Related Party Transactions and Arrangements

Prior to January 8, 2014, the Former Manager managed the Company’s affairs on a day-to-day basis, with the exception of certain acquisition, accounting and portfolio management services performed by employees of the Company. In August 2013, the Company’s board of directors determined that it was in the best interest of the Company and its stockholders to become self-managed, and the Company transitioned to self-management on January 8, 2014. In connection with becoming self-managed, the General Partner terminated the management agreement with the Former Manager and the General Partner and the OP entered into employment and incentive compensation arrangements with certain former executives.

In 2014, the Company, ARCT III and ARCT IV incurred commissions, fees and expenses payable to the Former Manager and its affiliates including Realty Capital Securities, LLC (“RCS”), RCS Advisory Services, LLC (“RCS Advisory”), AR Capital, LLC (“ARC”), ARC Advisory Services, LLC (“ARC Advisory”), American Realty Capital Advisors III, LLC (the “ARCT III Advisor”), American Realty Capital Advisors IV, LLC (the “ARCT IV Advisor”), American National Stock Transfer, LLC (“ANST”) and ARC Real Estate Partners, LLC (“ARC Real Estate”). As a result of the departures of certain officers and directors in December 2014, the Former Manager and its affiliates are no longer affiliated with the Company.

The Audit Committee Investigation identified certain payments made by the Company to the Former Manager and its affiliates that were not sufficiently documented or that otherwise warranted scrutiny. As of December 31, 2014, the Company had recovered consideration valued at $8.5 million in respect of such payments. The Company is considering whether it has a right to seek recovery for any other such payments and, if so, its alternatives for seeking recovery. The Company believes it has potential claims against recipients of certain OP Units and has engaged in discussions with affiliates of the Former Manager regarding pending redemption requests. Prior to any resolution, the Company does not currently intend to satisfy any of the redemption requests. See Note 16 – Equity for further discussion. As of December 31, 2015, no asset has been recognized in the accompanying consolidated financial statements related to any potential recovery.

The following table summarizes the related party fees and expenses incurred by the Company, ARCT III and ARCT IV by category and the aggregate amounts contained in such categories for the periods presented (in thousands). During the year ended December 31, 2015, there were no material transactions with the Former Manager or any of the Former Manager’s affiliates.



	Year Ended December 31,
	2015		2014		2013
Expenses and capitalized costs:
Financing fees and reimbursements	$	—	$	—	$	14,277
Offering related costs	—		2,150		161,796
Acquisition related expenses	—		1,652		37,564
Merger and other non-routine transaction related expenses	—		137,778		156,146
Management fees to affiliates	—		13,888		17,462
General and administrative expenses	—		16,089		103,206
Indirect affiliate expenses	—		10,975		68
Total expenses and capitalized costs	$	—	$	182,532	$	490,519

The following sections below further expand on the summarized related party transactions listed above. Unless otherwise indicated, all of the related party fees and expenses discussed below were incurred and recognized during the years ended December 31, 2014 and 2013. No such expenses were incurred during the year ended December 31, 2015.

Offering Related Costs

The Company, ARCT III and ARCT IV recorded commissions, fees and offering cost reimbursements for services provided to the Company, ARCT III and ARCT IV, as applicable, by affiliates of the Former Manager during the periods indicated (in thousands):



	Year Ended December 31,
	2015		2014		2013
Offering related costs
Commissions and fees	$	—	$	—	$	148,232
Offering costs and other reimbursements	—		2,150		13,564
Total offering related costs	$	—	$	2,150	$	161,796

RCS served as the dealer-manager of ARCT III’s initial public offering and ARCT IV’s initial public offering and received fees and compensation in connection with those transactions. RCS received a selling commission of 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers and 3% of the gross proceeds from the sale of common stock, before reallowance to participating broker-dealers, as a dealer manager fee in each of the initial public offerings. In addition, the Company reimbursed RCS for services relating to the Company’s at-the-market equity program during 2014. Offering related costs are included in offering costs in the accompanying consolidated statements of changes in equity. No fees were incurred during the year ended December 31, 2015 in connection with these transactions.

Acquisition Related Expenses

During the year ended December 31, 2014, the Company paid a fee of $1.0 million (equal to 0.25% of the contract purchase price) to RCS for strategic advisory services related to the Company’s acquisition of certain properties from Fortress Investment Group LLC and $0.6 million (equal to 0.25% of the contract purchase price) to RCS related to the Company’s acquisition of certain properties from Inland American Real Estate Trust, Inc. No such fees were incurred during the year ended December 31, 2015 in connection with these transactions.

Separate from acquisition fees related to the acquisition of certain properties in the GE Capital portfolio discussed below, the Company, ARCT III and ARCT IV paid acquisition fees to the Former Manager and its affiliates equal to 1.0% of the contract purchase price, inclusive of indebtedness, of each property acquired by the Company, ARCT III or ARCT IV, as applicable. The Company, ARCT III and ARCT IV additionally reimbursed certain expenses as permitted under the advisory agreements. These fees and reimbursements (as applicable), totaled $12.3 million during the year ended December 31, 2013. The Company and ARCT III were no longer required to pay these fees as of the ARCT III Merger, except for those properties in the Company’s acquisition pipeline as of that date. ARCT IV incurred these fees throughout 2013. No such fees were incurred by the Company during the years ended December 31, 2015 and 2014.

During the year ended December 31, 2013, the Company paid a fee of $1.9 million (equal to 0.25% of the contract purchase price) to RCS and reimbursed expenses of $6.1 million to ARC related to the Company’s acquisition of certain properties in the GE Capital portfolio. No such fees were incurred by the Company during the years ended December 31, 2015 and 2014.

