EX-99.3 4 arcpexhibit993quarterlysup.htm EXHIBIT 99.3 ARCP Exhibit 99.3 Quarterly Supplemental Information - 12.31.2014
Exhibit 99.3



American Realty Capital Properties, Inc.
Table of Contents

 Year Ended December 31, 2014
 
Table of Contents
Introductory Notes
 
 
Company Information
 
 
Summary of Company and Financial Highlights
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Segment Reporting
 
 
Reconciliation of GAAP Net Income to Normalized EBITDA
 
 
Funds From Operations and Adjusted Funds From Operations
 
 
Adjusted G&A
 
 
Financial and Operational Statistics and Ratios
 
 
Debt and Preferred Equity Summary
 
 
Mortgage Notes Payable
 
 
Bond and Line of Credit Covenants
 
 
Same Store Summary
 
 
Top 10 Concentrations
 
 
Tenants Comprising Over 1% of Annualized Rental Income
 
 
Tenant Industry Diversification
 
 
Property Geographic Diversification
 
 
Property Building Type Diversification
 
 
Lease Expirations
 
 
Unconsolidated Joint Venture Investment Summary
 
 
Managed Programs
 
 
Definitions

American Realty Capital Properties, Inc.
Introductory Notes


The financial data and other information described in this Annual Supplement are as of the date this Annual Supplement was filed or an earlier date where indicated. Future performance may not be consistent with past performance and is subject to change with inherent risks and uncertainties.
 
This Annual Supplement contains certain statements that are the Company’s (as defined below) and its management’s hopes, intentions, beliefs, expectations or projections of the future and might be considered to be forward-looking statements under Federal securities laws. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve inherent risks and uncertainties. The Company’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we do not undertake to, and may not, release revisions to these forward-looking statements to reflect changes after we have made the statements. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”), including, but not limited to, the Company’s Annual Report on Form 10-K filed with the SEC and amendments thereto filed with the SEC, as well as other reports and Company press releases filed with the SEC.
 
This Annual Supplement includes certain combined consolidated financial information. We use the terms “on a combined basis” throughout this Quarterly Supplement. The consolidated financial information combines the historical financial statements of American Realty Capital Properties, Inc. (“ARCP”, the “Company”, “we”, “us” and “our”), American Realty Capital Trust III, Inc. (“ARCT III”) and American Realty Capital Trust IV, Inc. (“ARCT IV”) after giving effect to the mergers of ARCT III and ARCT IV with and into a wholly owned subsidiary of ARCP and ARCP's operating partnership (the “ARCT III Merger” and “ARCT IV Merger”), respectively, using the carryover basis of accounting as ARCP, ARCT III and ARCT IV were considered to be entities under common control under United States generally accepted accounting principles (“U.S. GAAP”). The consolidated financial information should be read in conjunction with ARCP’s historical consolidated financial statements including the notes thereto, and the notes to the consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2014.
 
The combined consolidated financial information is presented for illustrative purposes only and does not purport to be indicative of the results that would actually have occurred if the ARCT III Merger and the ARCT IV Merger had occurred as presented in such statements. In addition, future results may vary significantly from the results reflected in such statements.
 
Definitions of specialized terms can be found at the end of this presentation beginning on page 32.

1
American Realty Capital Properties, Inc.
Company Information



Company Profile
 
American Realty Capital Properties, Inc. is a self-managed and self-administered real estate company, incorporated in Maryland on December 2, 2010 that qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. On September 6, 2011, the Company completed its initial public offering. Our business operates in two segments, Real Estate Investment (“REI”) and Cole Capital®, the Company's private capital management segment (“Cole Capital”). Through our REI segment, we acquire, own and operate single-tenant, freestanding commercial properties, primarily subject to long-term net leases with high credit quality tenants. We seek to acquire net lease assets granularly, by self-originating or purchasing such assets, or executing sale-leaseback transactions, small portfolio acquisitions and in connection with build-to-suit or forward take-out opportunities, to the extent they are appropriate in terms of capitalization rate and scale. Our high-quality property portfolio is generally net leased to corporate tenants. These tenants are primarily investment-grade rated (approximately 47% as of December 31, 2014), occupying properties located at the corner of “Main & Main” and in other strategic locations.
Cole Capital is responsible for raising capital for, managing the affairs of and identifying and making acquisitions and investments on behalf of non-traded REITs sponsored indirectly by the Company (the “Managed Programs”) on a day-to-day basis. We receive compensation and reimbursement for services relating to the Managed Programs’ offerings and the investment, management, financing and disposition of their respective assets, as applicable. Cole Capital allows us to generate earnings without the corresponding need to invest capital in that business or incur balance sheet debt in order to fund or expand operations. Cole Capital also develops new REIT offerings and coordinates receipt of regulatory approvals from the SEC, the Financial Industry Regulatory Authority, Inc. and various jurisdictions for such offerings. At the appropriate time, Cole Capital recommends to each of the Managed Program's respective board of directors an approach for providing investors with liquidity.
ARCP's common shares and Series F preferred shares trade on the NASDAQ Global Select Market under the tickers symbol “ARCP” and “ARCPP,” respectively.
Investment Strategy

Our investment strategy is designed to generate a predictable level of monthly rents paid by primarily investment-grade rated and other credit worthy tenants under long-term leases. Our ongoing focus will be on actively managing our portfolio of high-quality, well located net leased properties diversified by tenant, industry and geography. We intend to strategically reinvest certain disposition proceeds into core, single-tenant net lease real estate that maintains or improves the quality of our portfolio while seeking self-originated investment opportunities. Previously, we advanced our investment objectives by growing our net lease portfolio not only through granular self-originated acquisitions, but through strategic mergers and acquisitions. On February 28, 2013, ARCP completed its merger with ARCT III. On June 27, 2013, ARCP acquired a large portfolio from affiliates of GE Capital. On November 5, 2013, ARCP acquired CapLease, Inc. On January 3, 2014, ARCP acquired ARCT IV. On January 8, 2014, ARCP completed the acquisition of a large portfolio from affiliates of funds managed by Fortress Investment Group LLC. On February 7, 2014, ARCP acquired Cole Real Estate Investments, Inc. (“Cole”). On March 28, 2014, ARCP completed the acquisition of a large portfolio from Inland American Real Estate Trust, Inc. On May 19, 2014, ARCP acquired Cole Credit Property Trust, Inc. (“CCPT”). Finally, on July 30, 2014, ARCP completed the acquisition of the Red Lobster portfolio. As part of our focus on owing and managing single-tenant properties, we completed the sale of our multi-tenant shopping center portfolio to a Blackstone-DDR joint venture on October 17, 2014.

2
American Realty Capital Properties, Inc.
Company Information



Senior Management
 
Board of Directors
 
 
 
William G. Stanley, Interim Chief Executive Officer
 
William G. Stanley, Interim Chairman
 
 
 
Glenn J. Rufrano, Chief Executive Officer-Elect(1)
 
Thomas A. Andruskevich, Interim Lead Independent Director
 
 
 
Richard A. Silfen, Executive Vice President, General Counsel, and Secretary
 
Governor Edward G. Rendell, Independent Director(2)
 
 
 
Michael J. Sodo, Executive Vice President, Chief Financial Officer and Treasurer
 
Leslie D. Michelson, Independent Director(2)
 
 
 
Gavin B. Brandon, Senior Vice President and Chief Accounting Officer
 
Bruce D. Frank, Independent Director

Corporate Offices and Contact Information
2325 E. Camelback Road, Suite 1100
 
1065 Avenue of the Americas, Floor 23
Phoenix, AZ 85016
 
New York, NY 10018
800-606-3610
 
212-413-9100
www.arcpreit.com
 
 
 
Trading Symbols: ARCP, ARCPP
 
Stock Exchange Listing: NASDAQ Global Select Market
 
Transfer Agent
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
800-736-3001

_______________________________________________
(1) The appointment of Mr. Rufrano as Chief Executive Officer was announced on March 10, 2015. He will officially assume the role on April 1, 2015 and, at such time, Mr. Stanley will resign as Interim Chief Executive Officer.
(2) On March 10, 2015, Messrs. Michelson and Rendell announced their plans to step down from the Board of Directors effective April 1, 2015.


3
American Realty Capital Properties, Inc.
Summary of Company and Financial Highlights


Company Highlights
Fourth Quarter Highlights as of December 31, 2014
•
Revenue of $418.8 million and net loss of $350.6 million, including impairments of $406.1 million
•
FFO per diluted share loss of $0.06 and AFFO per diluted share of $0.22
•
Acquired $21.0 million of real estate on the balance sheet in the fourth quarter with a cash cap rate of 7.3%
•
Sold 81 properties in the quarter for total net proceeds of approximately $1.9 billion, including the multi-tenant portfolio sale to a Blackstone-DDR joint venture for approximately $1.9 billion
•
Repaid $1.1 billion of debt in the fourth quarter, consisting of the net proceeds from the multi-tenant portfolio sale that were used to pay down the Company’s line of credit, net of borrowings
•
Raised $159.9 million of capital on behalf of the Cole Capital® managed REITs, including DRIP
•
Invested $942.8 million in 130 properties on behalf of the Cole Capital managed REITs
•
Entered into a settlement agreement with RCS Capital Corporation (“RCS Capital”) that resolved the dispute over the sale of Cole Capital, giving the Company consideration of $60.0 million to terminate the Equity Purchase Agreement and all related agreements and documents

Full-Year 2014 Highlights as of December 31, 2014
•
Revenue of $1.58 billion and net loss of $977.2 million, including impairments of $410.0 million and a $262.0 million loss on sale related to the disposition of the multi-tenant portfolio
•
FFO per diluted share of $0.18 and AFFO per diluted share of $0.90
•
Acquired $3.8 billion of real estate on the balance sheet in 2014 with a cash cap rate of 7.9%
•
Sold 111 properties for total net proceeds of approximately $2.1 billion
•
Raised $1.5 billion of capital on behalf of the Cole Capital managed REITs, including DRIP
•
Invested $3.3 billion in 577 properties on behalf of the managed REITs


Dividends

ARCP is currently reviewing its dividend policy and determining a common stock dividend in line with its industry peers.

