Note 2 — Restatement of Previously Issued Financial Statements

The Company has restated its consolidated balance sheets as of June 30, 2014 and December 31, 2013 and its consolidated statements of operations and consolidated statements of comprehensive loss for the three and six months ended June 30, 2014 and 2013. In addition, the Company has restated its consolidated statements of changes in equity and consolidated statements of cash flows for the three and six months ended June 30, 2014 and 2013, along with certain related notes to such restated consolidated financial statements. In addition, the December 31, 2013 and June 30, 2013 balance sheets, as disclosed in Note 3 — Mergers and Acquisitions (As Restated), have also been recast in applying the carryover basis of accounting to include the effects of the merger with American Realty Capital Trust IV, Inc. (“ARCT IV”).

The Company determined that the restatement was necessary after an investigation was conducted by the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) with the assistance of independent counsel and forensic accountants. The Audit Committee initiated the investigation in response to concerns regarding accounting practices and other matters that were first reported to it on September 7, 2014. The restatement corrects errors that were identified as a result of the investigation, as well as certain other errors that were identified by the Company. In addition, the restatement reflects corrections of certain immaterial errors and certain previously identified errors that were identified by the Company in the normal course of business and were determined to be immaterial, both individually and in the aggregate, when the consolidated financial statements for the three and six months ended June 30, 2014 were originally issued. In connection with the restatement, the Company has determined that it would be appropriate to correct such errors.

Year ended December 31, 2013 Error Corrections

Corrections to the Company’s consolidated financial statements for the year ended December 31, 2013 are disclosed within Amendment No. 2 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the U.S. Securities and Exchange Commission (“SEC”) (the “Amended 10-K”). The corrections reported in the Amended 10-K relate primarily to bonus accruals, real estate impairments, goodwill, merger and acquisition related expenses, transfer tax accrual and the accounting and reporting of non-controlling interests.

Three Months Ended and Six Months Ended June 30, 2013 Error Corrections

Merger and Other Non-routine Transaction Related

In light of findings of the investigation conducted by the Audit Committee, the Company performed an internal review of all acquisition, merger and other non-routine transaction related expenses. The work resulted in the identification of the following errors:

•

The Company identified $13.0 million of management fees that were improperly classified as merger and other non-routine transaction related expenses. Such amounts have been properly classified as management fees to affiliates for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013.

•

Upon consummation of the ARCT III Merger (as defined in Note 3 — Mergers and Acquisitions (As Restated)), the OP entered into an agreement with an affiliate to acquire certain furniture, fixtures, equipment (“FF&E”) and other assets. The Company originally capitalized $4.1 million of FF&E costs and expensed $1.7 million of costs during the six months ended June 30, 2013. The Company has concluded that there was no evidence of the receipt and it could not support the value of the FF&E. As such, the Company has expensed the amount originally capitalized and recognized the expense in merger and other non-routine transaction related expense for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013. See Note 20 — Related Party Transactions and Arrangements (As Restated) for further discussion.

•

The Company has determined that it should have recorded a controlling interest transfer tax liability totaling $1.1 million upon consummation of the ARCT III Merger (each, as defined in Note 3 — Merger and Acquisitions (As Restated)). The accrual and corresponding merger and other non-routine transaction related expense are recorded for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013.

•

The Company identified $1.0 million of costs during the six months ended June 30, 2013 that were improperly classified as merger and other non-routine transaction related expenses that should have been capitalized as deferred financing costs and amortized accordingly. As such, an adjustment to properly record and amortize the deferred financing costs has been made for the six months ended June 30, 2013. As a result of capitalizing these deferred financing costs, additional interest expense of $0.6 million was recorded for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013.

•

During the three and six months ended June 30, 2013, the Company improperly classified $0.4 million and $5.9 million, respectively, as “merger-related.” As restated, the amounts have been reclassified from merger and other non-routine transaction related expenses to general and administrative expenses.

•

The Company identified a net amount of $87,000 of merger and other non-routine transaction related expenses that were improperly recorded in each of the three and six months ended June 30, 2013. As such, the Company properly decreased merger and other non-routine transaction related expense by this amount in the period.

The Company has updated the caption from “merger and other transaction related” to “merger and other non-routine transactions” to appropriately include non-recurring costs that may not have been incurred solely for a merger transaction. See Note 4 — Summary of Significant Accounting Policies (As Restated) for a further breakout of the merger costs and other non-routine transactions.

In addition, the Company has included $3.5 million and $4.3 million during the three and six months ended June 30, 2013, respectively, in equity-based compensation that was previously reported on a separate line item, within general and administrative expenses.

Operating Fees to Affiliate

The Company identified $0.5 million of operating fees to affiliate was incorrectly recorded in the six months ended June 30, 2013. Therefore, the Company decreased operating fees to affiliate by this amount. No such expenses were identified in the three months ended June 30, 2013.

This line item caption has been updated to “management fees to affiliates” in the accompanying consolidated statements of operations.

Net Loss Attributable to Non-controlling Interests

The original calculation of the net loss attributable to non-controlling interest holders for the six months ended June 30, 2013 excluded expenses that were improperly recorded at the Company level. These expenses were incurred by the OP, and therefore should have been included in the Company’s determination of the net loss attributable to its non-controlling interest holders. In addition, the net loss attributable to the non-controlling interest holders has been adjusted to reflect the impact of the cumulative restatement adjustments discussed and presented herein. As a result, the Company recorded an adjustment of $2.2 million for the three months ended June 30, 2013 and $3.8 million for the six months ended June 30, 2013 for net loss attributable to non-controlling interest holders.