During the year ended December 31, 2013, ARCT IV incurred and paid a fee of $3.5 million (equal to 0.25% of the contract price) to RCS and also paid an acquisition fee of $13.8 million to the Former Manager and its affiliates related to the Company’s acquisition of certain properties in the GE Capital portfolio. No such fees were incurred during the year ended December 31, 2015 in connection with these transactions.

Merger and Other Non-routine Transactions

The Company, ARCT III and ARCT IV incurred fees and expenses payable to the Former Manager and its affiliates for services related to mergers and other non-routine transactions, as discussed below.

The tables below show fees and expenses attributable to each merger and other non-routine transaction during the years ended December 31, 2014 and 2013 (in thousands). No related party transactions classified as merger and other non-routine transactions in the accompanying consolidated statements of operations were incurred during the year ended December 31, 2015.



	Year Ended December 31, 2014
	ARCT IV Merger		Internalization and Other		Cole Merger		Multi-tenant Spin Off		Total
Merger related costs:
Strategic advisory services	$	8,400	$	—	$	17,115	$	1,750	$	27,265
Personnel costs and other reimbursements	—		—		72		—		72
Other non-routine transaction related expenses:
Subordinated distribution fees	78,244		—		—		—		78,244
Furniture, fixtures and equipment	5,800		10,000		—		—		15,800
Other fees and expenses	—		—		2,900		—		2,900
Personnel costs and other reimbursements	417		—		1,728		—		2,145
Post-transaction support services	1,352		10,000		—		—		11,352
Total merger and other non-routine transaction related expenses	$	94,213	$	20,000	$	21,815	$	1,750	$	137,778

	Year Ended December 31, 2013
	ARCT III Merger		ARCT IV Merger		CapLease Merger		Cole Merger		Other		Total
Merger related costs:
Strategic advisory services	$	—	$	16,075	$	5,563	$	14,215	$	243	$	36,096
Legal fees and expenses	126		500		3,000		—		40		3,666
Personnel costs and other reimbursements	522		2,137		567		169		178		3,573
Other fees and expenses	—		640		250		—		—		890
Other non-routine transaction related expenses:
Subordinated distribution fee	98,360		—		—		—		—		98,360
Furniture, fixtures and equipment	5,800		—		—		—		—		5,800
Legal fees and expenses	950		—		—		—		—		950
Personnel costs and other reimbursements	—		1,107		—		1,463		109		2,679
Post-transaction support services	2,000		2,000		—		—		—		4,000
Other fees and expenses	—		—		132		—		—		132
Total merger and other non-routine transaction related expenses	$	107,758	$	22,459	$	9,512	$	15,847	$	570	$	156,146

Merger Related Costs

ARCT III Merger

The Company and ARCT III incurred and paid $0.3 million to ARC Advisory and $0.4 million to RCS Advisory for expense reimbursements in connection with the ARCT III Merger during the year ended December 31, 2013.

ARCT IV Merger

The Company entered into an agreement with RCS under which RCS agreed to provide strategic and financial advisory services to the Company in connection with the ARCT IV Merger. The Company paid $7.7 million (equal to 0.25% of the transaction value) upon the consummation of the ARCT IV Merger and reimbursed out of pocket expenses of $0.6 million pursuant to this agreement during the year ended December 31, 2013.

The Company entered into an agreement with RCS, RCS Advisory and ANST under which they agreed to provide financial advisory and information agent services in connection with the ARCT IV Merger and the related proxy solicitation seeking approval from the Company’s stockholders in connection with such merger. The agreement provided that these services included facilitation of the preparation, distribution and accumulation of proxy materials, stockholder, analyst and financial advisor communications and consultation on materials and communications made to the public and regulatory agencies regarding the ARCT IV Merger. However, effective October 6, 2013, pursuant to the first amendment to the ARCT IV Merger Agreement, a vote by the Company’s stockholders was no longer required. The Company paid $0.6 million in fees pursuant to this agreement during the year ended December 31, 2013.

ARCT IV entered into an agreement with RCS under which RCS agreed to provide strategic and financial advisory services to assist ARCT IV with its alternatives for a potential liquidity event. ARCT IV paid $7.7 million (equal to 0.25% of the transaction value) upon the consummation of the ARCT IV Merger and reimbursed out of pocket expenses of $0.8 million during the year ended December 31, 2013.

ARCT IV entered into an agreement with ARC Advisory and RCS Advisory under which they agreed to provide legal support services up to the date that ARCT IV entered into the ARCT IV Merger Agreement. ARCT IV paid $0.5 million in fees pursuant to this agreement during the year ended December 31, 2013.

ARCT IV entered into an agreement with RCS, RCS Advisory, and ANST under which they agreed to provide advisory and information agent services in connection with the ARCT IV Merger and the related proxy solicitation seeking approval of such merger by ARCT IV’s stockholders. The agreement provided that these services included facilitation of the preparation, distribution and accumulation of proxy materials, stockholder, analyst and financial advisor communications and consultation on materials and communications made to the public and regulatory agencies regarding the ARCT IV Merger. ARCT IV paid $0.8 million in fees and reimbursed $0.2 million of expenses pursuant to this agreement during the year ended December 31, 2013.

The Company and ARCT IV incurred and paid $0.5 million to RCS Advisory for expense reimbursements in connection with the ARCT IV Merger during the year ended December 31, 2013.