4
American Realty Capital Properties, Inc. 
Consolidated Balance Sheets
(in thousands)


 
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
ASSETS
 
 
 
 
 
 
 
 
Real estate investments, at cost:
 
 
 
 
 
 
 
 
Land
 
$
3,472,298

 
$
3,487,824

 
$
3,343,235

 
$
3,224,257

Buildings, fixtures and improvements
 
12,307,758

 
12,355,029

 
12,420,626

 
11,836,655

Land and construction in progress
 
77,450

 
86,973

 
62,594

 
40,459

Intangible lease assets
 
2,435,054

 
2,424,076

 
2,227,393

 
2,209,902

Total real estate investments, at cost
 
18,292,560

 
18,353,902

 
18,053,848

 
17,311,273

Less: accumulated depreciation and amortization
 
(1,034,122
)
 
(828,624
)
 
(660,617
)
 
(428,566
)
Total real estate investments, net
 
17,258,438

 
17,525,278

 
17,393,231

 
16,882,707

Investment in unconsolidated entities
 
98,053

 
100,762

 
102,047

 
105,775

Investment in direct financing leases, net
 
56,076

 
57,441

 
62,094

 
65,723

Investment securities, at fair value
 
58,646

 
59,131

 
219,204

 
213,803

Loans held for investment, net
 
42,106

 
96,981

 
97,587

 
98,185

Cash and cash equivalents
 
416,711

 
145,310

 
195,529

 
83,216

Restricted cash
 
62,651

 
72,754

 
69,544

 
55,559

Intangible assets, net
 
150,359

 
323,332

 
347,618

 
371,634

Deferred costs and other assets, net
 
389,922

 
446,606

 
418,199

 
304,097

Goodwill
 
1,894,794

 
2,096,450

 
2,293,020

 
2,298,677

Due from affiliates
 
86,122

 
55,666

 
73,686

 
8,719

Assets held for sale
 
1,261

 
1,887,872

 
38,737

 
—

Total assets
 
$
20,515,139

 
$
22,867,583

 
$
21,310,496

 
$
20,488,095

 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
Mortgage notes payable, net
 
$
3,759,935

 
$
3,782,407

 
$
4,227,494

 
$
4,234,074

Corporate bonds, net
 
2,546,499

 
2,546,294

 
2,546,089

 
2,545,884

Convertible debt, net
 
977,521

 
976,251

 
975,003

 
973,737

Credit facilities
 
3,184,000

 
4,259,000

 
1,896,000

 
2,415,800

Other debt, net
 
45,826

 
48,587

 
146,158

 
148,809

Below-market lease liabilities, net
 
317,838

 
318,494

 
281,954

 
286,579

Accounts payable and accrued expenses
 
163,025

 
180,338

 
174,942

 
149,542

Deferred rent, derivative and other liabilities
 
127,611

 
195,256

 
223,419

 
206,105

Distributions payable
 
9,995

 
9,927

 
10,779

 
11,233

Due to affiliates
 
559

 
2,757

 
3,184

 
2,614

Liabilities associated with assets held for sale
 
—

 
545,382

 
—

 
—

Total liabilities
 
11,132,809

 
12,864,693

 
10,485,022

 
10,974,377

 
 
 
 
 
 
 
 
 
Series D preferred stock
 
—

 
—

 
269,299

 
269,299

 
 
 
 
 
 
 
 
 
Series F preferred stock
 
428

 
428

 
427

 
427

Common stock
 
9,055

 
9,080

 
9,079

 
7,699

Additional paid-in capital
 
11,920,253

 
11,905,338

 
11,901,675

 
10,302,168

Accumulated other comprehensive income
 
2,728

 
8,600

 
7,058

 
8,463

Accumulated deficit
 
(2,778,576
)
 
(2,182,731
)
 
(1,639,208
)
 
(1,358,743
)
Total stockholders’ equity
 
9,153,888

 
9,740,715

 
10,279,031

 
8,960,014

Non-controlling interests
 
228,442

 
262,175

 
277,144

 
284,405

Total equity
 
9,382,330


10,002,890

 
10,556,175

 
9,244,419

Total liabilities and equity
 
$
20,515,139

 
$
22,867,583

 
$
21,310,496

 
$
20,488,095



5
American Realty Capital Properties, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)

 
 
Quarter Ended
 
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
346,928

 
$
365,712

 
$
314,519

 
$
244,415

Direct financing lease income
 
791

 
625

 
1,181

 
1,006

Operating expense reimbursements
 
18,806

 
30,984

 
29,256

 
21,476

Cole Capital revenue
 
52,282

 
59,797

 
37,222

 
54,257

Total revenues
 
418,807

 
457,118

 
382,178

 
321,154

Operating expenses:
 
 
 
 
 
 
 
 
Cole Capital reallowed fees and commissions
 
9,326

 
15,398

 
7,068

 
34,436

Acquisition related
 
4,215

 
13,998

 
7,201

 
13,417

Merger and other non-routine transactions
 
25,162

 
7,632

 
7,422

 
160,298

Property operating
 
27,723

 
40,977

 
39,286

 
29,755

Management fees to affiliates
 
—

 
—

 
—

 
13,888

General and administrative
 
46,030

 
32,207

 
40,012

 
56,492

Depreciation and amortization
 
226,272

 
265,150

 
250,739

 
173,842

Impairments
 
406,136

 
2,299

 
1,556

 
—

Total operating expenses
 
744,864

 
377,661

 
353,284

 
482,128

Operating (loss) income
 
(326,057
)
 
79,457

 
28,894

 
(160,974
)
Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense, net
 
(126,157
)
 
(101,643
)
 
(103,897
)
 
(120,951
)
Extinguishment of debt, net
 
(605
)
 
(5,396
)
 
(6,469
)
 
(9,399
)
Other income, net
 
93,827

 
7,556

 
11,936

 
10,210

Loss on derivative instruments, net
 
(172
)
 
(17,484
)
 
14,207

 
(7,121
)
Gain on held for sale assets and disposition of properties, net
 
(1,263
)
 
(256,894
)
 
(1,269
)
 
(17,605
)
Gain on sale of investments
 
—

 
6,357

 
—

 
—

Total other expenses, net
 
(34,370
)
 
(367,504
)
 
(85,492
)
 
(144,866
)
Net loss
 
(360,427
)
 
(288,047
)
 
(56,598
)
 
(305,840
)
Net loss attributable to non-controlling interests
 
9,804

 
7,649

 
1,878

 
14,396

Net loss attributable to the Company
 
(350,623
)
 
(280,398
)
 
(54,720
)
 
(291,444
)
Basic and diluted net loss per share from continuing operations attributable to common stockholders
 
$
(0.41
)
 
$
(0.35
)
 
$
(0.10
)
 
$
(0.58
)
Basic and diluted net loss per share from discontinued operations attributable to common stockholders
 
$
—

 
$
—

 
$
—

 
$
—



6
American Realty Capital Properties, Inc.
Segment Reporting

The Company operates under two business segments - REI and Cole Capital. The following tables present a summary of the financial results and total assets for each business segment (in thousands):
 
 
Year Ended December 31,
 
 
2014
 
2013
REI:
 
 
 
 
Rental income
 
$
1,271,574

 
$
310,508

Direct financing lease income
 
3,603

 
2,244

Operating expense reimbursements
 
100,522

 
16,571

Total real estate investment revenues
 
1,375,699

 
329,323

Acquisition related
 
35,469

 
76,113

Merger and other non-routine transactions
 
198,545

 
210,543

Property operating
 
137,741

 
23,616

Management fees to affiliate
 
13,888

 
17,462

General and administrative
 
83,574

 
123,172

Depreciation and amortization
 
844,743

 
210,976

Impairment
 
100,547

 
3,346

Total operating expenses
 
1,414,507

 
665,228

Operating loss
 
(38,808
)
 
(335,905
)
Interest expense, net
 
(452,648
)
 
(105,548
)
Extinguishment of debt, net
 
(21,869
)
 
—

Other income, net
 
80,636

 
3,824

Loss on derivative instruments, net
 
(10,570
)
 
(67,946
)
Loss on held for sale assets and disposition of properties, net
 
(277,031
)
 
—

Loss on sale of investments in affiliates
 
—

 
(411
)
Gain (loss) on sale of investments
 
6,357

 
(1,795
)
Total other expenses, net
 
(675,125
)
 
(171,876
)
Net loss from continuing operations
 
(713,933
)
 
(507,781
)
Discontinued operations:
 
 
 
 
Loss from operations of held for sale assets
 
—

 
(34
)
Net loss from discontinued operations
 
—

 
(34
)
Net loss
 
$
(713,933
)
 
$
(507,815
)
 
 
 
 
 
 
 
 
 
 
Cole Capital:
 
 
 
 
Dealer manager and distribution fees, selling commissions and offering reimbursements
 
$
87,109

 
$
—

Transaction service fees
 
60,672

 
—

Management fees and reimbursements
 
55,777

 
—

Total Cole Capital revenues
 
203,558

 
—

Cole Capital reallowed fees and commissions
 
66,228

 
—

Acquisition related
 
3,362

 
—

Merger and other non-routine transactions
 
1,969

 
—

General and administrative expenses
 
91,167

 
—

Depreciation and amortization
 
71,260

 
—

Impairments
 
309,444

 
—

Total operating expenses
 
543,430

 
—

Total other income
 
42,893

 
—

Net loss
 
$
(296,979
)
 
$
—

 
 
 
 
 
 
 
 
 
 
Total Company:
 
 
 
 
Total revenues
 
$
1,579,257

 
$
329,323

Total operating expenses
 
$
1,957,937

 
$
665,228

Total other expense
 
$
(632,232
)
 
$
(171,876
)
Loss from continuing operations
 
$
(1,010,912
)
 
$
(507,781
)
Income (loss) from discontinued operations
 
$
—

 
$
(34
)
Net loss
 
$
(1,010,912
)
 
$
(507,815
)


7
American Realty Capital Properties, Inc.
Segment Reporting

 
 
Total Assets as of
 
 
December 31, 2014
 
December 31, 2013
REI
 
$
19,821,440

 
$
7,809,083

Cole Capital
 
693,699

 
—

Total
 
$
20,515,139

 
$
7,809,083



8
American Realty Capital Properties, Inc.
Reconciliation of GAAP Net Loss to Normalized EBITDA (1) 
(in thousands)


The calculations of EBITDA and Normalized EBITDA, and reconciliation to net loss, which is the most directly comparable GAAP measure, are presented in the table below:

 
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2013
 
 
 Total
 
REI
 
 Cole Capital
 
 Total
 
REI
 
 Cole Capital
 Net loss
 
$
(360,427
)
 
$
(82,458
)
 
$
(277,969
)
 
$
(206,249
)
 
$
(206,249
)
 
$
—

 Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 Interest expense
 
126,157

 
126,157

 
—

 
60,134

 
60,134

 
—

 Depreciation and amortization
 
226,272

 
219,222

 
7,050

 
106,702

 
106,702

 
—

Income tax benefit
 
(27,979
)
 
—

 
(27,979
)
 
—

 
—

 
—

 EBITDA
 
(35,977
)
 
262,921

 
(298,898
)
 
(39,413
)
 
(39,413
)
 
—

 Management adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 Loss on held for sale assets and disposition of properties, net
 
1,263

 
1,263

 
—

 
—

 
—

 
—

 Acquisition related
 
4,215

 
853

 
3,362

 
1,572

 
1,572

 
—

 Merger and other non-routine transactions
 
25,162

 
25,139

 
23

 
76,809

 
76,809

 
—

 Impairments
 
406,136

 
96,692

 
309,444

 
—

 
—

 
—

 Equity-based compensation
 
513

 
(2,504
)
 
3,017

 
86,280

 
86,280

 
—

RCAP litigation settlement
 
(60,000
)
 
(60,000
)
 
—

 
—

 
—

 
—

 Normalized EBITDA
 
$
341,312

 
$
324,364

 
$
16,948

 
$
125,248

 
$
125,248

 
$
—

_______________________________________________
(1) EBITDA and Normalized EBITDA are non-GAAP measures. See the Terms and Definitions section that begins on page 32 for a description of the Company's non-GAAP measures.


