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 | 27-3148022 |
(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 | $ | 319,258 | $ | 146,873 | |||
Buildings and improvements, less accumulated depreciation of $8,701 and $1,744, respectively | 775,226 | 315,922 | |||||
Acquired intangible lease assets, less accumulated amortization of $5,167 and $907, respectively | 149,091 | 57,288 | |||||
Total investment in real estate assets, net | 1,243,575 | 520,083 | |||||
Cash and cash equivalents | 12,223 | 13,895 | |||||
Restricted cash | 8,100 | 523 | |||||
Rents and tenant receivables, less allowance for doubtful account of $19 and $0, respectively | 5,248 | 1,465 | |||||
Prepaid expenses, property escrow deposits and other assets | 2,294 | 1,142 | |||||
Deferred financing costs, less accumulated amortization of $1,758 and $524, respectively | 7,555 | 5,092 | |||||
Total assets | $ | 1,278,995 | $ | 542,200 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Borrowing facilities and notes payable | $ | 677,418 | $ | 274,594 | |||
Accounts payable and accrued expenses | 7,224 | 5,042 | |||||
Escrowed investor proceeds | 5,587 | 523 | |||||
Due to affiliates | 4,009 | 2,156 | |||||
Acquired below market lease intangibles, less accumulated amortization of $785 and $109, respectively | 23,459 | 7,810 | |||||
Distributions payable | 3,296 | 1,456 | |||||
Deferred rental income, contingent consideration and other liabilities | 5,524 | 3,140 | |||||
Total liabilities | 726,517 | 294,721 | |||||
Commitments and contingencies | |||||||
Redeemable common stock | 8,524 | 1,964 | |||||
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, 67,517,618 and 29,943,549 shares issued and outstanding, respectively | 675 | 299 | |||||
Capital in excess of par value | 592,805 | 264,341 | |||||
Accumulated distributions in excess of earnings | (49,189 | ) | (19,125 | ) | |||
Accumulated other comprehensive loss | (337 | ) | — | ||||
Total stockholders’ equity | 543,954 | 245,515 | |||||
Total liabilities and stockholders’ equity | $ | 1,278,995 | $ | 542,200 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenues: | |||||||||||||||
Rental and other property income | $ | 19,395 | $ | 622 | $ | 29,915 | $ | 622 | |||||||
Tenant reimbursement income | 2,378 | 26 | 3,263 | 26 | |||||||||||
Total revenue | 21,773 | 648 | 33,178 | 648 | |||||||||||
Expenses: | |||||||||||||||
General and administrative expenses | 1,502 | 188 | 2,497 | 223 | |||||||||||
Property operating expenses | 2,598 | 27 | 3,635 | 27 | |||||||||||
Advisory fees and expenses | 2,101 | 90 | 3,290 | 90 | |||||||||||
Acquisition related expenses | 14,551 | 1,949 | 20,190 | 1,949 | |||||||||||
Depreciation | 4,526 | 156 | 6,957 | 156 | |||||||||||
Amortization | 2,546 | 104 | 3,715 | 104 | |||||||||||
Total operating expenses | 27,824 | 2,514 | 40,284 | 2,549 | |||||||||||
Operating loss | (6,051 | ) | (1,866 | ) | (7,106 | ) | (1,901 | ) | |||||||
Other expense: | |||||||||||||||
Interest expense and other | (5,618 | ) | (253 | ) | (8,358 | ) | (253 | ) | |||||||
Total other expense | (5,618 | ) | (253 | ) | (8,358 | ) | (253 | ) | |||||||
Net loss | $ | (11,669 | ) | $ | (2,119 | ) | $ | (15,464 | ) | $ | (2,154 | ) | |||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic and diluted | 56,492,187 | 1,656,485 | 47,032,328 | 838,981 | |||||||||||
Net loss per common share: | |||||||||||||||
Basic and diluted | $ | (0.21 | ) | $ | (1.28 | ) | $ | (0.33 | ) | $ | (2.57 | ) | |||
Distributions declared per common share | $ | 0.16 | $ | 0.16 | $ | 0.31 | $ | 0.31 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net loss | $ | (11,669 | ) | $ | (2,119 | ) | $ | (15,464 | ) | $ | (2,154 | ) | |||
Other comprehensive loss: | |||||||||||||||
Unrealized loss on interest rate swap | (337 | ) | — | (337 | ) | — | |||||||||
Total other comprehensive loss | (337 | ) | — | (337 | ) | — | |||||||||
Total comprehensive loss | $ | (12,006 | ) | $ | (2,119 | ) | $ | (15,801 | ) | $ | (2,154 | ) |
Common Stock | Capital in Excess of Par Value | Accumulated Distributions in Excess of Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||
Number of Shares | Par Value | |||||||||||||||||||||
Balance, January 1, 2013 | 29,943,549 | $ | 299 | $ | 264,341 | $ | (19,125 | ) | $ | — | $ | 245,515 | ||||||||||
Issuance of common stock | 37,584,091 | 376 | 374,560 | — | — | 374,936 | ||||||||||||||||
Distributions to investors | — | — | — | (14,600 | ) | — | (14,600 | ) | ||||||||||||||
Commissions on stock sales and related dealer manager fees | — | — | (32,640 | ) | — | — | (32,640 | ) | ||||||||||||||
Other offering costs | — | — | (6,796 | ) | — | — | (6,796 | ) | ||||||||||||||
Redemptions of common stock | (10,022 | ) | — | (100 | ) | — | — | (100 | ) | |||||||||||||
Changes in redeemable common stock | — | — | (6,560 | ) | — | — | (6,560 | ) | ||||||||||||||
Comprehensive loss | — | — | — | (15,464 | ) | (337 | ) | (15,801 | ) | |||||||||||||
Balance, June 30, 2013 | 67,517,618 | $ | 675 | $ | 592,805 | $ | (49,189 | ) | $ | (337 | ) | $ | 543,954 |
Six Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (15,464 | ) | $ | (2,154 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation | 6,957 | 156 | |||||
Amortization of intangible lease assets and below market lease intangible, net | 3,609 | 94 | |||||
Amortization of deferred financing costs | 1,234 | 37 | |||||
Bad debt expense | 19 | — | |||||
Changes in assets and liabilities: | |||||||
Rents and tenant receivables | (3,802 | ) | (137 | ) | |||
Prepaid expenses and other assets | (222 | ) | — | ||||
Accounts payable and accrued expenses | 4,165 | 358 | |||||
Deferred rental income and other liabilities | 1,496 | 140 | |||||
Due to affiliates | 308 | 130 | |||||
Net cash used in operating activities | (1,700 | ) | (1,376 | ) | |||
Cash flows from investing activities: | |||||||
Investment in real estate assets and capital expenditures | (719,841 | ) | (64,282 | ) | |||
Payment of property escrow deposits | (13,298 | ) | — | ||||
Refund of property escrow deposits | 12,548 | — | |||||
Change in restricted cash | (7,577 | ) | (90 | ) | |||
Net cash used in investing activities | (728,168 | ) | (64,372 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowing facilities and notes payable | 527,491 | 39,460 | |||||