Three Months Ended and Six Months Ended June 30, 2014 Error Corrections

Merger and Other Non-routine Transaction Related

In light of the findings of the investigation conducted by the Audit Committee, the Company performed an internal review of all acquisition, merger and other non-routine transaction related expenses. The work resulted in the identification of the following errors:

•

The Company identified a net amount of $16.1 million of merger and other non-routine transaction related expenses that were improperly recorded in the three months ended March 31, 2014. Of this amount, a net amount of $14.5 million has been properly recorded in the year ended December 31, 2013 and a net amount of $1.6 million has been properly recorded in the three months ended June 30, 2014. Additional expenses of $1.2 million were identified and recorded in the three months ended June 30, 2014. These adjustments resulted in a net decrease in merger and other non-routine transaction related expenses of $13.4 million for the six months ended June 30, 2014.

•

Upon consummation of the ARCT IV Merger (as defined in Note 3 — Mergers and Acquisitions (As Restated)), the OP entered into an agreement with an affiliate to acquire certain furniture, fixtures, equipment (“FF&E”) and other assets. The Company originally capitalized $2.1 million of FF&E costs during the six months ended June 30, 2014. The Company has concluded that there was no evidence of the receipt and it could not support the value of the FF&E. As such, the Company has expensed the amount originally capitalized and recognized the expense in merger and other non-routine transaction related expense for the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014. See Note 20 — Related Party Transactions and Arrangements for further discussion.

•

The Company identified $0.8 million and $21.3 million of costs during the three and six months ended June 30, 2014, respectively, that were improperly classified as merger and other non-routine transaction related expense that should have been capitalized as deferred financing costs and amortized accordingly. As such, an adjustment to properly record and amortize the deferred financing costs has been made for the three and six months ended June 30, 2014. As a result of capitalizing these deferred financing costs, additional interest expense of $1.3 million and $10.0 million and extinguishment of debt expense of $0.9 million and $3.2 million was recorded for the three and six months ended June 30, 2014, respectively.

•

The Company identified $1.4 million of merger and other non-routine transaction related expenses that should have been classified as loss on disposition of properties. Such amount has been properly classified for the three and six months ended June 30, 2014.

•

The Company improperly classified $5.2 million and $14.5 million of expenses in the three and six months ended June 30, 2014, respectively, as merger related. However, the Company has determined that such amounts should have been accounted for as general and administrative expenses for the respective periods.

•

The Company identified $13.8 million of management fees that were improperly classified as merger and other non-routine transaction related expenses. Such amounts have been properly classified as management fees to affiliates for the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

•

Upon consummation of the ARCT III Merger and CapLease Merger (each, as defined in Note 3 – Merger and Acquisitions (As Restated)) in 2013, the Company did not properly accrue a controlling interest transfer tax liability for each respective merger. As such, the Company properly recorded an estimated $8.9 million as of December 31, 2013. The Company considered its existing accrual amount for such liabilities, in determining the liability amounts for the ARCT IV and Cole mergers that were consummated, noting that it had over accrued for such liabilities, and as a result recorded too much expense. Therefore, the Company properly reduced the expense recorded in the period by recording $4.0 million less expense for the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

•

The Company improperly classified $0.7 million as merger and other non-routine transaction expenses that should have been classified as acquisition related expenses. Such amount has been properly classified for the three and six months ended June 30, 2014.

The Company has updated the caption from “merger and other transaction related” to “merger and other non-routine transactions” to appropriately include non-recurring costs that may not have been incurred solely for a merger transaction. See Note 4 —Summary of Significant Accounting Policies (As Restated) for a further breakout of the merger costs and non-routine transactions.

Acquisition-Related

The Company identified $0.5 million of general and administrative salary expense had been improperly recorded as acquisition related expense in the three months ended June 30, 2014. Additionally, the Company identified $1.0 million of acquisition related salary expense had been improperly recorded as general and administrative expense in the three months ended March 30, 2014 resulting in a net understatement of acquisition related expenses of $0.5 million in the six months ended June 30, 2014. As such, the Company properly recorded the expense in the three and six months ended June 30, 2014.

The Company identified $1.8 million of acquisition related expense had been recorded twice in the three and six months ended June 30, 2014. As such, the company properly adjusted the acquisition related expense and corresponding cash account.

General and Administrative

The Company’s estimate of annual bonuses of $5.8 million should have been accrued for and expensed as of and for the period ended June 30, 2014, in accordance with the Company’s accounting policy of accruing estimated bonuses throughout the year. As such, the Company recorded the bonus accrual and corresponding general and administrative expense for the three and six months ended June 30, 2014.

The Company identified $0.9 million and $2.5 million of general and administrative expenses that were recorded in the incorrect period. As such, the Company recorded these amounts as additional expense in the three and six months ended June 30, 2014, respectively.

Equity-based Compensation

The investigation found that equity awards made to Nicholas S. Schorsch and Brian S. Block in connection with the Company’s transition from external to internal management contained vesting provisions that, as drafted, were more favorable to them than the Compensation Committee had authorized. In addition, the investigation found that the Compensation Committee’s intention in respect of the OPP was that the maximum award pool opportunity should have been based upon the Company’s equity market capitalization as of the date of the approval of the OPP in October 2013, equaling approximately $120.0 million, rather than $218.1 million which was derived from a pro forma equity market capitalization giving effect to the closing of various transactions as of the Company’s transition to self-management. These items resulted in a decrease to stock-based compensation reported in general and administrative expense for the three and six months ended June 30, 2014 of $2.2 million and $8.4 million, respectively.

In addition, the Company assessed its accrual for distributions recorded on LTIP units, noting distributions had not been properly recorded. As a result, the Company increased the distributions recorded in equity and the accrual recorded for distributions payable for LTIP awards by $6.3 million as of June 30, 2014.

