
1,509

 
44

 
2/28/2013
 
1958
 GE Aviation
 
 Auburn
 
 AL
 
—

 
1,627

 
30,920

 
—

 
32,547

 
1,767

 
11/21/2012
 
2012
 General Mills
 
 Geneva
 
 IL
 
16,555

 
7,457

 
22,371

 
—

 
29,828

 
2,161

 
5/23/2012
 
1998
 General Mills
 
 Fort Wayne
 
 IN
 
—

(1) 
2,533

 
48,130

 
—

 
50,663

 
3,425

 
10/18/2012
 
2012
 General Motors Financial Company, Inc.
 
 Arlington
 
 TX
 
25,552

 
7,901

 
33,954

 
—

 
41,855

 
259

 
11/5/2013
 
1999
 Golden Corral
 
 Albany
 
 GA
 
—

(1) 
460

 
1,863

 
—

 
2,323

 
53

 
6/27/2013
 
1998
 Golden Corral
 
 Brunswick
 
 GA
 
—

(1) 
390

 
2,093

 
—

 
2,483

 
60

 
6/27/2013
 
1998
 Golden Corral
 
 McDonough
 
 GA
 
—

(1) 
930

 
3,936

 
—

 
4,866

 
113

 
6/27/2013
 
2004
 Golden Corral
 
 Council Bluffs
 
 IA
 
—

(1) 
1,140

 
1,460

 
—

 
2,600

 
42

 
6/27/2013
 
1998
 Golden Corral
 
 Evansville
 
 IN
 
—

(1) 
670

 
2,707

 
—

 
3,377

 
78

 
6/27/2013
 
1999
 Golden Corral
 
 Evansville
 
 IN
 
—

(1) 
640

 
944

 
—

 
1,584

 
27

 
6/27/2013
 
1999
 Golden Corral
 
 Fort Wayne
 
 IN
 
—

(1) 
820

 
1,935

 
—

 
2,755

 
55

 
6/27/2013
 
1999
 Golden Corral
 
 Kokomo
 
 IN
 
—

(1) 
780

 
2,107

 
—

 
2,887

 
60

 
6/27/2013
 
2000
 Golden Corral
 
 Elizabethtown
 
 KY
 
—

(1) 
760

 
2,753

 
—

 
3,513

 
79

 
6/27/2013
 
1997
 Golden Corral
 
 Henderson
 
 KY
 
—

(1) 
600

 
1,586

 
—

 
2,186

 
45

 
6/27/2013
 
1999
 Golden Corral
 
 Blue Springs
 
 MO
 
—

(1) 
810

 
1,346

 
—

 
2,156

 
39

 
6/27/2013
 
2000

F-83

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Golden Corral
 
 Flowood
 
 MS
 
—

(1) 
680

 
2,730

 
—

 
3,410

 
78

 
6/27/2013
 
1999
 Golden Corral
 
 Aberdeen
 
 NC
 
—

(1) 
690

 
1,566

 
—

 
2,256

 
45

 
6/27/2013
 
1994
 Golden Corral
 
 Burlington
 
 NC
 
—

(1) 
840

 
2,319

 
—

 
3,159

 
66

 
6/27/2013
 
1993
 Golden Corral
 
 Hickory
 
 NC
 
—

(1) 
260

 
2,658

 
—

 
2,918

 
76

 
6/27/2013
 
1994
 Golden Corral
 
 Bellevue
 
 NE
 
—

(1) 
520

 
1,433

 
—

 
1,953

 
41

 
6/27/2013
 
1999
 Golden Corral
 
 Lincoln
 
 NE
 
—

(1) 
300

 
2,930

 
—

 
3,230

 
84

 
6/27/2013
 
2000
 Golden Corral
 
 Farmington
 
 NM
 
—

(1) 
270

 
3,174

 
—

 
3,444

 
91

 
6/27/2013
 
1996
 Golden Corral
 
 Columbus
 
 OH
 
—

(1) 
770

 
2,476

 
—

 
3,246

 
71

 
6/27/2013
 
1995
 Golden Corral
 
 Tulsa
 
 OK
 
—

(1) 
280

 
3,890

 
—

 
4,170

 
112

 
6/27/2013
 
1999
 Golden Corral
 
 Rock Hill
 
 SC
 
—

(1) 
320

 
2,130

 
—

 
2,450

 
61

 
6/27/2013
 
1999
 Golden Corral
 
 Cookeville
 
 TN
 
—

(1) 
800

 
1,937

 
—

 
2,737

 
56

 
6/27/2013
 
1999
 Golden Corral
 
 Bristol
 
 VA
 
—

(1) 
750

 
2,276

 
—

 
3,026

 
65

 
6/27/2013
 
2000
 Goodfire BBQ
 
 San Antonio
 
 TX
 
—

(1) 
350

 
341

 
—

 
691

 
10

 
6/27/2013
 
1983
 Grandy's
 
 Hobbs
 
 NM
 
—

(1) 
815

 
—

 
—

 
815

 
—

 
6/27/2013
 
1984
 Grandy's
 
 Ardmore
 
 OK
 
—

(1) 
454

 
—

 
—

 
454

 
—

 
6/27/2013
 
1983
 Grandy's
 
 Moore
 
 OK
 
—

(1) 
320

 
428

 
—

 
748

 
12

 
6/27/2013
 
1987
 Grandy's
 
 Oklahoma City
 
 OK
 
—

(1) 
260

 
380

 
—

 
640

 
11

 
6/27/2013
 
1985
 Grandy's
 
 Oklahoma City
 
 OK
 
—

(1) 
320

 
289

 
—

 
609

 
8

 
6/27/2013
 
1984
 GSA
 
 Birmingham
 
 AL
 
10,568

 
1,400

 
8,598

 
—

 
9,998

 
79

 
11/5/2013
 
2005
 GSA
 
 Mobile
 
 AL
 
—

(1) 
268

 
5,095

 
—

 
5,363

 
420

 
6/19/2012
 
1995
 GSA
 
Birmingham
 
 AL
 
17,640

 
2,982

 
19,356

 
—

 
22,338

 
177

 
11/5/2013
 
2007
 GSA
 
 Springerville
 
 AZ
 
—

(1) 
148

 
2,810

 
—

 
2,958

 
232

 
7/2/2012
 
2006
 GSA
 
 Craig
 
 CO
 
—

(5) 
129

 
1,159

 
—

 
1,288

 
128

 
12/30/2011
 
2011
 GSA
 
 Cocoa
 
 FL
 
—

 
253

 
1,435

 
—

 
1,688

 
164

 
12/13/2011
 
2009
 GSA
 
 Stuart
 
 FL
 
—

(1) 
900

 
3,600

 
—

 
4,500

 
363

 
3/5/2012
 
2011
 GSA
 
 Grangeville
 
 ID
 
—

 
317

 
6,023

 
—

 
6,340

 
607

 
3/5/2012
 
2007
 GSA
 
 Kansas City
 
 KS
 
16,872

 
4,264

 
29,210

 
—

 
33,474

 
268

 
11/5/2013
 
2003
 GSA
 
 Springfield
 
 MO
 
—

(1) 
131

 
2,489

 
—

 
2,620

 
228

 
5/15/2012
 
2011
 GSA
 
 Albany
 
 NY
 
10,137

 
—

 
—

 
—

 
—

 
—

 
11/5/2013
 
2008
 GSA
 
 Freeport
 
 NY
 
—

(1) 
843

 
3,372

 
—

 
4,215

 
371

 
1/10/2012
 
1960
 GSA
 
 Plattsburg
 
 NY
 
—

(1) 
508

 
4,572

 
—

 
5,080

 
377

 
6/19/2012
 
2008
 GSA
 
 Warren
 
 PA
 
—

(1) 
341

 
3,066

 
—

 
3,407

 
253

 
6/19/2012
 
2008

F-84

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 GSA
 
 Ponce
 
 PR
 
—

 
1,780

 
8,930

 
—

 
10,710

 
82

 
11/5/2013
 
2000
 GSA
 
 Austin
 
 TX
 
5,046

 
1,570

 
2,906

 
—

 
4,476

 
27

 
11/5/2013
 
2005
 GSA
 
 Fort Worth
 
 TX
 
—

(1) 
477

 
4,290

 
—

 
4,767

 
393

 
5/9/2012
 
2010
 GSA
 
 Gloucester
 
 VA
 
—

(1) 
287

 
1,628

 
—

 
1,915

 
134

 
6/19/2012
 
1997
 Habanero's Mexican Grill
 
 Hueytown
 
 AL
 
—

(1) 
60

 
639

 
—

 
699

 
18

 
6/27/2013
 
1987
 Hanesbrands
 
 Rural Hall
 
 NC
 
—

 
1,082

 
20,563

 
—

 
21,645

 
1,254

 
12/21/2012
 
1989
 Hardee's
 
 Alma
 
 GA
 
—

(1) 
80

 
502

 
—

 
582

 
14

 
6/27/2013
 
1992
 Hardee's
 
 Brunswick
 
 GA
 
—

(1) 
200

 
494

 
—

 
694

 
14

 
6/27/2013
 
1992
 Hardee's
 
 Claxton
 
 GA
 
—

(1) 
170

 
469

 
—

 
639

 
13

 
6/27/2013
 
1986
 Hardee's
 
 Glennville
 
 GA
 
—

(1) 
170

 
450

 
—

 
620

 
12

 
6/27/2013
 
1986
 Hardee's
 
 Hazlehurst
 
 GA
 
—

(1) 
300

 
263

 
—

 
563

 
7

 
6/27/2013
 
1982
 Hardee's
 
 Metter
 
 GA
 
—

(1) 
230

 
369

 
—

 
599

 
10

 
6/27/2013
 
1984
 Hardee's
 
 Richmond Hill
 
 GA
 
—

(1) 
390

 
149

 
—

 
539

 
4

 
6/27/2013
 
1990
 Hardee's
 
 Savannah
 
 GA
 
—

(1) 
130

 
456

 
—

 
586

 
13

 
6/27/2013
 
1987
 Hardee's
 
 Swainsboro
 
 GA
 
—

(1) 
470

 
107

 
—

 
577

 
3

 
6/27/2013
 
1992
 Hardee's
 
 Vidalia
 
 GA
 
—

(1) 
220

 
377

 
—

 
597

 
10

 
6/27/2013
 
1990
 Hardee's
 
 Old Fort
 
 NC
 
—

(1) 
300

 
904

 
—

 
1,204

 
25

 
6/27/2013
 
1992
 Hardee's
 
 Aiken
 
 SC
 
—

(1) 
220

 
450

 
—

 
670

 
12

 
6/27/2013
 
1977
 Hardee's
 
 Chapin
 
 SC
 
—

(1) 
380

 
741

 
—

 
1,121

 