9
American Realty Capital Properties, Inc.
Funds From Operations and Adjusted Funds From Operations (1) 
(in thousands, except share and per share data)


 
 
Three Months Ended
 
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
Total Company:
 
 
 
 
 
 
 
 
 Net Loss
 
$
(360,427
)
 
$
(288,047
)
 
$
(56,598
)
 
$
(305,840
)
 Dividends on non-convertible preferred stock
 
(17,973
)
 
(17,974
)
 
(17,773
)
 
(17,374
)
 Adjusted Net Loss
 
(378,400
)
 
(306,021
)
 
(74,371
)
 
(323,214
)
 Loss on disposition of properties and held for sale assets
 
1,263

 
256,894

 
1,269

 
17,605

 Depreciation and amortization of real estate assets
 
219,080

 
240,046

 
225,940

 
159,461

 Impairment of real estate
 
96,692

 
2,299

 
1,556

 
—

 Proportionate share of adjustments for unconsolidated entities
 
2,540

 
2,580

 
2,573

 
1,344

 FFO
 
$
(58,825
)
 
$
195,798

 
$
156,967

 
$
(144,804
)
 
 
 
 
 
 
 
 
 
 Acquisition related
 
4,215

 
13,998

 
7,201

 
13,417

 Merger and other transaction related
 
25,162

 
7,632

 
7,422

 
160,298

 Impairment of intangible assets
 
309,444

 
—

 
—

 
—

 RCAP litigation settlement
 
(60,000
)
 
—

 
—

 
—

 Litigation insurance proceeds
 
(720
)
 
(3,275
)
 
—

 
—

Gain on sale of investment securities
 
—

 
(6,357
)
 
—

 
—

Loss (gain) on derivative instruments, net
 
172

 
17,484

 
(14,207
)
 
7,121

 Amortization of premiums and discounts on debt and investments
 
11,461

 
(8,106
)
 
(4,606
)
 
(5,198
)
 Amortization of above- and below- market lease assets and liabilities
 
1,475

 
1,934

 
2,103

 
388

 Net direct financing lease adjustments
 
448

 
620

 
137

 
390

 Amortization and write off of deferred financing costs
 
23,475

 
12,486

 
10,985

 
44,976

 Amortization of management contracts
 
6,233

 
24,288

 
24,024

 
13,992

 Deferred tax benefit(2)
 
(33,324
)
 
—

 
—

 
—

 Loss on early extinguishment of debt
 
605

 
5,396

 
6,469

 
9,399

 Straight-line rent
 
(25,367
)
 
(24,871
)
 
(17,413
)
 
(7,520
)
 Non-cash equity compensation expense, net of forfeiture
 
(980
)
 
5,541

 
5,690

 
21,574

 Other adjustments
 
895

 
713

 
698

 
421

 Proportionate share of adjustments for unconsolidated entities
 
1,090

 
1,268

 
464

 
318

 AFFO
 
$
205,459

 
$
244,549

 
$
185,934

 
$
114,772

 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
 
902,528,136

 
902,096,102

 
815,406,408

 
547,470,771

Effect of dilutive securities
 
29,629,740

 
44,970,255

 
52,613,117

 
51,151,614

Weighted-average shares outstanding - diluted(3)
 
932,157,876

 
947,066,357

 
868,019,525

 
598,622,385

 
 
 
 
 
 
 
 
 
AFFO per diluted share
 
$
0.22

 
$
0.26

 
$
0.21

 
$
0.19

 
 
 
 
 
 
 
 
 

10
American Realty Capital Properties, Inc.
Funds From Operations and Adjusted Funds From Operations (1) 
(in thousands, except share and per share data)


 
 
Three Months Ended
 
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
REI:
 
 
 
 
 
 
 
 
 Net Loss
 
$
(82,458
)
 
$
(289,133
)
 
$
(46,124
)
 
$
(296,218
)
 Dividends on non-convertible preferred stock
 
(17,973
)
 
(17,974
)
 
(17,773
)
 
(17,374
)
 Adjusted net loss
 
(100,431
)
 
(307,107
)
 
(63,897
)
 
(313,592
)
 Loss on disposition of properties and held for sale assets
 
1,263

 
256,894

 
1,269

 
17,605

 Depreciation and amortization of real estate assets
 
219,080

 
240,046

 
225,940

 
159,461

 Impairment of real estate
 
96,692

 
2,299

 
1,556

 
—

 Proportionate share of adjustments for unconsolidated entities
 
2,540

 
2,580

 
2,573

 
1,344

 FFO
 
$
219,144

 
$
194,712

 
$
167,441

 
$
(135,182
)
 
 
 
 
 
 
 
 
 
 Acquisition related
 
853

 
13,998

 
7,201

 
13,417

 Merger and other transaction related
 
25,139

 
7,613

 
5,999

 
159,794

 RCAP litigation settlement
 
(60,000
)
 
—

 
—

 
—

 Litigation insurance proceeds
 
(720
)
 
(3,275
)
 
—

 
—

Gain on sale of investment securities
 
—

 
(6,357
)
 
—

 
—

Loss (gain) loss on derivative instruments, net
 
172

 
17,484

 
(14,207
)
 
7,121

 Amortization of premiums and discounts on debt and investments
 
11,461

 
(8,106
)
 
(4,606
)
 
(5,198
)
 Amortization of above- and below- market lease assets and liabilities
 
1,475

 
1,934

 
2,103

 
388

 Net direct financing lease adjustments
 
448

 
620

 
137

 
390

 Amortization and write off of deferred financing costs
 
23,475

 
12,486

 
10,985

 
44,976

 Loss on early extinguishment of debt
 
605

 
5,396

 
6,469

 
9,399

 Straight-line rent
 
(25,367
)
 
(24,871
)
 
(17,413
)
 
(7,520
)
 Non-cash equity compensation expense, net of forfeiture
 
(3,997
)
 
2,086

 
3,575

 
20,640

 Other adjustments
 
156

 
3

 
40

 
121

 Proportionate share of adjustments for unconsolidated entities
 
1,090

 
1,268

 
464

 
318

 AFFO
 
$
193,934

 
$
214,991

 
$
168,188

 
$
108,664

 
 
 
 
 
 
 
 
 
Cole Capital:
 
 
 
 
 
 
 
 
 Net Loss
 
$
(277,969
)
 
$
1,086

 
$
(10,474
)
 
$
(9,622
)
 FFO
 
$
(277,969
)
 
$
1,086

 
$
(10,474
)
 
$
(9,622
)
 
 
 
 
 
 
 
 
 
 Acquisition related
 
3,362

 
—

 
—

 
—

 Merger and other transaction related
 
23

 
19

 
1,423

 
504

 Impairment of intangible assets
 
309,444

 
—

 
—

 
—

 Amortization of management contracts
 
6,233

 
24,288

 
24,024

 
13,992

 Deferred tax benefit(2)
 
(33,324
)
 
—

 
—

 
—

 Non-cash equity compensation expense, net forfeiture
 
3,017

 
3,455

 
2,115

 
934

 Other adjustments
 
739

 
710

 
658

 
300

 AFFO
 
$
11,525

 
$
29,558

 
$
17,746

 
$
6,108

_______________________________________________
(1) FFO and AFFO are non-GAAP measures. See the Terms and Definitions section that begins on page 32 for a description of the Company’s non-GAAP measures.
(2) The Company recognized a tax benefit of $40.6 million in net loss. This adjustment represents the non-current portion of the benefit in order to show only the current portion of the benefit as an impact to AFFO.
(3) Weighted-average shares for all periods presented excludes the effect of the convertible debt as the effect would be antidilutive.

11
American Realty Capital Properties, Inc.
Adjusted G&A
(in thousands)


 
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2013
 
 
Total
 
REI
 
Cole Capital
 
Total
 
REI
 
Cole Capital
General and administrative
 
$
46,030

 
$
14,994

 
$
31,036

 
$
99,251

 
$
99,251

 
$
—

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Equity-based compensation
 
(513
)
 
2,504

 
(3,017
)
 
(86,280
)
 
(86,280
)
 
—

Expense reimbursements from Managed Programs (1)
 
(6,819
)
 
—

 
(6,819
)
 
—

 
—

 
—

Adjusted general and administrative (2)
 
$
38,698

 
$
17,498

 
$
21,200

 
$
12,971

 
$
12,971

 
$
—

_______________________________________________
(1) Expense reimbursements from Managed Programs represents expenses incurred during the three months ended December 31, 2014 for which reimbursement revenue was recorded.
(2) Adjusted G&A is a non-GAAP measure. See the Terms and Definitions section that begins on page 32 for a description of the Company's non-GAAP measures.

12
American Realty Capital Properties, Inc.
Financial and Operational Statistics and Ratios
(in thousands, expect share and per share amounts)


The following table presents certain financial and real estate portfolio information for the Company as of and for the three months ended December 31, 2014.
Financial Ratios:
 
 
Annualized Normalized EBITDA (1) (2)
 
$
1,365,248

Net debt plus preferred equity to Annualized Normalized EBITDA
 
8.15x

Net debt to Annualized Normalized EBITDA (1) (2) (3)
 
7.36x

Gross real estate and related assets (4)
 
$
18,154,404

Debt to gross real estate and related assets (4) (5)
 
57.91
%
Unsecured debt to gross real estate and related assets (4)
 
37.09
%
Interest coverage ratio (6)
 
3.13x

Weighted-average cost of debt (7)
 
3.47
%
Weighted average years to maturity of debt
 
4.7

Owned Property Information:
 
 
Number of properties
 
4,648

Number of tenants
 
803

Total rentable square feet (thousands)
 
103,149

Occupancy (8)
 
99.3
%
Weighted average lease term remaining (years) (9)
 
11.8

Percentage of investment-grade tenants (10)
 
46.87
%
Percentage of rated, non-investment grade tenants
 
23.23
%
_______________________________________________

(1)
Normalized EBITDA is a non-GAAP measure. See the Terms and Definitions section that begins on page 32 for a description of the Company's non-GAAP measures and page 9 for reconciliation of net income to Normalized EBITDA.
(2)
Annualized based on the three months ended December 31, 2014.
(3)
Net debt represents total GAAP-basis debt less cash.
(4)
Gross real estate and related assets represent total gross real estate and related assets, including investments in loans held for investment, investment securities and net investment in unconsolidated entities, net of gross intangible lease liabilities.
(5)
Debt represents total GAAP-basis debt.
(6)
Interest coverage ratio is calculated by dividing Annualized Normalized EBITDA by annualized interest expense.
(7)
Weighted average cost of debt is calculated based on the Company's total debt outstanding of $10.5 billion as of December 31, 2014. Rates ranging from 1.95% to 3.11% were used to calculate the variable debt payment obligations in future periods. These were the rates effective as of December 31, 2014.
(8)
Occupancy is the percent of rentable square feet for which there is a lease in place.
(9)
Weighted-average lease term remaining is calculated using the remaining non-cancelable lease terms.
(10)
Percentage of investment-grade tenants is based on annualized rental revenue from tenants with credit ratings of BBB- or higher. Tenant credit rating may reflect the credit rating of the parent company or guarantor.

13
American Realty Capital Properties, Inc.
Debt and Preferred Equity Summary
(in thousands) 


Principal Payments Due on
Debt Maturities:
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Mortgage notes payable
 
$
3,689,795

 
$
163,821

 
$
250,658

 
$
457,903

 
$
221,105

 
$
297,146

 
$
2,299,162

Corporate bonds
 
2,550,000

 
—

 
—

 
1,300,000

 
—

 
750,000

 
500,000

Convertible debt
 
1,000,000

 
—

 
—

 
—

 
597,500

 
—

 
402,500

Unsecured credit facility
 
3,184,000

 
—

 
—

 
—

 
3,184,000

 
—

 
—

Other debt
 
45,325

 
11,862

 
12,516

 
7,680

 
13,267

 
—

 
—

Total
 
$
10,469,120

 
$
175,683

 
$
263,174

 
$
1,765,583

 
$
4,015,872

 
$
1,047,146

 
$
3,201,662


Debt Type
 
Percentage of Total Debt
 
Weighted-Average Effective Interest Rate
 
Weighted-Average Years to Maturity
Mortgage notes payable
 
35.2
%
 
4.88
%
 
6.2

Corporate bonds
 
24.4
%
 
2.80
%
 
4.1

Convertible debt
 
9.6
%
 
3.30
%
 
4.5

Unsecured credit facility
 
30.4
%
 
2.38
%
 
3.5

Other debt
 
0.4
%
 
5.81
%
 
3.0

Total
 
100.0
%
 
3.47
%
 
4.7


Debt Type
 
Percentage of Total Debt
 
Weighted-Average Effective Interest Rate
 
Weighted-Average Years to Maturity
Total unsecured debt
 
64.4
%
 
2.68
%
 
3.9

Total secured debt
 
35.6
%
 
4.89
%
 
6.2

Total
 
100.0
%
 
3.47
%
 
4.7

 
 
 
 
 
 
 
Total fixed rate debt
 
79.2
%
 
3.81
%
 
5.4

Total floating rate debt
 
20.8
%
 
1.51
%
 
3.5

Total
 
100.0
%
 
3.47
%
 
4.7


Preferred Equity
 
Amount Outstanding
 
Percent of Total Preferred Equity
 
Dividend Rate
Series F preferred stock
 
$
1,070,560

 
100.00
%
 
6.7
%


14
American Realty Capital Properties, Inc.
Mortgage Notes Payable
(dollars in thousands)


Lender
 
Maturity
 
Outstanding Balance as of
December 31, 2014
 
Coupon Rate
 
Effective Rate
 
Payment Terms (1)
Cantor Commercial Real Estate Lending, L.P.
 