The Company also determined that the documentation of awards granted to its directors provided for accelerated vesting of shares upon voluntary resignation of the directors. As a result, the Company determined there was no required service period for the vesting of such awards, which decreased the stock based compensation reported in general and administrative expense by $1.2 million and increased the expense by $2.1 million for the three and six months ended June 30, 2014, respectively. Based upon the findings of the Audit Committee and the Company in connection with the recent review of the Company’s previously filed financial statements, the Company has subsequently modified such awards to provide that voluntary resignation would not accelerate the vesting of such awards.

The Company originally reported $9.3 million and $31.8 million during the three and six months ended June 30, 2014, respectively, in equity-based compensation in its own line item, however it now reports such compensation as general and administrative expenses.

Depreciation and Amortization

The Company identified that its depreciation expense was understated by $2.3 million in the three months ended March 31, 2014 and was overstated by the same amount in the three months ended June 30, 2014. As such, the Company properly adjusted depreciation expense for these periods.

In addition, the Company improperly recorded depreciation expense of $6.0 million in the three months ended June 30, 2014 for real estate properties acquired as of March 31, 2014. As such, the Company decreased depreciation expense by this amount for the three months ended June 30, 2014 and properly recorded this expense in the three months ended March 31, 2014.

Other Expense

As a result of the restatement corrections, the Company updated its tax provision calculation which resulted in additional tax expense of $2.2 million and $0.9 million for the three and six months ended June 30, 2014, respectively.

Gain (Loss) on Disposition of Properties and Held for Sale Assets

Subsequent to the CapLease Merger and Cole Merger (each, as defined in Note 3 — Mergers and Acquisitions (As Restated)), the Company disposed of certain properties acquired in those mergers. The disposition of such properties resulted in a net gain on disposition for the three months ended June 30, 2014 and a net loss on disposition for the six months ended June 30, 2014; however, the Company incorrectly adjusted its purchase price allocation by adjusting its goodwill recorded in connection with the Mergers by $2.6 million and $10.9 million for the three and six months ended June 30, 2014, respectively. The Company has determined that there was not sufficient evidence to support adjusting its goodwill as a measurement period adjustment. As a result, the Company reversed the measurement period adjustments that were made to goodwill and recognized a net gain and loss on disposition for the three and six months ended June 30, 2014.

In addition, the Company assigned goodwill associated with the certain Mergers to the Company’s REI segment. However, the Company determined that it did not properly account for disposals of real estate because a portion of goodwill was not included in the carrying amount of the associated real estate in its determination of the gain or loss on disposition. To correct the accounting, the Company allocated $2.2 million and $9.2 million in the three and six months ended June 30, 2014, respectively, of goodwill to real estate dispositions, which increased the loss on disposition of properties recognized in the three and six months ended June 30, 2014.

The Company did not properly classify a property as held for sale as of June 30, 2014. As such, the Company adjusted the fair value of the property at that date and recognized a loss on held for sale assets of $1.8 million for the three and six months ended June 30, 2014.

Gain (Loss) on Derivative Instruments

The Company determined that a portion of one of its interest rate swaps was incorrectly designated as effective, rather than ineffective for the three and six months ended June 30, 2014. Therefore, the Company incorrectly recorded the ineffective portion of the hedge through other comprehensive income (“OCI”), rather than earnings. The Company recorded a gain of $0.5 million and $1.5 million for the three and six months ended June 30, 2014, respectively, and reversed the amounts from OCI for the respective periods.

As part of the Cole Merger, the Company acquired a derivative liability in the amount of $10.0 million for interest rate swaps. The swaps were subsequently settled in connection with the extinguishment of the related debt. This settlement should have been recorded as a reduction of the derivative liability acquired, however it was recorded as a loss on derivative instruments in the three months ended March 31, 2014. The Company previously corrected this in the three months ended June 30, 2014. In order to correct the period in which this adjustment was made, the Company decreased the amount recorded as a loss on derivative instruments in the three months ended March 31, 2014 and increased the amount recorded as a loss on derivative instruments in the three months ended June 30, 2014.

The Company identified a swap interest payment of $1.8 million was incorrectly classified as a loss on derivative instruments. To correct the accounting, the Company reclassified the loss on derivative instruments to interest expense in the three and six months ended June 30, 2014. Additionally, the Company identified $2.1 million recorded as loss on derivative instruments that should have been recorded as interest expense. The Company reclassified loss on derivative instruments to interest expense in the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

Interest Expense

The Company determined that the breakage costs of an interest rate lock was incorrectly recorded as interest expense in the six months ended June 30, 2014, rather than OCI and amortized over the term of the lock. As such, $3.9 million of expense was reclassified from interest expense to OCI in the period ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

The Company identified a credit for interest expense of $1.1 million was incorrectly recorded in the three and six months ended June 30, 2014 as the credit was already recorded through a separate transaction. As such, the Company increased interest expense and decreased the receivable for this amount in the three and six months ended June 30, 2014.

The Company concluded that the interest expense related to a swap was underestimated by $1.4 million for the six months ended June 30, 2014. As such, the Company recorded additional interest expense for the respective amount. No such expenses were identified in the three months ended June 30, 2014.

The Company concluded that $5.0 million and $12.8 million of debt extinguishment costs for the three and six months ended June 30, 2014, respectively, which were originally reported as interest expense, should be reported as a separate line item caption within the consolidated statements of operations for the three and six months ended June 30, 2014. As such, the Company decreased interest expense by these amounts for the respective periods.

Net Loss Attributable to Non-controlling Interests

The original calculation of the net loss attributable to non-controlling interest holders for the three and six months ended June 30, 2014 excluded expenses that were improperly recorded at the Company level. These expenses were incurred by the OP, and therefore should have been included in the Company’s determination of the net loss attributable to its non-controlling interest holders. In addition, the net loss attributable to the non-controlling interest holders has been adjusted to reflect the impact of the cumulative restatement adjustments discussed and presented herein. As a result, the Company recorded an adjustment of $1.1 million and $1.4 million for the three and six months ended June 30, 2014, respectively, for net loss attributable to non-controlling interest holders.