Repayments of borrowing facilities | (124,667 | ) | (11,757 | ) | |||
Proceeds from affiliate line of credit | — | 11,700 | |||||
Repayments of affiliate line of credit | — | (11,700 | ) | ||||
Proceeds from issuance of common stock | 368,276 | 45,071 | |||||
Redemptions of common stock | (100 | ) | — | ||||
Offering costs on issuance of common stock | (37,891 | ) | (4,791 | ) | |||
Distributions to investors | (6,100 | ) | (40 | ) | |||
Payment of loan deposits | (776 | ) | — | ||||
Refund of loan deposits | 596 | — | |||||
Change in escrowed investor proceeds | 5,064 | 90 | |||||
Deferred financing costs paid | (3,697 | ) | (591 | ) | |||
Net cash provided by financing activities | 728,196 | 67,442 | |||||
Net (decrease) increase in cash and cash equivalents | (1,672 | ) | 1,694 | ||||
Cash and cash equivalents, beginning of period | 13,895 | 200 | |||||
Cash and cash equivalents, end of period | $ | 12,223 | $ | 1,894 |
Buildings | 40 years |
Tenant improvements | Lesser of useful life or lease term |
Intangible lease assets | Lease term |
Balance as of June 30, 2013 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Liabilities: | |||||||||||||||
Interest rate swap | $ | (337 | ) | $ | — | $ | (337 | ) | $ | — | |||||
Contingent consideration | (1,259 | ) | — | — | (1,259 | ) | |||||||||
Total liabilities | $ | (1,596 | ) | $ | — | $ | (337 | ) | $ | (1,259 | ) | ||||
Balance as of December 31, 2012 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Liabilities: | |||||||||||||||
Contingent consideration | $ | (708 | ) | $ | — | $ | — | $ | (708 | ) |
June 30, 2013 | |||
Land | $ | 172,326 | |
Building and improvements | 465,897 | ||
Acquired in-place leases | 81,243 | ||
Acquired above market leases | 14,594 | ||
Acquired below market leases | (16,324 | ) | |
Total purchase price | $ | 717,736 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Pro forma basis: | |||||||||||||||
Revenue | $ | 26,406 | $ | 16,540 | $ | 52,706 | $ | 32,392 | |||||||
Net income (loss) | $ | 6,605 | $ | (293 | ) | $ | 15,234 | $ | (16,849 | ) |
June 30, 2012 | |||
Land | $ | 15,644 | |
Building and improvements | 40,871 | ||
Acquired in-place leases | 9,162 | ||
Acquired above market leases | 11 | ||
Acquired below market leases | (1,406 | ) | |
Total purchase price | $ | 64,282 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Pro forma basis: | |||||||||||||||
Revenue | $ | 1,299 | $ | 1,299 | $ | 2,599 | $ | 2,599 | |||||||
Net income (loss) | $ | 247 | $ | 326 | $ | 639 | $ | (1,309 | ) |
Outstanding Notional | Fair Value of Liability | ||||||||||||||||||
Balance Sheet | Amount as of | Interest | Effective | Maturity | June 30, | December 31, | |||||||||||||
Location | June 30, 2013 | Rate (1) | Date | Date | 2013 | 2012 | |||||||||||||
Interest Rate Swap | Deferred rental income, contingent consideration and other liabilities | $ | 23,737 | 4.14% | 6/24/2013 | 6/24/2018 | $ | (337 | ) | $ | — |
(1) | The interest rate consists of the underlying index swapped to a fixed rate and the applicable interest rate spread. |
Amount of Loss Recognized in Other Comprehensive Loss | ||||||||
Three Months Ended | Six Months Ended | |||||||
Derivatives in Cash Flow Hedging Relationships | June 30, 2013 | June 30, 2013 | ||||||
Interest Rate Swap (1) | $ | (337 | ) | $ | (337 | ) |
(1) | There was no portion of the change in the fair value of the interest rate swap agreement that was considered ineffective | ||
during the three and six months ended June 30, 2013. No previously effective portion of the loss that was recorded in | |||
accumulated other comprehensive loss during the term of the hedging relationship was reclassified into earnings | |||
during the three and six months ended June 30, 2013. |
Balance as of | During the Six Months Ended June 30, 2013 | Balance as of | |||||||||||||
December 31, 2012 | Debt Issuance | Repayments | June 30, 2013 | ||||||||||||
Fixed rate debt | $ | 75,000 | $ | 200,595 | $ | — | $ | 275,595 | |||||||
Bridge facility | 62,726 | 188,191 | (81,599 | ) | 169,318 | ||||||||||
Credit facility | 136,868 | 138,705 | (43,068 | ) | 232,505 | ||||||||||
Total | $ | 274,594 | $ | 527,491 | $ | (124,667 | ) | $ | 677,418 |
Six Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Supplemental Disclosures of Non-Cash Investing and Financing Activities: | |||||||
Distributions declared and unpaid | $ | 3,296 | $ | 175 | |||
Accrued other offering costs due to affiliates | $ | 3,206 | $ | — | |||
Accrued capital expenditures | $ | 832 | $ | — | |||
Common stock issued through distribution reinvestment plan | $ | 6,660 | $ | 44 | |||
Net unrealized loss on interest rate swap | $ | (337 | ) | $ | — | ||
Contingent consideration recorded upon property acquisitions | $ | 551 | $ | — | |||
Supplemental Cash Flow Disclosures: | |||||||
Interest paid | $ | 5,754 | $ | 160 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Offering: | |||||||||||||||
Selling commissions | $ | 15,203 | $ | 2,980 | $ | 25,264 | $ | 2,980 | |||||||
Selling commissions reallowed by CCC | $ | 15,203 | $ | 2,980 | $ | 25,264 | $ | 2,980 | |||||||
Dealer manager fees | $ | 4,430 | $ | 905 | $ | 7,376 | $ | 905 | |||||||
Dealer manager fees reallowed by CCC | $ | 2,428 | $ | 318 | $ | 4,050 | $ | 318 | |||||||
Other organization and offering expenses | $ | 3,799 | $ | 906 | $ | 6,796 | $ | 906 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Acquisition and Operations: | |||||||||||||||
Acquisition fees and expenses | $ | 10,982 | $ | 1,304 | $ | 14,967 | $ | 1,304 | |||||||
Advisory fees and expenses | $ | 2,101 | $ | 99 | $ | 3,290 | $ | 99 | |||||||
Operating expenses | $ | 345 | $ | 48 | $ | 851 | $ | 48 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
June 30, | |||||
2013 | 2012 | ||||
Number of commercial properties | 178 | 16 | |||
Approximate rentable square feet (1) | 5.8 million | 283,000 | |||
Percentage of rentable square feet leased | 98.2 | % | 99.6 | % |
(1) | Includes square feet of the buildings on land that are subject to ground leases. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Commercial properties acquired | 57 | 16 | 89 | 16 | |||||||||||