1/6/2024
 
$
465,000

 
4.97
%
 
5.04
%
 
I/O
Wells Fargo Bank, National Association
 
8/10/2036
 
281,449

 
4.16
%
 
4.16
%
 
P&I
Cantor Commercial Real Estate Lending, L.P.
 
1/6/2024
 
155,000

 
4.97
%
 
5.04
%
 
I/O
Wells Fargo Bank, National Association
 
1/1/2018
 
133,025

 
5.61
%
 
5.69
%
 
I/O through 02/01/2016, then P&I
The Royal Bank of Scotland Plc
 
5/1/2023
 
124,300

 
3.84
%
 
3.89
%
 
I/O
JPMorgan Chase Bank, N.A.
 
9/1/2020
 
104,308

 
5.55
%
 
5.63
%
 
P&I
Bank of America, N.A.
 
1/1/2017
 
94,884

 
6.30
%
 
6.30
%
 
I/O
Wells Fargo Bank, National Association
 
3/1/2023
 
74,250

 
4.23
%
 
4.29
%
 
I/O
Wells Fargo Bank, National Association
 
7/1/2022
 
68,110

 
4.54
%
 
4.60
%
 
I/O
Wells Fargo Bank, National Association
 
1/1/2023
 
66,000

 
4.24
%
 
4.30
%
 
I/O
Goldman Sachs Commercial Mortgage Capital, L.P.
 
6/6/2020
 
63,600

 
5.73
%
 
5.81
%
 
I/O through 07/06/2015, then P&I
Wells Fargo Bank, National Association
 
5/1/2021
 
60,450

 
5.54
%
 
5.61
%
 
I/O
PNC Bank, National Association
 
1/1/2019
 
59,500

 
4.10
%
 
4.16
%
 
I/O
New York State Teachers' Retirement System
 
3/1/2019
 
55,000

 
4.41
%
 
4.41
%
 
I/O
Citigroup Global Markets Realty Corp
 
5/6/2022
 
54,300

 
6.05
%
 
6.13
%
 
I/O
Wachovia Bank, National Association
 
9/11/2015
 
53,798

 
5.32
%
 
5.39
%
 
P&I
US Bank National Association
 
11/11/2014
 
52,594

 
5.23
%
 
5.30
%
 
I/O
Bank of America, N.A.
 
1/1/2017
 
51,836

 
5.90
%
 
5.90
%
 
I/O
Capital One, N.A.
 
11/20/2019
 
51,400

 
3.27
%
 
3.32
%
 
I/O through 11/01/2017, then P&I
American General Life Insurance Company
 
11/1/2021
 
51,250

 
5.25
%
 
5.25
%
 
I/O
Wells Fargo Bank, National Association
 
2/1/2017
 
48,500

 
3.75
%
 
3.80
%
 
I/O
JPMorgan Chase Bank, N.A.
 
5/1/2021
 
46,910

 
5.53
%
 
5.61
%
 
I/O
Goldman Sachs Commercial Mortgage Capital, L.P.
 
5/6/2021
 
46,670

 
5.92
%
 
6.01
%
 
I/O
US Bank National Association
 
7/11/2016
 
43,700

 
6.03
%
 
6.11
%
 
I/O
People's United Bank
 
4/1/2021
 
42,500

 
5.55
%
 
5.63
%
 
I/O through 05/01/2016, then P&I
JPMorgan Chase Bank, N.A.
 
6/1/2020
 
41,610

 
5.71
%
 
5.79
%
 
I/O through 07/01/2015, then P&I
Wells Fargo Bank, National Association
 
6/1/2022
 
41,000

 
4.73
%
 
4.80
%
 
I/O
MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC
 
1/1/2023
 
40,800

 
4.46
%
 
4.52
%
 
I/O
US Bank National Association
 
7/1/2015
 
39,332

 
5.10
%
 
5.17
%
 
P&I
JPMorgan Chase Bank, N.A.
 
11/1/2019
 
38,500

 
4.10
%
 
4.15
%
 
I/O
JPMorgan Chase Bank, N.A.
 
11/1/2017
 
38,315

 
6.34
%
 
6.34
%
 
I/O
LaSalle Bank National Association
 
1/1/2016
 
38,234

 
5.68
%
 
5.76
%
 
P&I
Wells Fargo Bank, National Association
 
3/1/2017
 
36,600

 
3.76
%
 
3.81
%
 
I/O
The Royal Bank of Scotland Plc
 
1/1/2021
 
34,000

 
5.48
%
 
5.56
%
 
I/O
The Royal Bank of Scotland Plc
 
4/11/2015
 
32,673

 
7.07
%
 
7.17
%
 
P&I
Goldman Sachs Mortgage Company
 
12/6/2020
 
31,500

 
5.25
%
 
5.32
%
 
I/O
Oritani Bank
 
5/1/2024
 
30,050

 
3.25
%
 
3.30
%
 
I/O through 05/01/2019, then P&I
Goldman Sachs Mortgage Company
 
12/6/2020
 
30,000

 
5.25
%
 
5.32
%
 
I/O
BOKF, NA dba Bank of Oklahoma
 
7/29/2018
 
29,954

 
4.10
%
 
4.16
%
 
I/O
Jackson National Life Insurance Company
 
10/1/2021
 
29,450

 
4.25
%
 
4.25
%
 
I/O through 11/01/2018, then P&I
German American Capital Corporation
 
10/6/2022
 
29,160

 
4.48
%
 
4.54
%
 
I/O
PNC Bank, National Association
 
9/1/2022
 
28,818

 
4.00
%
 
4.00
%
 
P&I
LaSalle Bank National Association
 
1/1/2016
 
28,763

 
5.69
%
 
5.77
%
 
I/O through 02/01/2015, then P&I

15
American Realty Capital Properties, Inc.
Mortgage Notes Payable
(dollars in thousands)


Lender
 
Maturity
 
Outstanding Balance as of
December 31, 2014
 
Coupon Rate
 
Effective Rate
 
Payment Terms (1)
German American Capital Corporation
 
10/6/2022
 
$
28,440

 
4.48
%
 
4.54
%
 
I/O
BOKF, NA dba Bank of Texas
 
7/31/2017
 
28,350

 
3.27
%
 
3.32
%
 
I/O
PNC Bank, National Association
 
6/1/2022
 
27,750

 
4.22
%
 
4.28
%
 
I/O
GS Commercial Real Estate LP
 
8/6/2019
 
27,725

 
4.73
%
 
4.79
%
 
I/O
Jackson National Life Insurance Company
 
7/1/2019
 
27,200

 
3.10
%
 
3.10
%
 
I/O
LaSalle Bank National Association
 
1/1/2017
 
25,620

 
5.81
%
 
5.89
%
 
I/O
Bank of America, N.A.
 
9/1/2017
 
24,943

 
5.28
%
 
5.35
%
 
P&I
Jackson National Life Insurance Company
 
2/1/2021
 
24,000

 
4.50
%
 
4.50
%
 
I/O through 03/01/2018, then P&I
John Hancock Life Insurance Company
 
10/1/2022
 
22,500

 
4.04
%
 
4.04
%
 
I/O
BOKF, NA dba Bank of Texas
 
12/31/2018
 
21,766

 
3.57
%
 
3.62
%
 
I/O
German American Capital Corp
 
6/6/2022
 
19,886

 
4.60
%
 
4.66
%
 
P&I
Aviva Life and Annuity Company
 
7/1/2021
 
19,600

 
5.02
%
 
5.02
%
 
I/O through 08/01/2019, then P&I
The Variable Annuity Life Insurance Company
 
1/1/2023
 
19,525

 
4.00
%
 
4.00
%
 
I/O
MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS LLC
 
5/10/2021
 
19,513

 
5.67
%
 
5.75
%
 
I/O
Oritani Bank
 
5/1/2024
 
18,889

 
3.25
%
 
3.30
%
 
I/O through 05/01/2019, then P&I
The Royal Bank of Scotland Plc
 
3/1/2021
 
18,100

 
5.88
%
 
5.96
%
 
I/O
US Bank National Association
 
12/11/2016
 
17,500

 
5.55
%
 
5.63
%
 
I/O
JPMorgan Chase Bank, National Association
 
5/1/2021
 
16,620

 
5.54
%
 
5.61
%
 
P&I
BOKF, NA dba Bank of Texas
 
7/31/2017
 
16,555

 
3.28
%
 
3.32
%
 
I/O
US Bank National Association
 
1/11/2017
 
16,200

 
5.48
%
 
5.56
%
 
I/O
Wachovia Bank, National Association
 
12/11/2016
 
16,043

 
5.63
%
 
5.71
%
 
I/O
Wells Fargo Bank, National Association
 
4/11/2015
 
15,754

 
13.00
%
 
13.00
%
 
P&I
Wells Fargo Bank, National Association
 
3/20/2023
 
15,464

 
3.23
%
 
3.23
%
 
I/O
Oritani Bank
 
1/1/2023
 
15,000

 
3.75
%
 
3.75
%
 
I/O through 01/01/2018, then P&I
US Bank National Association
 
5/1/2016
 
14,936

 
5.84
%
 
5.92
%
 
P&I
BOKF, NA dba Bank of Texas
 
12/31/2018
 
14,150

 
3.57
%
 
3.62
%
 
I/O
Wells Fargo Bank, National Association
 
3/1/2016
 
13,500

 
5.17
%
 
5.24
%
 
I/O
BOKF, NA dba Bank of Texas
 
12/31/2020
 
13,420

 
4.25
%
 
4.31
%
 
I/O
US Bank National Association
 
7/1/2016
 
13,076

 
6.05
%
 
6.13
%
 
P&I
BOKF, NA dba Bank of Texas
 
7/13/2017
 
12,725

 
3.43
%
 
3.48
%
 
I/O
Goldman Sachs Commercial Mortgage Capital, L.P.
 
9/6/2017
 
12,270

 
3.70
%
 
3.75
%
 
I/O
Customers Bank
 
12/1/2016
 
11,940

 
3.75
%
 
3.80
%
 
I/O
JPMorgan Chase Bank, N.A.
 
7/1/2020
 
11,375

 
5.50
%
 
5.58
%
 
I/O through 08/01/2015, then P&I
US Bank National Association
 
2/11/2017
 
10,332

 
5.68
%
 
5.76
%
 
I/O
US Bank National Association
 
11/11/2016
 
10,137

 
5.50
%
 
5.58
%
 
I/O
40/86 Mortgage Capital, Inc.
 