Other Changes

Along with restating the consolidated financial statements to correct the errors discussed above, the Company recorded adjustments for certain previously identified immaterial accounting errors related to the three and six months ended June 30, 2014 that arose in the normal course of business. In connection with the original financial statement issuance, the Company assessed the impact of these immaterial errors and concluded that they were not material, individually or in the aggregate, to the consolidated financial statements. However, in conjunction with the restatement, the Company determined that it would be appropriate to correct such errors.

The original calculations of net loss per share for the three and six months ended June 30, 2014 were based on an incorrect weighted average share count. The original weighted average share count treated a portion of certain restricted share awards as outstanding common stock prior to the actual vesting date of such awards, and as a result, the weighted average share count was overstated for both periods. Therefore, the 2014 restated consolidated financial statements reflect decreases of 334,276 shares and 332,939 shares to the weighted average share counts used in the net loss per share calculations for the three and six months ended June 30, 2014.

The Company also recorded certain reclassifications to conform the presentation of its consolidated statement of operations for the six months ended June 30, 2014 and 2013.

In addition to the restatement of the consolidated financial statements, the Company has also restated the following notes for the three months ended June 30, 2014 and June 30, 2013 to reflect the error corrections noted above.

•

Note 3 – Mergers and Acquisitions

•

Note 4 – Summary of Significant Accounting Policies

•

Note 5 – Acquisitions of CapLease, Cole and CCPT

•

Note 6 – Segment Reporting

•

Note 7 – Real Estate Investments

•

Note 10 – Deferred Costs and Other Assets, Net

•

Note 11 – Fair Value of Financial Instruments

•

Note 12 – Mortgage Notes Payable

•

Note 15 – Derivatives and Hedging Activities

•

Note 16 – Accounts Payable and Accrued Expenses

•

Note 19 – Equity-based Compensation

•

Note 20 – Related Party Transactions and Arrangements

•

Note 22 – Net Loss Per Share

•

Note 23 – Property Dispositions

•

Note 24 – Income Taxes

•

Note 25 – Subsequent Events

The following tables present the combined impact of all changes, as described above, to the applicable line items in the consolidated financial statements to the Company’s previously issued consolidated financial statements for the periods ended June 30, 2014 and 2013 and the year ended December 31, 2013 (in thousands, except share and per share amounts):

June 30, 2014 and December 31, 2013 Restated Consolidated Balance Sheets


	June 30, 2014												December 31, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported ⁽¹⁾			Reclassifications			Restatement Adjustments			As Restated
ASSETS
Real estate investments, at cost:
Land	$	3,361,195		$	—		$	(17,960	)	$	3,343,235		$	1,379,453		$	—		$	855		$	1,380,308
Buildings, fixtures and improvements		12,445,972			(3,623	)		(21,723	)		12,420,626			5,291,031			—			6,369			5,297,400
Land and construction in progress		62,594			—			—			62,594			21,839			—			—			21,839
Acquired intangible lease assets		2,231,675			382			(4,664	)		2,227,393			758,376			382			837			759,595

Total real estate investments, at cost		18,101,436			(3,241	)		(44,347	)		18,053,848			7,450,699			382			8,061			7,459,142
Less: accumulated depreciation and amortization		(661,005	)		(281	)		669			(660,617	)		(267,352	)		(155	)		229			(267,278	)

Total real estate investments, net		17,440,431			(3,522	)		(43,678	)		17,393,231			7,183,347			227			8,290			7,191,864
Investment in unconsolidated entities		102,047			—			—			102,047			—			—			—			—
Investment in direct financing leases, net		62,094			—			—			62,094			66,112			—			—			66,112
Investment securities, at fair value		219,204			—			—			219,204			62,067			—			—			62,067
Loans held for investment, net		97,587			—			—			97,587			26,279			—			—			26,279
Cash and cash equivalents		193,690			—			1,839			195,529			52,725			—			—			52,725
Derivative assets, at fair value ⁽²⁾		—			—			—			—			9,189			(9,189	)		—			—
Restricted cash		69,544			—			—			69,544			35,921			—			—			35,921
Prepaid Expenses ⁽²⁾		—			—			—			—			187,930			(187,930	)		—			—
Intangible assets, net		347,618			—			—			347,618			—			—			—			—
Deferred costs and other assets, net		405,056			3,522			9,621			418,199			—			281,865			(1,204	)		280,661
Goodwill		2,304,880			—			(11,860	)		2,293,020			102,419			—			(9,630	)		92,789
Due from affiliates		73,336			—			350			73,686			—			—						—
Deferred Costs ⁽²⁾		—			—			—			—			81,311			(84,973	)		3,662			—
Assets held for sale		—						38,737			38,737			679			—			(14	)		665

Total assets	$	21,315,487		$	—		$	(4,991	)	$	21,310,496		$	7,807,979		$	—		$	1,104		$	7,809,083

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	4,227,494		$	—		$	—		$	4,227,494		$	1,301,114		$	—		$	—		$	1,301,114
Corporate bonds, net		2,546,089			—			—			2,546,089			—			—			—			—
Convertible debt, net		975,003			—			—			975,003			972,490			—			—			972,490
Senior corporate credit facilities ⁽³⁾		—			—			—			—			1,819,800			(1,819,800	)		—			—
Secured credit facility ⁽³⁾		—			—			—			—			150,000			(150,000	)		—			—
Credit facilities		1,896,000			—			—			1,896,000			—			1,969,800			—			1,969,800
Other debt, net		146,158			—			—			146,158			104,804			—			—			104,804
Below-market lease liabilities, net		283,518			—			(1,564	)		281,954			77,789			—			(620	)		77,169
Accounts payable and accrued expenses		154,741			—			20,201			174,942			808,900			—			(78,329	)		730,571
Derivative liabilities, at fair value ⁽⁴⁾		—			—			—			—			18,455			(18,455	)		—			—
Deferred rent and other liabilities		218,023			—			5,396			223,419			21,816			18,455			—			40,271
Distributions payable		3,837			—			6,942			10,779			10,278			—			625			10,903
Due to affiliates		835			—			2,349			3,184			—			—			103,434			103,434

Total liabilities		10,451,698			—			33,324			10,485,022			5,285,446			—			25,110			5,310,556

The consolidated balance sheets continue onto the next page.


