x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 27-3147801 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
2325 East Camelback Road, Suite 1100 Phoenix, Arizona, 85016 | (602) 778-8700 | |
(Address of principal executive offices; zip code) | (Registrant’s telephone number, including area code) |
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if smaller reporting company) | Smaller reporting company | ¨ |
Item 1. | Financial Statements |
June 30, 2013 | December 31, 2012 | ||||||
ASSETS | |||||||
Investment in real estate assets: | |||||||
Land | $ | 16,514,079 | $ | 12,765,587 | |||
Buildings and improvements, less accumulated depreciation of $766,302 and $439,687, respectively | 31,153,761 | 16,633,976 | |||||
Acquired intangible lease assets, less accumulated amortization of $408,881 and $246,349, respectively | 6,383,438 | 3,702,806 | |||||
Total investment in real estate assets, net | 54,051,278 | 33,102,369 | |||||
Investment in marketable securities | 470,713 | 227,393 | |||||
Total investment in real estate assets and marketable securities, net | 54,521,991 | 33,329,762 | |||||
Cash and cash equivalents | 2,897,163 | 997,676 | |||||
Restricted cash | 602,950 | 122,000 | |||||
Rents and tenant receivables | 352,764 | 309,873 | |||||
Prepaid expenses and other assets | 22,814 | 104,644 | |||||
Deferred financing costs, less accumulated amortization of $290,098 and $189,210, respectively | 389,323 | 345,283 | |||||
Total assets | $ | 58,787,005 | $ | 35,209,238 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Line of credit | $ | 16,775,000 | $ | 20,640,300 | |||
Accounts payable and accrued expenses | 250,922 | 373,384 | |||||
Escrowed investor proceeds | 602,950 | 122,000 | |||||
Due to affiliates | 384,700 | 335,109 | |||||
Acquired below market lease intangibles, less accumulated amortization of $78,344 and $51,089, respectively | 1,045,086 | 902,350 | |||||
Distributions payable | 178,388 | 65,294 | |||||
Deferred rental income and other liabilities | 52,214 | 120,049 | |||||
Total liabilities | 19,289,260 | 22,558,486 | |||||
Commitments and contingencies | |||||||
Redeemable common stock | 17,111,402 | 3,770,340 | |||||
STOCKHOLDERS’ EQUITY: | |||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding | — | — | |||||
Common stock, $0.01 par value; 490,000,000 shares authorized, 2,629,255 and 914,037 shares issued and outstanding, respectively | 26,293 | 9,140 | |||||
Capital in excess of par value | 24,384,001 | 10,009,803 | |||||
Accumulated distributions in excess of earnings | (2,015,866 | ) | (1,139,497 | ) | |||
Accumulated other comprehensive (loss) income | (8,085 | ) | 966 | ||||
Total stockholders’ equity | 22,386,343 | 8,880,412 | |||||
Total liabilities and stockholders’ equity | $ | 58,787,005 | $ | 35,209,238 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenues: | |||||||||||||||
Rental and other property income | $ | 961,406 | $ | 625,904 | $ | 1,692,784 | $ | 1,239,141 | |||||||
Tenant reimbursement income | 31,040 | 41,414 | 78,771 | 88,370 | |||||||||||
Interest income on marketable securities | 1,365 | — | 2,258 | — | |||||||||||
Total revenue | 993,811 | 667,318 | 1,773,813 | 1,327,511 | |||||||||||
Expenses: | |||||||||||||||
General and administrative expenses | 305,804 | 196,572 | 562,179 | 395,928 | |||||||||||
Property operating expenses | 56,517 | 49,880 | 106,151 | 101,354 | |||||||||||
Advisory expenses | 78,509 | 61,344 | 125,779 | 61,344 | |||||||||||
Acquisition related expenses | 196,508 | — | 264,035 | 1,318 | |||||||||||
Depreciation | 191,345 | 103,326 | 326,615 | 206,611 | |||||||||||
Amortization | 90,351 | 55,567 | 155,999 | 111,122 | |||||||||||
Total operating expenses | 919,034 | 466,689 | 1,540,758 | 877,677 | |||||||||||
Operating income | 74,777 | 200,629 | 233,055 | 449,834 | |||||||||||
Other expense: | |||||||||||||||
Interest expense | 171,855 | 206,242 | 351,694 | 408,562 | |||||||||||
Net (loss) income | $ | (97,078 | ) | $ | (5,613 | ) | $ | (118,639 | ) | $ | 41,272 | ||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic and diluted | 2,124,513 | 682,821 | 1,716,571 | 681,438 | |||||||||||
Net (loss) income per common share: | |||||||||||||||
Basic and diluted | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | 0.06 | ||||
Distributions declared per common share | $ | 0.22 | $ | 0.21 | $ | 0.44 | $ | 0.41 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net (loss) income | $ | (97,078 | ) | $ | (5,613 | ) | $ | (118,639 | ) | $ | 41,272 | ||||
Other comprehensive loss: | |||||||||||||||
Reclassification of previous unrealized loss on marketable securities into net loss | 83 | — | 194 | — | |||||||||||
Unrealized loss on marketable securities | (8,965 | ) | — | (9,245 | ) | — | |||||||||
Total other comprehensive loss | (8,882 | ) | — | (9,051 | ) | — | |||||||||
Comprehensive (loss) income | $ | (105,960 | ) | $ | (5,613 | ) | $ | (127,690 | ) | $ | 41,272 |
Common Stock | Capital in Excess of Par Value | Accumulated Distributions in Excess of Earnings | Accumulated Other Comprehensive (Loss) Income | Total Stockholders’ Equity | ||||||||||||||||||
Number of Shares | Par Value | |||||||||||||||||||||
Balance, January 1, 2013 | 914,037 | $ | 9,140 | $ | 10,009,803 | $ | (1,139,497 | ) | $ | 966 | $ | 8,880,412 | ||||||||||
Issuance of common stock | 1,727,627 | 17,277 | 28,201,105 | — | — | 28,218,382 | ||||||||||||||||
Distributions to investors | — | — | — | (757,730 | ) | — | (757,730 | ) | ||||||||||||||
Dealer manager fees | — | — | (76,865 | ) | — | — | (76,865 | ) | ||||||||||||||
Other offering costs | — | — | (211,636 | ) | — | — | (211,636 | ) | ||||||||||||||
Redemptions of common stock | (12,409 | ) | (124 | ) | (197,344 | ) | — | — | (197,468 | ) | ||||||||||||
Changes in redeemable common stock | — | — | (13,341,062 | ) | — | — | (13,341,062 | ) | ||||||||||||||
Comprehensive loss | — | — | — | (118,639 | ) | (9,051 | ) | (127,690 | ) | |||||||||||||
Balance, June 30, 2013 | 2,629,255 | $ | 26,293 | $ | 24,384,001 | $ | (2,015,866 | ) | $ | (8,085 | ) | $ | 22,386,343 |
Six Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (118,639 | ) | $ | 41,272 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||
Depreciation | 326,615 | 206,611 | |||||
Amortization of intangible lease assets and below market lease intangibles, net | 135,277 | 90,932 | |||||
Amortization of deferred financing costs | 100,888 | 87,893 | |||||
Amortization on marketable securities, net | 1,316 | — | |||||
Changes in assets and liabilities: | |||||||
Rents and tenant receivables | (42,891 | ) | (141,448 | ) | |||
Prepaid expenses and other assets | 81,830 | (15,194 | ) | ||||
Accounts payable and accrued expenses | (122,462 | ) | 112,769 | ||||
Deferred rental income and other liabilities | (67,835 | ) | (65,353 | ) | |||
Due to affiliates | (74,417 | ) | 107,124 | ||||
Net cash provided by operating activities | 219,682 | 424,606 | |||||
Cash flows from investing activities: | |||||||
Investment in real estate and related assets | (21,268,065 | ) | (942,378 | ) | |||
Investment in marketable securities | (279,576 | ) | — | ||||