Pursuant to ARCT IV’s advisory agreement with the ARCT IV Advisor, ARCT IV agreed to pay the ARCT IV Advisor a brokerage commission on the sale of property in connection with the ARCT IV Merger. At the time of the ARCT IV Merger, ARCT IV paid $8.4 million to the ARCT IV Advisor in connection with this agreement. These commissions were included in merger and other non-routine transactions in the accompanying consolidated statements of operations for the year ended December 31, 2014.

Cole Merger

The Company entered into an agreement with RCS under which RCS agreed to provide strategic and financial advisory services to the Company in connection with the Cole Merger. The Company agreed to pay a fee equal to 0.25% of the transaction value upon the consummation of the transaction and reimburse out of pocket expenses. The Company incurred and recognized $14.2 million in expense from this agreement in each year ended December 31, 2014 and 2013.

Pursuant to the transaction management services agreement, dated December 9, 2013, the Company and the OP paid RCS Advisory an aggregate fee of $2.9 million on January 8, 2014, in connection with providing the following services: transaction management support related to the Cole Merger up to the date of the transaction management services agreement and ongoing transaction management support, marketing support, due diligence coordination and event coordination up to the date of the termination of the transaction management services agreement. The transaction management services agreement expired on the consummation of the Company’s transition to self-management on January 8, 2014.

CapLease Merger

The Company entered into an agreement with RCS under which RCS agreed to provide strategic and financial advisory services to the Company in connection with the CapLease Merger. The Company paid a fee equal to 0.25% of the transaction value and reimbursed out of pocket expenses. The Company incurred and paid $5.6 million in fees pursuant to this agreement during the year ended December 31, 2013. The Company incurred and paid an additional $0.2 million to ARC Advisory and $3.6 million to RCS Advisory for expense reimbursements in connection with the CapLease Merger during the year ended December 31, 2013.

Multi-tenant Spin-off

The Company entered into an agreement with RCS, under which RCS agreed to provide strategic and financial advisory services to the Company in connection with a spin-off of the Company’s multi-tenant shopping center business. During the year ended December 31, 2014, the Company incurred $1.8 million of such fees, which are included in merger and other non-routine transactions in the accompanying consolidated statements of operations.

Other Non-routine Transactions

ARCT III Merger Subordinated Distribution Fee

On February 28, 2013, the OP entered into a contribution and exchange agreement with the ARCT III OP and the ARCT III Special Limited Partner, the holder of the special limited partner interest in the ARCT III OP. The ARCT III Special Limited Partner was entitled to receive certain distributions from ARCT III OP, including a subordinated distribution of net sales proceeds resulting from an “investment liquidity event” (as defined in the agreement of limited partnership of ARCT III OP). The ARCT III Merger constituted an “investment liquidity event,” due to the attainment of the 6.0% performance hurdle and the return to ARCT III’s stockholders in addition to their initial investment. Pursuant to the contribution and exchange agreement, the ARCT III Special Limited Partner contributed its interest in the ARCT III OP, inclusive of the $98.4 million subordinated distribution proceeds received, to the ARCT III OP in exchange for 7.6 million ARCT III OP Units. Upon consummation of the ARCT III Merger, these ARCT III OP Units were immediately converted into 7.3 million OP Units after application of the ARCT III Exchange Ratio. The Company recorded an expense of $98.4 million during the year ended December 31, 2013 in connection with this transaction. In conjunction with the ARCT III Merger Agreement, the ARCT III Special Limited Partner agreed to hold its OP Units for a minimum of one year before converting them into shares of the Company’s Common Stock.

ARCT IV Merger Subordinated Distribution Fee

On January 3, 2014, the OP entered into a contribution and exchange agreement with the ARCT IV OP, American Realty Capital Trust IV Special Limited Partner, LLC (the “ARCT IV Special Limited Partner”) and ARC Real Estate.The ARCT IV Special Limited Partner was entitled to receive certain distributions from the ARCT IV OP, including the subordinated distribution of net sales proceeds resulting from an “investment liquidity event” (as defined in the agreement of limited partnership of the ARCT IV OP). The ARCT IV Merger constituted an “investment liquidity event,” due to the attainment of the 6.0% performance hurdle and the return to ARCT IV’s stockholders of $358.3 million in addition to their initial investment. Pursuant to the contribution and exchange agreement, the ARCT IV Special Limited Partner contributed its interest in the ARCT IV OP, inclusive of the $78.2 million of subordinated distribution proceeds received, to the ARCT IV OP in exchange for 2.8 million ARCT IV OP Units. Upon consummation of the ARCT IV Merger, these ARCT IV OP Units were immediately converted into 6.7 million OP Units after application of the applicable ARCT IV Exchange Ratio. In conjunction with the ARCT IV Merger Agreement, the ARCT IV Special Limited Partner agreed to hold its OP Units for a minimum of two years before converting them into shares of the Company’s Common Stock.

Furniture, Fixtures and Equipment and Other Assets

The Company entered into three agreements with affiliates of the Former Manager and the Former Manager (the “Sellers”), as applicable, pursuant to which, the Sellers sold the OP certain furniture, fixtures and equipment and other assets (“FF&E”) used by the Sellers in connection with managing the property-level business and operations and accounting functions of the Company and the OP. The Company incurred and recorded $15.8 million and $5.8 million to purchase the FF&E and other assets during the years ended December 31, 2014 and 2013, respectively. The Company has concluded that there was no evidence of the receipt and it could not support the value of the FF&E and other assets. As such, the Company expensed the amount originally capitalized and recognized the expense in merger and other non-routine transactions during the fourth quarter of 2014.