	June 30, 2014											December 31, 2013
	As Previously Reported			Reclassifications		Restatement Adjustments			As Restated			As Previously Reported			Reclassifications		Restatement Adjustments			As Restated
Series D preferred stock, $0.01 par value, 21,735,008 shares (part of 100,000,000 aggregate preferred shares authorized) issued and outstanding at June 30, 2014 and December 31, 2013, respectively	$	269,299		$	—	$	—		$	269,299		$	269,299		$	—	$	—		$	269,299

Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 shares authorized and 42,730,013 and 42,199,547 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		427			—		—			427			422			—		—			422
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 907,918,821 and 239,234,725 issued and outstanding at June 30, 2014 and December 31, 2013, respectively		9,079			—		—			9,079			2,392			—		—			2,392

Additional paid-in capital		11,904,537			—		(2,862	)		11,901,675			2,939,287			—		1,620			2,940,907
Accumulated other comprehensive income		12,392			—		(5,334	)		7,058			7,666			—		—			7,666
Accumulated deficit		(1,628,354	)		—		(10,854	)		(1,639,208	)		(864,516	)		—		(13,441	)		(877,957	)

Total stockholders’ equity		10,298,081			—		(19,050	)		10,279,031			2,085,251			—		(11,821	)		2,073,430
Non-controlling interests		296,409			—		(19,265	)		277,144			167,983			—		(12,185	)		155,798


Total equity		10,594,490			—		(38,315	)		10,556,175			2,253,234			—		(24,006	)		2,229,228

Total liabilities and equity	$	21,315,487		$	—	$	(4,991	)	$	21,310,496		$	7,807,979		$	—	$	1,104		$	7,809,083

(1)	This line item caption has been reclassified and included within deferred costs and other assets, net in the accompanying consolidated balance sheets for the period ended June 30, 2014.

(2)	This line item caption has been reclassified and included within credit facilities in the accompanying consolidated balance sheets for the period ended June 30, 2014.

(3)	This line item caption has been reclassified and included within deferred rent, derivative and other liabilities in the accompanying consolidated balance sheets for the period ended June 30, 2014.

June 30, 2013 Restated Consolidated Balance Sheet


	June 30, 2013
	As Previously Reported			ARCT IV Adjustments ⁽¹⁾			Reclassifications			Restatement Adjustments			As Restated
ASSETS
Real estate investments, at cost:
Land	$	504,562		$	249,931		$	—		$	—		$	754,493
Buildings, fixtures and improvements		2,043,270			770,009			—			—			2,813,279
Acquired intangible lease assets		318,488			113,465			347			—			432,300

Total real estate investments, at cost		2,866,320			1,133,405			347			—			4,000,072
Less: accumulated depreciation and amortization		(108,765	)		(7,905	)		(132	)		—			(116,802	)

Total real estate investments, net		2,757,555			1,125,500			215			—			3,883,270
Investment in direct financing leases, net		67,518			8,892			—			—			76,410
Investment securities, at fair value		9,920			68,082			—			—			78,002
Cash and cash equivalents		10,958			261,490			—			—			272,448
Derivative assets, at fair value		10,161			41			(10,202	)		—			—
Restricted cash		1,576			—			—			—			1,576
Deferred costs and other assets, net		—			—			128,825			(642	)		128,183
Prepaid expenses and other assets, net		14,626			50,262			(64,888	)		—			—
Receivable for issuance of common stock		—			443			(443	)		—			—
Deferred costs, net		38,443			15,064			(53,507	)		—			—
Assets held for sale		6,028			—			—			(14	)		6,014

Total assets	$	2,916,785		$	1,529,774		$	—		$	(656	)	$	4,445,903


LIABILITIES AND EQUITY
Mortgage notes payable, net		269,918			2,124			—			—			272,042
Senior corporate credit facilities		600,000			—			—			—			—
Credit facilities		—			—			—			—			600,000
Convertible Obligation to Series C Convertible Preferred Stockholders		445,000			—			—			—			445,000
Contingent value rights obligation to preferred and common investors		31,134			—			—			—			31,134
Derivative liabilities		1,186			—			—			—			—
Accounts payable and accrued expenses		12,060			654,518			(103	)		(395	)		666,080
Deferred rent and other liabilities		5,274			1,796			1,289			—			8,359
Distributions payable		1			9,717			—			248			9,966
Due to affiliates		—			—			—			1,349			1,349

Total liabilities		1,364,573			668,155			—			1,202			2,033,930


Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 shares authorized and 42,921,213 shares issued and outstanding at June 30, 2013		8			422			—			—			430
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 221,690,474 issued and outstanding at June 30, 2013		1,846			368			—			—			2,214
Additional paid-in capital		1,801,460			901,592			—			3,035			2,706,087
Accumulated other comprehensive income		8,919			(1,337	)		—			—			7,582
Accumulated deficit		(379,502	)		(68,175	)		—			(64	)		(447,741	)

Total stockholders’ equity		1,432,731			832,870			—			2,971			2,268,572
Non-controlling interests		119,481			28,749			—			(4,829	)		143,401

Total equity		1,552,212			861,619			—			(1,858	)		2,411,973

Total liabilities and equity	$	2,916,785		$	1,529,774		$	—		$	(656	)	$	4,445,903

(1)	Adjustments to financial statements in order to apply the carryover basis of accounting to include the effects of the merger with ARCT IV.