Proceeds from sale of marketable securities | 25,889 | — | |||||
Change in restricted cash | (480,950 | ) | — | ||||
Net cash used in investing activities | (22,002,702 | ) | (942,378 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock | 28,095,942 | 82,500 | |||||
Offering costs on issuance of common stock | (164,493 | ) | — | ||||
Redemptions of common stock | (197,468 | ) | — | ||||
Distributions to investors | (522,196 | ) | (270,036 | ) | |||
Proceeds from line of credit | 8,174,800 | 1,000,000 | |||||
Repayments of line of credit | (12,040,100 | ) | (1,000,000 | ) | |||
Deferred financing costs paid | (144,928 | ) | (8,220 | ) | |||
Change in escrowed investor proceeds liability | 480,950 | — | |||||
Net cash provided by (used in) financing activities | 23,682,507 | (195,756 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 1,899,487 | (713,528 | ) | ||||
Cash and cash equivalents, beginning of period | 997,676 | 1,134,899 | |||||
Cash and cash equivalents, end of period | $ | 2,897,163 | $ | 421,371 | |||
Supplemental Disclosures of Non-Cash Investing and Financing Activities: | |||||||
Accrued dealer manager fee and other offering costs | $ | 260,606 | $ | 620 | |||
Distributions declared and unpaid | $ | 178,388 | $ | 46,296 | |||
Common stock issued through distribution reinvestment plan | $ | 122,440 | $ | 113 | |||
Unrealized loss on marketable securities | $ | 9,245 | $ | — | |||
Reclassification of unrealized loss on marketable securities into net loss | $ | 194 | $ | — | |||
Accrued capital expenditures and deferred financing costs | $ | — | $ | 3,751 | |||
Supplemental Cash Flow Disclosures: | |||||||
Interest paid | $ | 260,826 | $ | 315,535 |
NOTE 1 — | ORGANIZATION AND BUSINESS |
NOTE 2 — | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Buildings | 40 years | |
Tenant improvements | Lesser of useful life or lease term | |
Intangible lease assets | Lease term |
NOTE 3 — | FAIR VALUE MEASUREMENTS |
NOTE 4 — | REAL ESTATE ASSETS |
June 30, 2013 | |||
Land | $ | 3,748,492 | |
Building and improvements | 14,846,400 | ||
Acquired in-place leases | 2,685,539 | ||
Acquired above market leases | 157,625 | ||
Acquired below market leases | (169,991 | ) | |
Total purchase price | $ | 21,268,065 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Pro forma basis: | |||||||||||||||
Revenue | $ | 1,139,199 | $ | 1,096,914 | $ | 2,299,105 | $ | 2,186,703 | |||||||
Net income | $ | 112,568 | $ | 161,482 | $ | 277,375 | $ | 127,600 |
NOTE 5 — | MARKETABLE SECURITIES |
Available-for-sale securities | ||||||||||||
Amortized Cost Basis | Unrealized Loss | Fair Value | ||||||||||
U.S. Treasury Bonds | $ | 110,127 | $ | (1,050 | ) | $ | 109,077 | |||||
U.S. Agency Bonds | 105,428 | (1,393 | ) | 104,035 | ||||||||
Corporate Bonds | 263,243 | (5,642 | ) | 257,601 | ||||||||
Total available-for-sale securities | $ | 478,798 | $ | (8,085 | ) | $ | 470,713 |
Amortized Cost Basis | Unrealized Gain (Loss) | Fair Value | ||||||||||
Marketable securities as of December 31, 2012 | $ | 226,427 | $ | 966 | $ | 227,393 | ||||||
Face value of marketable securities acquired | 275,000 | — | 275,000 | |||||||||
Premiums and discounts on purchase of marketable securities, net of acquisition costs | 4,576 | — | 4,576 | |||||||||
Amortization on marketable securities | (1,316 | ) | — | (1,316 | ) | |||||||
Sales of securities | (25,889 | ) | 194 | (25,695 | ) | |||||||
Decrease in fair value of marketable securities | — | (9,245 | ) | (9,245 | ) | |||||||
Marketable securities as of June 30, 2013 | $ | 478,798 | $ | (8,085 | ) | $ | 470,713 |
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
U.S. Treasury Bonds | $ | 99,071 | $ | (1,058 | ) | $ | — | $ | — | $ | 99,071 | $ | (1,058 | ) | ||||||||||
U.S. Agency Bonds | 88,932 | (1,413 | ) | — | — | 88,932 | (1,413 | ) | ||||||||||||||||
Corporate Bonds | 225,846 | (5,665 | ) | — | — | 225,846 | (5,665 | ) | ||||||||||||||||
Total temporarily impaired securities | $ | 413,849 | $ | (8,136 | ) | $ | — | $ | — | $ | 413,849 | $ | (8,136 | ) |
Available-for-sale securities | ||||||||
Amortized Cost | Estimated Fair Value | |||||||
Due within one year | $ | 20,063 | $ | 20,086 | ||||
Due after one year through five years | 386,444 | 381,592 | ||||||
Due after five years through ten years | 72,291 | 69,035 | ||||||
Due after ten years | — | — | ||||||
Total | $ | 478,798 | $ | 470,713 |
NOTE 6 — | LINE OF CREDIT |
NOTE 7 — | COMMITMENTS AND CONTINGENCIES |
NOTE 8 — | RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Offering: | ||||||||||||||
Dealer manager fees | $ | 47,978 | — | $ | 76,865 | $ | — | |||||||
Dealer manager fees reallowed by CCC | $ | 1,066 | — | $ | 1,302 | $ | — | |||||||
Organization and offering expense reimbursement | $ | 107,393 | 602 | $ | 211,636 | $ | 620 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Acquisitions, Operations and Performance: | |||||||||||||||
Acquisition expense reimbursement | $ | — | $ | — | $ | — | $ | — | |||||||
Advisory fee | $ | 78,509 | $ | — | $ | 125,779 | $ | — | |||||||
Operating expense reimbursement | $ | — | $ | — | $ | — | $ | — | |||||||
Performance fee | $ | — | $ | 61,344 | $ | — | $ | 61,344 |
NOTE 9 — | ECONOMIC DEPENDENCY |
NOTE 10 — | SUBSEQUENT EVENTS |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | changes in economic conditions generally and the real estate and securities markets specifically; |
• | the effect of financial leverage, including changes in interest rates, availability of credit, loss of flexibility due to negative and affirmative covenants, refinancing risk at maturity and generally the increased risk of loss if our investments fail to perform as expected; |
• | our ability to raise a substantial amount of capital in the near term; |
• | our ability to access sources of liquidity when we have the need to fund redemptions of common stock in excess of the proceeds from the sales of shares of our common stock in our continuous offering and the consequential risk that we may not have the resources to satisfy redemption requests; |
• | our ability to effectively deploy the proceeds raised in our public offering; |
• | legislative or regulatory changes (including changes to the laws governing the taxation of REITs); and |
• | changes to GAAP. |
As of June 30, | ||||||
2013 | 2012 | |||||
Number of properties | 20 | 9 | ||||
Approximate rentable square feet (1) | 309,051 | 212,575 | ||||
Percentage of rentable square feet leased | 100 | % | 100 | % | ||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Properties acquired | 7 | — | 10 | — | |||||||||||
Approximate purchase price of acquired properties (in millions) | $ | 17.2 | $ | — | $ | 21.3 | $ | — | |||||||
Approximate rentable square feet | 60,288 | — | 84,010 | — |
Payments due by period (1) | ||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
Principal payments - line of credit | $ | 16,775,000 | $ | — | $ | 16,775,000 | $ | — | $ | — | ||||||||||
Interest payments - line of credit (2) | 687,589 | 476,224 | 211,365 | — | — | |||||||||||||||
Total | $ | 17,462,589 | $ | 476,224 | $ | 16,986,365 | $ | — | $ | — | ||||||||||