Other Fees and Expenses

In connection with the closing of the Cole Merger, the Company paid $2.9 million to RCS Advisory during the year ended December 31, 2014. No such expenses were incurred during the years ended December 31, 2015 and 2013.

Legal Fees and Expenses

On December 12, 2012, ARCT III and the OP entered into a legal services reimbursement agreement with ARC Advisory to provide legal support services through the date of the ARCT III Merger. ARCT III incurred expenses of $0.5 million in connection with this agreement in 2013. Additional expenses of $0.5 million were paid to ARC Advisory during 2013 as reimbursement for litigation services.

Personnel Costs and Other Reimbursements

The Company, ARCT III and ARCT IV incurred expenses of and paid $2.5 million to RCS Advisory and $0.2 million to ANST for personnel costs and reimbursements in connection with non-recurring transactions during the year ended December 31, 2014. No such expenses were incurred during the years ended December 31, 2015 and 2013.

Post-Transaction Support Services

ARCT III entered into an agreement with ARC Advisory under which ARC Advisory agreed to provide support services including legal, accounting, marketing, human resources and information technology, among other services, until the earlier of the ARCT III Merger closing date or one year (and an agreed upon period of up to 60 days following the ARCT III Merger). ARCT III paid $2.0 million in fees pursuant to this agreement during the year ended December 31, 2013. No such expense was incurred during the years ended December 31, 2015 and 2014 in connection with this agreement.

ARCT IV entered into an agreement with ARC Advisory and RCS Advisory under which they agreed to provide support services including legal, accounting, marketing, human resources and information technology, among other services, until the earlier of the ARCT IV Merger closing date or one year (and an agreed upon period of up to 60 days following the ARCT IV Merger). ARCT IV incurred $2.0 million in expenses pursuant to this agreement during the year ended December 31, 2013.

In connection with its entry into the ARCT IV Merger Agreement, ARCT IV agreed to pay additional asset management fees, which totaled $1.3 million, net of credits received from affiliates during the year ended December 31, 2014. No such fees were incurred during the years ended December 31, 2015 and 2014.

Effective January 8, 2014, the Former Manager agreed to provide certain transition services, including accounting support, acquisition support, investor relations support, public relations support, human resources and administration, general human resources duties, payroll services, benefits services, insurance and risk management, information technology, telecommunications and Internet and services relating to office supplies. The Company paid $10.0 million to the Former Manager on January 8, 2014. This arrangement was in effect for a 60-day term beginning on January 8, 2014.

Management Fees to Affiliates

The Company, ARCT III and ARCT IV recorded fees and reimbursements for services provided by the Former Manager and its affiliates related to the operations of the Company, ARCT III and ARCT IV during the years ended December 31, 2014 and 2013 (in thousands). No such fees were incurred during the year ended December 31, 2015.



	Year Ended December 31,
	2015		2014		2013
Management fees to affiliates:
Base management fees	$	—	$	—	$	4,969
Asset management fees	—		13,888		11,693
Property management fees	—		—		800
Total management fees to affiliates	$	—	$	13,888	$	17,462

Base Management Fees to the Former Manager

Prior to the termination of the management agreement, the Company paid the Former Manager an annual base management fee equal to 0.50% per annum of average unadjusted book value of the Company’s real estate assets, calculated and payable monthly in advance, for the value of assets up to $3.0 billion and 0.40% per annum for the unadjusted book value of assets over $3.0 billion. The management fee was generally payable in cash; however in lieu of cash, on January 21, 2014, the Former Manager agreed to settle all outstanding balances in stock, resulting in the Company issuing 388,461 shares of Common Stock to the Former Manager. Prior to the ARCT III Merger, the Former Manager was entitled to an annual base management fee equal to 0.50% per annum for the unadjusted book value of assets with no asset threshold limitations. The Company incurred expenses of $5.0 million that were not waived during the year ended December 31, 2013. The Former Manager waived the portion of its management fee in excess of certain net income thresholds related to the Company’s operations during certain periods in 2013. These waived fees totaled $6.1 million during the year ended December 31, 2013. No such fees were incurred or waived during the years ended December 31, 2015 and 2014.

Asset Management Fees

ARCT III

Effective July 1, 2012, as payment for asset management fees, ARCT III issued (subject to periodic approval by its board of directors) to the ARCT III Advisor performance-based restricted partnership units of the ARCT III OP designated as “ARCT III Class B units,” which were intended to be profits interests and to vest, and no longer be subject to forfeiture, at such time as: (x) the value of ARCT III OP’s assets plus all distributions that equaled or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “economic hurdle”); and (y) a liquidity event had occurred.

The ARCT III Advisor received distributions on unvested ARCT III Class B units equal to the distribution rate received on ARCT III common stock. In 2013, the ARCT III board of directors approved issuance of 603,599 ARCT III Class B units to the ARCT III Advisor for asset management services it provided. The performance condition related to these ARCT III Class B units was satisfied upon the completion of the ARCT III Merger and as a result a $9.4 million expense was recorded during the year ended December 31, 2013. The 748,621 ARCT III Class B units converted into ARCT III OP Units, which converted on a one-to-one basis, into 711,190 OP Units after the application of the ARCT III Exchange Ratio.

In connection with a 60-day extension of the advisory agreement which was executed in order to facilitate the smooth transition of advisory services following the consummation of the ARCT III Merger, the Company incurred and paid additional asset management fees of $2.3 million during 2013. No fees were incurred during the years ended December 31, 2015 and 2014.