21

 
6/27/2013
 
1993
 Hardee's
 
 Bloomingdale
 
 TN
 
—

(1) 
270

 
844

 
—

 
1,114

 
23

 
6/27/2013
 
1992
 Hardee's
 
 Clinton
 
 TN
 
—

(1) 
390

 
893

 
—

 
1,283

 
25

 
6/27/2013
 
1992
 Hardee's
 
 Crossville
 
 TN
 
—

(1) 
300

 
689

 
—

 
989

 
19

 
6/27/2013
 
1992
 Hardee's Red Burrito
 
 Attalla
 
 AL
 
—

(1) 
220

 
896

 
—

 
1,116

 
25

 
6/27/2013
 
1993
 Hash House A-Go-Go Restaurant
 
 Las Vegas
 
 NV
 
—

(1) 
580

 
1,347

 
—

 
1,927

 
39

 
6/27/2013
 
1997
 Home Depot
 
 Columbia
 
 SC
 
13,776

 
2,911

 
15,463

 
—

 
18,374

 
2,748

 
11/1/2009
 
2009
 Houlihan's
 
 Plymouth Meeting
 
 PA
 
—

(1) 
870

 
2,015

 
—

 
2,885

 
58

 
6/27/2013
 
1974
 Huntington National Bank
 
 Conneaut
 
 OH
 
—

 
205

 
477

 
—

 
682

 
6

 
10/1/2013
 
1971
 Huntington National Bank
 
 Jefferson
 
 OH
 
—

 
255

 
765

 
—

 
1,020

 
10

 
10/1/2013
 
1963


F-85

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Hy-Vee
 
 Vermillion
 
 SD
 
—

 
409

 
3,684

 
—

 
4,093

 
194

 
4/8/2013
 
2003
 IHOP
 
 Homewood
 
 AL
 
—

(1) 
610

 
1,762

 
—

 
2,372

 
50

 
6/27/2013
 
1996
 IHOP
 
 Castle Rock
 
 CO
 
—

(1) 
320

 
2,334

 
—

 
2,654

 
67

 
6/27/2013
 
1999
 IHOP
 
 Greeley
 
 CO
 
—

(1) 
120

 
1,538

 
—

 
1,658

 
44

 
6/27/2013
 
1998
 IHOP
 
 Pueblo
 
 CO
 
—

(1) 
330

 
1,589

 
—

 
1,919

 
46

 
6/27/2013
 
1997
 IHOP
 
 Stockbridge
 
 GA
 
—

(1) 
580

 
2,091

 
—

 
2,671

 
60

 
6/27/2013
 
1997
 IHOP
 
 Natchitoches
 
 LA
 
—

 
750

 
89

 
—

 
839

 
3

 
6/27/2013
 
1990
 IHOP
 
 Roseville
 
 MI
 
—

(1) 
340

 
1,071

 
—

 
1,411

 
31

 
6/27/2013
 
1997
 IHOP
 
 Kansas City
 
 MO
 
—

(1) 
630

 
1,002

 
—

 
1,632

 
29

 
6/27/2013
 
1998
 IHOP
 
 Southaven
 
 MS
 
—

(1) 
350

 
2,108

 
—

 
2,458

 
60

 
6/27/2013
 
1997
 IHOP
 
 Poughkeepsie
 
 NY
 
—

(1) 
430

 
1,129

 
—

 
1,559

 
32

 
6/27/2013
 
1996
 IHOP
 
 Greenville
 
 SC
 
—

(1) 
610

 
1,551

 
—

 
2,161

 
44

 
6/27/2013
 
1998
 IHOP
 
 Clarksville
 
 TN
 
—

(1) 
530

 
1,346

 
—

 
1,876

 
39

 
6/27/2013
 
1997
 IHOP
 
 Memphis
 
 TN
 
—

(1) 
750

 
2,009

 
—

 
2,759

 
58

 
6/27/2013
 
1997
 IHOP
 
 Murfreesboro
 
 TN
 
—

(1) 
600

 
1,687

 
—

 
2,287

 
48

 
6/27/2013
 
1998
 IHOP
 
 Fort Worth
 
 TX
 
—

(1) 
560

 
1,879

 
—

 
2,439

 
54

 
6/27/2013
 
1994
 IHOP
 
 Houston
 
 TX
 
—

(1) 
760

 
2,462

 
—

 
3,222

 
71

 
6/27/2013
 
1996
 IHOP
 
 Killeen
 
 TX
 
—

(1) 
380

 
1,028

 
—

 
1,408

 
29

 
6/27/2013
 
1997
 IHOP
 
 Lake Jackson
 
 TX
 
—

(1) 
370

 
2,018

 
—

 
2,388

 
58

 
6/27/2013
 
1997
 IHOP
 
 Leon Valley
 
 TX
 
—

(1) 
650

 
2,055

 
—

 
2,705

 
59

 
6/27/2013
 
1997
 IHOP
 
 Auburn
 
 WA
 
—

(1) 
780

 
1,878

 
—

 
2,658

 
54

 
6/27/2013
 
1997
 Invesco Holding Co. Ltd.
 
 Denver
 
 CO
 
43,700

 
12,648

 
64,288

 
—

 
76,936

 
490

 
11/5/2013
 
2008
 Iron Mountain
 
 Columbus
 
 OH
 
—

(1) 
405

 
3,642

 
—

 
4,047

 
278

 
9/28/2012
 
1954
 Jack in the Box
 
 Avondale
 
 AZ
 
—

(1) 
110

 
2,237

 
—

 
2,347

 
62

 
6/27/2013
 
1998
 Jack in the Box
 
 Chandler
 
 AZ
 
—

(1) 
450

 
1,447

 
—

 
1,897

 
40

 
6/27/2013
 
1998
 Jack in the Box
 
 Folsom
 
 CA
 
—

(1) 
280

 
2,423

 
—

 
2,703

 
67

 
6/27/2013
 
1997
 Jack in the Box
 
 Fresno
 
 CA
 
—

(1) 
190

 
1,810

 
—

 
2,000

 
50

 
6/27/2013
 
1997
 Jack in the Box
 
 West Sacramento
 
 CA
 
—

(1) 
590

 
1,710

 
—

 
2,300

 
47

 
6/27/2013
 
1997
 Jack in the Box
 
 Burley
 
 ID
 
—

(1) 
240

 
1,430

 
—

 
1,670

 
40

 
6/27/2013
 
2000
 Jack in the Box
 
 Moscow
 
 ID
 
—

(1) 
350

 
1,110

 
—

 
1,460

 
31

 
6/27/2013
 
1992
 Jack in the Box
 
 Belleville
 
 IL
 
—

(1) 
200

 
966

 
—

 
1,166

 
27

 
6/27/2013
 
1987
 Jack in the Box
 
 Florissant
 
 MO
 
—

(1) 
530

 
1,515

 
—

 
2,045

 
42

 
6/27/2013
 
1997

F-86

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Jack in the Box
 
 St. Louis
 
 MO
 
—

(1) 
420

 
1,494

 
—

 
1,914

 
41

 
6/27/2013
 
1998
 Jack in the Box
 
 Las Vegas
 
 NV
 
—

(1) 
680

 
1,533

 
—

 
2,213

 
42

 
6/27/2013
 
1997
 Jack in the Box
 
 Salem
 
 OR
 
—

(1) 
580

 
1,301

 
—

 
1,881

 
36

 
6/27/2013
 
1999
 Jack in the Box
 
 Tigard
 
 OR
 
—

(1) 
620

 
1,361

 
—

 
1,981

 
38

 
6/27/2013
 
1999
 Jack in the Box
 
 Arlington
 
 TX
 
—

(1) 
420

 
1,325

 
—

 
1,745

 
37

 
6/27/2013
 
1993
 Jack in the Box
 
 Arlington
 
 TX
 
—

(1) 
420

 
1,365

 
—

 
1,785

 
38

 
6/27/2013
 
1995
 Jack in the Box
 
 Corinth
 
 TX
 
—

(1) 
400

 
1,416

 
—

 
1,816

 
39

 
6/27/2013
 
1997
 Jack in the Box
 
 Farmers Branch
 
 TX
 
—

(1) 
460

 
1,640

 
—

 
2,100

 
45

 
6/27/2013
 
1988
 Jack in the Box
 
 Fort Worth
 
 TX
 
—

(1) 
490

 
1,702

 
—

 
2,192

 
47

 
6/27/2013
 
1991
 Jack in the Box
 
 Georgetown
 
 TX
 
—

(1) 
600

 
1,508

 
—

 
2,108

 
42

 
6/27/2013
 
1999
 Jack in the Box
 
 Granbury
 
 TX
 
—

(1) 
380

 
1,449

 
—

 
1,829

 
40

 
6/27/2013
 
1999
 Jack in the Box
 
 Grand Prairie
 
 TX
 
—

(1) 
600

 
1,856

 
—

 
2,456

 
51

 
6/27/2013
 
1995
 Jack in the Box
 
 Grapevine
 
 TX
 
—

(1) 
470

 
1,344

 
—

 
1,814

 
37

 
6/27/2013
 
1992
 Jack in the Box
 
 Gun Barrel City
 
 TX
 
—

(1) 
300

 
961

 
—

 
1,261

 
27

 
6/27/2013
 
1998
 Jack in the Box
 
 Houston
 
 TX
 
—

(1) 
460

 
1,437

 
—

 
1,897

 
40

 
6/27/2013
 
1993
 Jack in the Box
 
 Houston
 
 TX
 
—

(1) 
390

 
1,172

 
—

 
1,562

 
32

 
6/27/2013
 
1993
 Jack in the Box
 
 Houston
 
 TX
 
—

(1) 
330

 
1,845

 
—

 
2,175

 
51

 
6/27/2013
 
1996
 Jack in the Box
 
 Houston
 
 TX
 
—

(1) 
410

 
1,621

 
—

 
2,031

 
45

 
6/27/2013
 
1992
 Jack in the Box
 
 Houston
 
 TX
 
—

(1) 
450

 
1,396

 
—

 
1,846

 
39

 
6/27/2013
 
1992
 Jack in the Box
 
 Hutchins
 
 TX
 
—

(1) 
330

 
1,363

 
—

 
1,693

 
38

 
6/27/2013
 
1998
 Jack in the Box
 
 Kingswood
 
 TX
 
—

(1) 
430

 
955

 
—

 
1,385

 
26

 
6/27/2013
 
1992
 Jack in the Box
 
 Lufkin
 
 TX
 
—

(1) 
440

 
1,544

 
—

 
1,984

 
43

 
6/27/2013
 
1999
 Jack in the Box
 
 Lufkin
 
 TX
 
—

(1) 
450

 
1,563

 
—

 
2,013

 
43

 