(1) | The table does not include amounts due to our advisor or its affiliates pursuant to our advisory agreement because such amounts are not fixed and determinable. |
(2) | Payment obligations for the amount outstanding under the Line of Credit were calculated based on an interest rate of 2.80% in effect as of June 30, 2013. |
• | Investment in and Valuation of Real Estate and Related Assets; |
• | Allocation of Purchase Price of Real Estate and Related Assets; |
• | Revenue Recognition; and |
• | Income Taxes. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Period | Total Number of Shares Redeemed | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||
April 1 - April 30, 2013 | 5,254 | $ | 15.98 | 5,254 | (1) | |||||||
May 1 - May 31, 2013 | — | $ | — | — | (1) | |||||||
June 1 - June 30, 2013 | — | $ | — | — | (1) | |||||||
Total | 5,254 | 5,254 | (1) | |||||||||
(1) | A description of the maximum number of shares that may be purchased under our share redemption program, the date our share redemption program was announced (in the Registration Statement) and the amount of shares approved under our share redemption program is included in the narrative preceding this table. |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
Cole Real Estate Income Strategy (Daily NAV), Inc. (Registrant) | ||
By: | /s/ Simon J. Misselbrook | |
Name: | Simon J. Misselbrook | |
Title: | Senior Vice President of Accounting (Principal Accounting Officer) |
Exhibit No. | Description | |
3.1 | Articles of Amendment and Restatement of Cole Real Estate Income Strategy (Daily NAV), Inc. dated December 6, 2011 (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 333-169535), filed on December 7, 2011). | |
3.2 | Articles of Amendment to Articles of Amendment and Restatement effective December 22, 2011 (Incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K (File No. 333-169535), filed on December 22, 2011). | |
3.3 | Second Articles of Amendment to Articles of Amendment and Restatement effective May 31, 2012 (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 333-169535), filed on June 1, 2012). | |
3.4 | Certificate of Correction to the Articles of Amendment and Restatement, filed January 25, 2013 (Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K (File No. 333-169535), filed on March 28, 2013). | |
3.5 | Bylaws of Cole Real Estate Income Strategy (Daily NAV), Inc. effective September 28, 2011 (Incorporated by reference to Exhibit 3.2 to the Company’s pre-effective amendment to Form S-11 (File No. 333-169535), filed on November 3, 2011). | |
3.6 | First Amendment of Bylaws effective June 14, 2012 (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 333-169535), filed on June 19, 2012). | |
4.1 | Distribution Reinvestment Plan (Incorporated by reference to Exhibit 4.1 to the Company’s pre-effective amendment to Form S-11 (File No. 333-169535), filed on December 6, 2011). | |
31.1* | Certification of the Principal Executive Officer of the Company pursuant to 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 Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS*** | XBRL Instance Document | |
101.SCH*** | XBRL Taxonomy Extension Schema Document | |
101.CAL*** | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF*** | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB*** | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE*** | XBRL Taxonomy Extension Presentation Linkbase Document | |
* | Filed herewith. |
** | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
*** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Cole Real Estate Income Strategy (Daily NAV), Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 8, 2013 | /s/ CHRISTOPHER H. COLE | ||
Name: | Christopher H. Cole | ||
Title: | Chief Executive Officer and President (Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Cole Real Estate Income Strategy (Daily NAV), Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 8, 2013 | /s/ D. KIRK MCALLASTER, JR. | ||
Name: | D. Kirk McAllaster, Jr. | ||
Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ CHRISTOPHER H. COLE | |
Name: Christopher H. Cole | |
Title: Chief Executive Officer and President (Principal Executive Officer) | |
/s/ D. KIRK MCALLASTER JR. | |
Name: D. Kirk McAllaster, Jr. | |
Date: August 8, 2013 | Title: Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
Subsequent Events
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS Investment in Real Estate Assets Subsequent to June 30, 2013, the Company acquired a 100% interest in two real estate properties for an aggregate purchase price of $5.7 million. The acquisitions were funded with proceeds from the Offering and borrowings from the Line of Credit. Status of the Offering As of August 6, 2013, the Company had received $45.4 million in gross offering proceeds through the issuance of approximately 2.8 million shares of its common stock in the Offering (including shares issued pursuant to the DRIP). Line of Credit Subsequent to June 30, 2013, the Company borrowed $4.5 million and repaid $3.6 million of the amounts outstanding under the Line of Credit. As of August 6, 2013, the Company had $17.7 million outstanding under the Line of Credit and $8.4 million available for borrowing. |
Condensed Consolidated Unaudited Statement of Operations (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Revenues: | ||||
Rental and other property income | $ 961,406 | $ 625,904 | $ 1,692,784 | $ 1,239,141 |
Tenant reimbursement income | 31,040 | 41,414 | 78,771 | 88,370 |
Interest income on marketable securities | 1,365 | 0 | 2,258 | 0 |
Total revenue | 993,811 | 667,318 | 1,773,813 | 1,327,511 |
Expenses: | ||||
General and administrative expenses | 305,804 | 196,572 | 562,179 | 395,928 |
Property operating expenses | 56,517 | 49,880 | 106,151 | 101,354 |
Advisory expenses | 78,509 | 61,344 | 125,779 | 61,344 |
Acquisition related expenses | 196,508 | 0 | 264,035 | 1,318 |
Depreciation | 191,345 | 103,326 | 326,615 | 206,611 |
Amortization | 90,351 | 55,567 | 155,999 | 111,122 |
Total operating expenses | 919,034 | 466,689 | 1,540,758 | 877,677 |
Operating income | 74,777 | 200,629 | 233,055 | 449,834 |
Other expense: | ||||
Interest expense | 171,855 | 206,242 | 351,694 | 408,562 |
Net (loss) income | $ (97,078) | $ (5,613) | $ (118,639) | $ 41,272 |
Weighted average number of common shares outstanding: | ||||
Basic and diluted | 2,124,513 | 682,821 | 1,716,571 | 681,438 |
Net (loss) income per common share: | ||||
Basic and diluted | $ (0.05) | $ (0.01) | $ (0.07) | $ 0.06 |
Distributions declared per common share | $ 0.22 | $ 0.21 | $ 0.44 | $ 0.41 |
Fair Value Measurements
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2013
|
|||||
Fair Value Disclosures [Abstract] | |||||
FAIR VALUE MEASUREMENTS |
