8-K 1 tv477860_8k.htm FORM 8-K
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 25, 2017

 

American Realty Capital New York City REIT, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Maryland   000-55393   46-4380248

(State or other jurisdiction

of incorporation)

   (Commission File Number)  

(I.R.S. Employer

Identification No.)

 

405 Park Avenue, 4th Floor

New York, New York 10022

(Address, including zip code, of Principal Executive Offices)

 

Registrant’s telephone number, including area code: (212) 415-6500

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

 

 

 

 

 

Item 8.01. Other Events

 

Determination of Estimated Per-Share Value

 

Overview

 

The board of directors (the “Board”) of American Realty Capital New York City REIT, Inc. (the “Company”) previously adopted valuation guidelines to be used in connection with estimating the net asset value per share of the Company’s common stock. The valuation guidelines provide that New York City Advisors, LLC (the “Advisor”) estimates per-share net asset value (“Estimated Per-Share NAV”) taking into consideration the appraisals of the Company’s real estate assets (the “Real Estate Assets”) prepared by an independent valuation firm and in accordance with the valuation guidelines established by the Board. The Advisor reviewed the valuations and range of value performed by the independent valuation firm for consistency with the valuation guidelines and the reasonableness of the independent valuation firm’s conclusions. The Board oversees and reviews the Advisor’s Estimated Per-Share NAV calculation and, following consideration, in its discretion and as appropriate, of other factors, makes the formal determination as to the Estimated Per-Share NAV. The Board is ultimately and solely responsible for the Estimated Per-Share NAV.

 

On October 25, 2017, the independent directors of the Board, who comprise a majority of the Board, unanimously approved an Estimated Per-Share NAV equal to $20.26 based on an estimated fair value of the Company’s assets less the estimated fair value of the Company’s liabilities, divided by 31,029,865 shares of common stock outstanding on a fully diluted basis as of June 30, 2017. The Advisor believes there have been no material changes to the Company’s assets and liabilities between June 30, 2017 and the date of this filing that would impact Estimated Per-Share NAV, other than changes related to the payment of distributions to holders of common stock in excess of cash flows from operations.

 

The Company anticipates publishing an updated Estimated Per-Share NAV on at least an annual basis.

 

Process

 

Consistent with the Company’s valuation guidelines, the Advisor engaged Duff & Phelps, LLC (“Duff & Phelps”), an independent third-party real estate advisory firm, to perform appraisals of the Real Estate Assets and provide a valuation range of each Real Estate Asset. In addition, Duff & Phelps was engaged to review and incorporate in the calculation of Estimated Per-Share NAV the Company’s market value estimate regarding other assets and liabilities.

 

Duff & Phelps has extensive experience estimating the fair value of commercial real estate. The method used by Duff & Phelps to appraise the Real Estate Assets in the report furnished to the Advisor by Duff & Phelps (the “Duff & Phelps Report”) complies with the Investment Program Association Practice Guideline 2013-01 titled “Valuations of Publicly Registered Non-Listed REITs,” issued April 29, 2013. Duff & Phelps’s scope of work was conducted in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice. Other than its engagement as described herein and with respect to its engagement by the Company to provide valuation services in connection with the Company’s purchase price allocation for financial accounting purposes for real estate assets acquired by the Company, Duff & Phelps does not have any direct interests in any transaction with the Company.

 

Potential conflicts of interest between Duff & Phelps, on one hand, and the Company or the Advisor, on the other hand, may arise (1) as a result of the impact of the findings of Duff & Phelps in relation to the Company’s assets, or the assets of real estate investment programs sponsored by affiliates of the Advisor, on the value of ownership interests owned by, or incentive compensation payable to, directors, officers or affiliates of the Company and the Advisor, or (2) as a result of Duff & Phelps performing valuation services for other programs sponsored by affiliates of the parent of the Company’s sponsor.

 

Valuation Methodology

 

In preparing its valuation materials and in reaching its conclusion, Duff & Phelps, among other things:

 

·completed valuations on a desktop basis;
·researched applicable markets to measure current market conditions, supply and demand factors, growth patterns and their effect on applicable Real Estate Assets;
·reviewed financial and operating information requested from, or provided by, the Company, including property level cash flow projections and market leasing assumptions for each Real Estate Asset;
·reviewed all other assets and liabilities of the Company, including mortgage debt, to determine the reasonableness of fair value of such items; and

 

 

 

 

·performed such other analyses and studies, and considered factors, as Duff & Phelps considered appropriate.

 

Duff & Phelps performed a full valuation of the Real Estate Assets utilizing approaches, outlined below, that are commonly used in the commercial real estate industry.

 

The Estimated Per-Share NAV is comprised of (i) the sum of (A) the estimated value of the Real Estate Assets and (B) the estimated value of the other assets, minus (ii) the sum of (C) estimated value of debt and other liabilities and (D) the estimate of the aggregate incentive fees, participations and limited partnership interests held by or allocable to the Advisor, management of the Company or any of their respective affiliates based on the aggregate net asset value of the Company based on Estimated Per-Share NAV and payable in a hypothetical liquidation of the Company as of June 30, 2017, divided by (iii) the number of shares of common stock outstanding on a fully-diluted basis as of June 30, 2017, which was 31,029,865.