6/27/2013
 
1998
 Jack in the Box
 
 Mesquite
 
 TX
 
—

(1) 
560

 
1,652

 
—

 
2,212

 
46

 
6/27/2013
 
1992
 Jack in the Box
 
 Nacogdoches
 
 TX
 
—

(1) 
340

 
1,320

 
—

 
1,660

 
37

 
6/27/2013
 
1998
 Jack in the Box
 
 Orange
 
 TX
 
—

(1) 
270

 
1,661

 
—

 
1,931

 
46

 
6/27/2013
 
1999
 Jack in the Box
 
 Port Arthur
 
 TX
 
—

(1) 
460

 
1,405

 
—

 
1,865

 
39

 
6/27/2013
 
1994
 Jack in the Box
 
 Rockwall
 
 TX
 
—

(1) 
450

 
1,275

 
—

 
1,725

 
35

 
6/27/2013
 
1992
 Jack in the Box
 
 San Antonio
 
 TX
 
—

(1) 
400

 
1,244

 
—

 
1,644

 
34

 
6/27/2013
 
1999
 Jack in the Box
 
 San Antonio
 
 TX
 
—

(1) 
470

 
1,256

 
—

 
1,726

 
35

 
6/27/2013
 
1999
 Jack in the Box
 
 San Antonio
 
 TX
 
—

(1) 
350

 
1,249

 
—

 
1,599

 
35

 
6/27/2013
 
1992
 Jack in the Box
 
 Spring
 
 TX
 
—

(1) 
450

 
1,487

 
—

 
1,937

 
41

 
6/27/2013
 
1993

F-87

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Jack in the Box
 
 Spring
 
 TX
 
—

(1) 
570

 
1,340

 
—

 
1,910

 
37

 
6/27/2013
 
1999
 Jack in the Box
 
 Tyler
 
 TX
 
—

(1) 
450

 
1,025

 
—

 
1,475

 
28

 
6/27/2013
 
1999
 Jack in the Box
 
 Weatherford
 
 TX
 
—

(1) 
480

 
1,329

 
—

 
1,809

 
37

 
6/27/2013
 
1999
 Jack in the Box
 
 Enumclaw
 
 WA
 
—

(1) 
380

 
1,238

 
—

 
1,618

 
34

 
6/27/2013
 
1997
 Joe's Crab Shack
 
 Lilburn
 
 GA
 
—

(1) 
800

 
1,917

 
—

 
2,717

 
55

 
6/27/2013
 
1999
 Joe's Crab Shack
 
 Houston
 
 TX
 
—

(1) 
900

 
1,749

 
—

 
2,649

 
50

 
6/27/2013
 
1994
 John Deere
 
 Davenport
 
 IA
 
—

(1) 
1,161

 
22,052

 
—

 
23,213

 
2,130

 
5/31/2012
 
2003
 Johnson Controls, Inc.
 
 Pinellas Park
 
 FL
 
16,200

 
4,538

 
23,842

 
—

 
28,380

 
242

 
11/5/2013
 
2001
 Kaiser Foundation
 
 Cupertino
 
 CA
 
—

(1) 
14,236

 
42,708

 
—

 
56,944

 
1,848

 
2/20/2013
 
2005
 Ker's WingHouse Bar and Grill
 
 Brandon
 
 FL
 
—

(1) 
340

 
654

 
—

 
994

 
19

 
6/27/2013
 
1999
 Ker's WingHouse Bar and Grill
 
 Clearwater
 
 FL
 
—

(1) 
550

 
627

 
—

 
1,177

 
18

 
6/27/2013
 
1979
 Key Bank
 
 Spencerport
 
 NY
 
—

(1) 
59

 
1,112

 
—

 
1,171

 
35

 
6/5/2013
 
1960
 Key Bank
 
 Berea
 
 OH
 
—

 
234

 
1,326

 
—

 
1,560

 
18

 
10/1/2013
 
1958
 KFC
 
 Deming
 
 NM
 
—

(1) 
220

 
691

 
—

 
911

 
19

 
6/27/2013
 
1992
 KFC
 
 Las Cruces
 
 NM
 
—

(1) 
270

 
498

 
—

 
768

 
14

 
6/27/2013
 
1990
 KFC
 
 Appleton
 
 WI
 
—

(1) 
350

 
874

 
—

 
1,224

 
24

 
6/27/2013
 
1988
 Kohl's
 
 Howell
 
 MI
 
—

 
547

 
10,399

 
—

 
10,946

 
548

 
3/28/2013
 
2003
 Koninklijke Ahold, N.V.
 
 Levittown
 
 PA
 
13,340

 
4,716

 
9,955

 
—

 
14,671

 
83

 
11/5/2013
 
2006
 Krystal
 
 Greenville
 
 AL
 
—

(1) 
220

 
1,147

 
—

 
1,367

 
32

 
6/27/2013
 
2000
 Krystal
 
 Montgomery
 
 AL
 
—

(1) 
259

 
1,036

 
—

 
1,295

 
91

 
9/21/2012
 
1964
 Krystal
 
 Montgomery
 
 AL
 
—

(1) 
560

 
829

 
—

 
1,389

 
23

 
6/27/2013
 
2000
 Krystal
 
 Phoenix City
 
 AL
 
—

(1) 
366

 
1,465

 
—

 
1,831

 
129

 
9/21/2012
 
1980
 Krystal
 
 Scottsboro
 
 AL
 
—

(1) 
20

 
1,157

 
—

 
1,177

 
32

 
6/27/2013
 
1999
 Krystal
 
 Tuscaloosa
 
 AL
 
—

(1) 
206

 
1,165

 
—

 
1,371

 
103

 
9/21/2012
 
1976
 Krystal
 
 Jacksonville
 
 FL
 
—

(1) 
574

 
574

 
—

 
1,148

 
51

 
9/21/2012
 
1990
 Krystal
 
 Orlando
 
 FL
 
—

(1) 
372

 
372

 
—

 
744

 
33

 
9/21/2012
 
1994


F-88

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Krystal
 
 Orlando
 
 FL
 
—

(1) 
669

 
446

 
—

 
1,115

 
39

 
9/21/2012
 
1995
 Krystal
 
 Plant City
 
 FL
 
—

(1) 
355

 
533

 
—

 
888

 
47

 
9/21/2012
 
2012
 Krystal
 
 St. Augustine
 
 FL
 
—

(1) 
411

 
411

 
—

 
822

 
36

 
9/21/2012
 
2012
 Krystal
 
 Albany
 
 GA
 
—

(1) 
309

 
721

 
—

 
1,030

 
63

 
9/21/2012
 
1962
 Krystal
 
 Atlanta
 
 GA
 
—

(1) 
166

 
664

 
—

 
830

 
58

 
9/21/2012
 
1973
 Krystal
 
 Augusta
 
 GA
 
—

(1) 
365

 
851

 
—

 
1,216

 
75

 
9/21/2012
 
1979
 Krystal
 
 Columbus
 
 GA
 
—

(1) 
622

 
934

 
—

 
1,556

 
82

 
9/21/2012
 
1977
 Krystal
 
 Decatur
 
 GA
 
—

(1) 
94

 
533

 
—

 
627

 
47

 
9/21/2012
 
1965
 Krystal
 
 East Point
 
 GA
 
—

(1) 
221

 
664

 
—

 
885

 
55

 
10/26/2012
 
1984
 Krystal
 
 Macon
 
 GA
 
—

(1) 
325

 
759

 
—

 
1,084

 
67

 
9/21/2012
 
1962
 Krystal
 
 Milledgeville
 
 GA
 
—

(1) 
261

 
609

 
—

 
870

 
54

 
9/21/2012
 
2011
 Krystal
 
 Snellville
 
 GA
 
—

(1) 
466

 
466

 
—

 
932

 
41

 
9/21/2012
 
1981
 Krystal
 
 Gulfport
 
 MS
 
—

(1) 
215

 
861

 
—

 
1,076

 
76

 
9/21/2012
 
2011
 Krystal
 
 Jackson
 
 MS
 
—

(1) 
285

 
1,140

 
—

 
1,425

 
100

 
9/21/2012
 
1978
 Krystal
 
 Jackson
 
 MS
 
—

(1) 
198

 
1,120

 
—

 
1,318

 
99

 
9/21/2012
 
1983
 Krystal
 
 Pearl
 
 MS
 
—

(1) 
426

 
638

 
—

 
1,064

 
56

 
9/21/2012
 
1976
 Krystal
 
 Chattanooga
 
 TN
 
—

(1) 
336

 
784

 
—

 
1,120

 
69

 
9/21/2012
 
2010
 Krystal
 
 Chattanooga
 
 TN
 
—

(1) 
500

 
947

 
—

 
1,447

 
26

 
6/27/2013
 
1994
 Krystal
 
 Knoxville
 
 TN
 
—

(1) 
369

 
246

 
—

 
615

 
22

 
9/21/2012
 
1970
 Kum & Go
 
 Bentonville
 
 AR
 
—

(1) 
587

 
1,370

 
—

 
1,957

 
83

 
11/20/2012
 
2009
 Kum & Go
 
 Lowell
 
 AR
 
—

(1) 
774

 
1,437

 
—

 
2,211

 
87

 
11/20/2012
 
2009
 Kum & Go
 
 Paragould
 
 AR
 
—

(1) 
708

 
2,123

 
—

 
2,831

 
149

 
9/28/2012
 
2012
 Kum & Go
 
 Rogers
 
 AR
 
—

(1) 
668

 
1,559

 
—

 
2,227

 
95

 
11/20/2012
 
2008
 Kum & Go
 
 Sherwood
 
 AR
 
—

(1) 
866

 
1,609

 
—

 
2,475

 
113

 
9/28/2012
 
2012
 Kum & Go
 
 Fountain
 
 CO
 
—

(1) 
1,131

 
1,696

 
—

 
2,827

 
95

 
12/24/2012
 
2012
 Kum & Go
 
 Monument
 
 CO
 
—

(1) 
1,192

 
1,457

 
—

 
2,649

 
82

 
12/24/2012
 
2012
 Kum & Go
 
 Muscatine
 
 IA
 
—

(1) 
794

 
1,853

 
—

 
2,647

 
104

 
12/31/2012
 
2012
 Kum & Go
 
 Ottumwa
 
 IA
 
—

(1) 
586

 
1,368

 
—

 
1,954

 
83

 
11/20/2012
 
1998
 Kum & Go
 
 Waukee
 
 IA
 
—

(1) 
1,280

 
1,280

 
—

 
2,560

 
54

 
3/28/2013
 
2012
 Kum & Go
 
 Tioga
 
 ND
 
—

(1) 
318

 
2,863

 
—

 
3,181

 
188

 
11/8/2012
 
2012
 Kum & Go
 