ARCT IV

In connection with the asset management services provided by the ARCT IV Advisor, ARCT IV issued (subject to periodic approval by ARCT IV’s board of directors) to the ARCT IV Advisor performance-based restricted partnership units of the ARCT IV OP designated as “ARCT IV Class B Units,” which were intended to be profit interests and to vest, and no longer be subject to forfeiture, at such time as: (x) the value of the ARCT IV OP’s assets plus all distributions equaled or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “economic hurdle”); (y) any one of the following occurs: (1) the termination of the advisory agreement by an affirmative vote of a majority of the Company’s independent directors without cause; (2) a listing; or (3) another liquidity event; and (z) the ARCT IV Advisor was still providing advisory services to ARCT IV.

The calculation of the ARCT IV asset management fees was equal to: (i) 0.1875% of the cost of ARCT IV’s assets; divided by (ii) the value of one share of ARCT IV common stock as of the last day of such calendar quarter. When approved by the board of directors, the ARCT IV Class B Units were issued to the ARCT IV Advisor quarterly in arrears pursuant to the terms of the ARCT IV Operating Partnership agreement. During the year ended December 31, 2013, ARCT IV’s board of directors approved the issuance of 492,483 ARCT IV Class B Units to the ARCT IV Advisor in connection with this arrangement. As of December 31, 2013, ARCT IV did not consider achievement of the performance condition to be probable and no expense was recorded at that time. The ARCT IV Advisor received distributions on unvested ARCT IV Class B Units equal to the distribution rate received on the ARCT IV common stock. The performance condition related to the 498,857 ARCT IV Class B Units, which includes units issued for the period of January 1, 2014 through the ARCT IV Merger Date, was satisfied upon the completion of the ARCT IV Merger. These ARCT IV Class B Units immediately converted into OP Units at the 2.3961 exchange ratio and the Company recorded an expense of $13.9 million based on the fair value of the ARCT IV Class B Units during the year ended December 31, 2014. No expense was recognized during the year ended December 31, 2015.

General and Administrative Expenses

The Company, ARCT III and ARCT IV recorded general and administrative expenses as shown in the table below for services provided by the Former Manager and its affiliates related to the operations of the Company, ARCT III and ARCT IV during the periods indicated (in thousands):



	Year Ended December 31,
	2015		2014		2013
General and administrative expenses:
Advisory fees and reimbursements	$	—	$	2,015	$	5,602
Equity awards	—		14,074		97,604
Total general and administrative expenses	$	—	$	16,089	$	103,206

Advisory Fees and Reimbursements

The Company, ARCT III and ARCT IV agreed to pay certain fees and reimbursements during the years ended December 31, 2014 and 2013 to the Former Manager and its affiliates, as applicable, for their out-of-pocket costs, including without limitation, legal fees and expenses, due diligence fees and expenses, other third party fees and expenses, costs of appraisals, travel expenses, nonrefundable option payments and deposits on properties not acquired, accounting fees and expenses, title insurance premiums and other closing costs, personnel costs and miscellaneous expenses relating to the selection, acquisition and due diligence of properties or general operation of the Company. During the years ended December 31, 2014 and 2013, these expenses totaled $2.0 million and $5.6 million, respectively. No such expenses were incurred during the year ended December 31, 2015.

Equity Awards

Upon consummation of the ARCT III Merger, the Company entered into the OPP with the Former Manager. The OPP gave the Former Manager the opportunity to earn compensation upon the attainment of certain stockholder value creation targets. The Company recorded an expense of $32.7 million for the valuation of the award through December 31, 2013 and an additional expense of $59.6 million due to the accelerated vesting of the OPP. This total expense of $92.3 million is included in general and administrative expenses in the accompanying consolidated statements of operations during the year ended December 31, 2013. Additionally, during the year ended December 31, 2014, $1.6 million was recorded in general and administrative expenses as equity-based compensation relating to the change in total return to stockholders used in computing the number of LTIP units earned between December 31, 2013 and January 8, 2014.

As a result of the ARCT III Merger, certain restricted shares held by employees of affiliates of the Former Manager were fully vested. This expense of $2.0 million is included in general and administrative expense in the accompanying consolidated statements of operations during the year ended December 31, 2013. During the year ended December 31, 2013, the Company granted 620,000 restricted share awards to employees of affiliates of the Former Manager as compensation for certain services. These were separate grants and the grant date fair values for these issuances were $4.5 million in February 2013 and $4.4 million in July 2013, respectively.

Separately, as a result of the ARCT III Merger and the termination of the management agreement with the Former Manager, certain restricted shares held by employees of affiliates of the Former Manager were fully vested. This aggregate expense of $5.3 million is included in general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2013.

During the year ended December 31, 2014, the Company granted 796,075 restricted share awards to employees of affiliates of the Former Manager as compensation for certain services and 87,702 restricted stock awards to two directors who were affiliates of the Former Manager. The grant date fair value of the awards of $12.5 million for the year ended December 31, 2014 was recorded in general and administrative expenses in the accompanying consolidated statements of operations. No such expenses or grants were made to employees of affiliates of the Former Manager during the year ended December 31, 2015.