Restated Consolidated Statements of Operations (for the three months ended June 30, 2014 and 2013)


	Three Months Ended												Three Months Ended
	June 30, 2014												June 30, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported			Reclassifications			Restatement Adjustments			As Restated
Revenues:
Rental income	$	314,843		$	—		$	(324	)	$	314,519		$	52,664		$	—		$	—		$	52,664
Direct financing lease income		1,181			—			—			1,181			—			—			—			—
Operating expense reimbursements		28,545			—			711			29,256			2,281			—			—			2,281
Cole Capital revenue		37,412			(190	)		—			37,222			—			—			—			—

Total revenues		381,981			(190	)		387			382,178			54,945			—			—			54,945

Operating expenses:
Cole Capital reallowed fees and commissions		7,068			—			—			7,068			—			—			—			—
Acquisition related		8,453			—			(1,252	)		7,201			37,289			—			(23	)		37,266
Merger and other transaction related ⁽¹⁾		13,286			—			(5,864	)		7,422			6,393			—			(528	)		5,865
Property operating		39,372			—			(86	)		39,286			3,086			—			—			3,086
General and administrative		19,063			2,788			18,161			40,012			2,361			23			3,899			6,283
Equity-based compensation ⁽²⁾		9,338			—			(9,338	)		—			3,458			—			(3,458	)		—
Depreciation and amortization		258,993			—			(8,254	)		250,739			33,752			(23	)		(48	)		33,681
Impairment of real estate ⁽³⁾		—			—			1,556			1,556			—			—			—			—

Total operating expenses		355,573			2,788			(5,077	)		353,284			86,339			—			(158	)		86,181

Operating income (loss)		26,408			(2,978	)		5,464			28,894			(31,394	)		—			158			(31,236	)

Other (expense) income:
Interest expense, net		(99,635	)		(4,619	)		357			(103,897	)		(11,068	)		(356	)		—			(11,424	)
Extinguishment of debt, net ⁽³⁾		—			—			(6,469	)		(6,469	)		—			—			—			—
Other income, net		6,526			7,597			(2,187	)		11,936			1,167			356			—			1,523
Gain (loss) on derivative instruments, net		21,926			—			(7,719	)		14,207			(40	)		(31,134	)		—			(31,174	)
Loss on contingent value rights		—			—			—			—			(31,134	)		31,134			—			—
Gain on disposition of properties, net		1,510			—			(2,779	)		(1,269	)		—			—			—			—

Total other expenses, net		(69,673	)		2,978			(18,797	)		(85,492	)		(41,075	)		—			—			(41,075	)

Net loss from continuing operations		(43,265	)		—			(13,333	)		(56,598	)		(72,469	)		—			158			(72,311	)


Discontinued operations:
Income from operations of held for sale properties		—			—			—			—			36			—			—			36

Net loss from discontinued operations		—			—			—			—			36			—			—			36


Net loss		(43,265	)		—			(13,333	)		(56,598	)		(72,433	)		—			158			(72,275	)
Net loss attributable to non-controlling interests		2,937			—			(1,059	)		1,878			475			—			2,197			2,672

Net loss attributable to the Company	$	(40,328	)	$	—		$	(14,392	)	$	(54,720	)	$	(71,958	)	$	—		$	2,355		$	(69,603	)



Basic and diluted net loss per share attributable to common stockholders	$	(0.08	)	$	—		$	—		$	(0.10	)	$	(0.36	)	$	—		$	—		$	(0.35	)

(1)	This line item caption has been updated to “merger and other non-routine transactions” in the accompanying consolidated statements of operations.

(2)	As disclosed above, this line item caption has been reclassified into “general and administrative” in the accompanying consolidated statements of operations.

(3)	This line item caption has been added and is included in the accompanying consolidated statements of operations for the period ended June 30, 2014.

Restated Consolidated Statements of Operations (for the six months ended June 30, 2014 and 2013)


	Six Months Ended												Six Months Ended
	June 30, 2014												June 30, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported			Reclassifications			Restatement Adjustments			As Restated
Revenues:
Rental income	$	559,288		$	—		$	(354	)	$	558,934		$	93,651		$	—		$	—		$	93,651
Direct financing lease income		2,187			—			—			2,187			—			—			—			—
Operating expense reimbursements		49,641			—			1,091			50,732			4,191			—			—			4,191
Cole Capital revenue		91,479			—			—			91,479			—			—			—			—

Total revenues		702,595			—			737			703,332			97,842			—			—			97,842

Operating expenses:
Cole Capital reallowed fees and commissions		41,504			—			—			41,504			—			—			—			—
Acquisition related		20,337			—			281			20,618			47,616			—			(23	)		47,593
Merger and other non-routine transactions ⁽¹⁾		235,478			—			(67,758	)		167,720			144,162			—			(14,729	)		129,433
Property operating		69,030			—			11			69,041			5,635			—			—			5,635
Management fees to affiliate		—			—			13,888			13,888			—			—			12,493			12,493
General and administrative		44,748			3,911			47,845			96,504			3,815			23			10,217			14,055
Equity-based compensation ⁽²⁾		31,848			—			(31,848	)		—			4,339			—			(4,339	)		—
Depreciation and amortization		424,356			—			225			424,581			60,505			(23	)		(48	)		60,434
Impairment of real estate ⁽³⁾		—			—			1,556			1,556			—			—			—			—

Total operating expenses		867,301			3,911			(35,800	)		835,412			266,072			—			3,571			269,643

Operating income (loss)		(164,706	)		(3,911	)		36,537			(132,080	)		(168,230	)		—			(3,571	)		(171,801	)