 Muskogee
 
 OK
 
—

(1) 
423

 
1,691

 
—

 
2,114

 
40

 
7/22/2013
 
2013
 Kum & Go
 
 Cheyenne
 
 WY
 
—

(1) 
411

 
2,327

 
—

 
2,738

 
131

 
12/27/2012
 
2012

F-89

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Leeann Chin
 
 Blaine
 
 MN
 
—

(1) 
480

 
528

 
—

 
1,008

 
15

 
6/27/2013
 
1996
 Leeann Chin
 
 Chanhassen
 
 MN
 
—

(1) 
450

 
763

 
—

 
1,213

 
21

 
6/27/2013
 
1995
 Leeann Chin
 
 Golden Valley
 
 MN
 
—

(1) 
270

 
776

 
—

 
1,046

 
21

 
6/27/2013
 
1996
 Logan's Roadhouse
 
 Huntsville
 
 AL
 
—

(1) 
520

 
4,797

 
—

 
5,317

 
138

 
6/27/2013
 
2003
 Logan's Roadhouse
 
 Fayetteville
 
 AR
 
—

(1) 
1,570

 
2,182

 
—

 
3,752

 
63

 
6/27/2013
 
2004
 Logan's Roadhouse
 
 Hattiesburg
 
 MS
 
—

(1) 
890

 
4,012

 
—

 
4,902

 
115

 
6/27/2013
 
2006
 Logan's Roadhouse
 
 Clarksville
 
 TN
 
—

(1) 
1,010

 
4,424

 
—

 
5,434

 
127

 
6/27/2013
 
1994
 Logan's Roadhouse
 
 Cleveland
 
 TN
 
—

(1) 
890

 
3,902

 
—

 
4,792

 
112

 
6/27/2013
 
2003
 Logan's Roadhouse
 
 El Paso
 
 TX
 
—

(1) 
320

 
4,731

 
—

 
5,051

 
136

 
6/27/2013
 
1999
 Long John Silver's
 
 Alamogordo
 
 NM
 
—

(1) 
160

 
574

 
—

 
734

 
16

 
6/27/2013
 
1977
 LongHorn Steakhouse
 
 Tampa
 
 FL
 
—

(1) 
370

 
1,852

 
—

 
2,222

 
53

 
6/27/2013
 
1999
 Lowe's
 
 New Orleans
 
 LA
 
15,643

 
10,315

 
20,728

 
—

 
31,043

 
172

 
11/5/2013
 
2005
 Mattress Firm
 
 Boise
 
 ID
 
—

(1) 
335

 
1,339

 
—

 
1,674

 
63

 
2/22/2013
 
2013
 Mattress Firm
 
 Columbus
 
 IN
 
—

(1) 
157

 
891

 
—

 
1,048

 
58

 
11/6/2012
 
2012
 Mattress Firm
 
 Raleigh
 
 NC
 
—

(1) 
1,091

 
1,091

 
—

 
2,182

 
77

 
9/28/2012
 
2012
 Mattress Firm
 
 Wilson
 
 NC
 
—

(1) 
373

 
692

 
—

 
1,065

 
49

 
9/28/2012
 
2012
 Mattress Firm
 
 Florence
 
 SC
 
—

(1) 
398

 
929

 
—

 
1,327

 
57

 
12/7/2012
 
2012
 Mattress Firm
 
 Rock Hill
 
 SC
 
—

(1) 
385

 
898

 
—

 
1,283

 
17

 
8/21/2013
 
2008
 Mattress Firm
 
 Nederland
 
 TX
 
—

(1) 
311

 
1,245

 
—

 
1,556

 
87

 
9/26/2012
 
2012
 McAlister's
 
 Murfreesboro
 
 TN
 
—

(1) 
310

 
720

 
—

 
1,030

 
—

 
6/27/2013
 
1985
 MetroPCS Wireless
 
 Richardson
 
 TX
 
—

 
1,292

 
18,855

 
—

 
20,147

 
144

 
11/5/2013
 
1987
 Michelin North America
 
 Louisville
 
 KY
 
—

(2) 
1,120

 
7,763

 
—

 
8,883

 
79

 
11/5/2013
 
2011
 Monro Muffler
 
 Waukesha
 
 WI
 
—

(1) 
228

 
684

 
—

 
912

 
17

 
7/23/2013
 
2002
 Morgan's Food's
 
 Pittsburgh
 
 PA
 
—

 
180

 
269

 
—

 
449

 
4

 
10/1/2013
 
1985
 Morgan's Food's
 
 Benwood
 
 WV
 
—

 
123

 
287

 
—

 
410

 
4

 
10/1/2013
 
2006
 Mo's Irish Pub Restaurant
 
 Wauwatosa
 
 WI
 
—

(1) 
550

 
818

 
—

 
1,368

 
23

 
6/27/2013
 
1977
 Mrs Baird's
 
 Dallas
 
 TX
 
—

(1) 
453

 
4,077

 
—

 
4,530

 
373

 
7/11/2012
 
2002
 Multi tenant (1000 Milwaukee Avenue)
 
 Glenview
 
 IL
 
55,523

 
14,014

 
70,411

 
—

 
84,425

 
537

 
11/5/2013
 
2001
 Multi tenant (15721 Park Row Boulevard)
 
 Houston
 
 TX
 
19,525

 
2,356

 
35,412

 
—

 
37,768

 
270

 
11/5/2013
 
2009
 Multi tenant (1585 Sawdust Road)
 
 The Woodlands
 
 TX
 
22,440

 
4,724

 
39,195

 
—

 
43,919

 
299

 
11/5/2013
 
2009

F-90

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Multi tenant (2211 Old Earhart Road)
 
 AnnArbor
 
 MI
 
29,356

 
3,520

 
38,319

 
—

 
41,839

 
292

 
11/5/2013
 
2013
 Multi tenant (26501 Aliso Creek Road)
 
 Aliso Viejo
 
 CA
 
40,024

 
18,724

 
31,970

 
—

 
50,694

 
266

 
11/5/2013
 
2005
 Multi tenant (5859 Farinon Drive)
 
 San Antonio
 
 TX
 
10,000

 
1,666

 
18,469

 
—

 
20,135

 
141

 
11/5/2013
 
2008
 Multi tenant (Columbia Pike)
 
 Silver Spring
 
 MD
 
—

 
2,190

 
26,635

 
766

 
29,591

 
203

 
11/5/2013
 
1986
 Multi tenant (Dodge Building)
 
 Omaha
 
 NE
 
—

(2) 
—

 
6,489

 
—

 
6,489

 
49

 
11/5/2013
 
2011
 Multi tenant (Landmark Building)
 
 Omaha
 
 NE
 
—

(2) 
—

 
8,253

 
4

 
8,257

 
63

 
11/5/2013
 
1991
 My Dentist
 
 Chickasha
 
 OK
 
—

(1) 
100

 
186

 
—

 
286

 
6

 
6/27/2013
 
2001
 National Tire & Battery
 
 Morrow
 
 GA
 
—

(1) 
397

 
1,586

 
—

 
1,983

 
146

 
6/5/2012
 
1992
 National Tire & Battery
 
 St. Louis
 
 MO
 
—

(1) 
756

 
924

 
—

 
1,680

 
63

 
10/31/2012
 
1998
 Nestle Holdings
 
 Breinigsville
 
 PA
 
46,494

 
—

 
66,948

 
—

 
66,948

 
681

 
11/5/2013
 
1994
 O'Reilly Auto Parts
 
 Oneonta
 
 AL
 
—

(1) 
81

 
460

 
—

 
541

 
37

 
8/2/2012
 
2000
 O'Reilly Auto Parts
 
 Laramie
 
 WY
 
—

(1) 
144

 
1,297

 
—

 
1,441

 
91

 
10/12/2012
 
1999
 Pearson
 
 Lawrence
 
 KS
 
15,177

 
2,548

 
16,792

 
—

 
19,340

 
128

 
11/5/2013
 
1997
 Pilot Flying J
 
 Carnesville
 
 GA
 
—

(1) 
1,867

 
7,466

 
—

 
9,333

 
494

 
1/31/2013
 
2000
 Pizza Hut
 
 Cooper City
 
 FL
 
—

(1) 
320

 
466

 
—

 
786

 
13

 
6/27/2013
 
1998
 Pizza Hut
 
 Marathon
 
 FL
 
—

(1) 
530

 
187

 
—

 
717

 
5

 
6/27/2013
 
1980
 Pizza Hut
 
 Bozeman
 
 MT
 
—

(1) 
150

 
343

 
—

 
493

 
10

 
6/27/2013
 
1976
 Pizza Hut
 
 Glasgow
 
 MT
 
—

(1) 
120

 
217

 
—

 
337

 
6

 
6/27/2013
 
1985
 Pizza Hut
 
 Laurel
 
 MT
 
—

(1) 
170

 
621

 
—

 
791

 
18

 
6/27/2013
 
1985
 Pizza Hut
 
 Livingston
 
 MT
 
—

(1) 
130

 
245

 
—

 
375

 
7

 
6/27/2013
 
1979
 Pizza Hut
 
 Knoxville
 
 TN
 
—

(1) 
300

 
546

 
—

 
846

 
16

 
6/27/2013
 
1992
 Pollo Tropical
 
 Davie
 
 FL
 
—

(1) 
280

 
1,490

 
—

 
1,770

 
41

 
6/27/2013
 
1993
 Pollo Tropical
 
 Fort Lauderdale
 
 FL
 
—

(1) 
190

 
1,242

 
—

 
1,432

 
34

 
6/27/2013
 
1996
 Pollo Tropical
 
 Lake Worth
 
 FL
 
—

(1) 
280

 
1,182

 
—

 
1,462

 
33

 
6/27/2013
 
1994
 Popeyes
 
 Starke
 
 FL
 
—

(1) 
380

 
—

 
—

 
380

 
—

 
6/27/2013
 
1997
 Popeyes
 
 Thomasville
 
 GA
 
—

(1) 
110

 
705

 
—

 
815

 
20

 
6/27/2013
 
1998
 Popeyes
 
 Valdosta
 
 GA
 
—

(1) 
240

 
599

 
—

 
839

 
17

 
6/27/2013
 
1998
 Popeyes
 
 New Orleans
 
 LA
 
—

(1) 
60

 
390

 
—

 
450

 
11

 
6/27/2013
 
1975


F-91

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31,
2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Popeyes
 