Indirect Affiliate Expenses

The Company incurred fees and expenses payable to affiliates of the Former Manager or payable to a third party on behalf of affiliates of the Former Manager for amenities related to certain buildings, as explained below. These expenses are depicted in the table below for the periods indicated (in thousands):



	Year Ended December 31,
	2015		2014		2013
Indirect affiliate expenses:
Audrain building	$	—	$	8,724	68
ANST office build-out	—		462		—
New York (405 Park Ave.) office	—		1,659		—
Dresher, PA office	—		92		—
North Carolina office	—		38		—
Total indirect affiliate expenses	$	—	$	10,975	$	68

Audrain Building

During the year ended December 31, 2013, a wholly owned subsidiary of ARC Real Estate purchased a historic building in Newport, Rhode Island (“Audrain”) with plans to renovate the second floor to serve as offices for certain executives of the Company, the Former Manager and affiliates of the Former Manager. An affiliate of the Former Manager requested that invoices relating to the second floor renovation and tenant improvements and all building operating expenses either be reimbursed by the Company to ARC Advisory or be paid directly to the contractors and vendors. During the year ended December 31, 2013, the Company paid $27,000 for architectural costs relating to the renovation directly to a third party. During the year ended December 31, 2014, the Company incurred $8.7 million for tenant improvements and furniture and fixtures relating to the renovation directly to third parties.

In addition, on October 4, 2013, the Company entered into a lease agreement with a subsidiary of ARC Real Estate for a term of 15 years with annual base rent of $0.4 million requiring monthly payments beginning on that date. As there were tenants occupying the building when it was purchased, these tenants subleased their premises from the Company until their leases terminated. During the years ended December 31, 2014 and 2013, the Company incurred and paid $0.3 million and $0.1 million, respectively, for base rent, which was partially offset by $17,000 and $55,000, respectively, of rental revenue received from the subtenants during the years ended December 31, 2014 and 2013, respectively. No rental revenue was received during the year ended December 31, 2015.

As a result of findings of the Audit Committee Investigation, the Company terminated this lease agreement and was reimbursed for the tenant improvements and furniture costs incurred by the Company, totaling $8.5 million, during the year ended December 31, 2014. Reimbursement was made by delivery and retirement of 916,423 OP Units held by an affiliate of the Former Manager. The Company never moved into or occupied the building.

American National Stock Transfer, LLC Office Build-out

During the year ended December 31, 2014, as a result of the Cole Merger, the Company worked to develop a partnership with ANST. Plans were made to move ANST to part of the Cole Capital office building in 2014. In order to accommodate the ANST employees, the Cole Capital office building was remodeled. During the year ended December 31, 2014, the Company paid $0.5 million directly to third parties for leasehold improvements and furniture and fixtures relating to the renovation.

ANST never moved into the building. The Company is considering its options with regard to recovery of such payments, although no decisions have been made at this time. No asset has been recognized in the financial statements related to any potential recovery.

Shared Office Space

During the year ended December 31, 2014, the Company paid $1.8 million to an affiliate of the Former Manager for rent, leasehold improvements and furniture and fixtures related to offices in New York, Pennsylvania, and North Carolina where certain of the Company’s employees shared office space with an affiliate of the Former Manager. The Company no longer occupies the office space.

Additional Related Party Transactions

The following related party transactions were not included in the tables above.

Tax Protection Agreement

The Company is party to a tax protection agreement with ARC Real Estate, which contributed its 100% indirect ownership interests in 63 of the Company’s properties to the Operating Partnership in the formation transactions related to the Company’s initial public offering. Pursuant to the tax protection agreement, the Company has agreed to indemnify ARC Real Estate for its tax liabilities (plus an additional amount equal to the taxes incurred as a result of such indemnity payment) attributable to its built-in gain, as of the closing of the formation transactions, with respect to its interests in the contributed properties (other than two vacant properties contributed), if the Company sells, conveys, transfers or otherwise disposes of all or any portion of these interests in a taxable transaction on or prior to September 6, 2021. The sole and exclusive rights and remedies of ARC Real Estate under the tax protection agreement will be a claim against the Operating Partnership for ARC Real Estate’s tax liabilities as calculated in the tax protection agreement, and ARC Real Estate shall not be entitled to pursue a claim for specific performance or bring a claim against any person that acquires a protected property from the Operating Partnership in violation of the tax protection agreement.

Investment from the ARCT III Special Limited Partner

In connection with the ARCT III Merger, the ARCT III Special Limited Partner invested $0.8 million in the ARCT III OP and was subsequently issued 56,797 OP Units in respect thereof upon the closing of the ARCT III Merger after giving effect to the ARCT III Exchange Ratio. This investment is included in non-controlling interests in the accompanying consolidated balance sheets.

Investment from the ARCT IV Special Limited Partner

In connection with the ARCT IV Merger, the ARCT IV Special Limited Partner invested $0.8 million in the ARCT IV OP and was subsequently issued 79,870 OP Units in respect thereof upon the closing of the ARCT IV Merger after giving effect to the ARCT IV Exchange Ratio. This investment is included in non-controlling interests in the accompanying consolidated balance sheets.

Investment in an Affiliate of the Former Manager

During the year ended December 31, 2013, the Company invested $10.0 million in a real estate fund advised by an affiliate of the Former Manager, American Real Estate Income Fund, which invests primarily in equity securities of other publicly traded REITs, and subsequently reinvested dividends totaling $0.1 million in the fund. During the fourth quarter of 2013, the Company sold a portion of such investments with an original cost of $8.5 million at a loss of $0.4 million, resulting in a remaining investment of $1.5 million as of December 31, 2013. As of December 31, 2014, the Company sold substantially all of its investment, with a remaining investment value of less than $0.1 million. As of December 31, 2015, the Company sold all of its investments in the fund.