Other (expense) income:
Interest expense, net		(216,347	)		(8,272	)		(229	)		(224,848	)		(17,124	)		(502	)		(599	)		(18,225	)
Extinguishment of debt, net ⁽⁴⁾		—			—			(15,868	)		(15,868	)		—			—			—			—
Other income, net		10,915			12,183			(952	)		22,146			2,020			502			—			2,522
Gain (loss) on derivative instruments, net		1,729			—			5,357			7,086			(45	)		(31,134	)		—			(31,179	)
Loss on contingent value rights		—			—			—			—			(31,134	)		31,134			—			—
Gain (loss) on disposition of properties and held for sale assets, net		4,489			—			(23,363	)		(18,874	)		—			—			—			—
Gain on sale of investments		—			—			—			—			451			—			—			451

Total other expenses, net		(199,214	)		3,911			(35,055	)		(230,358	)		(45,832	)		—			(599	)		(46,431	)

Net loss from continuing operations		(363,920	)		—			1,482			(362,438	)		(214,062	)		—			(4,170	)		(218,232	)


Discontinued operations:
Income from operations of held for sale properties		—			—			—			—			20			—			—			20
Gain on held for sale properties		—			—			—			—			14			—			(14	)		—

Net loss from discontinued operations		—			—			—			—			34			—			(14	)		20


Net loss		(363,920	)		—			1,482			(362,438	)		(214,028	)		—			(4,184	)		(218,212	)
Net loss attributable to non-controlling interests		14,911			—			1,363			16,274			907			—			3,822			4,729

Net loss attributable to the Company	$	(349,009	)	$	—		$	2,845		$	(346,164	)	$	(213,121	)	$	—		$	(362	)	$	(213,483	)

Basic and diluted net loss per share attributable to common stockholders	$	(0.58	)	$	—		$	—		$	(0.58	)	$	(1.16	)	$	—		$	—		$	(1.17	)

(1)	This line item caption has been updated to merger and other non-routine transactions in the accompanying consolidated statements of operations.

(2)	As disclosed above, this line item caption has been reclassified into “general and administrative” in the accompanying consolidated statements of operations.

(3)	This line item caption has been added and is included in the accompanying consolidated statements of operations for the period ended June 30, 2014.

Restated Statements of Comprehensive Loss (for the three months ended June 30, 2014 and 2013)


	Three Months Ended									Three Months Ended
	June 30, 2014									June 30, 2013
	As Previously Reported			Restatement Adjustments			As Restated			As Previously Reported			Restatement Adjustments		As Restated
Net loss ⁽¹⁾	$	(43,265	)	$	(13,333	)	$	(56,598	)	$	(72,433	)	$	158	$	(72,275	)

Other comprehensive (loss) income:
Designated derivatives, fair value adjustments		(6,883	)		(400	)		(7,283	)		14,058			—		14,058
Unrealized gain (loss) on investment securities, net		5,878			—			5,878			(1,793	)		—		(1,793	)

Total other comprehensive (loss) income		(1,005	)		(400	)		(1,405	)		12,265			—		12,265

Total comprehensive loss		(44,270	)		(13,733	)		(58,003	)		(60,168	)		158		(60,010	)
Net loss attributable to non-controlling interests		2,937			(1,059	)		1,878			475			2,197		2,672

Total comprehensive loss attributable to the Company	$	(41,333	)	$	(14,792	)	$	(56,125	)	$	(59,693	)	$	2,355	$	(57,338	)

(1)	The statement of comprehensive loss previously began with net loss attributable to common stockholders. The statement has been updated to begin with net loss to properly show the total comprehensive loss.

Restated Statements of Comprehensive Loss (for the six months ended June 30, 2014 and 2013)


	Six Months Ended									Six Months Ended
	June 30, 2014									June 30, 2013
	As Previously Reported			Restatement Adjustments			As Restated			As Previously Reported			Restatement Adjustments			As Restated
Net loss	$	(363,920	)	$	1,482		$	(362,438	)	$	(214,028	)	$	(4,184	)	$	(218,212	)
Other comprehensive (loss) income:
Designated derivatives, fair value adjustments		(4,247	)		(5,334	)		(9,581	)		12,881			—			12,881
Unrealized gain (loss) on investment securities, net		8,973			—			8,973			(1,365	)		—			(1,365	)

Total other comprehensive (loss) income		4,726			(5,334	)		(608	)		11,516			—			11,516


Total comprehensive loss		(359,194	)		(3,852	)		(363,046	)		(202,512	)		(4,184	)		(206,696	)
Net loss attributable to non-controlling interests		14,911			1,363			16,274			907			3,822			4,729

Total comprehensive loss attributable to the Company	$	(344,283	)	$	(2,489	)	$	(346,772	)	$	(201,605	)	$	(362	)	$	(201,967	)