 Channelview
 
 TX
 
—

(1) 
220

 
401

 
—

 
621

 
11

 
6/27/2013
 
1980
 Popeyes
 
 Houston
 
 TX
 
—

(1) 
300

 
244

 
—

 
544

 
7

 
6/27/2013
 
1978
 Popeyes
 
 Houston
 
 TX
 
—

(1) 
190

 
452

 
—

 
642

 
13

 
6/27/2013
 
1978
 PriceRite
 
 Rochester
 
 NY
 
—

 
569

 
3,222

 
—

 
3,791

 
283

 
9/27/2012
 
2007
 Pulte Mortgage LLC
 
 Englewood
 
 CO
 
—

 
2,563

 
21,121

 
—

 
23,684

 
161

 
11/5/2013
 
2009
 Qdoba
 
 Flint
 
 MI
 
—

(1) 
110

 
990

 
—

 
1,100

 
52

 
3/29/2013
 
2006
 Qdoba
 
 Grand Blanc
 
 MI
 
—

(1) 
165

 
935

 
—

 
1,100

 
49

 
3/29/2013
 
2006
 Rally's
 
 Indianapolis
 
 IN
 
—

(1) 
210

 
1,514

 
—

 
1,724

 
42

 
6/27/2013
 
1990
 Rally's
 
 Kokomo
 
 IN
 
—

(1) 
290

 
548

 
—

 
838

 
15

 
6/27/2013
 
1989
 Rally's
 
 Muncie
 
 IN
 
—

(1) 
310

 
1,196

 
—

 
1,506

 
33

 
6/27/2013
 
1989
 Rally's
 
 Harvey
 
 LA
 
—

(1) 
420

 
870

 
—

 
1,290

 
24

 
6/27/2013
 
2004
 Rally's
 
 New Orleans
 
 LA
 
—

(1) 
450

 
1,691

 
—

 
2,141

 
47

 
6/27/2013
 
1990
 Rally's
 
 New Orleans
 
 LA
 
—

(1) 
220

 
1,018

 
—

 
1,238

 
28

 
6/27/2013
 
2004
 Rally's
 
 Hamtramck
 
 MI
 
—

(1) 
230

 
1,020

 
—

 
1,250

 
28

 
6/27/2013
 
1993
 Razzoos
 
 Lewisville
 
 TX
 
—

(1) 
780

 
1,503

 
—

 
2,283

 
43

 
6/27/2013
 
1997
 Reckitt Benckiser
 
 Chester
 
 NJ
 
5,500

 
886

 
7,972

 
—

 
8,858

 
513

 
8/16/2012
 
2006
 Rite Aid
 
 Jeffersonville
 
 IN
 
—

(1) 
824

 
2,472

 
—

 
3,296

 
161

 
11/30/2012
 
2008
 Rite Aid
 
 Lawrenceburg
 
 KY
 
—

(1) 
567

 
2,267

 
—

 
2,834

 
147

 
11/30/2012
 
2008
 Rite Aid
 
 Lexington
 
 KY
 
—

(1) 
—

 
1,943

 
—

 
1,943

 
126

 
11/30/2012
 
2007
 Rite Aid
 
 Paris
 
 KY
 
—

(1) 
743

 
2,228

 
—

 
2,971

 
145

 
11/30/2012
 
2008
 Rite Aid
 
 Scottsville
 
 KY
 
—

(1) 
153

 
2,904

 
—

 
3,057

 
189

 
11/30/2012
 
2007
 Rite Aid
 
 Stanford
 
 KY
 
—

(1) 
152

 
2,886

 
—

 
3,038

 
188

 
11/30/2012
 
2009
 Rite Aid
 
 Lima
 
 OH
 
—

(1) 
576

 
2,304

 
—

 
2,880

 
161

 
11/13/2012
 
2006
 Rite Aid
 
 Louisville
 
 OH
 
—

(1) 
576

 
3,266

 
—

 
3,842

 
229

 
10/31/2012
 
2008
 Rite Aid
 
 Marion
 
 OH
 
—

(1) 
508

 
2,877

 
—

 
3,385

 
201

 
11/13/2012
 
2006
 Rite Aid
 
 Huntington
 
 WV
 
—

(1) 
964

 
2,250

 
—

 
3,214

 
146

 
11/30/2012
 
2008
 Rubbermaid
 
 Winfield
 
 KS
 
12,725

 
1,056

 
20,060

 
—

 
21,116

 
2,039

 
4/25/2012
 
2008
 Rubbermaid
 
 Winfield
 
 KS
 
—

(1) 
819

 
15,555

 
—

 
16,374

 
1,028

 
11/28/2012
 
2012
 Ruby Tuesday
 
 Colorado Springs
 
 CO
 
—

(1) 
480

 
809

 
—

 
1,289

 
23

 
6/27/2013
 
1999
 Ruby Tuesday
 
 Dillon
 
 CO
 
—

(1) 
400

 
1,628

 
—

 
2,028

 
47

 
6/27/2013
 
1999
 Ruby Tuesday
 
 Bartow
 
 FL
 
—

(1) 
270

 
1,916

 
—

 
2,186

 
55

 
6/27/2013
 
1999
 Ruby Tuesday
 
 London
 
 KY
 
—

(1) 
370

 
1,493

 
—

 
1,863

 
43

 
6/27/2013
 
1997

F-92

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31,
2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Ruby Tuesday
 
 Somerset
 
 KY
 
—

(1) 
480

 
1,120

 
—

 
1,600

 
32

 
6/27/2013
 
1998
 Sakura Tepanyaki Steakhouse
 
 Orem
 
 UT
 
—

(1) 
340

 
658

 
—

 
998

 
19

 
6/27/2013
 
1999
 Sam's Southern Eatery
 
 Kennesaw
 
 GA
 
—

(1) 
210

 
46

 
—

 
256

 
1

 
6/27/2013
 
1976
 Scotts Company
 
 Orrville
 
 OH
 
—

(1) 
611

 
1,134

 
—

 
1,745

 
98

 
7/30/2012
 
2008
 Scotts Company
 
 Orrville
 
 OH
 
—

(1) 
609

 
11,576

 
—

 
12,185

 
1,000

 
7/30/2012
 
2008
 Scotts Company
 
 Orrville
 
 OH
 
—

(1) 
278

 
2,502

 
—

 
2,780

 
191

 
9/28/2012
 
2008
 Shaw's Supermarkets
 
 Plymouth
 
 MA
 
—

(1) 
1,440

 
3,361

 
—

 
4,801

 
572

 
4/18/2012
 
2000
 Shoney's
 
 Athens
 
 AL
 
—

 
560

 
110

 
—

 
670

 
3

 
6/27/2013
 
1982
 Shoney's
 
 Florence
 
 AL
 
—

 
100

 
484

 
—

 
584

 
14

 
6/27/2013
 
1966
 Shoney's
 
 Gadsden
 
 AL
 
—

(1) 
220

 
707

 
—

 
927

 
20

 
6/27/2013
 
1982
 Shoney's
 
 Oxford
 
 AL
 
—

(1) 
670

 
25

 
—

 
695

 
1

 
6/27/2013
 
1977
 Shoney's
 
 Valdosta
 
 GA
 
—

 
420

 
440

 
—

 
860

 
13

 
6/27/2013
 
2000
 Shoney's
 
 Elizabethtown
 
 KY
 
—

(1) 
450

 
465

 
—

 
915

 
13

 
6/27/2013
 
1986
 Shoney's
 
 Grayson
 
 KY
 
—

(1) 
420

 
406

 
—

 
826

 
12

 
6/27/2013
 
1994
 Shoney's
 
 Owensboro
 
 KY
 
—

 
390

 
129

 
—

 
519

 
4

 
6/27/2013
 
1988
 Shoney's
 
 Lafayette
 
 LA
 
—

 
530

 
138

 
—

 
668

 
4

 
6/27/2013
 
1989
 Shoney's
 
 Osage Beach
 
 MO
 
—

 
453

 
113

 
—

 
566

 
3

 
6/27/2013
 
1992
 Shoney's
 
 Hattiesburg
 
 MS
 
—

(1) 
730

 
618

 
—

 
1,348

 
18

 
6/27/2013
 
1989
 Shoney's
 
 Jackson
 
 MS
 
—

(1) 
360

 
572

 
—

 
932

 
16

 
6/27/2013
 
1989
 Shoney's
 
 Summerville
 
 SC
 
—

(1) 
350

 
800

 
—

 
1,150

 
23

 
6/27/2013
 
1995
 Shoney's
 
 Cookeville
 
 TN
 
—

(1) 
510

 
760

 
—

 
1,270

 
22

 
6/27/2013
 
1995
 Shoney's
 
 Lawrenceburg
 
 TN
 
—

(1) 
330

 
873

 
—

 
1,203

 
25

 
6/27/2013
 
1983
 Shoney's
 
 Charleston
 
 WV
 
—

(1) 
190

 
543

 
—

 
733

 
16

 
6/27/2013
 
1981
 Shoney's
 
 Lewisburg
 
 WV
 
—

(1) 
110

 
642

 
—

 
752

 
18

 
6/27/2013
 
1981
 Shoney's
 
 Princeton
 
 WV
 
—

(1) 
90

 
593

 
—

 
683

 
17

 
6/27/2013
 
1975
 Shoney's
 
 Ripley
 
 WV
 
—

(1) 
200

 
599

 
—

 
799

 
17

 
6/27/2013
 
1981
 Smokey Bones BBQ
 
 Morrow
 
 GA
 
—

 
390

 
2,184

 
—

 
2,574

 
63

 
6/27/2013
 
1999
 Sonny's Real Pit Bar-B-Q
 
 Athens
 
 GA
 
—

(1) 
460

 
1,280

 
—

 
1,740

 
37

 
6/27/2013
 
1981
 Sonny's Real Pit Bar-B-Q
 
 Conyers
 
 GA
 
—

(1) 
450

 
663

 
—

 
1,113

 
19

 
6/27/2013
 
1994
 Sonny's Real Pit Bar-B-Q
 
 Marietta
 
 GA
 
—

(1) 
290

 
1,772

 
—

 
2,062

 
51

 
6/27/2013
 
1988
 Spaghetti Warehouse
 
 Marietta
 
 GA
 
—

(1) 
800

 
276

 
—

 
1,076

 
8

 
6/27/2013
 
1986

F-93

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31,
2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Spaghetti Warehouse
 
