Mergers with Real Estate Businesses

American Realty Capital Trust IV, Inc. Merger

On July 1, 2013, the General Partner entered into an Agreement and Plan of Merger, as amended (the “ARCT IV Merger Agreement”), with ARCT IV, and certain subsidiaries of each company. The ARCT IV Merger Agreement provided for the merger of ARCT IV with and into a subsidiary of the OP (the “ARCT IV Merger”). The ARCT IV Merger was consummated on January 3, 2014 (the “ARCT IV Merger Date”).

Pursuant to the terms of the ARCT IV Merger Agreement, each outstanding share of common stock of ARCT IV, including unvested restricted shares that vested in conjunction with the ARCT IV Merger, was exchanged for (i) $9.00 in cash, (ii) 0.5190 of a share of the Company’s Common Stock (the “ARCT IV Exchange Ratio”) and (iii) 0.5937 of a share of a new series of preferred stock designated as the 6.70% Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) and each outstanding unit of ARCT IV’s operating partnership (each, an “ARCT IV OP Unit”), other than ARCT IV OP Units held by American Realty Capital Trust IV Special Limited Partner, LLC (the “ARCT IV Special Limited Partner”), and American Realty Capital Advisors IV, LLC (the “ARCT IV Advisor”) was exchanged for (i) $9.00 in cash, (ii) 0.5190 of a Limited Partner OP Unit and (iii) 0.5937 of a Limited Partner OP Unit designated as Series F Preferred Units (“Limited Partner Series F OP Units”). In total, the Operating Partnership, on the Company’s behalf, paid $651.4 million in cash, the Company issued 36.9 million shares of Common Stock and 42.2 million shares of Series F Preferred Stock to the former ARCT IV shareholders, and the Operating Partnership issued 0.7 million units of Limited Partner Series F OP units and 0.6 million Limited Partner OP Units to the former ARCT IV OP Unit holders in connection with the consummation of the ARCT IV Merger. In addition, each outstanding ARCT IV Class B Unit (as defined below) and each outstanding ARCT IV OP Unit held by the ARCT IV Special Limited Partner and the ARCT IV Advisor was converted into 2.3961 Limited Partner OP Units, resulting in the OP issuing 1.2 million Limited Partner OP Units. In accordance with the LPA, the OP issued a corresponding number of General Partner OP Units and General Partner Series F Preferred Units to the Company when shares of the Company’s Common Stock and Series F Preferred Stock were issued to former common stockholders of ARCT IV, respectively.

On January 3, 2014, the OP entered into a contribution and exchange agreement with the ARCT IV OP, the ARCT IV Special Limited Partner and ARC Real Estate Partners, LLC (“ARC Real Estate”), an entity under common ownership with the Former Manager. 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,” as a result of which the ARCT IV Special Limited Partner, in connection with management’s successful 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, received a subordinated distribution of net sales proceeds from the ARCT IV OP equal to $63.2 million. Pursuant to the contribution and exchange agreement, the ARCT IV Special Limited Partner contributed its interest in the ARCT IV OP, inclusive of the subordinated distribution proceeds received, to the ARCT IV OP in exchange for 2.8 million equity units of the ARCT IV OP, based on a price per share of $22.50. The fair value of these units at date of issuance was $78.2 million and has been included in litigation, merger and other non-routine costs, net of insurance recoveries in the accompanying consolidated statements of operations for the year ended December 31, 2014. Upon consummation of the ARCT IV Merger, these equity units were immediately converted to 6.7 million Limited Partner OP Units after application of the exchange ratio of 2.3961 per ARCT IV OP Unit. In conjunction with the ARCT IV Merger Agreement, the ARCT IV Special Limited Partner agreed to a minimum two-year holding period for these Limited Partner OP Units before being redeemable by the holder for cash or, at the option of the General Partner, the Common Stock of the Company.

In addition, as part of the contribution and exchange agreement, ARC Real Estate contributed $750,000 in cash to the ARCT IV OP, effective prior to the consummation of the ARCT IV Merger, in exchange for ARCT IV OP Units. Upon the consummation of the ARCT IV Merger, these equity units converted at an exchange ratio of 2.3961 Limited Partner OP Units per ARCT IV OP Unit, resulting in the Operating Partnership issuing 0.1 million Limited Partner OP Units to ARC Real Estate.