Approximate purchase price of acquired properties | $ | 532.3 million | $ | 64.3 million | $ | 717.7 million | $ | 64.3 million | |||||||
Approximate rentable square feet (1) | 2.3 million | 283,000 | 3.3 million | 283,000 |
(1) | Includes square feet of the buildings on land that are subject to ground leases. |
Payments due by period (1) (2) | ||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
Principal payments — borrowing facilities | $ | 401,823 | $ | 169,318 | $ | 232,505 | $ | — | $ | — | ||||||||||
Interest payments — borrowing facilities (3) | 15,715 | 8,005 | 7,710 | — | — | |||||||||||||||
Principal payments — fixed rate debt (4) | 276,179 | — | — | 23,737 | 252,442 | |||||||||||||||
Interest payments — fixed rate debt | 96,637 | 10,480 | 21,010 | 20,954 | 44,193 | |||||||||||||||
Total | $ | 790,354 | $ | 187,803 | $ | 261,225 | $ | 44,691 | $ | 296,635 | ||||||||||
(1) | The table does not include amounts due to CR IV Advisors or its affiliates pursuant to our advisory agreement because such amounts are not fixed and determinable. |
(2) | As of June 30, 2013, we had $23.7 million of variable rate debt effectively fixed through the use of an interest rate swap agreement. We used the effective interest rate fixed under our swap agreement to calculate the debt payment obligations in future periods. |
(3) | Payment obligations under the Credit Facility and the Bridge Facility are based on interest rates in effect as of June 30, 2013 of 2.90% and 3.14%, respectively. |
(4) | The fixed rate debt includes bond obligations assumed in connection with a property acquisition with an aggregate balance of $584,000. They are included in the accompanying condensed consolidated unaudited balance sheets in deferred rental income, contingent consideration and other liabilities. |
• | Investment in and Valuation of Real Estate Assets; |
• | Allocation of Purchase Price of Real Estate Assets; |
• | Derivative Instruments and Hedging Activities; |
• | 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 |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
Cole Credit Property Trust IV, Inc. | ||
(Registrant) | ||
By: | /s/ Simon J. Misselbrook | |
Simon J. Misselbrook | ||
Senior Vice President of Accounting | ||
(Principal Accounting Officer) |
Exhibit No. | Description |
3.1 | First Articles of Amendment and Restatement of Cole Credit Property Trust IV, Inc. (Incorporated by reference to Exhibit 3.4 to the Company’s pre-effective amendment to Form S-11 (File No. 333-169533), filed January 24, 2012). |
3.2 | Bylaws of Cole Credit Property Trust IV, Inc. (Incorporated by reference to Exhibit 3.5 to the Company’s pre-effective amendment to Form S-11 (File No. 333-169533), filed January 24, 2012). |
3.3 | Certificate of Correction to the First Articles of Amendment and Restatement of Cole Credit Property Trust IV, Inc. (Incorporated by reference to Exhibit 3.6 to the Company’s pre-effective amendment to Form S-11 (File No. 333-169533), filed January 24, 2012). |
3.4 | Articles of Amendment of First Article of Amendment and Restatement of Cole Credit Property Trust IV, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K (File No. 333-169533), filed February 27, 2012). |
3.5 | First Amendment to the Bylaws of Cole Credit Property Trust IV, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K (File No. 333-169533), filed June 27, 2012). |
3.6 | Certificate of Correction to First Articles of Amendment and Restatement, dated January 25, 2013 (Incorporated by reference to Exhibit 3.6 to the Company’s Annual Report on Form 10-K (File No. 333-169533), filed effective as of March 29, 2013). |
4.1 | Form of Initial Subscription Agreement (Incorporated by reference to Exhibit 4.1 to the Company’s post-effective amendment to Form S-11 (File No. 333-169533), filed July 10, 2013). |
4.2 | Form of Additional Subscription Agreement (Incorporated by reference to Exhibit 4.2 to the Company’s post-effective amendment to Form S-11 (File No. 333-169533), filed July 10, 2013). |
4.3 | Alternative Form of Initial Subscription Agreement (Incorporated by reference to Exhibit 4.3 to the Company’s post-effective amendment to Form S-11 (File No. 333-169533), filed July 10, 2013). |
4.4 | Form of Initial Subscription Agreement (Alabama Investors) (Incorporated by reference to Exhibit 4.4 to the Company’s post-effective amendment to Form S-11 (File No. 333-169533), filed July 10, 2013). |
4.5 | Form of Additional Subscription Agreement (Alabama Investors) (Incorporated by reference to Exhibit 4.5 to the Company’s post-effective amendment to Form S-11 (File No. 333-169533), filed July 10, 2013). |
4.6 | Alternative Form of Additional Subscription Agreement (Incorporated by reference to Exhibit 4.6 to the Company’s post-effective amendment to Form S-11 (File No. 333-169533), filed July 10, 2013). |
10.1 | Loan Agreement dated April 15, 2013 between Cole MT San Jose CA, LP as Borrower and Wells Fargo Bank, National Association as Lender (Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q (File No. 333-169533), filed May 14, 2013). |
10.2* | Second Modification Agreement, dated May 3, 2013, by and among Cole Operating Partnership IV, LP, JPMorgan Chase Bank N.A. and Bank of America, N.A. |
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. |
PARTIES: | Borrower: COLE OPERATING PARTNERSHIP IV, LP, a Delaware limited partnership |
SECTION 1. | ACCURACY OF RECITALS. |
SECTION 2. | MODIFICATION OF LOAN DOCUMENTS. |
SECTION 3. | RATIFICATION OF LOAN DOCUMENTS. |
SECTION 4. | BORROWER REPRESENTATIONS AND WARRANTIES. |
SECTION 5. | CONDITIONS PRECEDENT. |
SECTION 6. | INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. |
SECTION 7. | BINDING EFFECT. |
SECTION 8. | CHOICE OF LAW. |
SECTION 9. | COUNTERPART EXECUTION. |
By: | Cole Credit Property Trust IV, Inc., a Maryland corporation, its general partner |
/s/ D. Kirk McAllaster, Jr. | |
Name: | D. Kirk McAllaster, Jr. |
Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
/s/ Ryan M. Dempsey | |
Name: | Ryan M. Dempsey |
Title: | Authorized Officer |
/s/ Ryan M. Dempsey | |
Name: | Ryan M. Dempsey |
Title: | Authorized Officer |
/s/ James P. Johnson | |
Name: | James P. Johnson |