1/1/2019
 
10,050

 
5.00
%
 
5.00
%
 
I/O
Monumental Life Insurance Company
 
4/1/2023
 
9,882

 
3.95
%
 
3.95
%
 
I/O through 05/01/2014, then P&I
Wachovia Bank, National Association
 
6/11/2016
 
8,625

 
6.56
%
 
6.65
%
 
I/O
Transamerica Life Insurance Company
 
8/1/2030
 
7,743

 
5.57
%
 
5.57
%
 
P&I
Transamerica Life Insurance Company
 
8/1/2030
 
6,917

 
5.32
%
 
5.32
%
 
P&I
Amegy Bank, National Association
 
8/31/2016
 
6,793

 
1mo. Libor + 2.95%

 
3.11
%
 
I/O
US Bank National Association
 
5/11/2017
 
6,262

 
5.45
%
 
5.53
%
 
I/O
Customers Bank
 
8/16/2017
 
5,500

 
3.63
%
 
3.68
%
 
I/O
BOKF, NA dba Bank of Texas
 
10/31/2016
 
5,060

 
3.70
%
 
3.75
%
 
I/O

16
American Realty Capital Properties, Inc.
Mortgage Notes Payable
(dollars in thousands)


Lender
 
Maturity
 
Outstanding Balance as of
December 31, 2014
 
Coupon Rate
 
Effective Rate
 
Payment Terms (1)
Wells Fargo Bank, National Association
 
3/1/2017
 
$
4,800

 
3.76
%
 
3.81
%
 
I/O
US Bank National Association
 
4/15/2019
 
1,970

 
5.40
%
 
5.48
%
 
I/O
Capital Lease Funding, LLC
 
7/15/2018
 
1,916

 
7.20
%
 
7.20
%
 
P&I
Bear Stearns Commercial Mortgage, Inc.
 
9/1/2017
 
1,678

 
5.88
%
 
5.97
%
 
I/O
BOKF, NA dba Bank of Texas
 
4/12/2018
 
1,562

 
3.39
%
 
3.44
%
 
I/O
US Bank National Association
 
12/11/2016
 
1,513

 
6.18
%
 
6.27
%
 
I/O
US Bank National Association
 
12/11/2015
 
674

 
5.83
%
 
5.91
%
 
I/O
BOKF, NA dba Bank of Texas
 
4/12/2018
 
562

 
3.39
%
 
3.44
%
 
I/O
Transamerica Life Insurance Company
 
8/1/2030
 
391

 
5.93
%
 
5.93
%
 
P&I
 
 
 
 
$
3,689,795

 
4.86
%
 
4.88
%
 
 
_______________________________________________
(1) I/O means only interest is due monthly with the principal at due maturity; P&I means both principal and interest are due monthly.

17
American Realty Capital Properties, Inc.
Bond and Line of Credit Covenants


The following is a summary of key financial covenants for the Company's unsecured credit facility and senior unsecured notes, as defined and calculated per the terms of the facility's credit agreement and the notes(1) governing document, respectively. These calculations, which are not based on U.S. GAAP measurements, are presented to investors to show our ability to incur additional debt only and are not measures of our liquidity or performance.
Unsecured Credit Facility Key Covenants (1)
 
Required
 
December 31, 2014
Maximum leverage ratio
 
≤ 60%
 
47.1%
Minimum fixed charge coverage ratio
 
> 1.5x
 
2.1x
Secured leverage ratio
 
≤ 45%
 
17.7%
Total unencumbered asset value ratio
 
≤ 60%
 
48.9%
Minimum tangible net worth covenant
 
≥ $5.50B
 
$8.15B
Minimum unencumbered interest coverage ratio
 
≥1.75x
 
4.34x

Senior Notes Key Covenants (1)
 
Required
 
December 31, 2014
Limitation on incurrence of total debt
 
≤ 65%
 
54.1%
Limitation on incurrence of secured debt
 
≤ 40%
 
19.6%
Debt service coverage ratio
 
≥1.5x
 
2.1x
Maintenance of total unencumbered assets
 
≥150%
 
210.3%
_______________________________________________
(1) As of December 31, 2014, the Company believes it's in compliance with all covenants based on the covenant limits and calculations in place at that time.

18
American Realty Capital Properties, Inc. 
Same Store Summary
(Dollars in thousands)


The Company reviews the stabilized operating results from properties that were owned for the entirety of both the current and prior year reporting periods, referred to as "same store." The following tables show the Company's same store portfolio statistics which included 698 properties acquired prior to January 1, 2013 and owned though December 31, 2014, excluding properties acquired though unconsolidated joint ventures:

 
 
Year Ended December 31,
 
Increase/(Decrease)
 
 
2014
 
2013
 
$ Change
 
% Change
Same store base rental revenue(1)
 
$
146,865

 
$
146,030

 
$
835

 
0.6
 %
Same store other rental revenue(1)
 
4,014

 
4,982

 
(968
)
 
(19.4
)%
Total
 
$
150,879

 
$
151,012

 
$
(133
)
 
(0.1
)%

 
 
 
 
Base Rental Revenue(1)
 
 
Number of
 
Year Ended December 31,
 
Increase/(Decrease)
 
 
Properties
 
2014
 
2013
 
$ Change
 
% Change
Retail
 
589

 
$
71,768

 
$
71,265

 
$
503

 
0.7
%
Restaurant
 
40

 
5,308

 
5,232

 
76

 
1.5
%
Office
 
26

 
24,995

 
24,872

 
123

 
0.5
%
Distribution
 
43

 
44,794

 
44,661

 
133

 
0.3
%
Total
 
698

 
$
146,865

 
$
146,030

 
$
835

 
0.6
%
_______________________________________________
(1) Base rental revenue represents contractual base rental revenue earned. Same store other rental revenue includes certain GAAP adjustments to rental revenue, such as straight-line rent and amortization of above market intangible lease assets and below market lease intangible liabilities.

19
American Realty Capital Properties, Inc. 
Top 10 Concentrations
(Dollars in thousands)


Tenant Concentration
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
 
Investment Rating
Red Lobster
 
522

 
3,888,996

 
3.77
%
 
$
159,628

 
11.59
%
 
B-
CVS
 
176

 
2,421,990

 
2.35
%
 
52,351

 
3.80
%
 
BBB+
Walgreens
 
123

 
1,785,789

 
1.73
%
 
44,732

 
3.25
%
 
BBB
Family Dollar
 
395

 
3,209,936

 
3.11
%
 
35,022

 
2.54
%
 
BBB-
Dollar General
 
406

 
3,755,764

 
3.64
%
 
34,298

 
2.49
%
 
BBB-
FedEx
 
55

 
3,346,465

 
3.24
%
 
32,625

 
2.37
%
 
BBB
General Service Administration
 
23

 
1,020,641

 
0.99
%
 
23,674

 
1.72
%
 
AA+
Albertson's
 
33

 
1,923,485

 
1.86
%
 
23,633

 
1.72
%
 
B
Citizens Bank
 
190

 
973,241

 
0.94
%
 
22,861

 
1.66
%
 
A-
AT&T
 
5

 
1,313,271

 
1.27
%
 
22,747

 
1.65
%
 
A-
 
 
1,928

 
23,639,578

 
22.90
%
 
$
451,571

 
32.79
%
 
 


Tenant Industry Concentration
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Restaurants - Other
 
998

 
6,818,126

 
6.61
%
 
$
253,936

 
18.44
%
Manufacturing
 
69

 
19,428,581

 
18.84
%
 
127,237

 
9.24
%
Restaurants - Quick Service
 
1,218

 
4,372,927

 
4.24
%
 
121,506

 
8.83
%
Retail - Pharmacy
 
339

 
4,915,236

 
4.77
%
 
110,836

 
8.05
%
Retail - Discount
 
830

 
10,282,525

 
9.97
%
 
93,982

 
6.83
%
Finance
 
309

 
3,086,515

 
2.99
%
 
65,965

 
4.79
%
Professional Services
 
72

 
4,242,109

 
4.11
%
 
59,606

 
4.33
%
Retail - Grocery & Supermarket
 
87

 
5,631,656

 
5.46
%
 
59,055

 
4.29
%
Retail - Home & Garden
 
103

 
7,866,439

 
7.63
%
 
57,724

 
4.19
%
Logistics
 
63

 
4,800,451

 
4.65
%
 
41,507

 
3.01
%
 
 
4,088

 
71,444,565

 
69.27
%
 
$
991,354

 
72.00
%

Geographic Concentration
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Texas
 
628

 
12,037,105

 
11.67
%
 
$
175,323

 
12.73
%
Illinois
 
193

 
6,136,866

 
5.95
%
 
82,280

 
5.98
%
Florida
 
303

 
5,230,412

 
5.07
%
 
81,141

 
5.89
%
California
 
102

 
5,028,083

 
4.87
%
 
75,691

 
5.50
%
Georgia
 
227

 
5,010,854

 
4.86
%
 
67,873

 
4.93
%
Pennsylvania
 
176

 
5,806,529

 
5.63
%
 
60,286

 
4.38
%
Ohio
 
301

 
5,829,486

 
5.65
%
 
56,768

 
4.12
%
Arizona
 
88

 
3,009,724

 
2.92
%
 
53,067

 
3.85
%
Indiana
 
147

 
5,972,034

 
5.79
%
 
46,595

 
3.38
%
North Carolina
 
187

 
3,965,561

 
3.84
%
 
43,417

 
3.15
%
 
 
2,352

 
58,026,654

 
56.25
%
 
$
742,441

 
53.91
%

20
American Realty Capital Properties, Inc. 
Tenants Comprising Over 1% of Annualized Rental Income
(Dollars in thousands)


Tenant
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
 
Investment Rating
Red Lobster
 
522

 
3,888,996

 
3.77
%
 
$
159,628

 
11.59
%
 
B-
CVS
 
176

 
2,421,990

 
2.35
%
 
52,351

 
3.80
%
 
BBB+
Walgreens
 
123

 
1,785,789

 
1.73
%
 
44,732

 
3.25
%
 
BBB
Family Dollar
 
395

 
3,209,936

 
3.11
%
 
35,022

 
2.54
%
 
BBB-
Dollar General
 
406

 
3,755,764

 
3.64
%
 
34,298

 
2.49
%
 
BBB-
FedEx
 
55

 
3,346,465

 
3.24
%
 
32,625

 
2.37
%
 
BBB
General Service Administration
 
23

 
1,020,641

 
0.99
%
 
23,674

 
1.72
%
 
AA+
Albertson's
 
33

 
1,923,485

 
1.86
%
 
23,633

 
1.72
%
 
B
Citizens Bank
 
190

 
973,241

 
0.94
%
 
22,861

 
1.66
%
 
A-
AT&T
 
5

 
1,313,271

 
1.27
%
 
22,747

 
1.65
%
 
A-
BJ's Wholesale Club
 
13

 
2,223,069

 
2.16
%
 
19,254

 
1.40
%
 
B-
AON
 
8

 
1,203,066

 
1.17
%
 
18,154

 
1.32
%
 
A-
Petsmart
 
22

 
857,565

 
0.83
%
 
17,610

 
1.28
%
 
BB+
Goodyear
 
10

 
4,727,594

 
4.58
%
 
16,550

 
1.20
%
 
BB-
Lowe's
 
16

 
2,134,012

 
2.07
%
 
16,180

 
1.18
%
 
A-
Tractor Supply
 
58

 
1,213,001

 
1.18
%
 
15,709

 
1.14
%
 
NR
Apollo Group
 
1

 
599,664

 
0.58
%
 
14,951

 
1.09
%
 
NR
Wal-Mart
 
9

 
1,944,108

 
1.88
%
 
14,608

 
1.06
%
 
AA
Home Depot
 
12

 
2,161,832

 
2.10
%
 
14,252

 
1.04
%
 
A
Amazon
 
3

 
3,048,444

 
2.96
%
 
14,159

 
1.03
%
 
AA-
 
 
2,080

 
43,751,933

 
42.41
%
 
$
612,998

 
44.53
%
 
 

21
American Realty Capital Properties, Inc.
Tenant Industry Diversification
(Dollars in thousands)


Industry
 
Number of Leases
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Accomodation & Food Services
 