Accounting Treatment for the ARCT IV Merger

The Company and ARCT IV, from inception to the ARCT IV Merger Date, were considered to be entities under common control. Both entities’ advisors were wholly owned subsidiaries of AR Capital, LLC (“ARC”). ARC and its related parties had ownership interests in the Company and ARCT IV through the ownership of shares of common stock, OP Units and other equity interests. In addition, the advisors of both entities were contractually eligible to receive potential fees for their services to both of the companies, including asset management fees, incentive fees and other fees and had continued to receive fees from the OP prior to the Company’s transition to self-management. Due to the significance of these fees, the advisors and ultimately ARC were determined to have a significant economic interest in both companies in addition to having the power to direct the activities of the companies through advisory/management agreements, which qualified them as affiliated companies under common control in accordance with U.S. GAAP. The acquisition of an entity under common control is accounted for on the carryover basis of accounting, whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT IV Merger Date. In addition, U.S. GAAP requires the Company to present historical financial information as of the earliest period of common control. Therefore, the accompanying consolidated financial statements, including the notes thereto, are presented as if the ARCT IV Merger, including the impact of the equity transactions entered into to consummate the merger, had occurred at the earliest period presented.

Cole Real Estate Investments, Inc. Merger

On October 22, 2013, the Company and a wholly owned subsidiary entered into an agreement and plan of merger (the “Cole Merger Agreement”) with Cole, a publicly traded Maryland corporation. The Cole Merger Agreement provided for the merger of Cole with and into a wholly owned subsidiary of the Company (the “Cole Merger”). The Cole Merger was consummated on February 7, 2014 (the “Cole Acquisition Date”).

Pursuant to the terms of the Cole Merger Agreement, each share of common stock of Cole issued and outstanding immediately prior to the effectiveness of the Cole Merger, including unvested restricted stock units and performance stock units that vested in conjunction with the Cole Merger, other than shares owned by the Company, any subsidiary of the Company or any wholly owned subsidiary of Cole, was converted into the right to receive either (i) 1.0929 shares of the Company’s Common Stock (the “Stock Consideration”) or (ii) $13.82 in cash (the “Cash Consideration” and together with the Stock Consideration, the “Merger Consideration”). Holders of approximately 98% of outstanding Cole shares elected to receive the Stock Consideration and holders of approximately 2% of outstanding Cole shares elected to receive the Cash Consideration, pursuant to the terms of the Cole Merger Agreement, resulting in the Company issuing approximately 520.8 million shares of Common Stock and paying $181.8 million in cash to Cole’s shareholders based on their elections. In accordance with the LPA, the Operating Partnership issued a corresponding number of General Partner OP Units to the Company when shares of the Company’s Common Stock were issued to former common stockholders of Cole.

In addition, the Company issued approximately 2.8 million shares of Common Stock, in the aggregate, to certain executives of Cole pursuant to letter agreements entered into between the Company and such individuals, concurrently with the execution of the Cole Merger Agreement. Additionally, effective as of the Cole Acquisition Date, the Company issued, but had not yet allocated, 0.4 million shares with dividend equivalent rights commensurate with the Company’s Common Stock. In accordance with the LPA, the Operating Partnership issued a corresponding number of General Partner OP Units to the Company when shares of the Company’s Common Stock were issued to former executives of Cole.

The fair value of the consideration transferred at the Cole Acquisition Date totaled $7.5 billion and consisted of the following (in thousands):



	As of Cole Acquisition Date
Fair value of consideration transferred:
Cash	$	181,775
Common Stock	7,285,868
Total consideration transferred	$	7,467,643

The fair value of the 520.8 million shares of Common Stock issued, excluding those shares of Common Stock transferred to former Cole executives, was determined based on the closing market price of the Company’s Common Stock on the Cole Acquisition Date.

Accounting Treatment for the Cole Merger

The Cole Merger has been accounted for under the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting, the assets acquired and liabilities assumed from Cole were recorded as of the acquisition date at their respective fair values. Any excess of purchase price over the fair values was recorded as goodwill. Results of operations for Cole are included in the Company’s consolidated financial statements subsequent to the Cole Acquisition Date.

Purchase Price Allocation of Cole Merger

Initially, the purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their preliminary fair values. During the three months ended December 31, 2014, we identified certain measurement period adjustments that impacted the provisional accounting, which decreased the fair value of the identifiable management and advisory contracts with the Cole REITs and corresponding deferred tax liability by $80.4 million and $30.7 million, respectively, and an increase of $49.6 million to goodwill as of the Cole Acquisition Date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Cole Acquisition Date (in thousands):



	As of Cole Acquisition Date
Identifiable assets acquired at fair value:
Land	$	1,737,839
Buildings, fixtures and improvements	5,901,827
Acquired intangible lease assets	1,324,217
Total real estate investments	8,963,883
Investment in unconsolidated entities	103,966
Investment securities, at fair value	151,197
Loans held for investment, net	72,326
Cash and cash equivalents	149,965
Restricted cash	15,704
Intangible assets	305,000
Deferred costs and other assets	94,667
Due from affiliates	3,301
Total identifiable assets acquired	$	9,860,009