 

Duff & Phelps estimated the “as is” market value of each Real Estate Asset as of June 30, 2017 using a discounted cash flow approach and applied a range of “market supported” terminal capitalization rates and discount rates to projected net operating income or cash flow, as applicable. The discounted cash flow method simulates the reasoning of an investor who views the cash flows that would result from the anticipated revenue and expense on a property throughout its projection period. Cash flow developed in Duff & Phelps’s analysis is the balance of potential income remaining after vacancy and collection loss and operating expenses. This cash flow was then discounted by a yield rate deemed appropriate by Duff & Phelps over a typical projection period in a discounted cash flow analysis. Thus, two key steps were involved: (1) estimating the cash flow applicable to each Real Estate Asset and (2) choosing appropriate terminal capitalization rates and discount rates.

 

A sales comparison approach was used to assess the reasonableness of the conclusions reached through the income capitalization approach. A sales comparison approach considers what other purchasers and sellers in the applicable market had agreed to as a price for comparable real estate assets. This approach is based on the principle of substitution, which states that the limits of prices, rents and rates tend to be set by the prevailing prices, rents and rates of equally desirable substitutes.

 

Estimated Per-Share NAV

 

The following table, prepared by the Advisor, summarizes the individual components of the Estimated Per-Share NAV approved by the Board as of the dates presented. The decline in the per-share value from June 30, 2016 to June 30, 2017 was primarily due to the payment of capital expenditures and distributions to holders of common stock exceeding the Company’s earnings during the period.

 

   June 30, 2016   June 30, 2017 
Real Estate Assets (1)  $25.81   $25.98 
Other Assets   2.60    2.44(2)
Fair Value of Debt (3)   (6.56)   (7.85)
Other Liabilities   (0.60)   (0.31)(4)
Estimated Per-Share NAV(5)  $21.25   $20.26 

 

 
(1)The Board reviewed the valuations prepared by Duff & Phelps and determined that the value of the Real Estate Assets for purposes of determining the Estimated Per Share NAV was $806.1 million, which was within the range of the estimated value of the Real Estate Assets of $743.9 million to $814.3 million provided in the Duff & Phelps Report. The Board determined, based on the Advisor’s recommendation, to adjust the value of the Real Estate Assets $27.9 million above the midpoint of the range. The key assumptions regarding the terminal capitalization rate and the discount rate that were used by Duff & Phelps in its models to estimate the value of each Real Estate Asset are set forth in the following table. The concluded value of the Real Estate Assets reflects an overall increase of 11.4% over the sum of (a) the original purchase price for those assets of $687.5 million, plus (b) post-acquisition capital expenditures for those assets of $36.3 million.

 

    Range     Weighted
Average		  
Terminal Capitalization Rate     4.50% - 6.00 %     5.18 %
Discount Rate     4.50% - 7.25 %     5.58 %

 

(2)Includes amounts associated with the following line items from the Company’s unaudited financial statements for the quarter ended June 30, 2017: (i) cash and cash equivalents; (ii) restricted cash; and (iii) prepaid expenses and other assets, excluding straight-line rent receivables. The Advisor believes that the carrying value of these assets estimates fair value.

 

(3)The value of the Company’s mortgage notes payable was estimated using a discounted cash flow analysis. The discounted cash flow analysis was based on projected cash flows over the remaining loan terms and utilized estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. The Advisor believes that this assumption reflects the terms currently available to borrowers seeking borrowing terms similar to the Company’s and with a credit profile similar to the Company’s credit profile.  Duff & Phelps reviewed and agreed with the fair value estimates for the debt instruments in order to calculate the Estimated Per-Share NAV.

 

 

 

 

(4)Includes amounts associated with the following line items from the Company’s unaudited financial statements for the quarter ended June 30, 2017: (i) accounts payable and accrued expenses, excluding straight-line rent receivables; (ii) deferred rent and other liabilities; and (iii) distributions payable. The Advisor believes that the carrying value of these liabilities estimates fair value.

 

(5)Based on 31,029,865 shares of common stock outstanding on a fully diluted basis as of June 30, 2017 and 30,419,798 shares of common stock outstanding on a fully diluted basis as of June 30, 2016.

 

Sensitivity Analysis

 

The Advisor noted that applying the low, midpoint and high range of discount rates determined by Duff & Phelps resulted in an Estimated Per-Share NAV range equal to $18.26 - $20.53 per share on a fully diluted basis. The midpoint in that range was $19.36.

 

The discount rates have a significant impact on the estimated value. The following chart presents the impact on Estimated Per-Share NAV resulting from variations in the discount rates for the Real Estate Assets, within the range of values determined by Duff & Phelps.