GAAP defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. GAAP emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows: Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs). Level 3 – Unobservable inputs, which are only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability. The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities: Cash and cash equivalents – The Company considers the carrying amounts of these financial assets to approximate fair value because of the short period of time between their origination and their expected realization. Line of credit – The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. The estimated fair value of the Company’s debt was $16.8 million and $20.6 million as of June 30, 2013 and December 31, 2012, respectively, which approximated the carrying value on such dates. The fair value of the Company’s debt is estimated using Level 2 inputs. Marketable securities – The Company’s marketable securities are carried at fair value and are valued using Level 1 inputs. The estimated fair value of the Company’s marketable securities are based on quoted market prices that are readily and regularly available in an active market. Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, on disposition of the financial assets and liabilities. As of June 30, 2013, there have been no transfers of financial assets or liabilities between levels. |
Summary of Significant Accounting Policies - Narative (Details) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2013
Building [Member]
|
Jun. 30, 2013
Maximum
Advisors
Other organization and offering expenses
|
|
Valuation of real estate and related assets [Line Items] | ||||
Acquired real estate asset, useful life | 40 years | |||
Organization and offering expense | 0.75% | |||
Due to affiliates | $ 384,700 | $ 335,109 | ||
Stock Repurchase Program, Number of Shares Authorized to be Repurchased, Carryover Percentage Quarterly Net Asset Value Limitation | 10.00% | |||
Temporary Equity, Carrying Amount, Attributable to Parent | $ 17,111,402 | $ 3,770,340 |
Summary of Significant Accounting Policies (Policies)
|
6 Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||
Basis of presentation | The condensed consolidated unaudited financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2012, and related notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated unaudited financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. |
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Principles of consolidation | The condensed consolidated unaudited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. |
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Use of estimates | Use of Estimates The preparation of financial statements in conformity with 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. |
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Investment in and valuation of real estate and related assets | Investment in and Valuation of Real Estate and Related Assets Real estate and related assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate and related assets consist of the cost of acquisition, excluding acquisition related expenses, construction and any tenant improvements, major improvements and betterments that extend the useful life of the real estate and related assets and leasing costs. All repairs and maintenance are expensed as incurred. The Company is required to make subjective assessments as to the useful lives of its depreciable assets. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life of the assets. Real estate and related assets, other than land, are depreciated or amortized on a straight-line basis. The estimated useful lives of the Company’s real estate and related assets by class are generally as follows:
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate and related assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment indicators were identified and no impairment losses were recorded during the six months ended June 30, 2013 or 2012. When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in estimating expected future cash flows could result in a different determination of the property’s expected future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the fair value of the real estate and related assets. When a real estate asset is identified by the Company as held for sale, the Company will cease depreciation and amortization of the assets related to the property and estimate the fair value, net of selling costs. If, in management’s opinion, the fair value, net of selling costs, of the asset is less than the carrying amount of the asset, an adjustment to the carrying amount would be recorded to reflect the estimated fair value of the property, net of selling costs. There were no assets identified as held for sale as of June 30, 2013 or December 31, 2012. |
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Allocation of purchase price of real estate and related assets | Allocation of Purchase Price of Real Estate and Related Assets Upon the acquisition of real properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases, based in each case on their respective fair values. Acquisition related expenses are expensed as incurred. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building). The Company obtains an independent appraisal for each real property acquisition. The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information. The fair values of above market and below market lease intangibles are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) an estimate of fair market lease rates for the corresponding in-place leases, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease including any bargain renewal periods, with respect to a below market lease. The above market and below market lease intangibles are capitalized as intangible lease assets or liabilities, respectively. Above market leases are amortized as a reduction to rental income over the remaining terms of the respective leases. Below market leases are amortized as an increase to rental income over the remaining terms of the respective leases, including any bargain renewal periods. In considering whether or not the Company expects a tenant to execute a bargain renewal option, the Company evaluates economic factors and certain qualitative factors at the time of acquisition, such as the financial strength of the tenant, remaining lease term, the tenant mix of the leased property, the Company’s relationship with the tenant and the availability of competing tenant space. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market or below market lease intangibles relating to that lease would be recorded as an adjustment to rental income. The fair values of in-place leases include estimates of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rental and other property income which are avoided by acquiring a property with an in-place lease. Direct costs associated with obtaining a new tenant include commissions and other direct costs, and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. The intangible values of opportunity costs, which are calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease are capitalized as intangible lease assets and are amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed. The Company will estimate the fair value of assumed mortgage notes payable based upon indications of current market pricing for similar types of debt financing with similar maturities. Assumed mortgage notes payable will initially be recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the mortgage note’s outstanding principal balance will be amortized to interest expense over the term of the respective mortgage note payable. The determination of the fair values of the real estate and related assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could impact the Company’s results of operations. |