Title: | Senior Vice President |
1. | I have reviewed this Quarterly Report on Form 10-Q of Cole Credit Property Trust IV, 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: |
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): |
Date: | August 12, 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 Credit Property Trust IV, 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: |
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): |
Date: | August 12, 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 12, 2013 | Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
Economic Dependency
|
6 Months Ended |
---|---|
Jun. 30, 2013
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Economic Dependency [Abstract] | |
ECONOMIC DEPENDENCY | ECONOMIC DEPENDENCY Under various agreements, the Company has engaged or will engage CR IV Advisors and its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon CR IV Advisors and its affiliates. In the event that these companies are unable to provide the Company with these services, the Company would be required to find alternative providers of these services. |
Condensed Consolidated Statement of Operations (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
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Revenues: | ||||
Rental and other property income | $ 19,395 | $ 622 | $ 29,915 | $ 622 |
Tenant reimbursement income | 2,378 | 26 | 3,263 | 26 |
Total revenue | 21,773 | 648 | 33,178 | 648 |
Expenses: | ||||
General and administrative expenses | 1,502 | 188 | 2,497 | 223 |
Property operating expenses | 2,598 | 27 | 3,635 | 27 |
Advisory fees and expenses | 2,101 | 90 | 3,290 | 90 |
Acquisition related expenses | 14,551 | 1,949 | 20,190 | 1,949 |
Depreciation | 4,526 | 156 | 6,957 | 156 |
Amortization | 2,546 | 104 | 3,715 | 104 |
Total operating expenses | 27,824 | 2,514 | 40,284 | 2,549 |
Operating loss | (6,051) | (1,866) | (7,106) | (1,901) |
Other expense: | ||||
Interest expense and other | (5,618) | (253) | (8,358) | (253) |
Total other expense | (5,618) | (253) | (8,358) | (253) |
Net loss | $ (11,669) | $ (2,119) | $ (15,464) | $ (2,154) |
Weighted average number of common shares outstanding: | ||||
Basic and diluted (in shares) | 56,492,187 | 1,656,485 | 47,032,328 | 838,981 |
Net loss per common share: | ||||
Basic and diluted (in dollars per shares) | $ (0.21) | $ (1.28) | $ (0.33) | $ (2.57) |
Distributions declared per common share | $ 0.16 | $ 0.16 | $ 0.31 | $ 0.31 |
Fair Value Measurements
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | 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 and restricted cash – The Company considers the carrying values of these financial assets to approximate fair value because of the short period of time between their origination and their expected realization. Borrowing facilities and notes payable – 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. As of June 30, 2013, the estimated fair value of the Company’s debt was $662.9 million compared to the carrying value of $677.4 million. The estimated fair value of the Company’s debt was $274.6 million as of December 31, 2012, which approximated the carrying value on such date. The fair value of the Company’s debt is estimated using Level 2 inputs. Derivative instruments – The Company’s derivative instrument represents an interest rate swap. The derivative instrument is carried at fair value and is valued using Level 2 inputs. The fair value of this instrument is determined using interest rate market pricing models. The Company includes the impact of the credit valuation adjustments on the derivative instrument measured at fair value. Contingent consideration arrangements – The contingent consideration arrangements are carried at fair value and are valued using Level 3 inputs. The fair value of the Contingent Payments is determined based on the estimated timing and probability of the seller leasing vacant space subsequent to the Company’s acquisition of certain properties. During the six months ended June 30, 2013, the Company recorded additional obligations with an aggregate estimated fair value of $551,000 upon purchase of certain properties. The total estimated fair value of contingent consideration arrangements was $1.3 million and $708,000 as of June 30, 2013 and December 31, 2012, respectively, and is included in the accompanying condensed consolidated unaudited balance sheets in deferred rental income, contingent consideration and other liabilities. In addition, during the six months ended June 30, 2013, no obligations outstanding under any of the contingent consideration arrangements were satisfied or adjusted. 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. In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial liabilities that are required to be measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):
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Borrowing Facilities and Notes Payable (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of debt | The following table summarizes the debt activity during the six months ended June 30, 2013 (in thousands):
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Subsequent Events
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS Status of the Offering Subsequent to June 30, 2013 through August 8, 2013, the Company received $248.2 million in gross offering proceeds through the issuance of approximately 24.9 million shares of its common stock in the Offering (including shares issued pursuant to the DRIP). As of August 8, 2013, the Company had received $921.6 million in gross offering proceeds through the issuance of approximately 92.4 million shares of its common stock in the Offering (including shares issued pursuant to the DRIP). Borrowing Facilities Subsequent to June 30, 2013, the Company entered into an amended agreement related to the Bridge Facility, which increased the maximum allowable borrowings to $350.0 million. As of August 8, 2013, the Company had $197.0 million outstanding under the Credit Facility and $150.0 million outstanding under the Bridge Facility. Investment in Real Estate Assets Subsequent to June 30, 2013 through August 8, 2013, the Company acquired 18 commercial real estate properties for an aggregate purchase price of $140.3 million and an $18.7 million interest in a joint venture arrangement that acquired one multi-tenant property. The acquisitions were funded with net proceeds of the Offering and available borrowings. Acquisition related expenses totaling $3.8 million were expensed as incurred. |