	As of Cole Acquisition Date
Identifiable liabilities assumed at fair value:
Mortgage notes payable, net	$	2,706,585
Credit facilities	1,309,000
Other debt	49,013
Below-market lease liabilities	212,433
Accounts payable and accrued expenses	142,243
Deferred rent, derivative and other liabilities	204,558
Dividends payable	6,271
Due to affiliates	44,242
Total liabilities assumed	4,674,345

Non-controlling interests	24,766

Net identifiable assets acquired	5,160,898
Goodwill	2,262,547
Net assets acquired	$	7,423,445

The fair values of real estate investments, including acquired lease intangibles, and below-market lease liabilities allocated to the REI segment were estimated by the Company with the assistance of a third-party valuation firm. The estimated fair values of these assets and liabilities total $9.0 billion and $212.4 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. The fair value of the remaining Cole assets and liabilities were calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in Note 2 – Summary of Significant Accounting Policies.

Goodwill of $1.7 billion was assigned to the REI segment. The goodwill recognized was attributed to the enhancement of the Company’s year-round rental revenue stream, realized and expected synergies, the impact of the merger on lowering the Company’s cost of capital, as well as the benefits of critical mass, improved portfolio diversification and enhanced access to capital markets. Goodwill of $608.5 million was assigned to the Cole Capital segment. The goodwill was primarily supported by management’s belief that Cole Capital brings an established management platform with numerous strategic benefits including growth from new income streams and the ability to offer new products. None of the goodwill is expected to be deductible for income tax purposes.

The amounts of revenue and net income related to Cole property acquisitions and Cole Capital included in the accompanying consolidated statements of operations from the Cole Acquisition Date to the period ended December 31, 2014 was $814.8 million and $47.3 million respectively.

The unaudited pro forma information in Note 5 – Real Estate Investments is presented as if Cole had been included in the consolidated results of the Company for the entire period ended December 31, 2014.

Cole Credit Property Trust, Inc. Merger

On March 17, 2014, the Company and a wholly owned subsidiary entered into an Agreement and Plan of Merger (the “CCPT Merger Agreement”) with CCPT. The CCPT Merger Agreement provided for the merger of CCPT with and into a direct subsidiary of the Company (the “CCPT Merger”). The CCPT Merger was consummated on May 19, 2014 (the “CCPT Acquisition Date”). The fair value of the consideration transferred at the CCPT Acquisition Date totaled $73.2 million, which was paid in cash.

Pursuant to the CCPT Merger Agreement, the Company commenced a cash tender offer to purchase all of the outstanding shares of common stock of CCPT (the “CCPT Common Stock”) (other than shares owned by CCPT, the Company or any subsidiary of the Company), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated March 31, 2014, and the related Letter of Transmittal (together with any amendments or supplements to the foregoing, the “Offer”), at a price of $7.25 per share (the “Offer Price”), net to the seller in cash, without interest, less any applicable withholding tax. On May 19, 2014, the Company accepted for payment and paid for all shares of CCPT Common Stock that were validly tendered in the Offer. As of the expiration of the Offer, a total of 7,735,069 shares of CCPT Common Stock were validly tendered and not withdrawn, representing approximately 77% of the shares of CCPT Common Stock outstanding.

Immediately following the acceptance for payment and payment for the shares of CCPT Common Stock that were validly tendered in the Offer, the Company exercised its option (the “Top-Up Option”), granted pursuant to the CCPT Merger Agreement, to purchase, at a price per share equal to the Offer Price, 13,457,874 newly issued shares of CCPT Common Stock (collectively, the “Top-Up Shares”). The Top-Up Shares, taken together with the shares of CCPT Common Stock owned, directly or indirectly, by the Company and its subsidiaries immediately following the acceptance for payment and payment for the shares of CCPT Common Stock that were validly tendered in the Offer, constituted one share more than 90% of the outstanding shares of CCPT Common Stock (after giving effect to the issuance of all shares subject to the Top-Up Option), the applicable threshold required to effect a short-form merger under applicable Maryland law without stockholder approval.

Following the consummation of the Offer and the exercise of the Top-Up Option, in accordance with the CCPT Merger Agreement, the Company completed its acquisition of CCPT by effecting a short-form merger under Maryland law, pursuant to which CCPT was merged with and into a subsidiary of the Company, with the subsidiary surviving the merger as a wholly owned subsidiary of the Company. The CCPT Merger became effective following the filing of the Articles of Merger with the State Department of Assessments and Taxation of Maryland and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware with an effective date of May 19, 2014 (the “Effective Time”).