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Investment in marketable securities | Investment in Marketable Securities Investment in marketable securities consists primarily of the Company’s investment in corporate and government debt securities. The Company determines the appropriate classification for debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. As of June 30, 2013, the Company classified its investments as available-for-sale as the Company is not actively trading the securities; however, the Company may sell them prior to their maturity. These investments are carried at their estimated fair value with unrealized gains and losses reported in accumulated other comprehensive (loss) income. The Company monitors its available-for-sale securities for impairments. A loss is recognized when the Company determines that a decline in the estimated fair value of a security below its amortized cost is other-than-temporary. The Company considers many factors in determining whether the impairment of a security is deemed to be other-than-temporary, including, but not limited to, the length of time the security has had a decline in estimated fair value below its amortized cost, the amount of the unrealized loss, the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. The analysis of determining whether the impairment of a security is deemed to be other-than-temporary requires significant judgments and assumptions. The use of alternative judgments and assumptions could result in a different conclusion. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method and is recorded in the accompanying condensed consolidated unaudited statements of operations in interest income on marketable securities along with interest and dividend income. Upon the sale of a security, the realized net gain or loss is computed on the specific identification method. |
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Restricted cash and escrows | Restricted Cash and Escrows Included in restricted cash were escrowed investor proceeds for which shares of common stock had not been issued as of June 30, 2013 and December 31, 2012. |
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Concentration of credit risk | Concentration of Credit Risk As of June 30, 2013, the Company had cash on deposit at two financial institutions, one of which had deposits in excess of federally insured levels totaling $2.6 million; however, the Company has not experienced any losses in such accounts. The Company limits significant cash deposits to accounts held by financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits. As of June 30, 2013, Tractor Supply Company, CVS Caremark Corporation and Walgreen Co. each accounted for 13%, and Dollar General accounted for 11%, of the Company’s 2013 gross annualized rental revenues. Tenants in the drugstore, home and garden, convenience store and discount store industries accounted for 25%, 13%, 11% and 11%, respectively, of the Company’s 2013 gross annualized rental revenues. Additionally, the Company has certain geographic concentrations in its property holdings. In particular, as of June 30, 2013, three of the Company’s properties were located in Texas, accounting for 27% of the Company’s 2013 gross annualized rental revenues. |
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Offering and related costs | Offering and Related Costs Cole Advisors funds all of the organization and offering costs associated with the sale of the Company’s common stock (excluding the dealer manager fee) and is reimbursed for such costs up to 0.75% of gross proceeds from the Offering. As of June 30, 2013, Cole Advisors or its affiliates had paid organization and offering costs in excess of the 0.75% in connection with the Offering. These costs were not included in the financial statements of the Company because such costs were not a liability of the Company as they exceeded 0.75% of gross proceeds from the Offering. As the Company raises additional proceeds from the Offering, these costs may become payable to Cole Advisors. |
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Due to affiliates | Due to Affiliates Cole Advisors and certain of its affiliates received, and will continue to receive, fees, reimbursements and compensation in connection with services provided relating to the Offering and the acquisition, management and performance of the Company’s assets, as discussed in Note 8 to these condensed consolidated unaudited financial statements. |
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Redeemable common stock | Redeemable Common Stock The Company has adopted a share redemption program that permits its stockholders to redeem their shares, subject to certain limitations. The Company records amounts that are redeemable under the share redemption program as redeemable common stock outside of permanent equity in its condensed consolidated unaudited balance sheets. Redeemable common stock is recorded at the greater of the carrying amount or redemption value each reporting period. Changes in the value from period to period are recorded as an adjustment to capital in excess of par value. As of June 30, 2013, the quarterly redemption capacity was equal to 10% of the Company’s prior quarter NAV, as adjusted for current quarter subscription and redemption activity and this amount was recorded as redeemable common stock on the condensed consolidated unaudited balance sheet for a total of $17.1 million. |
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Recent accounting pronouncements | Recent Accounting Pronouncements In February 2013, the U.S. Financial Accounting Standards Board issued Accounting Standards Update, 2013-02 Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which amends the reporting requirements for comprehensive income pertaining to the reclassification of items out of accumulated other comprehensive income. ASU 2013-02 was effective for the Company beginning January 1, 2013, and the Company has presented the required information within the condensed consolidated unaudited statements of other comprehensive income and notes to the financial statements. |
Fair Value Measurements - (Details) (USD $)
In Millions, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Carrying amount
|
||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Line of credit, fair value | $ 16.8 | $ 20.6 |
Fair value, inputs, level 2 | Fair value
|
||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Line of credit, fair value | $ 16.8 | $ 20.6 |
Subsequent Events - (Details) (USD $)
|
6 Months Ended | 1 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Aug. 06, 2013