Organization and Business (Details) (USD $)
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6 Months Ended | 15 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
Property
sqft
|
Dec. 31, 2012
|
Jun. 30, 2013
Initial public offering
|
Apr. 13, 2012
Initial public offering
|
Jan. 26, 2012
Initial public offering
|
Jan. 26, 2012
Distribution reinvestment plan
Initial public offering
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Jan. 26, 2012
Maximum
Initial public offering
|
Jun. 30, 2013
CCPT IV OP
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Organization and business [Line Items] | ||||||||
General partner partnership interest percentage | 100.00% | |||||||
Common stock, shares authorized (in shares) | 490,000,000 | 490,000,000 | 50,000,000 | 250,000,000 | ||||
Share price (in dollars per share) | $ 10 | $ 9.50 | ||||||
Common stock, shares issued (in shares) | 67,517,618 | 29,943,549 | 308,000 | |||||
Issuance of common stock, shares (in shares) | 67,500,000 | |||||||
Issuance of common stock | $ 374,936,000 | $ 673,400,000 | ||||||
Offering costs, selling commissions, and dealer management fees | $ 71,500,000 | |||||||
Number of owned properties (in number of properties) | 178 | |||||||
Rentable square feet (in square feet) | 5,800,000 | |||||||
Number of states in which entity owns properties (in number of states) | 32 | |||||||
Percentage of rentable space leased | 98.00% |
Related-Party Transactions and Arrangements - (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of related party transactions | The Company incurred commissions, fees and expense reimbursements as shown in the table below for services provided by CR IV Advisors or its affiliates related to the services described above during the periods indicated (in thousands):
The Company recorded fees and expense reimbursements as shown in the table below for services provided by CR IV Advisors or its affiliates related to the services described above during the periods indicated (in thousands):
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Supplemental Cash Flow Disclosures (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
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Jun. 30, 2012
|
Dec. 31, 2012
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Supplemental Cash Flow Elements [Abstract] | |||||
Distributions declared and unpaid | $ 3,296 | $ 175 | $ 3,296 | $ 175 | $ 1,456 |
Accrued other offering costs due to affiliates | 3,206 | 0 | |||
Accrued capital expenditures | 832 | 0 | |||
Common stock issued through distribution reinvestment plan | 6,660 | 44 | |||
Net unrealized loss on interest rate swap | (337) | 0 | (337) | 0 | |
Contingent consideration recorded upon property acquisitions | 551 | 0 | 551 | 0 | |
Supplemental Cash Flow Disclosures: | |||||
Interest paid | $ 5,754 | $ 160 |
Real Estate Acquisitions (Details) (USD $)
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3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||||||||||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
2013 acquisitions
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Jun. 30, 2012
2013 acquisitions
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Jun. 30, 2013
2013 acquisitions
Property
|
Jun. 30, 2012
2013 acquisitions
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Jun. 30, 2013
2013 acquisitions
Acquired-in-place leases
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Jun. 30, 2013
2013 acquisitions
Acquired above-market leases
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Jun. 30, 2013
2013 acquisitions
Acquired below-market leases
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Jun. 30, 2012
2012 acquisitions
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Jun. 30, 2011
2012 acquisitions
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Jun. 30, 2012
2012 acquisitions
Property
|
Jun. 30, 2011
2012 acquisitions
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Jun. 30, 2012
2012 acquisitions
Acquired-in-place leases
|
Jun. 30, 2012
2012 acquisitions
Acquired above-market leases
|
Jun. 30, 2012
2012 acquisitions
Acquired below-market leases
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Business Acquisition [Line Items] | ||||||||||||||||||
Number of businesses acquired (in properties) | 89 | 16 | ||||||||||||||||
Total purchase price | $ 717,700,000 | $ 64,300,000 | ||||||||||||||||
Business Acquisition, Purchase Price Allocation [Abstract] | ||||||||||||||||||
Land | 172,326,000 | 172,326,000 | 15,644,000 | 15,644,000 | ||||||||||||||
Buildings and improvements | 465,897,000 | 465,897,000 | 40,871,000 | 40,871,000 | ||||||||||||||
Acquired finite-lived intangible asset - leases, amount | 81,243,000 | 14,594,000 | 9,162,000 | 11,000 | ||||||||||||||
Acquired below-market leases | (16,324,000) | (1,406,000) | ||||||||||||||||
Total purchase price | 717,736,000 | 717,736,000 | 64,282,000 | 64,282,000 | ||||||||||||||
Revenue of acquiree since acquisition date | 11,300,000 | 12,200,000 | 648,000 | 648,000 | ||||||||||||||
Loss of acquiree since acquisition date | 10,900,000 | 16,200,000 | 1,900,000 | 1,900,000 | ||||||||||||||
Pro forma basis (unaudited) | ||||||||||||||||||
Revenue | 26,406,000 | 16,540,000 | 52,706,000 | 32,392,000 | 1,299,000 | 1,299,000 | 2,599,000 | 2,599,000 | ||||||||||
Net income | 6,605,000 | (293,000) | 15,234,000 | (16,849,000) | 247,000 | 326,000 | 639,000 | (1,309,000) | ||||||||||
Acquisition costs | $ 14,551,000 | $ 1,949,000 | $ 20,190,000 | $ 1,949,000 | $ 14,600,000 | $ 20,200,000 | $ 1,900,000 | $ 1,900,000 |
Supplemental Cash Flow Disclosures (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of cash flow, supplemental disclosures | Supplemental cash flow disclosures for the six months ended June 30, 2013 and 2012 are as follows (in thousands):