Cole Capital

Cole Capital is contractually responsible for managing the Managed REITs’ affairs on a day-to-day basis, identifying and making acquisitions and investments on the Managed REITs’ behalf, and recommending to the respective board of directors of each of the Managed REITs an approach for providing investors with liquidity. In addition, the Company distributes the shares of common stock for certain Managed REITs and advises them regarding offerings, manages relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to the offerings. The Company receives compensation and reimbursement for services relating to the Managed REITs’ offerings and the investment, management and disposition of their respective assets, as applicable.

Offering-Related Revenue

The Company generally receives a selling commission and dealer manager or distribution fee based on the gross offering proceeds related to the sale of shares of the Managed REITs’ common stock in their primary offerings, before reallowance of commissions earned by participating broker-dealers. The Company has reallowed 100% of selling commissions earned to participating broker-dealers. The Company, in its sole discretion, may reallow all or a portion of its dealer manager fee to such participating broker-dealers as a marketing and due diligence expense reimbursement, based on factors such as the volume of shares issued by such participating broker-dealers and the amount of marketing support provided by such participating broker-dealers. No selling commissions or dealer manager fees are paid to the Company or other broker-dealers with respect to shares issued under the respective Managed REIT’s distribution reinvestment plan, under which the stockholders may elect to have distributions reinvested in additional shares.

All other organization and offering expenses associated with the sale of the Managed REITs’ common stock are paid for in advance by the Company and subject to reimbursement by the Managed REITs, up to certain limits in accordance with their respective advisory agreements and charters. As these costs are incurred, they are recorded as reimbursement revenue, up to the respective limit, and are included in offering-related revenues in the financial results for Cole Capital. Expenses paid on behalf of the Managed REITs in excess of these limits that are expected to be collected based on future estimated offering proceeds are recorded as program development costs, which are included in rent and tenant receivables and other assets, net in the accompanying consolidated balance sheets. The Company assesses the collectability of the program development costs, considering the offering period and historical and forecasted sales of shares under the Managed REITs’ respective offerings and reserves for any balances considered not collectible. Additional reserves are generally recorded if actual proceeds raised from the offerings and corresponding program development costs incurred differ from management’s assumptions. During the three months ended December 31, 2015 and 2014 the Company assessed the expected collectability of the program development costs based on assumptions used to evaluate the goodwill and intangible asset impairments and recorded additional reserves for uncollectible amounts of $11.3 million and $13.1 million, respectively, which are recorded in general and administrative expenses in the accompanying statements of operations. As of December 31, 2015 and 2014, the Company had organization and offering costs each of $12.9 million, which were net of reserves of $34.8 million and $13.1 million, respectively.

The following table shows the offering fee summary information for the Managed REITs as of December 31, 2015:



Program	Selling Commissions ⁽¹⁾	Dealer Manager and Distribution Fees ⁽²⁾
Open Programs
CCPT V	7%	2%
INAV ⁽³⁾
Wrap Class Shares	—%	0.55%
Advisor Class Shares	up to 3.75%	0.55% and 0.50%
Institutional Class Shares	—%	0.25%

CCIT II	7%	2%

Closed Programs
CCPT IV ⁽⁴⁾	7%	2%

_______________________________________________


(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)	In connection with the INAV offering, the Company receives selling commissions, an asset-based dealer manager fee and/or an asset-based distribution fee, all based on the net asset value for each class of common stock.


(4)	CCPT IV’s offering closed April 4, 2014.

Transaction Service Revenue

The Company earns acquisition fees related to the acquisition, development or construction of properties on behalf of certain of the Managed REITs. In addition, the Company is reimbursed for acquisition expenses incurred in the process of acquiring properties up to certain limits per the respective advisory agreement. The Company is not reimbursed for personnel costs in connection with services for which it receives acquisition fees or real estate commissions. In addition, the Company may earn disposition fees related to the sale of one or more properties, including those held indirectly through joint ventures, on behalf of a Managed REIT and other affiliates.

The following table shows the transaction-related fees for the Managed REITs and other real estate programs as of December 31, 2015:



Program	Acquisition Transactional Fees ⁽¹⁾	Disposition Fees	Liquidation Performance Fees ⁽²⁾
Open Programs
CCPT V	2%	1%	15%
INAV	—	—	—
CCIT II	2%	1%	15%

Closed Programs
CCPT IV	2%	1%	15%
Other Programs	Various	Various	Various

_______________________________________________


(1)	Percent taken on gross purchase price.

(2)

Performance fee paid only under the following circumstances: (i) if shares are listed on a national securities exchange; (ii) if the respective Managed REIT 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).

Management Service Revenue

The Company earns advisory and asset and property management fees from certain Managed REITs and other real estate programs. The Company may also be reimbursed for expenses incurred in providing advisory and asset and property management services, subject to certain limitations. In addition, the Company earns a performance fee relating to INAV for any year in which the total return on stockholders’ capital exceeds 6% per annum on a calendar year basis.

The following table shows the management fees for the Managed REITs as of December 31, 2015:



Program	Asset Management / Advisory Fees ⁽¹⁾	Performance Fees ⁽²⁾
Open Programs
CCPT V	0.65% - 0.75%	—
INAV	0.90%	25%
CCIT II	0.65% - 0.75%	—

Closed Programs
CCPT IV	0.65% - 0.75%	—
Other Programs	Various	—

_______________________________________________


(1)	Annualized fee based on the average monthly invested assets or net asset value, if available.


(2)	Performance fee paid for any year in which the total return on stockholders’ capital exceeds 6% per annum on a calendar year basis.