Subsequent event
Property
|
Aug. 06, 2013
Subsequent event
Line of credit
|
|
Subsequent Event [Line Items] | ||||
Business acquisition, percentage of voting interests acquired | 100.00% | |||
Number of real estate acquistions (in number of properties) | 2 | |||
Total purchase price | $ 5,700,000 | |||
Issuance of common stock | 28,218,382 | 45,400,000 | ||
Issuance of common stock, shares | 2,800,000 | |||
Line of credit facility, increase, additional borrowings | 4,500,000 | |||
Repayments of lines of credit | 12,040,100 | 1,000,000 | 3,600,000 | |
Line of credit, amount outstanding | 17,700,000 | |||
Line of credit, remaining borrowing capacity | $ 8,400,000 |
Summary of Significant Accounting Policies - Concentration of credit risk (Details) (USD $)
In Millions, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Concentration Risk [Line Items] | |
Cash on deposit, number of financial institutions | 2 |
Cash on deposit, number of financial institutions which had deposits in excess of current federally insured limits | 1 |
Texas
|
|
Concentration Risk [Line Items] | |
Number of owned properties (in number of properties) | 3 |
Gross annualized rental revenues by industry | Tractor supply company
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 13.00% |
Gross annualized rental revenues by industry | CVS caremark corporation
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 13.00% |
Gross annualized rental revenues by industry | Walgreen co.
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 13.00% |
Gross annualized rental revenues by industry | Dollar general
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 11.00% |
Customer Concentration Risk [Member] | Gross annualized rental revenues by industry | Drugstore industry
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 25.00% |
Customer Concentration Risk [Member] | Gross annualized rental revenues by industry | Home and garden industry
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 13.00% |
Customer Concentration Risk [Member] | Gross annualized rental revenues by industry | Convenience store industry
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 11.00% |
Customer Concentration Risk [Member] | Gross annualized rental revenues by industry | Discount store industry
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 11.00% |
Credit concentration risk | Demand Deposits [Member]
|
|
Concentration Risk [Line Items] | |
Concentration Risk, Credit Risk, Financial Instrument, Maximum Exposure | $ 2.6 |
Credit concentration risk | Gross annualized rental revenues by industry | Texas
|
|
Concentration Risk [Line Items] | |
Concentration risk, percentage | 27.00% |
Condensed Consolidated Unaudited Statement of Stockholders' Equity (USD $)
|
Total
|
Common Stock
|
Capital in Excess of Par Value
|
Accumulated Distributions in Excess of Earnings
|
Accumulated Other Comprehensive Income
|
---|---|---|---|---|---|
Balance at Dec. 31, 2012 | $ 8,880,412 | $ 9,140 | $ 10,009,803 | $ (1,139,497) | $ 966 |
Balance, shares at Dec. 31, 2012 | 914,037 | 914,037 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Issuance of common stock, shares | 1,727,627 | ||||
Issuance of common stock | 28,218,382 | 17,277 | 28,201,105 | ||
Distributions to investors | (757,730) | (757,730) | |||
Dealer Manager Fees | (76,865) | (76,865) | |||
Other offering costs | (211,636) | (211,636) | |||
Redemptions of common stock, shares | (12,409) | ||||
Redemptions of common stock | (197,468) | (124) | (197,344) | 0 | 0 |
Changes in redeemable common stock | (13,341,062) | (13,341,062) | |||
Comprehensive loss | (127,690) | (118,639) | (9,051) | ||
Balance at Jun. 30, 2013 | $ 22,386,343 | $ 26,293 | $ 24,384,001 | $ (2,015,866) | $ (8,085) |
Balance, shares at Jun. 30, 2013 | 2,629,255 | 2,629,255 |
Organization and Business
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND BUSINESS | ORGANIZATION AND BUSINESS Cole Real Estate Income Strategy (Daily NAV), Inc. (the “Company”) is a Maryland corporation that was formed on July 27, 2010. Substantially all of the Company’s business is conducted through Cole Real Estate Income Strategy (Daily NAV) Operating Partnership, LP (“Cole OP”), a Delaware limited partnership. The Company is the sole general partner of, and owns directly or indirectly, 100% of the partnership interest in, Cole OP. The Company intends to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the taxable year ended December 31, 2012. The Company is externally managed by Cole Real Estate Income Strategy (Daily NAV) Advisors, LLC (“Cole Advisors”), which is indirectly owned by Cole Real Estate Investments, Inc. (NYSE: COLE) (“Cole”, formerly known as “Cole Credit Property Trust III, Inc.”) as a result of Cole acquiring Cole Holdings Corporation (“CHC”) on April 5, 2013 pursuant to a transaction whereby CHC merged with and into CREInvestments, LLC (“CREI”), a wholly-owned subsidiary of Cole. As a result of the merger, Cole Advisors and the Company’s dealer manager are wholly-owned by CREI. On December 6, 2011, pursuant to a registration statement filed on Form S-11 (Registration No. 333-169535) (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), the Company commenced its initial public offering on a “best efforts” basis of $4.0 billion in shares of common stock (the “Offering”). Of this amount, the Company is offering $3.5 billion in shares in a primary offering and has reserved and is offering $500.0 million in shares pursuant to a distribution reinvestment plan (the “DRIP”). The Company’s per share purchase price varies from day-to-day and, on each business day, is equal to the Company’s net asset value (“NAV”) divided by the number of shares outstanding as of the close of business on such day. The Company’s NAV per share is calculated daily as of the close of business by an independent fund accountant using a process that reflects (1) estimated values of each of the Company’s commercial real estate assets, related liabilities and notes receivable secured by real estate provided periodically by the Company’s independent valuation expert in individual appraisal reports, (2) daily updates in the price of liquid assets for which third party market quotes are available, (3) accruals of daily distributions, and (4) estimates of daily accruals, on a net basis, of operating revenues, expenses, debt service costs and fees. The NAV per share as of June 30, 2013 was $16.56. The Company’s NAV is not audited or reviewed by its independent registered public accounting firm. The Company intends to use substantially all of the net proceeds from the Offering to acquire and operate a diversified portfolio primarily consisting of (1) necessity retail, office and industrial properties that are leased to creditworthy tenants under long-term net leases, and are strategically located throughout the United States and U.S. protectorates, (2) notes receivable secured by commercial real estate, including the origination of loans, and (3) cash, cash equivalents, other short-term investments and traded real estate-related securities. As of June 30, 2013, the Company owned 20 commercial