 Aurora
 
 IL
 
—

(1) 
480

 
805

 
—

 
1,285

 
23

 
6/27/2013
 
1993
 Spaghetti Warehouse
 
 Elk Grove Village
 
 IL
 
—

(1) 
550

 
299

 
—

 
849

 
9

 
6/27/2013
 
1995
 Spaghetti Warehouse
 
 Oklahoma City
 
 OK
 
—

(1) 
570

 
1,193

 
—

 
1,763

 
34

 
6/27/2013
 
1905
 Spaghetti Warehouse
 
 Tulsa
 
 OK
 
—

(1) 
530

 
1,174

 
—

 
1,704

 
34

 
6/27/2013
 
1917
 Spaghetti Warehouse
 
 Memphis
 
 TN
 
—

(1) 
100

 
283

 
—

 
383

 
8

 
6/27/2013
 
1905
 Spaghetti Warehouse
 
 Arlington
 
 TX
 
—

(1) 
630

 
1,400

 
—

 
2,030

 
40

 
6/27/2013
 
1994
 Spaghetti Warehouse
 
 Dallas
 
 TX
 
—

(1) 
810

 
1,656

 
—

 
2,466

 
47

 
6/27/2013
 
1990
 Spaghetti Warehouse
 
 Houston
 
 TX
 
—

(1) 
980

 
2,284

 
—

 
3,264

 
65

 
6/27/2013
 
1906
 Spaghetti Warehouse
 
 Plano
 
 TX
 
—

(1) 
540

 
1,060

 
—

 
1,600

 
30

 
6/27/2013
 
1993
 Spaghetti Warehouse
 
 San Antonio
 
 TX
 
—

(1) 
1,140

 
1,434

 
—

 
2,574

 
41

 
6/27/2013
 
1907
 Subway
 
 Knoxville
 
 TN
 
—

(1) 
160

 
349

 
—

 
509

 
10

 
6/27/2013
 
1990
 Sweet Tomatoes
 
 Coral Springs
 
 FL
 
—

(1) 
790

 
1,625

 
—

 
2,415

 
47

 
6/27/2013
 
1997
 Synovus Bank
 
 Tampa
 
 FL
 
—

(1) 
985

 
2,298

 
—

 
3,283

 
123

 
12/31/2012
 
1959
 T.G.I. Friday's
 
 Homestead
 
 PA
 
—

(1) 
970

 
3,455

 
—

 
4,425

 
99

 
6/27/2013
 
2000
 Taco Bell
 
 Daphne
 
 AL
 
—

(1) 
180

 
1,278

 
—

 
1,458

 
35

 
6/27/2013
 
1984
 Taco Bell
 
 Foley
 
 AL
 
—

(1) 
360

 
1,460

 
—

 
1,820

 
40

 
6/27/2013
 
1992
 Taco Bell
 
 Mobile
 
 AL
 
—

(1) 
160

 
1,973

 
—

 
2,133

 
55

 
6/27/2013
 
1994
 Taco Bell
 
 SaraLand
 
 AL
 
—

(1) 
150

 
1,063

 
—

 
1,213

 
29

 
6/27/2013
 
1991
 Taco Bell
 
 Jacksonville
 
 FL
 
—

(1) 
440

 
1,167

 
—

 
1,607

 
32

 
6/27/2013
 
1985
 Taco Bell
 
 Jacksonville
 
 FL
 
—

(1) 
340

 
1,383

 
—

 
1,723

 
38

 
6/27/2013
 
1991
 Taco Bell
 
 Pensacola
 
 FL
 
—

(1) 
140

 
1,897

 
—

 
2,037

 
53

 
6/27/2013
 
1986
 Taco Bell
 
 Augusta
 
 GA
 
—

(1) 
220

 
1,292

 
—

 
1,512

 
36

 
6/27/2013
 
1979
 Taco Bell
 
 Hephzibah
 
 GA
 
—

(1) 
330

 
930

 
—

 
1,260

 
26

 
6/27/2013
 
1998
 Taco Bell
 
 Jesup
 
 GA
 
—

(1) 
230

 
715

 
—

 
945

 
20

 
6/27/2013
 
1998
 Taco Bell
 
 Waycross
 
 GA
 
—

(1) 
170

 
1,115

 
—

 
1,285

 
31

 
6/27/2013
 
1994
 Taco Bell
 
 St. Louis
 
 MO
 
—

(1) 
190

 
1,351

 
—

 
1,541

 
37

 
6/27/2013
 
1991
 Taco Bell
 
 Wentzville
 
 MO
 
—

(1) 
410

 
1,168

 
—

 
1,578

 
32

 
6/27/2013
 
2000


F-94

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Taco Bell
 
 Brunswick
 
 OH
 
—

(1) 
400

 
1,267

 
—

 
1,667

 
35

 
6/27/2013
 
1992
 Taco Bell
 
 North Olmstead
 
 OH
 
—

(1) 
390

 
904

 
—

 
1,294

 
25

 
6/27/2013
 
1979
 Taco Bell
 
 Kingston
 
 TN
 
—

(1) 
280

 
714

 
—

 
994

 
20

 
6/27/2013
 
1997
 Taco Bell
 
 Dallas
 
 TX
 
—

(1) 
400

 
1,225

 
—

 
1,625

 
34

 
6/27/2013
 
1997
 Taco Bell
 
 Colonial Heights
 
 VA
 
—

(1) 
450

 
1,144

 
—

 
1,594

 
32

 
6/27/2013
 
1994
 Taco Bell
 
 Hayes
 
 VA
 
—

(1) 
350

 
—

 
—

 
350

 
—

 
6/27/2013
 
1994
 Taco Bell
 
 Portsmouth
 
 VA
 
—

 
350

 
—

 
—

 
350

 
—

 
6/27/2013
 
1997
 Taco Bell
 
 Richmond
 
 VA
 
—

(1) 
500

 
1,061

 
—

 
1,561

 
29

 
6/27/2013
 
1994
 Taco Bell
 
 Richmond
 
 VA
 
—

(1) 
510

 
1,321

 
—

 
1,831

 
37

 
6/27/2013
 
1994
 Taco Bell/Long John Silvers
 
 Ashtabula
 
 OH
 
—

(1) 
440

 
1,640

 
—

 
2,080

 
45

 
6/27/2013
 
2004
 Taco Bell/Pizza Hut
 
 Dallas
 
 TX
 
—

(1) 
420

 
1,582

 
—

 
2,002

 
44

 
6/27/2013
 
2000
 Taco Cabana
 
 Austin
 
 TX
 
—

(1) 
700

 
2,105

 
—

 
2,805

 
58

 
6/27/2013
 
1980
 Taco Cabana
 
 Pasadena
 
 TX
 
—

(1) 
420

 
1,420

 
—

 
1,840

 
39

 
6/27/2013
 
1994
 Taco Cabana
 
 San Antonio
 
 TX
 
—

(1) 
600

 
1,955

 
—

 
2,555

 
54

 
6/27/2013
 
1994
 Taco Cabana
 
 San Antonio
 
 TX
 
—

(1) 
500

 
1,740

 
—

 
2,240

 
48

 
6/27/2013
 
1985
 Taco Cabana
 
 San Antonio
 
 TX
 
—

(1) 
280

 
1,695

 
—

 
1,975

 
47

 
6/27/2013
 
1986
 Taco Cabana
 
 San Antonio
 
 TX
 
—

(1) 
500

 
1,766

 
—

 
2,266

 
49

 
6/27/2013
 
1984
 Taco Cabana
 
 Schertz
 
 TX
 
—

(1) 
520

 
1,408

 
—

 
1,928

 
39

 
6/27/2013
 
1998
 Talbots HQ
 
 Hingham
 
 MA
 
—

 
3,009

 
27,080

 
—

 
30,089

 
762

 
5/24/2013
 
1980
 TCF National Bank
 
 Crystal
 
 MN
 
—

(1) 
640

 
642

 
—

 
1,282

 
17

 
6/27/2013
 
1981
 TD Bank
 
 Falmouth
 
 ME
 
—

 
4,057

 
22,989

 
—

 
27,046

 
832

 
3/18/2013
 
2002
 Teva Pharmaceuticals Industries Limited
 
 Malvern
 
 PA
 
—

(2) 
2,666

 
39,761

 
—

 
42,427

 
303

 
11/5/2013
 
2013
 Texas Roadhouse
 
 Cedar Rapids
 
 IA
 
—

(1) 
430

 
2,194

 
—

 
2,624

 
63

 
6/27/2013
 
2000
 Texas Roadhouse
 
 Ammon
 
 ID
 
—

(1) 
490

 
1,206

 
—

 
1,696

 
35

 
6/27/2013
 
1999
 Texas Roadhouse
 
 Shively
 
 KY
 
—

(1) 
540

 
2,055

 
—

 
2,595

 
59

 
6/27/2013
 
1998
 Texas Roadhouse
 
 Concord
 
 NC
 
—

(1) 
650

 
2,130

 
—

 
2,780

 
61

 
6/27/2013
 
2000
 Texas Roadhouse
 
 Gastonia
 
 NC
 
—

(1) 
570

 
1,544

 
—

 
2,114

 
44

 
6/27/2013
 
1999
 Texas Roadhouse
 
 Hickory
 
 NC
 
—

(1) 
580

 
1,831

 
—

 
2,411

 
53

 
6/27/2013
 
1999
 Texas Roadhouse
 
 Dickson City
 
 PA
 
—

(1) 
640

 
1,897

 
—

 
2,537

 
54

 
6/27/2013
 
2000
 Texas Roadhouse
 
 College Station
 
 TX
 
—

(1) 
670

 
2,299

 
—

 
2,969

 
66

 
6/27/2013
 
2000
 Texas Roadhouse
 
 Grand Prairie
 
 TX
 
—

(1) 
780

 
1,867

 
—

 
2,647

 
54

 
6/27/2013
 
1997

F-95

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 The Kroger Co.
 