At the Effective Time, each share of CCPT Common Stock not purchased in the Offer (other than shares held by CCPT, the Company or any subsidiary of the Company, which were automatically canceled and retired and ceased to exist) was converted into the right to receive an amount, in cash and without interest, equal to the Offer Price.

Accounting Treatment for the CCPT Merger

The CCPT Merger has been accounted for under the acquisition method of accounting under U.S. GAAP. Under the acquisition method of accounting, the assets acquired and liabilities assumed from CCPT were recorded as of the acquisition date at their respective fair values. Any excess of purchase price over the fair values was recorded as goodwill. Results of operations for CCPT are included in the Company’s consolidated financial statements subsequent to the CCPT Acquisition Date.

Fair Value of Consideration Transferred

The fair value of the consideration transferred at the CCPT Acquisition Date totaled $73.2 million, which was paid in cash. The acquisition was funded by the Company through additional borrowings under its revolving credit facility.

Purchase Price Allocation of CCPT Acquisition

The consideration transferred pursuant to the CCPT Merger Agreement was allocated to the assets acquired and liabilities assumed based upon their preliminary estimated fair values as of the CCPT Acquisition Date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the CCPT Acquisition Date (in thousands):



	As of CCPT Acquisition Date
Identifiable assets acquired at fair value:
Land	$	28,258
Buildings, fixtures and improvements	113,296
Acquired intangible lease assets	17,960
Total real estate investments	159,514
Cash and cash equivalents	167
Restricted cash	2,420
Prepaid expenses and other assets	297
Total identifiable assets acquired	$	162,398



	As of CCPT Acquisition Date
Identifiable liabilities assumed at fair value:
Mortgage notes payable	$	85,286
Unsecured credit facility	800
Accounts payable and accrued expenses	443
Below-market lease liability	1,752
Due to affiliates	568
Deferred rent and other liabilities	390
Total liabilities assumed	89,239
Net identifiable assets acquired	$	73,159

The fair value of real estate investments, including acquired lease intangibles, and below-market lease liabilities were estimated by the Company with the assistance of a third party valuation firm. The estimated fair value of these assets and liabilities total $159.5 million and $1.8 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. The fair value of the remaining CCPT assets and liabilities were calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in Note 2 – Summary of Significant Accounting Policies.

The amounts of revenue and net loss related to the CCPT Merger included in the accompanying consolidated statements of operations from the CCPT Acquisition Date to the period ended December 31, 2014 were $8.2 million and $1.8 million, respectively.

The unaudited pro forma information in Note 5 – Real Estate Investments is presented as if CCPT had been included in the consolidated results of the Company for the entire year ended December 31, 2014.

Abandoned Spin-off of Multi-Tenant Shopping Center Portfolio; Sale to Blackstone/DDR Joint Venture

On March 13, 2014, the Company announced its intention to spin off its multi-tenant shopping center business (the “MT Spin-off”) into a publicly traded REIT, American Realty Capital Centers, Inc., which was expected to operate under the name “ARCenters” and to trade on the NASDAQ Global Market under the symbol “ARCM.” The OP was expected to retain 25% ownership of ARCM. The MT Spin-off was expected to be effectuated through a pro rata taxable special distribution of one share of ARCM common stock for every 10 shares of the Company’s common stock and every 10 OP Units held by third parties in the OP. On April 4, 2014, ARCM filed a Registration Statement on Form 10 to register ARCM’s common stock, par value $0.01 per share, pursuant to Section 12(b) of the Exchange Act so that, upon consummation of the MT Spin-off, shares of ARCM received by holders of the Company’s common stock, or OP Units, as applicable, could freely trade their newly received ARCM common stock. ARCM was expected to be externally managed by the Company.

On May 21, 2014, the Company announced that it had reassessed its plans for the multi-tenant shopping center portfolio and entered into a letter of intent to sell such portfolio to an affiliate of Blackstone Real Estate Partners VII L.P. (“Blackstone”), expecting to finalize pertinent documentation related thereto within 30 days of such date. The properties included in such sale were the same properties that would have been spun off into ARCM and, consequently, the Company abandoned its proposed spin-off at such time. On June 11, 2014, indirect subsidiaries of the Company entered into an Agreement of Purchase and Sale with BRE DDR Retail Holdings III LLC (the “Blackstone/DDR Joint Venture”), an entity indirectly jointly owned by affiliates of Blackstone and DDR Corp. (“DDR”), pursuant to which the parties subsequently consummated the sale of the Company’s multi-tenant shopping center portfolio. See Note 5 – Real Estate Investments for further discussion on the sale of the properties, which closed on October 17, 2014.