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Condensed Consolidated Statements of Stockholder's Equity (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified |
Total
|
Common Stock
|
Capital in Excess of Par Value
|
Accumulated Distributions in Excess of Earnings
|
Accumulated Other Comprehensive Loss
|
---|---|---|---|---|---|
Balance at Dec. 31, 2012 | $ 245,515 | $ 299 | $ 264,341 | $ (19,125) | $ 0 |
Balance, shares at Dec. 31, 2012 | 29,943,549 | 29,943,549 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Issuance of common stock, shares | 37,584,091 | ||||
Issuance of common stock | 374,936 | 376 | 374,560 | ||
Distributions to investors | (14,600) | (14,600) | |||
Commissions on stock sales and related dealer manager fees | (32,640) | (32,640) | |||
Other offering costs | (6,796) | (6,796) | |||
Redemptions of common stock, shares | (10,022) | ||||
Redemptions of common stock, value | (100) | (100) | |||
Changes in redeemable common stock | (6,560) | (6,560) | |||
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent | (15,801) | (15,464) | (337) | ||
Balance at Jun. 30, 2013 | $ 543,954 | $ 675 | $ 592,805 | $ (49,189) | $ (337) |
Balance, shares at Jun. 30, 2013 | 67,517,618 | 67,517,618 |
Organization and Business
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND BUSINESS | ORGANIZATION AND BUSINESS Cole Credit Property Trust IV, Inc. (the “Company”) was formed on July 27, 2010 and is a Maryland corporation that intends to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the year ended December 31, 2012. The Company is the sole general partner of and owns, directly or indirectly, 100% of the partnership interest in Cole Operating Partnership IV, LP, a Delaware limited partnership (“CCPT IV OP”). The Company is externally managed by Cole REIT Advisors IV, LLC (“CR IV 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, CR IV Advisors and the Company’s dealer manager are wholly-owned by CREI. On January 26, 2012, pursuant to a Registration Statement on Form S-11 (Registration No. 333-169533) (the “Registration Statement”) filed under the Securities Act of 1933, as amended (the “Securities Act”), the Company commenced its initial public offering on a “best efforts” basis of up to a maximum of 250.0 million shares of its common stock at a price of $10.00 per share, subject to reduction in certain circumstances, and up to 50.0 million additional shares to be issued pursuant to a distribution reinvestment plan (the “DRIP”) under which the Company’s stockholders may elect to have distributions reinvested in additional shares of common stock at a price of $9.50 per share (the “Offering”). On April 13, 2012, the Company issued approximately 308,000 shares of its common stock in the Offering and commenced principal operations. As of June 30, 2013, the Company had issued approximately 67.5 million shares of its common stock in the Offering for gross offering proceeds of $673.4 million before offering costs, selling commissions and dealer manager fees of $71.5 million. The Company intends to continue to use substantially all of the net proceeds from the Offering to acquire and operate a diversified portfolio of core commercial real estate investments primarily consisting of necessity retail properties located throughout the United States, including U.S. protectorates. The Company expects that the retail properties primarily will be single-tenant properties and multi-tenant “power centers” anchored by large, creditworthy national or regional retailers. The Company expects that the retail properties typically will be subject to long-term triple net or double net leases, whereby the tenant will be obligated to pay for most of the expenses of maintaining the property. As of June 30, 2013, the Company owned 178 properties, comprising 5.8 million rentable square feet of commercial space located in 32 states. As of June 30, 2013, the rentable space at these properties was 98% leased. |
Real Estate Acquisitions
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Jun. 30, 2013
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REAL ESTATE ACQUISITIONS | REAL ESTATE ACQUISITIONS 2013 Property Acquisitions During the six months ended June 30, 2013, the Company acquired 89 commercial properties for an aggregate purchase price of $717.7 million (the “2013 Acquisitions”). The Company purchased the 2013 Acquisitions with net proceeds from the Offering and available borrowings. 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 (in thousands):
The Company recorded revenue for the three and six months ended June 30, 2013 of $11.3 million and $12.2 million, respectively, and a net loss for the three and six months ended June 30, 2013 of $10.9 million and $16.2 million, respectively, related to the 2013 Acquisitions. 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 (loss), on a pro forma basis, for the three and six months ended June 30, 2013 and 2012, respectively (in thousands):
The pro forma information for the three and six months ended June 30, 2013 was adjusted to exclude $14.6 million and $20.2 million, respectively, of acquisition costs recorded during such period 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 2012, nor does it purport to represent the results of future operations. 2012 Property Acquisitions During the six months ended June 30, 2012, the Company acquired 16 commercial properties for an aggregate purchase price of $64.3 million (the “2012 Acquisitions”). The Company purchased the 2012 Acquisitions with net proceeds from the Offering and available borrowings. 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 (in thousands):
The Company recorded revenue for the three and six months ended June 30, 2012 of $648,000 and a net loss for the three and six months ended June 30, 2012 of $1.9 million related to 2012 Acquisitions. The following information summarizes selected financial information of the Company as if all of the 2012 Acquisitions were completed on January 1, 2011 for each period presented below. The table below presents the Company’s estimated revenue and net income (loss), on a pro forma basis, for the three and six months ended June 30, 2012 and 2011, respectively (in thousands):