 Calhoun
 
 GA
 
—

(2) 
—

 
6,279

 
—

 
6,279

 
52

 
11/5/2013
 
1996
 The Kroger Co.
 
 Lithonia
 
 GA
 
—

(2) 
—

 
6,250

 
—

 
6,250

 
52

 
11/5/2013
 
1996
 The Kroger Co.
 
 Suwanee
 
 GA
 
—

(2) 
—

 
7,574

 
—

 
7,574

 
63

 
11/5/2013
 
1996
 The Kroger Co.
 
 Suwanee
 
 GA
 
—

(2) 
—

 
7,691

 
—

 
7,691

 
64

 
11/5/2013
 
1996
 The Kroger Co.
 
 Frankfort
 
 KY
 
—

(2) 
—

 
5,794

 
—

 
5,794

 
48

 
11/5/2013
 
1996
 The Kroger Co.
 
 Georgetown
 
 KY
 
—

(2) 
—

 
6,742

 
—

 
6,742

 
56

 
11/5/2013
 
1996
 The Kroger Co.
 
 Madisonville
 
 KY
 
—

(2) 
—

 
5,715

 
—

 
5,715

 
48

 
11/5/2013
 
1996
 The Kroger Co.
 
 Murray
 
 KY
 
—

(2) 
—

 
6,165

 
—

 
6,165

 
51

 
11/5/2013
 
1996
 The Kroger Co.
 
 Owensboro
 
 KY
 
—

(2) 
—

 
6,073

 
—

 
6,073

 
51

 
11/5/2013
 
1996
 The Kroger Co.
 
 Franklin
 
 TN
 
—

(2) 
—

 
7,782

 
—

 
7,782

 
65

 
11/5/2013
 
1996
 The Kroger Co.
 
 Knoxville
 
 TN
 
—

(2) 
—

 
7,642

 
—

 
7,642

 
64

 
11/5/2013
 
1996
 The Pantry, Inc.
 
 Montgomery
 
 AL
 
—

(1) 
526

 
1,228

 
—

 
1,754

 
69

 
12/31/2012
 
1998
 The Pantry, Inc.
 
 Charlotte
 
 NC
 
—

(1) 
1,332

 
1,332

 
—

 
2,664

 
75

 
12/31/2012
 
2004
 The Pantry, Inc.
 
 Charlotte
 
 NC
 
—

(1) 
1,667

 
417

 
—

 
2,084

 
23

 
12/31/2012
 
1982
 The Pantry, Inc.
 
 Charlotte
 
 NC
 
—

(1) 
1,191

 
1,787

 
—

 
2,978

 
100

 
12/31/2012
 
1987
 The Pantry, Inc.
 
 Charlotte
 
 NC
 
—

(1) 
1,070

 
1,308

 
—

 
2,378

 
73

 
12/31/2012
 
1997
 The Pantry, Inc.
 
 Conover
 
 NC
 
—

(1) 
1,144

 
936

 
—

 
2,080

 
53

 
12/31/2012
 
1998
 The Pantry, Inc.
 
 Cornelius
 
 NC
 
—

(1) 
1,847

 
2,258

 
—

 
4,105

 
127

 
12/31/2012
 
1999
 The Pantry, Inc.
 
 Lincolnton
 
 NC
 
—

(1) 
1,766

 
2,159

 
—

 
3,925

 
121

 
12/31/2012
 
2000
 The Pantry, Inc.
 
 Matthews
 
 NC
 
—

(1) 
980

 
1,819

 
—

 
2,799

 
102

 
12/31/2012
 
1987
 The Pantry, Inc.
 
 Thomasville
 
 NC
 
—

(1) 
1,175

 
1,436

 
—

 
2,611

 
81

 
12/31/2012
 
2000
 The Pantry, Inc.
 
 Fort Mill
 
 SC
 
—

(1) 
1,311

 
1,967

 
—

 
3,278

 
110

 
12/31/2012
 
1988
 The Procter & Gamble Co.
 
 FortWayne
 
 IN
 
25,904

 
—

 
26,400

 
—

 
26,400

 
268

 
11/5/2013
 
1994
 Thermo Process Systems
 
 Sugarland
 
 TX
 
—

(1) 
1,680

 
7,778

 
—

 
9,458

 
94

 
9/24/2013
 
2005
 Tiffany & Co.
 
 Parsippany
 
 NJ
 
55,773

 
2,248

 
81,081

 
—

 
83,329

 
824

 
11/5/2013
 
2002
 Tilted Kilt
 
 Hendersonville
 
 TN
 
—

(1) 
310

 
763

 
—

 
1,073

 
22

 
6/27/2013
 
1994
 Time Warner Cable
 
 Milwaukee
 
 WI
 
20,570

 
3,081

 
21,505

 
—

 
24,586

 
164

 
11/5/2013
 
2001
 Tire Kingdom
 
 Dublin
 
 OH
 
—

(6) 
373

 
1,119

 
—

 
1,492

 
108

 
4/27/2012
 
2003
 TJX Companies, Inc.
 
 Philadelphia
 
 PA
 
67,334

 
9,889

 
84,953

 
—

 
94,842

 
864

 
11/5/2013
 
2001
 T-Mobile USA, Inc.
 
 Nashville
 
 TN
 
10,295

 
1,190

 
15,396

 
—

 
16,586

 
117

 
11/5/2013
 
2002
 Tractor Supply
 
 Oneonta
 
 AL
 
—

(1) 
359

 
1,438

 
—

 
1,797

 
46

 
4/18/2013
 
2012

F-96

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Tractor Supply
 
 Gray
 
 LA
 
—

 
550

 
2,202

 
—

 
2,752

 
149

 
8/7/2012
 
2011
 Tractor Supply
 
 Negaunee
 
 MI
 
—

(1) 
488

 
1,953

 
—

 
2,441

 
147

 
6/12/2012
 
2010
 Tractor Supply
 
 Plymouth
 
 NH
 
—

 
424

 
2,402

 
—

 
2,826

 
124

 
11/29/2012
 
2011
 Tractor Supply
 
 Allentown
 
 NJ
 
—

(5) 
697

 
3,949

 
—

 
4,646

 
361

 
1/27/2012
 
2011
 Tractor Supply
 
 Rio Grande City
 
 TX
 
—

(1) 
469

 
1,095

 
—

 
1,564

 
78

 
6/19/2012
 
2008
 UPS e-Logistics
 
 Elizabethtown
 
 KY
 
—

(1) 
1,460

 
10,923

 
—

 
12,383

 
167

 
9/24/2013
 
2001
 Vacant
 
 Randolph
 
 MA
 
6,929

 
2,840

 
6,826

 
—

 
9,666

 
68

 
11/5/2013
 
1993
 Vacant
 
 Bethesda
 
 MD
 
54,554

 
8,536

 
31,879

 
—

 
40,415

 
292

 
11/5/2013
 
2012
 Vacant
 
 Irving
 
 TX
 
—

 
2,610

 
4,470

 
—

 
7,080

 
34

 
11/5/2013
 
1997
 Vacant (Development property)
 
 Columbia
 
 SC
 
—

 
—

 
6,941

 
7,006

 
13,947

 
—

 
11/5/2013
 
in progress
 Vacant (Development property)
 
 The Woodlands
 
 TX
 
—

 
—

 
5,411

 
1,521

 
6,932

 
—

 
11/5/2013
 
in progress
 Vitamin Shoppe
 
 Evergreen Park
 
 IL
 
—

(1) 
476

 
1,427

 
—

 
1,903

 
53

 
4/19/2013
 
2012
 Vitamin Shoppe
 
 Ashland
 
 VA
 
—

 
2,399

 
19,663

 
—

 
22,062

 
200

 
11/5/2013
 
2013
 Walgreens
 
 Wetumpka
 
 AL
 
—

(5) 
547

 
3,102

 
—

 
3,649

 
341

 
2/22/2012
 
2007
 Walgreens
 
 Peoria
 
 AZ
 
—

(1) 
837

 
1,953

 
—

 
2,790

 
98

 
2/28/2013
 
1996
 Walgreens
 
 Phoenix
 
 AZ
 
—

(1) 
1,037

 
1,927

 
—

 
2,964

 
87

 
3/26/2013
 
1999
 Walgreens
 
 Coalings
 
 CA
 
—

(3) 
396

 
3,568

 
—

 
3,964

 
482

 
10/11/2011
 
2008
 Walgreens
 
 Acworth
 
 GA
 
—

(1) 
1,583

 
2,940

 
—

 
4,523

 
162

 
1/25/2013
 
2012
 Walgreens
 
 Chicago
 
 IL
 
—

(1) 
1,212

 
2,829

 
—

 
4,041

 
156

 
1/30/2013
 
1999
 Walgreens
 
 Chicago
 
 IL
 
—

(1) 
1,617

 
3,003

 
—

 
4,620

 
165

 
1/30/2013
 
2007
 Walgreens
 
 Anderson
 
 IN
 
—

 
807

 
3,227

 
—

 
4,034

 
274

 
7/31/2012
 
2001
 Walgreens
 
 Greensburg
 
 KS
 
—

(1) 
1,007

 
1,869

 
—

 
2,876

 
28

 
9/30/2013
 
1996
 Walgreens
 
 Olathe
 
 KS
 
—

(1) 
1,258

 
3,774

 
—

 
5,032

 
94

 
7/25/2013
 
2002
 Walgreens
 
 Frankfort
 
 KY
 
—

(5) 
911

 
3,643

 
—

 
4,554

 
419

 
2/8/2012
 
2006
 Walgreens
 
 Shreveport
 
 LA
 
—

(5) 
619

 
3,509

 
—

 
4,128

 
386

 
2/22/2012
 
2003
 Walgreens
 
 Baltimore
 
 MD
 
—

(1) 
1,185

 
2,764

 
—

 
3,949

 
69

 
8/6/2013
 
2000
 Walgreens
 
 Clinton
 
 MI
 
—

(1) 
1,463

 
3,413

 
—

 
4,876

 
239

 
11/13/2012
 
2002
 Walgreens
 
 Dearborn
 
 MI
 
—

(1) 
190

 
3,605

 
—

 
3,795

 
162

 
4/1/2013
 
1998


F-97

 
 
 
 
 
 
 
Initial Costs
 
Costs Capitalized Subsequent to Acquisition
 
Gross Amount
Carried at
December 31, 2013

(10) (11)
 
 
 
 
 
 
Property
 
City
 
State
 
Encumbrances at
December 31, 2013
Land
 
Buildings, Fixtures and Improvements
 
 
Accumulated Depreciation

(12) (13)
 