1

 
9,513

 
—
%
 
$
228

 
—
%
Administrative & Support Services
 
5

 
430,227

 
0.4
%
 
4,054

 
0.3
%
Agricultural
 
2

 
137,520

 
0.1
%
 
1,245

 
0.1
%
Education
 
5

 
1,887,164

 
1.8
%
 
20,763

 
1.5
%
Entertainment & Recreation
 
23

 
850,981

 
0.8
%
 
15,752

 
1.1
%
Finance
 
309

 
3,086,515

 
3.0
%
 
65,965

 
4.8
%
Government & Public Services
 
31

 
1,275,972

 
1.2
%
 
30,995

 
2.3
%
Healthcare
 
82

 
1,662,903

 
1.6
%
 
30,246

 
2.2
%
Information & Communications
 
17

 
1,507,709

 
1.5
%
 
27,289

 
2.0
%
Insurance
 
20

 
2,163,389

 
2.1
%
 
40,764

 
3.0
%
License Agreement
 
8

 
—

 
—
%
 
8

 
—
%
Logistics
 
63

 
4,800,451

 
4.7
%
 
41,507

 
3.0
%
Manufacturing
 
69

 
19,428,581

 
18.8
%
 
127,237

 
9.2
%
Mining & Natural Resources
 
16

 
736,172

 
0.7
%
 
14,744

 
1.1
%
Other Services
 
38

 
5,234,675

 
5.1
%
 
19,417

 
1.4
%
Professional Services
 
72

 
4,242,109

 
4.1
%
 
59,606

 
4.3
%
Real Estate
 
3

 
44,059

 
—
%
 
658

 
—
%
Rental
 
44

 
712,860

 
0.7
%
 
6,734

 
0.5
%
Restaurants - Other
 
998

 
6,818,126

 
6.6
%
 
253,936

 
18.4
%
Restaurants - Quick Service
 
1,218

 
4,372,927

 
4.2
%
 
121,506

 
8.8
%
Retail - Apparel & Jewelry
 
15

 
1,402,799

 
1.4
%
 
15,311

 
1.1
%
Retail - Automotive
 
167

 
1,197,391

 
1.2
%
 
21,987

 
1.6
%
Retail - Department Stores
 
14

 
1,050,948

 
1.0
%
 
8,591

 
0.6
%
Retail - Discount
 
830

 
10,282,525

 
10.0
%
 
93,982

 
6.8
%
Retail - Electronics & Appliances
 
23

 
701,381

 
0.7
%
 
9,617

 
0.7
%
Retail - Gas & Convenience
 
127

 
526,556

 
0.5
%
 
27,114

 
2.0
%
Retail - Grocery & Supermarket
 
87

 
5,631,656

 
5.5
%
 
59,055

 
4.3
%
Retail - Hobby, Books & Music
 
10

 
364,971

 
0.4
%
 
3,557

 
0.3
%
Retail - Home & Garden
 
103

 
7,866,439

 
7.6
%
 
57,724

 
4.2
%
Retail - Home Furnishings
 
39

 
452,976

 
0.4
%
 
7,400

 
0.5
%
Retail - Internet
 
3

 
3,048,444

 
3.0
%
 
14,159

 
1.0
%
Retail - Office Supply
 
5

 
97,396

 
0.1
%
 
1,355

 
0.1
%
Retail - Pet Supply
 
25

 
902,817

 
0.9
%
 
18,444

 
1.3
%
Retail - Pharmacy
 
339

 
4,915,236

 
4.8
%
 
110,836

 
8.1
%
Retail - Specialty (Other)
 
27

 
575,679

 
0.6
%
 
6,362

 
0.5
%
Retail - Sporting Goods
 
22

 
1,271,446

 
1.2
%
 
14,876

 
1.1
%
Transportation
 
1

 
49,920

 
—
%
 
6

 
—
%
Utilities
 
2

 
40,734

 
—
%
 
931

 
0.1
%
Other(1)
 
51

 
736,476

 
0.7
%
 
435

 
—
%
 
 
4,931

 
103,148,546

 
100
%
 
1,376,764

 
100
%
_______________________________________________
(1) Includes billboard, construction in progress, parking and vacant assets.

22
American Realty Capital Properties, Inc. 
Property Geographic Diversification
(Dollars in thousands)


State/Possession
 
Number of Properties
 
Square Feet
 
Leased Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Alabama
 
158

 
1,765,783

 
1.7
%
 
$
32,818

 
2.4
%
Alaska
 
3

 
25,070

 
—
%
 
774

 
0.1
%
Alberta
 
4

 
31,667

 
—
%
 
1,912

 
0.1
%
Arizona
 
88

 
3,009,724

 
2.9
%
 
53,067

 
3.9
%
Arkansas
 
103

 
1,027,467

 
1.0
%
 
13,083

 
1.0
%
California
 
102

 
5,028,083

 
4.9
%
 
75,691

 
5.5
%
Colorado
 
59

 
1,935,612

 
1.9
%
 
29,251

 
2.1
%
Connecticut
 
20

 
99,818

 
0.1
%
 
2,840

 
0.2
%
Delaware
 
12

 
106,658

 
0.1
%
 
2,582

 
0.2
%
District of Columbia
 
1

 
3,210

 
—
%
 
44

 
—
%
Florida
 
303

 
5,230,412

 
5.1
%
 
81,141

 
5.9
%
Georgia
 
227

 
5,010,854

 
4.9
%
 
67,873

 
4.9
%
Idaho
 
20

 
146,935

 
0.1
%
 
4,542

 
0.3
%
Illinois
 
193

 
6,136,866

 
6.0
%
 
82,280

 
6.0
%
Indiana
 
147

 
5,972,034

 
5.8
%
 
46,595

 
3.4
%
Iowa
 
54

 
1,621,488

 
1.6
%
 
15,524

 
1.1
%
Kansas
 
53

 
2,400,807

 
2.3
%
 
17,035

 
1.2
%
Kentucky
 
95

 
2,242,251

 
2.2
%
 
27,355

 
2.0
%
Louisiana
 
103

 
1,685,842

 
1.6
%
 
23,878

 
1.7
%
Maine
 
25

 
648,410

 
0.6
%
 
8,547

 
0.6
%
Manitoba
 
2

 
15,900

 
—
%
 
827

 
0.1
%
Maryland
 
35

 
871,590

 
0.8
%
 
17,910

 
1.3
%
Massachusetts
 
41

 
2,650,803

 
2.6
%
 
31,059

 
2.3
%
Michigan
 
194

 
2,495,930

 
2.4
%
 
39,966

 
2.9
%
Minnesota
 
48

 
585,633

 
0.6
%
 
9,188

 
0.7
%
Mississippi
 
81

 
1,843,066

 
1.8
%
 
16,397

 
1.2
%
Missouri
 
172

 
1,954,947

 
1.9
%
 
27,910

 
2.0
%
Montana
 
10

 
85,057

 
0.1
%
 
1,701

 
0.1
%
Nebraska
 
25

 
695,991

 
0.7
%
 
12,719

 
0.9
%
Nevada
 
33

 
753,105

 
0.7
%
 
9,870

 
0.7
%
New Hampshire
 
20

 
250,717

 
0.2
%
 
4,398

 
0.3
%
New Jersey
 
39

 
1,693,388

 
1.6
%
 
37,458

 
2.7
%
New Mexico
 
57

 
934,278

 
0.9
%
 
14,514

 
1.1
%
New York
 
94

 
1,809,498

 
1.8
%
 
34,465

 
2.5
%
North Carolina
 
187

 
3,965,561

 
3.8
%
 
43,417

 
3.2
%
North Dakota
 
12

 
200,818

 
0.2
%
 
4,589

 
0.3
%
Ohio
 
301

 
5,829,486

 
5.7
%
 
56,768

 
4.1
%
Oklahoma
 
90

 
2,113,928

 
2.0
%
 
27,318

 
2.0
%
Ontario
 
11

 
77,885

 
0.1
%
 
4,242

 
0.3
%
Oregon
 
17

 
319,773

 
0.3
%
 
4,433

 
0.3
%
Pennsylvania
 
176

 
5,806,529

 
5.6
%
 
60,286

 
4.4
%
Puerto Rico
 
3

 
87,550

 
0.1
%
 
2,429

 
0.2
%
Rhode Island
 
14

 
214,079

 
0.2
%
 
3,649

 
0.3
%
Saskatchewan
 
2

 
16,800

 
—
%
 
796

 
0.1
%
South Carolina
 
126

 
3,380,193

 
3.3
%
 
30,641

 
2.2
%
South Dakota
 
11

 
124,104

 
0.1
%
 
1,614

 
0.1
%
Tennessee
 
137

 
3,487,182

 
3.4
%
 
34,528

 
2.5
%
Texas
 
628

 
12,037,105

 
11.7
%
 
175,323

 
12.7
%
Utah
 
14

 
142,598

 
0.1
%
 
3,178

 
0.2
%
Vermont
 
8

 
36,749

 
—
%
 
734

 
0.1
%
Virginia
 
120

 
2,135,543

 
2.1
%
 
38,281

 
2.8
%
Washington
 
27

 
492,078

 
0.5
%
 
11,840

 
0.9
%
West Virginia
 
44

 
271,806

 
0.3
%
 
6,917

 
0.5
%
Wisconsin
 
88

 
1,569,827

 
1.5
%
 
18,858

 
1.4
%
Wyoming
 
11

 
70,058

 
0.1
%
 
1,709

 
0.1
%
 
 
4,648

 
103,148,546

 
100.0
%
 
$
1,376,764

 
100.0
%

23
American Realty Capital Properties, Inc.
Property Building Type Diversification
(Dollars in thousands)


Property Type
 
Number of Properties
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income
 
Annualized Rental Income as a % of Total Portfolio
Retail
 
4,259

 
42,821,364

 
41.6
%
 
$
819,764

 
59.6
%
Office
 
165

 
17,414,512

 
16.9
%
 
314,059

 
22.8
%
Multi-Tenant Retail
 
20

 
1,880,571

 
1.8
%
 
26,501

 
1.9
%
Distribution
 
94

 
28,303,085

 
27.4
%
 
142,393

 
10.3
%
Industrial
 
79

 
11,766,597

 
11.4
%
 
67,213

 
4.9
%
Other(1)
 
31

 
962,417

 
0.9
%
 
6,834

 
0.5
%
 
 
4,648

 
103,148,546

 
100.0
%
 
$
1,376,764

 
100.0
%
_______________________________________________
(1) Includes billboard, construction in progress, parking and vacant assets.

24
American Realty Capital Properties, Inc.
Lease Expirations
(Dollars in thousands)


Year of Expiration
 
Number of Leases
Expiring
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income Expiring
 
Annualized Rental Income Expiring as a % of Total Portfolio
2015
 
243

 
3,482,402

 
3.4
%
 
$
27,367

 
2.0
%
2016
 
153

 
3,555,200

 
3.5
%
 
34,004

 
2.5
%
2017
 
278

 
5,073,324

 
4.9
%
 
59,116

 
4.3
%
2018
 
248

 
3,107,173

 
3.0
%
 
41,052

 
3.0
%
2019
 
201

 
3,343,272

 
3.2
%
 
56,797

 
4.1
%
2020
 
188

 
3,672,980

 
3.6
%
 
45,729

 
3.3
%
2021
 
183

 
12,263,521

 
11.9
%
 
92,984

 
6.8
%
2022
 
265

 
9,379,757

 
9.1
%
 
79,730

 
5.8
%
2023
 
234

 
6,536,828

 
6.3
%
 
86,953

 
6.3
%
2024
 
199

 
10,305,839

 
10.0
%
 
127,311

 
9.3
%
 
 
2,192

 
60,720,296

 
10.0
%
 
$
651,043

 
47.3
%


Year of Expiration
 
Number of Leases
Expiring
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income Expiring
 
Annualized Rental Income Expiring as a % of Total Portfolio
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
Retail
 
12

 
68,050

 
0.1
%
 
$
961

 
0.1
%
Office
 
41

 
1,016,391

 
1.0
%
 
10,781

 
0.8
%
Restaurant
 
154

 
575,004

 
0.6
%
 
9,673

 
0.7
%
Multi-Tenant Retail
 
27

 
115,849

 
0.1
%
 
1,196

 
0.1
%
Distribution
 
3

 
1,463,353

 
1.4
%
 
4,751

 
0.3
%
Industrial
 
—

 
—

 
—
%
 
—

 
—
%
Other(1)
 