properties located in 14 states, containing 309,051 rentable square feet of commercial space, including square feet of buildings which are on land subject to ground leases. As of June 30, 2013, these properties were 100% leased. The Company is structured as a perpetual-life, non-exchange traded REIT. This means that, subject to regulatory approval of filing for additional offerings, the Company will be selling shares of common stock on a continuous basis and for an indefinite period of time to the extent permissible under applicable law. The Company will endeavor to take all reasonable actions to avoid interruptions in the continuous offering of shares of common stock. The Company reserves the right to terminate the Offering at any time. On February 13, 2013, the Company filed a registration statement on Form S-11, Registration No. 333-186656 (the “New Registration Statement”), to register the offer and sale of its common stock, as well as two new classes of common stock. Contingent upon the effectiveness of the New Registration Statement, there will be certain changes that will impact existing and future stockholders. Unless otherwise stated, all disclosures and discussion in this Quarterly Report on Form 10-Q do not include the expected effects of the New Registration Statement. |
Real Estate Assets
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REAL ESTATE ASSETS | REAL ESTATE ASSETS 2013 Property Acquisitions During the six months ended June 30, 2013, the Company acquired a 100% interest in 10 commercial properties for an aggregate purchase price of $21.3 million (the “2013 Acquisitions”). The Company purchased the 2013 Acquisitions with net proceeds from the Offering and borrowings from the Line of Credit (as defined in Note 6). The Company allocated the purchase price of these properties to the fair value of the assets acquired and liabilities assumed. The following table summarizes the purchase price allocation:
The Company recorded revenue for the three and six months ended June 30, 2013 of $284,000 and $334,000, respectively, and a net loss for the three and six months ended June 30, 2013 of $22,000 and $57,000, respectively, related to the 2013 Acquisitions. In addition, the Company recorded $197,000 and $264,000, respectively, of acquisition related expenses for the three and six months ended June 30, 2013. The following information summarizes selected financial information of the Company, as if all of the 2013 Acquisitions were completed on January 1, 2012 for each period presented below. The table below presents the Company’s estimated revenue and net income, on a pro forma basis, for the three and six months ended June 30, 2013 and 2012, respectively:
The pro forma information for the three and six months ended June 30, 2013 was adjusted to exclude acquisition costs related to the 2013 Acquisitions. These costs were recognized in the pro forma information for the six months ended June 30, 2012. The pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of periods presented, nor does it purport to represent the results of future operations. 2012 Property Acquisitions The Company made no real estate acquisitions during the six months ended June 30, 2012. |
Summary of Significant Accounting Policies
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Accounting Policies [Abstract] | ||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation The condensed consolidated unaudited financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2012, and related notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated unaudited financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. The condensed consolidated unaudited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with 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. Investment in and Valuation of Real Estate and Related Assets Real estate and related assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate and related assets consist of the cost of acquisition, excluding acquisition related expenses, construction and any tenant improvements, major improvements and betterments that extend the useful life of the real estate and related assets and leasing costs. All repairs and maintenance are expensed as incurred. The Company is required to make subjective assessments as to the useful lives of its depreciable assets. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life of the assets. Real estate and related assets, other than land, are depreciated or amortized on a straight-line basis. The estimated useful lives of the Company’s real estate and related assets by class are generally as follows:
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate and related assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment indicators were identified and no impairment losses were recorded during the six months ended June 30, 2013 or 2012. When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in estimating expected future cash flows could result in a different determination of the property’s expected future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the fair value of the real estate and related assets. When a real estate asset is identified by the Company as held for sale, the Company will cease depreciation and amortization of the assets related to the property and estimate the fair value, net of selling costs. If, in management’s opinion, the fair value, net of selling costs, of the asset is less than the carrying amount of the asset, an adjustment to the carrying amount would be recorded to reflect the estimated fair value of the property, net of selling costs. There were no assets identified as held for sale as of June 30, 2013 or December 31, 2012. Allocation of Purchase Price of Real Estate and Related Assets Upon the acquisition of real properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases, based in each case on their respective fair values. Acquisition related expenses are expensed as incurred. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building). The Company obtains an independent appraisal for each real property acquisition. The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information. The fair values of above market and below market lease intangibles are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) an estimate of fair market lease rates for the corresponding in-place leases, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease including any bargain renewal periods, with respect to a below market lease. The above market and below market lease intangibles are capitalized as intangible lease assets or liabilities, respectively. Above market leases are amortized as a reduction to rental income over the remaining terms of the respective leases. Below market leases are amortized as an increase to rental income over the remaining terms of the respective leases, including any bargain renewal periods. In considering whether or not the Company expects a tenant to execute a bargain renewal option, the Company evaluates economic factors and certain qualitative factors at the time of acquisition, such as the financial strength of the tenant, remaining lease term, the tenant mix of the leased property, the Company’s relationship with the tenant and the availability of competing tenant space. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market or below market lease intangibles relating to that lease would be recorded as an adjustment to rental income. The fair values of in-place leases include estimates of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rental and other property income which are avoided by acquiring a property with an in-place lease. Direct costs associated with obtaining a new tenant include commissions and other direct costs, and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. The intangible values of opportunity costs, which are calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease are capitalized as intangible lease assets and are amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed. The Company will estimate the fair value of assumed mortgage notes payable based upon indications of current market pricing for similar types of debt financing with similar maturities. Assumed mortgage notes payable will initially be recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the mortgage note’s outstanding principal balance will be amortized to interest expense over the term of the respective mortgage note payable. The determination of the fair values of the real estate and related assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could impact the Company’s results of operations. Investment in Marketable Securities Investment in marketable securities consists primarily of the Company’s investment in corporate and government debt securities. The Company determines the appropriate classification for debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. As of June 30, 2013, the Company classified its investments as available-for-sale as the Company is not actively trading the securities; however, the Company may sell them prior to their maturity. These investments are carried at their estimated fair value with unrealized gains and losses reported in accumulated other comprehensive (loss) income. The Company monitors its available-for-sale securities for impairments. A loss is recognized when the Company determines that a decline in the estimated fair value of a security below its amortized cost is other-than-temporary. The Company considers many factors in determining whether the impairment of a security is deemed to be other-than-temporary, including, but not limited to, the length of time the security has had a decline in estimated fair value below its amortized cost, the amount of the unrealized loss, the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. The analysis of determining whether the impairment of a security is deemed to be other-than-temporary requires significant judgments and assumptions. The use of alternative judgments and assumptions could result in a different conclusion. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method and is recorded in the accompanying condensed consolidated unaudited statements of operations in interest income on marketable securities along with interest and dividend income. Upon the sale of a security, the realized net gain or loss is computed on the specific identification method. Restricted Cash and Escrows Included in restricted cash were escrowed investor proceeds for which shares of common stock had not been issued as of June 30, 2013 and December 31, 2012. Concentration of Credit Risk As of June 30, 2013, the Company had cash on deposit at two financial institutions, one of which had deposits in excess of federally insured levels totaling $2.6 million; however, the Company has not experienced any losses in such accounts. The Company limits significant cash deposits to accounts held by financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits. As of June 30, 2013, Tractor Supply Company, CVS Caremark Corporation and Walgreen Co. each accounted for 13%, and Dollar General accounted for 11%, of the Company’s 2013 gross annualized rental revenues. Tenants in the drugstore, home and garden, convenience store and discount store industries accounted for 25%, 13%, 11% and 11%, respectively, of the Company’s 2013 gross annualized rental revenues. Additionally, the Company has certain geographic concentrations in its property holdings. In particular, as of June 30, 2013, three of the Company’s properties were located in Texas, accounting for 27% of the Company’s 2013 gross annualized rental revenues. Offering and Related Costs Cole Advisors funds all of the organization and offering costs associated with the sale of the Company’s common stock (excluding the dealer manager fee) and is reimbursed for such costs up to 0.75% of gross proceeds from the Offering. As of June 30, 2013, Cole Advisors or its affiliates had paid organization and offering costs in excess of the 0.75% in connection with the Offering. These costs were not included in the financial statements of the Company because such costs were not a liability of the Company as they exceeded 0.75% of gross proceeds from the Offering. As the Company raises additional proceeds from the Offering, these costs may become payable to Cole Advisors. Due to Affiliates Cole Advisors and certain of its affiliates received, and will continue to receive, fees, reimbursements and compensation in connection with services provided relating to the Offering and the acquisition, management and performance of the Company’s assets, as discussed in Note 8 to these condensed consolidated unaudited financial statements. Redeemable Common Stock The Company has adopted a share redemption program that permits its stockholders to redeem their shares, subject to certain limitations. The Company records amounts that are redeemable under the share redemption program as redeemable common stock outside of permanent equity in its condensed consolidated unaudited balance sheets. Redeemable common stock is recorded at the greater of the carrying amount or redemption value each reporting period. Changes in the value from period to period are recorded as an adjustment to capital in excess of par value. As of June 30, 2013, the quarterly redemption capacity was equal to 10% of the Company’s prior quarter NAV, as adjusted for current quarter subscription and redemption activity and this amount was recorded as redeemable common stock on the condensed consolidated unaudited balance sheet for a total of $17.1 million. Recent Accounting Pronouncements In February 2013, the U.S. Financial Accounting Standards Board issued Accounting Standards Update, 2013-02 Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which amends the reporting requirements for comprehensive income pertaining to the reclassification of items out of accumulated other comprehensive income. ASU 2013-02 was effective for the Company beginning January 1, 2013, and the Company has presented the required information within the condensed consolidated unaudited statements of other comprehensive income and notes to the financial statements. |