The pro forma information for the three and six months ended June 30, 2012 was adjusted to exclude $1.9 million of acquisition costs recorded during the current period related to the 2012 Acquisitions. These costs were recognized in the pro forma information for the six months ended June 30, 2011. 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 2011, nor does it purport to represent the results of future operations. |
Summary of Significant Accounting Policies
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6 Months Ended | ||||||||||
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Jun. 30, 2013
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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 Assets Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate 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 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 assets, other than land, are depreciated or amortized on a straight-line basis. The estimated useful lives of the Company’s real estate 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 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 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 and 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 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 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 has acquired, and may continue to acquire, certain properties subject to contingent consideration arrangements that may obligate the Company to pay additional consideration to the seller based on the outcome of future events (the “Contingent Payments”). Additionally, the Company may acquire certain properties for which it funds certain contingent consideration amounts into an escrow account pending the outcome of certain future events. The outcome may result in the release of all or a portion of the escrow funds to the Company, the seller or a combination thereof. Contingent consideration arrangements are based on a predetermined formula and have set time periods regarding the obligation to make future payments, including funds released to the seller from escrow accounts, or the right to receive escrowed funds as set forth in the respective purchase and sale agreement. Contingent consideration arrangements, including amounts funded through an escrow account, are recorded upon acquisition of the respective property at their estimated fair value, and any changes to the estimated fair value, subsequent to acquisition, are reflected in the accompanying condensed consolidated unaudited statements of operations. The determination of the amount of contingent consideration arrangements is based on the probability of several possible outcomes as identified by management. The respective amounts recorded are carried at fair value. 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 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. Restricted Cash and Escrows Included in restricted cash was $5.6 million and $523,000 of escrowed investor proceeds for which shares of common stock had not been issued as of June 30, 2013 and December 31, 2012, respectively. In addition, the Company had $2.0 million held by lenders in a lockbox account, as of June 30, 2013. As part of certain debt agreements, rents from certain encumbered properties are deposited directly into a lockbox account, from which the monthly debt service payment is disbursed to the lender and the excess is disbursed to the Company. Also included in restricted cash was $485,000 in restricted cash as of June 30, 2013 held by lenders in escrow accounts for tenant and capital improvements, leasing commissions, repairs and maintenance and other lender reserves for certain properties, in accordance with the respective lender’s loan agreement. There were no amounts held by lenders as of December 31, 2012. Concentration of Credit Risk As of June 30, 2013, the Company had cash on deposit, including restricted cash, in five financial institutions, four of which had deposits in excess of federally insured levels totaling $19.3 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, no single tenant accounted for greater than 10% of the Company’s 2013 gross annualized rental revenues. The Company had certain geographic concentrations in its property holdings. In particular, as of June 30, 2013, one of the Company’s properties was located in California, seven were located in New York and 11 were located in Georgia, which accounted for 17%, 13% and 10%, respectively, of the Company’s 2013 gross annualized rental revenues. In addition, the Company had tenants in the discount store, restaurant, convenience store and home and garden industries, which comprised 11%, 10%, 10% and 10%, respectively, of the Company’s 2013 gross annualized rental revenues. Offering and Related Costs CR IV Advisors funds all of the organization and offering costs on the Company’s behalf (excluding selling commissions and the dealer manager fees) and may be reimbursed for such costs up to 2.0% of gross proceeds from the Offering. As of June 30, 2013, CR IV Advisors had paid organization and offering costs in excess of the 2.0% 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 2.0% of gross proceeds from the Offering. As the Company raises additional proceeds from the Offering, these costs may become payable. When recorded by the Company, organization costs are expensed as incurred and offering costs, which include items such as legal and accounting fees, marketing and personnel, promotional and printing costs, are recorded as a reduction of capital in excess of par value along with selling commissions and dealer manager fees in the period in which they become payable. Derivative Instruments and Hedging Activities The Company accounts for its derivative instruments at fair value. Accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the designation of the derivative instrument. The change in fair value of the effective portion of the derivative instrument that is designated as a hedge is recorded as other comprehensive income (loss). The changes in fair value for derivative instruments that are not designated as a hedge or that do not meet the hedge accounting criteria are