6

 
243,755

 
0.2
%
 
5

 
—
%
Total 2015
 
243

 
3,482,402

 
3.4
%
 
$
27,367

 
2.0
%
 
 
 
 
 
 
 
 
 
 
 
2016
 


 


 


 


 


Retail
 
11

 
94,394

 
0.1
%
 
$
1,101

 
0.1
%
Office
 
14

 
741,182

 
0.7
%
 
12,627

 
0.9
%
Restaurant
 
97

 
364,263

 
0.4
%
 
8,735

 
0.6
%
Multi-Tenant Retail
 
23

 
111,225

 
0.1
%
 
1,637

 
0.1
%
Distribution
 
7

 
2,244,136

 
2.2
%
 
9,885

 
0.7
%
Industrial
 
—

 
—

 
—
%
 
—

 
—
%
Other(1)
 
1

 
—

 
—
%
 
19

 
—
%
Total 2016
 
153

 
3,555,200

 
3.5
%
 
$
34,004

 
2.4
%
 
 
 
 
 
 
 
 
 
 
 
2017
 


 


 


 


 


Retail
 
101

 
615,899

 
0.6
%
 
$
14,139

 
1.0
%
Office
 
27

 
1,399,198

 
1.4
%
 
21,307

 
1.5
%
Restaurant
 
107

 
610,282

 
0.6
%
 
11,122

 
0.8
%
Multi-Tenant Retail
 
33

 
157,116

 
0.2
%
 
2,701

 
0.2
%
Distribution
 
6

 
2,139,597

 
2.1
%
 
9,268

 
0.7
%
Industrial
 
3

 
151,232

 
0.1
%
 
564

 
—
%
Other(1)
 
1

 
—

 
—
%
 
15

 
—
%
Total 2017
 
278

 
5,073,324

 
4.9
%
 
$
59,116

 
4.2
%

25
American Realty Capital Properties, Inc.
Lease Expirations
(Dollars in thousands)


Year of Expiration
 
Number of Leases
Expiring
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income Expiring
 
Annualized Rental Income Expiring as a % of Total Portfolio
2018
 


 


 


 


 


Retail
 
76

 
973,110

 
0.9
%
 
$
13,930

 
1.0
%
Office
 
12

 
341,746

 
0.3
%
 
7,525

 
0.5
%
Restaurant
 
116

 
423,667

 
0.4
%
 
10,103

 
0.7
%
Multi-Tenant Retail
 
30

 
305,296

 
0.3
%
 
4,239

 
0.3
%
Distribution
 
7

 
849,596

 
0.8
%
 
4,002

 
0.3
%
Industrial
 
6

 
213,758

 
0.2
%
 
1,241

 
0.1
%
Other(1)
 
1

 
—

 
—
%
 
12

 
—
%
Total 2018
 
248

 
3,107,173

 
3.0
%
 
$
41,052

 
2.9
%
 
 
 
 
 
 
 
 
 
 
 
2019
 


 


 


 


 


Retail
 
56

 
1,354,979

 
1.3
%
 
$
15,445

 
1.1
%
Office
 
15

 
1,042,080

 
1.0
%
 
25,389

 
1.8
%
Restaurant
 
98

 
441,175

 
0.4
%
 
9,717

 
0.7
%
Multi-Tenant Retail
 
28

 
215,964

 
0.2
%
 
3,548

 
0.3
%
Distribution
 
2

 
220,643

 
0.2
%
 
2,212

 
0.2
%
Industrial
 
2

 
68,431

 
0.1
%
 
486

 
—
%
Other(1)
 
—

 
—

 
—
%
 
—

 
—
%
Total 2019
 
201

 
3,343,272

 
3.2
%
 
$
56,797

 
4.1
%
 
 
 
 
 
 
 
 
 
 
 
2020
 


 


 


 


 


Retail
 
82

 
1,076,801

 
1.0
%
 
$
13,578

 
1.0
%
Office
 
18

 
1,673,139

 
1.6
%
 
20,147

 
1.5
%
Restaurant
 
71

 
284,763

 
0.3
%
 
7,062

 
0.5
%
Multi-Tenant Retail
 
11

 
150,956

 
0.1
%
 
1,736

 
0.1
%
Distribution
 
—

 
—

 
—
%
 
—

 
—
%
Industrial
 
5

 
478,921

 
0.5
%
 
3,205

 
0.2
%
Other(1)
 
—

 
—

 
—
%
 
—

 
—
%
Total 2020
 
188

 
3,672,980

 
3.6
%
 
$
45,729

 
3.3
%
 
 
 
 
 
 
 
 
 
 
 
2021
 


 


 


 


 


Retail
 
75

 
1,333,781

 
1.3
%
 
$
20,390

 
1.5
%
Office
 
17

 
1,879,277

 
1.8
%
 
31,212

 
2.3
%
Restaurant
 
63

 
202,277

 
0.2
%
 
5,670

 
0.4
%
Multi-Tenant Retail
 
9

 
118,230

 
0.1
%
 
1,874

 
0.1
%
Distribution
 
15

 
7,571,709

 
7.3
%
 
29,936

 
2.2
%
Industrial
 
4

 
1,158,247

 
1.1
%
 
3,902

 
0.3
%
Other(1)
 
—

 
—

 
—
%
 
—

 
—
%
Total 2021
 
183

 
12,263,521

 
11.9
%
 
$
92,984

 
6.8
%
 
 
 
 
 
 
 
 
 
 
 
2022
 


 


 


 


 


Retail
 
157

 
2,130,780

 
2.1
%
 
$
28,422

 
2.1
%
Office
 
9

 
665,954

 
0.6
%
 
13,436

 
1.0
%
Restaurant
 
63

 
370,553

 
0.4
%
 
8,070

 
0.6
%
Multi-Tenant Retail
 
5

 
66,053

 
0.1
%
 
1,333

 
0.1
%
Distribution
 
21

 
5,091,372

 
4.9
%
 
21,779

 
1.6
%
Industrial
 
10

 
1,055,045

 
1.0
%
 
6,690

 
0.5
%
Other(1)
 
—

 
—

 
—
%
 
—

 
—
%
Total 2022
 
265

 
9,379,757

 
9.1
%
 
$
79,730

 
5.9
%

26
American Realty Capital Properties, Inc.
Lease Expirations
(Dollars in thousands)


Year of Expiration
 
Number of Leases
Expiring
 
Square Feet
 
Square Feet as a % of Total Portfolio
 
Annualized Rental Income Expiring
 
Annualized Rental Income Expiring as a % of Total Portfolio
 
 
 
 
 
 
 
 
 
 
 
2023
 


 


 


 


 


Retail
 
123

 
1,870,739

 
1.8
%
 
$
23,356

 
1.7
%
Office
 
26

 
1,685,099

 
1.6
%
 
36,382

 
2.6
%
Restaurant
 
62

 
325,483

 
0.3
%
 
7,194

 
0.5
%
Multi-Tenant Retail
 
7

 
129,367

 
0.1
%
 
2,615

 
0.2
%
Distribution
 
9

 
2,230,423

 
2.2
%
 
14,288

 
1.0
%
Industrial
 
7

 
295,717

 
0.3
%
 
3,118

 
0.2
%
Other(1)
 
—

 
—

 
—
%
 
—

 
—
%
Total 2023
 
234

 
6,536,828

 
6.3
%
 
$
86,953

 
6.2
%
 
 
 
 
 
 
 
 
 
 
 
2024
 


 


 


 


 


Retail
 
112

 
2,361,139

 
2.3
%
 
$
31,764

 
2.3
%
Office
 
27

 
4,102,960

 
4.0
%
 
73,636

 
5.3
%
Restaurant
 
44

 
200,946

 
0.2
%
 
5,573

 
0.4
%
Multi-Tenant Retail
 
4

 
131,512

 
0.1
%
 
859

 
0.1
%
Distribution
 
6

 
1,939,889

 
1.9
%
 
8,554

 
0.6
%
Industrial
 
5

 
1,119,393

 
1.1
%
 
5,405

 
0.4
%
Other(1)
 
—

 
—

 
—
%
 
—

 
—
%
Total 2024
 
199

 
10,305,839

 
10.0
%
 
$
127,311

 
9.2
%
 
 
 
 
 
 
 
 
 
 
 
Total 2015 - 2024
 
2,192

 
60,720,296

 
58.9
%
 
$
651,043

 
47.0
%
_______________________________________________
(1) Includes billboard, construction in progress, parking and vacant assets.

27
American Realty Capital Properties, Inc.
Unconsolidated Joint Venture Investment Summary
(Dollars in thousands)


The following table shows certain information regarding the Company’s interests in unconsolidated joint ventures as of December 31, 2014:
 Joint Venture
 
 Partner
 
Ownership %
 
Pro rata Share of Purchase Price
 
 Rentable Square Feet (1)
 
 Annualized Rental Income (1)
 
 Debt (1) (2)
 
 Major Tenants
Cole/Mosaic JV South Elgin IL, LLC
 
Affiliate of Mosaic Properties and Development, LLC
 
50%
 
$
17,000

 
232,000

 
$
2,904

 
$
20,400

 
Home Depot, Best Buy
Chandler Festival SPE, LLC
 
Propstra Chandler Trust & RED Development, LLC
 
45%(3)
 
27,878

 
360,000

 
5,346

 
28,533

 
Nordstrom Rack, Buy Buy Baby, Ross, TJ Maxx
Chandler Village Center, LLC (AZ)
 
Propstra Chandler Trust & RED Development, LLC
 
45%(3)
 
13,316

 
130,000

 
2,454

 
20,370

 
Sports Authority, Bed Bath & Beyond, DSW
Cole/LBA JV OF Pleasanton CA
 
Affiliate of LBA Realty
 
90%
 
86,850

 
343,000

 
7,165

 
57,000

 
Clorox Companies
Chandler Gateway SPE, LLC
 
Propstra Chandler Trust & RED Development, LLC
 
45%(3)
 
12,884

 
260,000

 
2,193

 
18,157

 
Hobby Lobby,
Wal-Mart
Cole/Faison JV Bethlehem GA, LLC
 
Faison-Winder Investors, LLC
 
90%
 
33,429

 
280,000

 
3,248

 
26,000

 
Publix, Belk
Total Unconsolidated Joint Ventures
 
 
 
$
191,357

 
1,605,000

 
$
23,310

 
$
170,460

 
 
Interest (4)
 
 
 
 
 
 
 
$
15,321

 
$
115,077

 
 
_______________________________________________
(1)
Rentable square feet, annualized rental income and debt represent information for the total unconsolidated joint venture.
(2)
Debt represents secured fixed and variable rates ranging from 2.05% to 6.15% and maturities ranging from July 2015 to July 2021, with a weighted-average interest rate of 3.69% as of December 31, 2014 and a weighted-average years to maturity of 2.2 years as of December 31, 2014.
(3)
Represents the Company’s 90% interest in a consolidated joint venture, whose only assets are 50% interests in the respective unconsolidated joint ventures.
(4)
Represents the Company’s aggregate interest in unconsolidated joint ventures as of December 31, 2014.