Restated Statements of Cash Flows


	Six Months Ended												Six Months Ended
	June 30, 2014												June 30, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported			Reclassifications		Restatement Adjustments			As Restated
Cash flows from operating activities:
Net loss	$	(363,920	)	$	—		$	1,482		$	(362,438	)	$	(214,028	)	$	—	$	(4,184	)	$	(218,212	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Issuance of OP Units		153,885			—			(61,001	)		92,884			108,247			—		(476	)		107,771
Depreciation and amortization		452,446			—			20,738			473,184			64,243			—		537			64,780
Gain on disposition of properties		(4,489	)		—			23,363			18,874			(14	)		—		14			—
Equity-based compensation		31,848			—			(4,584	)		27,264			6,717			—		74			6,791
Equity in income of unconsolidated entities		385			—			—			385			—			—		—			—
Distributions from unconsolidated entities ⁽¹⁾		—			—			4,033			4,033			—			—		—			—
Net direct financing lease adjustments ⁽¹⁾		—			—			—			—			—			—		—			—
Loss on derivative instruments		8,048			—			(15,134	)		(7,086	)		45			—		—			45
Gain on sale of investments, net		—			—			—			—			(451	)		—		—			(451	)
Impairment of real estate		—			—			1,556			1,556
Gain on extinguishment of debt		(8,398	)		—			(8,587	)		(16,985	)		—			—		—			—
Unrealized loss on contingent value rights obligations, net of settlement payments		—			—			—			—			31,134			—		—			31,134
Changes in assets and liabilities:					—			—			—			—			—		—			—
Investment in direct financing leases		525			—			—			525			—			—		—			—
Deferred costs and other assets, net		(62,175	)		—			(31,378	)		(93,553	)		(10,300	)		—		37			(10,263	)
Due from affiliates		(5,335	)		—			(350	)		(5,685	)		—			—		—			—
Accounts payable and accrued expenses		(133,960	)		—			82,189			(51,771	)		4,554			—		(394	)		4,160
Deferred rent, derivative and other liabilities		(35,298	)		—			26,566			(8,732	)		2,676			—		—			2,676
Due to affiliates		223			—			(41,485	)		(41,262	)		—			—		1,349			1,349

Net cash provided by (used in) operating activities		33,785			—			(2,592	)		31,193			(7,177	)		—		(3,043	)		(10,220	)

Cash flows from investing activities:
Investments in real estate and other assets		(1,246,588	)		—			—			(1,246,588	)		(2,129,677	)		—		—			(2,129,677	)
Acquisition of a real estate business, net of cash acquired		(755,701	)		—			(531	)		(756,232	)		—			—		—			—
Investment in direct financing leases		—			—			—			—			(76,410	)		—		—			(76,410	)
Capital expenditures		(46,649	)		21,733			14,927			(9,989	)		(30	)		—		—			(30	)
Real estate developments		—			(21,733	)		—			(21,733	)		—			—		—			—
Distributions from unconsolidated entities⁽¹⁾		4,033			—			(4,033	)		—			—			—		—			—
Principal repayments received from borrowers		4,155			—			—			4,155			—			—		—			—
Investments in unconsolidated entities		(2,500	)		—			—			(2,500	)		—			—		—			—
Return of investment from unconsolidated entities		—			—			—			—			—			—		—			—
Proceeds from disposition of properties		95,321			—			(498	)		94,823			—			—		—			—
Investment in intangible assets		(266	)		—			—			(266	)		—			—		—			—
Investment in other assets		—			—			—			—			(1,041	)		—		1,041			—
Deposits for real estate investments		(129,602	)		—			—			(129,602	)		(47,086	)		—		—			(47,086	)
Uses and refunds of deposits for real estate investments		196,075			—			—			196,075			—			—		—			—
Purchases of investment securities		—			—			—			—			(81,460	)		—		—			(81,460	)

The consolidated statements of cash flows continue onto the next page.


	Six Months Ended											Six Months Ended
	June 30, 2014											June 30, 2013
	As Previously Reported			Reclassifications		Restatement Adjustments			As Restated			As Previously Reported			Reclassifications		Restatement Adjustments			As Restated
Line of credit advances to affiliates	$	(80,300	)	$	—	$	—		$	(80,300	)	$	—		$	—	$	—		$	—
Line of credit repayments from affiliates		15,600			—		—			15,600			—			—		—			—
Proceeds from sale of investment securities		—			—		—			—			44,188			—		—			44,188
Change in restricted cash		—			—		(15,499	)		(15,499	)

Net cash used in investing activities		(1,946,422	)		—		(5,634	)		(1,952,056	)		(2,291,516	)		—		1,041			(2,290,475	)
Cash flows from financing activities:
Proceeds from mortgage notes payable		718,275			—		—			718,275			6,924			—		—			6,924
Payments on mortgage notes payable		(876,874	)		—		—			(876,874	)		—			—		—			—
Payments on other debt		(7,524	)		—		—			(7,524	)		—			—		—			—
Proceeds from credit facilities		3,246,000			—		—			3,246,000			825,000			—		—			825,000
Payments on credit facilities		(4,628,800	)		—		—			(4,628,800	)		(349,604	)		—		—			(349,604	)
Proceeds from corporate bonds		2,545,760			—		—			2,545,760			—			—		—			—
Payments of deferred financing costs		(80,515	)		—		(3,650	)		(84,165	)		(40,488	)		—		(973	)		(41,461	)
Common stock repurchases		—			—		—			—			(350,396	)		—		—			(350,396	)
Proceeds from issuances of preferred shares		—			—		—			—			445,000			—		—			445,000
Proceeds from issuances of common stock, net offering costs		1,595,735			—		(2,273	)		1,593,462			1,810,116			—		(74	)		1,810,042
Consideration to Former Manager for internalization		—			—		—			—			(3,035	)		—		3,035			—
Contributions from non-controlling interest holders		1,043			—		(61	)		982			29,758			—		—			29,758
Distributions to non-controlling interest holders		(16,418	)		—		587			(15,831	)		(3,111	)		—		—			(3,111	)
Distributions paid		(427,541	)		—		(77	)		(427,618	)		(90,740	)		—		—			(90,740	)
Change in restricted cash		(15,539	)		—		15,539			—			(844	)		—		—			(844	)

Net cash provided by financing activities		2,053,602			—		10,065			2,063,667			2,278,580			—		1,988			2,280,568

Net change in cash and cash equivalents		140,965			—		1,839			142,804			(20,113	)		—		(14	)		(20,127	)

Cash and cash equivalents, beginning of period		52,725			—		—			52,725			292,575								292,575

Cash and cash equivalents, end of period	$	193,690		$	—	$	1,839		$	195,529		$	272,462		$	—	$	(14	)	$	272,448

(1)	This line item caption has been added and is included in the accompanying consolidated statements of cash flows for the period ended June 30, 2014.