The table below reflects the revenue earned from the Managed REITs (including closed programs, as applicable) and joint ventures for the years ended December 31, 2015 and 2014 (in thousands). No such revenues were earned in 2013.



	Year Ended December 31,
	2015		2014
Offering-related fees and reimbursements
Securities commissions ⁽¹⁾	$	14,101	$	57,023
Dealer manager and distribution fees ⁽²⁾	5,131		17,533
Reimbursement revenue	5,178		12,553
Offering-related fees and reimbursements	24,410		87,109

Transaction service fees and reimbursements
Acquisition fees	18,742		60,426
Disposition fees ⁽³⁾	4,974		—
Reimbursement revenues	2,165		4,284
Transaction service fees and reimbursements	25,881		64,710

Management fees and reimbursements
Asset and property management fees and leasing fees	452		596
Advisory and performance fee revenue	44,948		40,906
Reimbursement revenues	13,843		8,806
Management fees and reimbursements	59,243		50,308

Interest income on Affiliate Lines of Credit	1,275		307

Total related party revenues⁽⁴⁾	$	110,809	$	202,434

___________________________________


(1)	The Company reallows 100% of selling commissions earned to participating broker-dealers.


(2)	During the years ended December 31, 2015 and 2014, the Company reallowed $2.0 million and $9.2 million, respectively, of dealer manager fees to participating broker dealers as a marketing and due diligence expense reimbursement.


(3)	The Company earned a disposition fee of $4.4 million on behalf of CCIT when it merged with Select Income REIT on January 29, 2015 and a $0.6 million disposition fee in connection with the sale of one property owned by a consolidated joint venture.

(4) Total related party revenues excludes fees earned from 1031 real estate programs of $5.3 million and $1.4 million for the years ended December 31, 2015 and 2014, respectively.

Investment in the Managed REITs

As of December 31, 2015, the Company owned aggregate equity investments of $4.1 million in the Managed REITs. The Company accounts for these investments using the equity method of accounting, which requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the respective Managed REIT’s earnings and distributions. The Company records its proportionate share of net income from the Managed REITs in other income, net in the consolidated statements of operations. During the years ended December 31, 2015 and 2014, the Company recognized $46,000 of net income and $1.6 million of net loss, respectively, from the Managed REITs.

The table below presents certain information related to the Company’s investments in the Managed REITs as of December 31, 2015 (carrying amount in thousands):



	December 31, 2015
Managed REIT	% of Outstanding Shares Owned	Carrying Amount of Investment
CCPT IV	0.01%	$	122
CCPT V	1.27%	1,644
CCIT II	0.71%	1,544
INAV	0.14%	154
Funds not yet in offering	N/A	600
		$	4,064

Unconsummated Sale of Cole Capital to RCS Capital Corporation

On October 1, 2014, the Company announced that it had entered into a purchase agreement, pursuant to which RCS Capital Corporation (“RCAP”) would acquire Cole Capital for at least $700.0 million. As part of the transaction, the Company would be entitled to an earn-out of up to an additional $130.0 million based upon Cole Capital’s 2015 earnings before income taxes, depreciation and amortization. On November 3, 2014, the Company received notice from RCAP purporting to terminate the agreement. On December 4, 2014, the Company issued a press release announcing that it had entered into a settlement agreement with RCAP that resolved their dispute relating to the agreement.

The settlement included: $42.7 million in cash paid by RCAP to the Company; a $15.3 million unsecured note issued by RCAP to the Company; and a release of the Company from its obligation to pay $2.0 million to RCAP for services performed in relation to the Company’s Common Stock offering in 2014. This settlement is included in other income, net in the accompanying consolidated statements of operations. The Company and RCAP also agreed to work together to terminate, unwind or otherwise discontinue all agreements, arrangements and understandings between the two parties and any of their respective subsidiaries. See Note 8 – Loans Held for Investment for further discussion on the unsecured note and the Company’s recent inclusion of the entire amount of the note in reserve for loan loss in the accompanying consolidated statements of operations.

Due to Affiliates

Due to affiliates, as reported in the accompanying consolidated balance sheets, of $0.2 million and $0.6 million as of December 31, 2015 and 2014, respectively, related to amounts due to the Managed REITs for expense reimbursements.

Due from Affiliates

As of December 31, 2015 and 2014, $60.6 million and $86.1 million, respectively, was expected to be collected from affiliates, including balances from the Managed REITs’ lines of credit, as well as balances for services provided by the Company and expenses subject to reimbursement by the Managed REITs in accordance with their respective advisory and property management agreements. The Company had a balance of $10.6 million due from the Managed REITs as of December 31, 2015 for services provided by the Company for which we expect to be reimbursed in accordance with the Managed REITs’ respective advisory and property management agreements. The balance is included in due from affiliates in the accompanying consolidated balance sheets.

As of December 31, 2015, the Company had revolving line of credit agreements in place with CCIT II and CCPT V (the “Affiliate Lines of Credit”) that provide for maximum borrowings of $60.0 million to each of CCIT II and CCPT V. The Affiliate Lines of Credit bear interest at variable rates of one-month LIBOR plus 2.20%. The line of credit with CCPT V matures in March 2016. Subsequent to December 31, 2015, the Company extended the maturity date of the CCIT II line of credit to June 30, 2016 and reduced the maximum borrowing to $30.0 million. As of each of December 31, 2015 and 2014, there was $50.0 million outstanding on the Affiliate Lines of Credit. Additionally, the Company had a revolving line of credit agreement with INAV that matured in December 2015. There was no balance outstanding on INAV’s line of credit at the time of maturity.