28
American Realty Capital Properties, Inc.
Managed Programs


Program Summary
The following table shows the Managed Programs' cumulative activity summary information as of December 31, 2014 (dollars in thousands):
Program
 
Capital Raised (1)
 
Number of Investments (2)
 
Assets Under Management (3)
 
Total Debt Outstanding 
Open Programs:
 
 
 
 
 
 
 
 
Cole Credit Property Trust V, Inc. (“CCPT V”)
 
$
173,742

 
79

 
$
384,845

 
$
247,145

Cole Real Estate Income Strategy (Daily NAV), Inc. (“INAV”)
 
137,163

 
75

 
230,148

 
120,304

Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”)
 
244,906

 
23

 
656,516

 
430,916

Total Open Programs
 
555,811

 
177

 
1,271,509

 
798,365

 
 
 
 
 
 
 
 
 
Closed Programs:(4)
 


 
 
 
 
 
 
Cole Credit Property Trust IV, Inc. (“CCPT IV”)
 
3,048,388

 
759

 
3,985,769

 
1,466,507

Cole Corporate Income Trust, Inc. (“CCIT”)
 
1,974,423

 
87

 
2,669,551

 
1,017,586

Other Programs
 
372,617

 
74

 
636,711

 
357,307

Total Closed Programs
 
5,395,428

 
920

 
7,292,031

 
2,841,400

 
 
 
 
 
 
 
 
 
Total
 
$
5,951,239

 
1,097

 
$
8,563,540

 
$
3,639,765

_______________________________________________
(1)
Capital raised represents gross proceeds, including DRIP shares issued.
(2)
Number of investments includes properties owned through consolidated joint ventures.
(3)
Assets under management represents total gross real estate and related assets, including net investments in consolidated joint ventures, net of gross intangible lease liabilities.
(4)
The Closed Programs include CCPT IV and CCIT and Other Programs include tenant-in-common programs, Delaware statutory trust programs and Cole Growth Opportunity Fund I, L.P.
Offering Summary
The following table shows offering summary information for the Managed Programs as of December 31, 2014:
Program
 
Primary
Investment
Strategy
 
Offering
Commencement
 Date
 
% of Outstanding
Shares Owned
by ARCP
 
Offering
 Price/NAV
 
Annualized
Distribution
CCPT V
 
Retail
 
3/17/2014
 
1.69
%
 
$
25.00

 
6.30
%
INAV
 
Diversified
 
12/6/2011(1)
 
0.19
%
 
(2) (3)
 
(3)
CCIT II
 
Office and
industrial
 
9/17/2013
 
1.20
%
 
$
10.00

 
6.00
%
Closed Programs
 
Various
 
Prior to 2012
 
less than 0.01%

 
Various

 
Various

_______________________________________________
(1)
On August 26, 2013, INAV designated the existing shares of INAV's common stock that were sold prior to such date to be Wrap Class shares (“W Shares”) of common stock and registered two new classes of INAV common stock, Advisor Class shares (“A Shares”) and Institutional Class shares (“I Shares”). As the existing class of common stock, W Shares were first issued on December 6, 2011, A Shares were first issued on October 10, 2013 and I Shares were first issued on November 19, 2013.
(2)
The Net Asset Value for each share class (“NAV per share”) is calculated daily as of the close of business using a process that reflects (i) estimated values of each of INAV’s commercial real estate assets, related liabilities and notes receivable secured by real estate provided periodically by INAV’s independent valuation expert in individual appraisal reports, (ii) daily updates in the price of liquid assets for which third party market quotes are available, (iii) accruals of INAV’s daily distributions and (iv) estimates of daily accruals, on a net basis, of operating revenues, expenses, debt service costs and fees.
(3)
Calculated using a daily distribution rate per share and NAV per share, for each share class, as of the close of business on December 31, 2014:
Share Class
 
Date of Offering
 
NAV Per Share
 
Daily Distribution Rate
 
Annualized Distribution
W Shares
 
12/6/2011
(3) 
$
17.51

 
$
0.002679023

 
5.58
%
A Shares
 
10/10/13
(3) 
$
17.45

 
$
0.002669685

 
5.58
%
I Shares
 
11/19/13
(3) 
$
17.55

 
$
0.002685428

 
5.59
%

29
American Realty Capital Properties, Inc.
Managed Programs


Fee Summary
The following table shows fee summary information for Cole Capital for certain of the Managed Programs as of December 31, 2014:
 
 
Offering Fees
 
Transaction Fees
 
Management Fees
 
Program
 
Selling
Commissions (1)
 
Dealer
Manager and Distribution
Fees (2)
 
Acquisition Transactional
Fees (3)
 
Financing Transactional
Fees
 
Property Management Fees (4)
 
Asset Management / Advisory Fees
 
Performance Fees
 
Open Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CCPT V
 
7
%
 
2
%
 
2
%
 
—
%
 
—
%
 
0.65% - 0.75%

(6) 
15
%
(7) 
INAV
 
(5)

 
(5)

 
—
%
 
—
%
 
—
%
 
0.90
%
 
25
%
(8) 
CCIT II
 
7
%
 
2
%
 
2
%
 
—
%
 
—
%
 
0.65% - 0.75%

(6) 
15
%
(7) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closed Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CCPT IV
 
7
%
 
2
%
 
2
%
 
—
%
 
—
%
 
0.65% - 0.75%

(6) 
15
%
(7) 
CCIT
 
7
%
 
2
%
 
2
%
 
—
%
 
—
%
 
0.65% - 0.75%

(6) 
15
%
(7) 
Other Programs
 
N/A

 
N/A

 
Various

 
Various

 
Various

 
Various

 
Various

 
_______________________________________________
(1)
The Company reallows 100% of selling commissions earned to participating broker-dealers.
(2)
The Company may reallow all or a portion of its dealer manager fee or applicable distribution fee to participating broker-dealers as a marketing and due diligence expense reimbursement.
(3)
Percent taken on gross purchase price.
(4)
Percent taken on gross revenues (leasing fees based on prevailing market rates with restrictions).
(5)
In connection with the INAV offering, the Company will receive selling commissions, an asset-based dealer manager fee and/or an asset-based distribution fee, as summarized in the table below for each class of common stock:
Share Class
 
Selling Commission (1)
 
Dealer Manager Fee (2)
 
Distribution Fee (2)
W Shares
 
—

 
0.55
%
 
—

A Shares
 
up to 3.75%

 
0.55
%
 
0.50
%
I Shares
 
—

 
0.25
%
 
—

(6)
Annualized fee based on the average monthly invested assets.
(7)
Performance fee paid only under the following events: (i) if shares are listed on a national securities exchange; (ii) if the respective Managed Program is sold or the assets are liquidated; or (iii) upon termination of the advisory agreement. In connection with such events, the performance fee will only be earned upon the return to investors of their net capital invested and an 8% annual cumulative, non-compounded return (6% in the case of CCPT V).
(8)
Performance fee paid for any year in which the total return on stockholders' capital exceeds 6% per annum on a calendar year basis.

30
American Realty Capital Properties, Inc.
Managed Programs


Program Activity Summary
The following table shows the Managed Programs' activity summary information for the three-month period ended on December 31, 2014 (dollars in thousands):
Program
 
Capital Raised (1)
 
Number of Investments Acquired (2)
 
Purchase Price of Acquisitions (3)
 
Number of Investments Sold
 
Sales Price of Dispositions
 
New Debt (4)
Open Programs:
 
 
 
 
 
 
 
 
 
 
 
 
CCPT V
 
$
62,205

 
32

 
$
190,978

 
—

 
$
—

 
$
275,000

INAV
 
10,656

 
4

 
4,956

 
—

 
—

 
20,000

CCIT II
 
59,107

 
6

 
339,835

 
—

 
—

 
210,100

Total Open Programs
 
131,968

 
42

 
535,769

 
 
 
—

 
505,100

 
 
 
 
 
 
 
 
 
 
 
 
 
Closed Programs:
 
 
 
 
 
 
 
 
 
 
 
 
CCPT IV
 
27,913

 
88

 
407,049

 
—

 
—

 
119,065

CCIT
 
—

 
—

 
—

 
—

 
—

 
—

Other Programs
 
—

 
—

 
—

 
(3
)
 
(17,200
)
 
—

Total Closed Programs
 
27,913

 
88

 
407,049

 
(3
)
 
(17,200
)
 
119,065

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
159,881

 
130

 
$
942,818

 
(3
)
 
$
(17,200
)
 
$
624,165

_______________________________________________
(1)
Capital raised represents gross proceeds, including DRIP shares issued.
(2)
Number of investments acquired includes properties owned through consolidated joint ventures.
(3)
Purchase price of properties includes pro rata share for consolidated joint ventures.
(4)
New debt may include (i) outstanding face value of new mortgage notes payable, (ii) total allowable borrowings under new credit facilities into which the Managed Programs entered and (iii) increases in allowable borrowings to existing credit facilities in accordance with amendments executed.
Revenue Summary
The following table shows the Managed Programs' revenue information for the three-month period ended December 31, 2014 (dollars in thousands):
Program
 
Offering Related Revenue and Reimbursements
 
Transaction Service Revenue
 
Management Service Revenue and Reimbursements
 
Total Managed Programs Revenue and Reimbursements
Open Programs:
 
 
 
 
 
 
 
 
CCPT V
 
$
6,666

 
$
3,841

 
$
1,943

 
$
12,450

INAV
 
361

 
—

 
1,488

 
1,849

CCIT II
 
6,079

 
6,825

 
1,167

 
14,071

Gross revenues - Open Programs
 
13,106

 
10,666

 
4,598

 
28,370

Less:
 
 
 
 
 
 
 
 
Reallowed revenues
 
9,304

 
—

 
—

 
9,304

Reimbursements
 
2,507

 
—

 
1,847

 
4,354

Adjusted Revenues (1) - Open Programs
 
1,295

 
10,666

 
2,751

 
14,712

 
 
 
 
 
 
 
 
 
Closed Programs:
 
 
 
 
 
 
 
 
CCPT IV
 
46

 
7,895

 
9,465

 
17,406

CCIT
 
—

 
—

 
5,966

 
5,966

Other Programs
 
—

 
169

 
371

 
540

Gross revenues - Closed Programs
 
46

 
8,064

 
15,802

 
23,912

Less:
 
 
 
 
 
 
 

Reimbursements
 
46

 
—

 
3,410

 
3,456

Adjusted Revenues (1) - Closed Programs
 
—

 
8,064

 
12,392

 
20,456

 
 
 
 
 
 
 
 
 
Total Adjusted Revenues (1)
 
$
1,295

 
$
18,730

 
$
15,143

 
$
35,168

_______________________________________________
(1)
Adjusted Revenues is a non-GAAP measure. See the Definitions section that begins on page 32 for a description of the Company’s non-GAAP measures.

31
American Realty Capital Properties, Inc.
Definitions


Adjusted Revenues is a non-GAAP financial measure that represents revenue on a GAAP basis adjusted to eliminate revenue recorded as reimbursement revenue in accordance with GAAP, of certain expense, which are included in reallowed fees and commissions and general and administrative expenses.

Annualized Adjusted EBITDA includes full-year real estate activities adjusted for mid-period acquisitions, normalized full-year activity for Cole Capital, less cash general and administrative expenses and property operating expenses.

Annualized Interest Expense is full-year interest expense based on outstanding debt balances as of quarter end.

Average Annual Rent is annualized rental income under our leases reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by GAAP, as further adjusted to reflect the effect of tenant concessions and abatements such as free rent.
 
Creditworthy Tenants are determined by us based on our own assessment of the tenant financial condition based on our underwriting criteria.

EBITDA, a non-GAAP measure, is defined as earnings before interest, taxes, depreciation and amortization, excluding one-time expenses for acquisition, merger and other transaction costs.

Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under U.S. GAAP.
We define FFO, a non-U.S. GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of U.S. GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in U.S. GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current U.S. GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under U.S. GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-U.S. GAAP FFO and AFFO measures and the adjustments to U.S. GAAP in calculating FFO and AFFO.
We consider FFO and AFFO useful indicators of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs in our peer group. Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

32
American Realty Capital Properties, Inc.
Definitions


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

33
American Realty Capital Properties, Inc.
Definitions


FFO and AFFO are non-U.S. GAAP financial measures and do not represent net income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as alternatives to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do and/or calculate AFFO differently than we do. Consequently, our presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.
Investment Grade is a determination made by major credit rating agencies and, for these purposes, includes an affiliate of an entity with an investment-grade rating.

34