Date Acquired
 
Date of Construction
 Walgreens
 
 Eastpointe
 
 MI
 
—

(1) 
668

 
2,672

 
—

 
3,340

 
307

 
1/19/2012
 
1998
 Walgreens
 
 Lincoln Park
 
 MI
 
—

 
1,041

 
5,896

 
—

 
6,937

 
501

 
7/31/2012
 
2007
 Walgreens
 
 Livonia
 
 MI
 
—

(1) 
261

 
2,350

 
—

 
2,611

 
106

 
4/1/2013
 
1998
 Walgreens
 
 Stevensville
 
 MI
 
—

(3) 
855

 
3,420

 
—

 
4,275

 
428

 
11/28/2011
 
2007
 Walgreens
 
 Troy
 
 MI
 
—

(1) 
—

 
1,896

 
—

 
1,896

 
123

 
12/12/2012
 
2000
 Walgreens
 
 Warren
 
 MI
 
—

(1) 
748

 
2,991

 
—

 
3,739

 
194

 
11/21/2012
 
1999
 Walgreens
 
 Columbia
 
 MS
 
—

 
452

 
4,072

 
—

 
4,524

 
244

 
12/21/2012
 
2011
 Walgreens
 
 Greenwood
 
 MS
 
—

(5) 
561

 
3,181

 
—

 
3,742

 
350

 
2/22/2012
 
2007
 Walgreens
 
 Maplewood
 
 NJ
 
—

(3) 
1,071

 
6,071

 
—

 
7,142

 
759

 
11/18/2011
 
2011
 Walgreens
 
 Las Vegas
 
 NV
 
—

 
1,528

 
6,114

 
—

 
7,642

 
581

 
5/30/2012
 
2009
 Walgreens
 
 Las Vegas
 
 NV
 
—

(1) 
700

 
2,801

 
—

 
3,501

 
112

 
4/30/2013
 
2001
 Walgreens
 
 Staten Island
 
 NY
 
—

 
—

 
3,984

 
—

 
3,984

 
538

 
10/5/2011
 
2007
 Walgreens
 
 Akron
 
 OH
 
—

 
664

 
1,548

 
—

 
2,212

 
54

 
5/31/2013
 
1994
 Walgreens
 
 Bryan
 
 OH
 
—

(5) 
219

 
4,154

 
—

 
4,373

 
457

 
2/22/2012
 
2007
 Walgreens
 
 Eaton
 
 OH
 
—

 
398

 
3,586

 
—

 
3,984

 
323

 
6/27/2012
 
2008
 Walgreens
 
 Tahlequah
 
 OK
 
—

 
647

 
3,664

 
—

 
4,311

 
220

 
1/2/2013
 
2008
 Walgreens
 
 Aibonito Pueblo
 
 PR
 
—

 
1,855

 
5,566

 
—

 
7,421

 
278

 
3/5/2013
 
2012
 Walgreens
 
 Las Piedras
 
 PR
 
—

 
1,726

 
5,179

 
—

 
6,905

 
233

 
4/3/2013
 
2012
 Walgreens
 
 Anderson
 
 SC
 
—

(5) 
835

 
3,342

 
—

 
4,177

 
384

 
2/8/2012
 
2006
 Walgreens
 
 Easley
 
 SC
 
—

 
1,206

 
3,617

 
—

 
4,823

 
326

 
6/27/2012
 
2007
 Walgreens
 
 Greenville
 
 SC
 
—

 
1,313

 
3,940

 
—

 
5,253

 
355

 
6/27/2012
 
2006
 Walgreens
 
 Myrtle Beach
 
 SC
 
—

(1) 
—

 
2,077

 
—

 
2,077

 
249

 
12/29/2011
 
2001
 Walgreens
 
 North Charleston
 
 SC
 
—

 
1,320

 
3,081

 
—

 
4,401

 
277

 
6/27/2012
 
2008
 Walgreens
 
 Cordova
 
 TN
 
—

 
1,005

 
2,345

 
—

 
3,350

 
164

 
11/9/2012
 
2002
 Walgreens
 
 Memphis
 
 TN
 
—

 
896

 
2,687

 
—

 
3,583

 
201

 
10/2/2012
 
2003
 Walgreens
 
 Portsmouth
 
 VA
 
2,118

 
730

 
3,311

 
—

 
4,041

 
33

 
11/5/2013
 
1998
 Wendy's
 
 Atascadero
 
 CA
 
—

(1) 
230

 
1,009

 
—

 
1,239

 
28

 
6/27/2013
 
2000
 Wendy's
 
 Camarillo
 
 CA
 
—

(1) 
320

 
2,253

 
—

 
2,573

 
62

 
6/27/2013
 
1996
 Wendy's
 
 Paso Robles
 
 CA
 
—

(1) 
150

 
1,603

 
—

 
1,753

 
44

 
6/27/2013
 
1999
 Wendy's
 
 Worcester
 
 MA
 
—

(1) 
370

 
1,288

 
—

 
1,658

 
36

 
6/27/2013
 
1996
 Wendy's
 
 Salisbury
 
 MD
 
—

(1) 
370

 
1,299

 
—

 
1,669

 
36

 
6/27/2013
 
1993
 Wendy's
 
 Swanton
 
 OH
 
—

(1) 
430

 
1,233

 
—

 
1,663

 
34

 
6/27/2013
 
1999
 Wendy's
 
 Sylvania
 
 OH
 
—

(1) 
300

 
799

 
—

 
1,099

 
22

 
6/27/2013
 
1999
 Wendy's
 
 Knoxville
 
 TN
 
—

(1) 
330

 
1,161

 
—

 
1,491

 
32

 
6/27/2013
 
1998
 Wendy's
 
 Knoxville
 
 TN
 
—

(1) 
330

 
1,132

 
—

 
1,462

 
31

 
6/27/2013
 
1996
 Wendy's
 
 Millington
 
 TN
 
—

(1) 
380

 
1,208

 
—

 
1,588

 
33

 
6/27/2013
 
1976
 Wendy's
 
 Bluefield
 
 VA
 
—

(1) 
450

 
1,927

 
—

 
2,377

 
53

 
6/27/2013
 
1992
 Wendy's
 
 Midlothian
 
 VA
 
—

(1) 
230

 
1,300

 
—

 
1,530

 
36

 
6/27/2013
 
1991
 Wendy's
 
 Beaver
 
 WV
 
—

(1) 
290

 
1,156

 
—

 
1,446

 
32

 
6/27/2013
 
1982
 West Marine
 
 Deltaville
 
 VA
 
—

(1) 
425

 
2,409

 
—

 
2,834

 
192

 
7/31/2012
 
2012
 Williams Sonoma
 
 Olive Branch
 
 MS
 
28,350

 
2,330

 
44,266

 
—

 
46,596

 
8,397

 
8/10/2012
 
2001
Encumbrances allocated based on notes below
 
1,392,878

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
2,466,337

 
786,542

 
3,893,761

 
9,610

 
4,689,913

 
164,728

 
 
 
 

F-98

__________________________________
(1)
These properties collateralize a senior corporate credit facility of up to $2.42 billion, which had $1.06 billion outstanding as of December 31, 2013.
(2)
These properties collateralize a $150.0 million secured credit facility, which had $150.0 million outstanding as of December 31, 2013.
(3)
These properties collateralize a $54.3 million mortgage note payable of which $54.3 million was outstanding as of December 31, 2013.
(4)
These properties collateralize a $48.5 million mortgage note payable of which $48.5 million was outstanding as of December 31, 2013.
(5)
These properties collateralize a $36.6 million mortgage note payable of which $36.6 million was outstanding as of December 31, 2013.
(6)
These properties collateralize a $12.3 million mortgage note payable of which $12.3 million was outstanding as of December 31, 2013.
(7)
These properties collateralize a $15.0 million mortgage note payable of which $15.0 million was outstanding as of December 31, 2013.
(8)
These properties collateralize a $4.5 million mortgage note payable of which $4.5 million was outstanding as of December 31, 2013.
(9)
These properties collateralize a $11.9 million mortgage note payable of which $11.9 million was outstanding as of December 31, 2013.
(10)
Acquired intangible lease assets allocated to individual properties in the amount of $536.3 million are not reflected in the table above.
(11)
The tax basis of aggregate land, buildings and improvements as of December 31, 2013 was $5.1 million.
(12)
The accumulated depreciation column excludes $48.1 million of amortization associated with acquired intangible lease assets.
(13)
Depreciation is computed using the straight-line method over the estimated useful lives of up to forty years for buildings, five to fifteen years for building fixtures and improvements.

A summary of activity for real estate and accumulated depreciation for the year ended December 31, 2013 (amounts in thousands):
 
 
Year ended December 31, 2013
Real estate investments, at cost:
 
 
Balance at beginning of year
 
$
1,586,267

Additions - acquisitions and improvements
 
3,103,646

Balance at end of the year
 
$
4,689,913

Accumulated depreciation:
 
 
Balance at beginning of year
 
$
44,811

Depreciation expense
 
119,917

Balance at end of the year
 
$
164,728



F-99

AMERICAN REALTY CAPITAL PROPERTIES, INC.
LOANS HELD FOR INVESTMENT
SCHEDULE IV
December 31, 2013
(In thousands)
Description
Location
Interest Rate
Final Maturity Date
Periodic Payment Terms
Prior Liens
Face Amount of Mortgages
Carrying Amount of Mortgages
Principal Amount of Loans Subject to Delinquent Principal or Interest
Long-Term Mortgage Loans
 
 
 
 
 
 
 
Bank Of America, N.A.
Mt. Airy, MD
6.42%
Dec 2026
Principal and interest are payable monthly at a varying amount over the life to maturity
 
$
2,973

$
3,329

—

CVS Caremark Corporation
Evansville, IN
6.22%
Jan 2033
Principal and interest are payable monthly at a level amount over the life to maturity
 
2,932

3,268

—

CVS Caremark Corporation
Greensboro, GA
6.52%
Jan 2030
Principal and interest are payable monthly at a level amount over the life to maturity
 
1,133

1,289

—

CVS Caremark Corporation
Shelby Twp., MI
5.98%
Jan 2031
Principal and interest are payable monthly at a varying amount over the life to maturity
 
2,237

2,443

—

Koninklijke Ahold, N.V.
Bensalem, PA
7.24%
May 2020
Principal and interest are payable monthly at a varying amount over the life to maturity
 
2,083

2,384

—

Lowes Companies, Inc.
Framingham, MA
N/A
Sep 2031
Principal and interest are payable monthly at a varying amount over the life to maturity
 
5,692

1,399

—

Walgreen Co.
Dallas, TX
6.46%
Dec 2029
Principal and interest are payable monthly at a level amount over the life to maturity
 
2,851

3,231

—

Walgreen Co.
Nacogdoches, TX
6.8%
Sep 2030
Principal and interest are payable monthly at a level amount over the life to maturity
 
3,084

3,561

—

Walgreen Co.
Rosemead, CA
6.26%
Dec 2029
Principal and interest are payable monthly at a level amount over the life to maturity
 
4,369

4,888

—

 
 
 
 
 
 
$
27,354

$
25,792

—

 
 
 
 
 
 
 
 
 
Corporate Credit Notes
 
 
 
 
 
 
 
Federal Express Corporation
Bellingham, WA
5.78%
Mar 2015
Principal and interest are payable monthly at a level amount over the life to maturity
 
$
81

$
83

—

Lowes Companies, Inc.
N. Windham, ME
5.28%
Sep 2015
Principal and interest are payable monthly at a level amount over the life to maturity
 
256

261

—

Walgreen Co.
Jefferson City, TN
5.49%
May 2015
Principal and interest are payable monthly at a level amount over the life to maturity
 
140

143

—

 
 
 
 
 
 
$
477

$
487

—

 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
$
27,831

$
26,279

—

 
 
 
 
 
 
 
 
 


F-100

AMERICAN REALTY CAPITAL PROPERTIES, INC.
LOANS HELD FOR INVESTMENT
SCHEDULE IV - CONTINUED
December 31, 2013
(In thousands)

Balance - November 5, 2013
 
$
26,457

 
Additions during the year:
 
 
 
 
New Loan Investments
—

 
 
Deductions during the year:
 
 
 
 
Principal received
(164
)
 
 
 
Allowance for loan losses
—

 
 
 
Amortization of unearned discounts and premiums
(14
)
 
Balance - December 31, 2013
 
$
26,279

 
 
 
 
 



F-101