recorded as a gain or loss to operations. Due to Affiliates Certain affiliates of CR IV Advisors received, and will continue to receive, fees, reimbursements and compensation in connection with services provided relating to the Offering and the acquisition, management, financing and leasing of the properties of the Company. Redeemable Common Stock Under the Company’s share redemption program, the Company’s requirement to redeem shares of its outstanding common stock is limited, among other things, to the net proceeds received by the Company from the sale of shares under the DRIP, net of shares redeemed to date. The Company records amounts that are redeemable under the share redemption program as redeemable common stock outside of permanent equity in the accompanying condensed consolidated unaudited balance sheets. Changes in the amount of redeemable common stock from period to period are recorded as an adjustment to capital in excess of par value. New 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 (loss) and notes to the financial statements. |
Summary of Significant Accounting Policies - Narative (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |||||||
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Jun. 30, 2013
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Dec. 31, 2012
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Jun. 30, 2013
Advisors
Other organization and offering expenses
Maximum
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Jun. 30, 2013
Restricted cash, investor proceeds for which shares of common stock had not been issued
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Dec. 31, 2012
Restricted cash, investor proceeds for which shares of common stock had not been issued
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Jun. 30, 2013
Restricted cash, rents from certain encumbered properties
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Jun. 30, 2013
Restricted cash, tenant and capital improvements, leasing commissions, repairs and maintenance and other lender reserves for certain properties
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Jun. 30, 2013
Building
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Valuation of real estate and related assets [Line Items] | ||||||||
Restricted cash | $ 8,100 | $ 523 | $ 5,600 | $ 523 | $ 2,000 | $ 485 | ||
Acquired real estate asset, useful life | 40 years | |||||||
Organization and offering expense | 2.00% |
Derivative Instrument (Details) (Interest Rate Swap, USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||||||||
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Jun. 30, 2013
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Jun. 30, 2013
Cash flow hedging
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Jun. 30, 2013
Cash flow hedging
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Jun. 30, 2013
Cash flow hedging
Deferred rental income, contingent consideration and other liabilities
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Dec. 31, 2012
Cash flow hedging
Deferred rental income, contingent consideration and other liabilities
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Derivatives, Fair Value [Line Items] | |||||||||||
Outstanding Notional Amount | $ 23,737 | $ 23,737 | |||||||||
Interest Rate | 4.14% | [1] | |||||||||
Effective Date | Jun. 24, 2013 | ||||||||||
Maturity Date | Jun. 24, 2018 | ||||||||||
Fair Value of Liability | (337) | 0 | |||||||||
Amount of Loss Recognized in Other Comprehensive Loss | $ (337) | $ (337) | [2] | ||||||||
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Subsequent Events - (Details) (USD $)
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3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 1 Months Ended | 16 Months Ended | 1 Months Ended | |||||||||||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Dec. 31, 2012
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Jun. 30, 2013
2013 acquisitions
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Jun. 30, 2013
2013 acquisitions
Property
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Jun. 30, 2013
Bridge loan
JPMorgan chase, bridge facility
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Dec. 31, 2012
Bridge loan
JPMorgan chase, bridge facility
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Jun. 30, 2013
Credit facility
Line of credit
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Jun. 30, 2013
Credit facility
Line of credit
JPMorgan chase, revolving credit facility
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Dec. 31, 2012
Credit facility
Line of credit
JPMorgan chase, revolving credit facility
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Aug. 08, 2013
Subsequent event
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Aug. 08, 2013
Subsequent event
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Aug. 08, 2013
Subsequent event
2013 acquisitions
Property
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Aug. 08, 2013
Subsequent event
Consolidated joint venture
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Aug. 08, 2013
Subsequent event
Bridge loan
JPMorgan chase, bridge facility
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Aug. 08, 2013
Subsequent event
Credit facility
Line of credit
JPMorgan chase, revolving credit facility
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Subsequent Event | ||||||||||||||||||
Issuance of common stock | $ 374,936,000 | $ 248,200,000 | $ 921,600,000 | |||||||||||||||
Issuance of common stock, shares (in shares) | 24,900,000 | 92,400,000 | ||||||||||||||||
Line of credit facility, borrowing capacity | 250,000,000.0 | 350,000,000.0 | ||||||||||||||||
Line of credit facility, amount outstanding | 150,000,000 | |||||||||||||||||
Debt, long-term and short-term, combined amount | 677,418,000 | 677,418,000 | 274,594,000 | 169,318,000 | 62,726,000 | 232,505,000 | 136,868,000 | 197,000,000 | ||||||||||
Number of businesses acquired (in properties) | 89 | 18 | ||||||||||||||||
Total purchase price | 717,700,000 | 140,300,000 | 18,700,000 | |||||||||||||||
Acquisition costs | $ 14,551,000 | $ 1,949,000 | $ 20,190,000 | $ 1,949,000 | $ 14,600,000 | $ 20,200,000 | $ 3,800,000 |