 

   Range of Value 
   Low   Midpoint   High 
Estimated Per-Share NAV  $18.26   $19.36   $20.53 
Discount Rate (1)   6.58%   6.08%   5.58%

 

 
(1)This analysis shows the effect of varying the weighted average discount rate used in the income capitalization approach with all other assumptions, including a weighted average terminal capitalization rate of 5.18%, remaining constant.

 

Limitations of the Methodologies

 

The Company believes that the method used to establish the Estimated Per-Share NAV is the method most commonly used by non-listed REITs to establish an estimated per-share net asset value. The Company also believes that the assumptions described herein to estimate the value of the Real Estate Assets are within the ranges used by market participants buying and selling similar properties, assuming a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. The estimated values of the Real Estate Assets may not, however, represent current market value or book value. Real properties are currently carried at their amortized cost basis in the Company’s financial statements. The estimated value of the Real Estate Assets reflected above does not necessarily represent the value the Company would receive or accept if the Real Estate Assets were marketed for sale. The market for commercial real estate can and does fluctuate and values are expected to change in the future. Further, the Estimated Per-Share NAV does not reflect a liquidity discount for the fact that the shares of common stock are not currently traded on a national securities exchange, a discount for the non-assumability or prepayment obligations associated with certain of the Company’s debt obligations and other costs that may be incurred, including any costs associated with the sale of assets.

 

As with any methodology used to estimate value, the methodologies employed to value the Real Estate Assets by Duff & Phelps, and used by the Advisor to make recommendations to the Board, were based upon a number of estimates and assumptions that may not be accurate or complete, including estimates and assumptions such as comparable sales, rental and operating expense data, capitalization or discount rates, and projections of future rent and expenses. Further, different parties using different assumptions and estimates could derive a different Estimated Per-Share NAV, which could be significantly different from this Estimated Per-Share NAV.

 

The Estimated Per-Share NAV does not reflect “enterprise value” which may include an adjustment for:

 

·the large number of Real Estate Assets, given that some buyers may be willing to pay more for a large portfolio than they are willing to pay for each property in the portfolio separately;
·any other intangible value associated with a going concern; or
·the possibility that shares of common stock could trade at a premium or a discount to the Estimated Per-Share NAV if they were listed on a national securities exchange.

 

 

 

 

 Limitations of the Estimated Per-Share NAV

 

The Estimated Per-Share NAV does not represent the: (i) the price at which shares of common stock would trade at on a national securities exchange or a third party would pay for the Company, (ii) the amount a stockholder would obtain if he or she tried to sell his or her shares of common stock or (iii) the amount stockholders would receive if the Company liquidated its assets and distributed the proceeds after paying all of its expenses and liabilities. Accordingly, with respect to the Estimated Per-Share NAV, the Company can give no assurance that:

 

·a stockholder would be able to resell his or her shares of common stock at Estimated Per-Share NAV;
·a stockholder would ultimately realize distributions per share of common stock equal to Estimated Per-Share NAV upon liquidation of the Company’s assets and settlement of its liabilities or a sale of the Company;
·shares of common stock would trade at a price equal to or greater than Estimated Per-Share NAV if they were listed on a national securities exchange or that a third party would purchase the Company at a value per share of common stock equal to Estimated Per-Share NAV; or
·the methodology used to establish the Estimated Per-Share NAV would be acceptable to the Financial Industry Regulatory Authority for use on customer account statements, or that the Estimated Per-Share NAV will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”) with respect to employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Code.

 

Further, the Estimated Per-Share NAV was calculated as of a specific date, and the value of shares of common stock will fluctuate over time as a result of, among other things, developments related to individual assets, changes in the real estate and capital markets, acquisitions or dispositions of assets and the distribution of proceeds from the sale of real estate to stockholders.

 

Conclusion

 

The Estimated Per-Share NAV as of June 30, 2017 of $20.26 was unanimously adopted by the independent directors of the Board, who comprise a majority of the Board, on October 25, 2017. The Board based its determination on the Advisor’s recommendation, which was based on the Advisor’s review of the Duff & Phelps Report and on the Advisor’s own analysis, estimates and calculations, but the Board is ultimately and solely responsible for the Estimated Per-Share NAV. Estimated Per-Share NAV was determined at a moment in time and will likely change over time as a result of changes to the value of individual assets as well as changes and developments in the real estate and capital markets, including changes in interest rates. Stockholders should not rely on the Estimated Per-Share NAV in making a decision to buy or sell shares of the Company’s common stock, including pursuant to the Company’s distribution reinvestment plan (as amended, the “DRIP”) or share repurchase program (as amended, the “SRP”).

 

In connection with the determination of Estimated Per-Share NAV, the Board concluded that in a hypothetical liquidation at such Estimated Per-Share NAV, the Advisor would not be entitled to any incentive fees or performance-based restricted partnership units of the Company’s operating partnership designated as "Class B Units." The Advisor determined the Estimated Per-Share NAV in a manner consistent with the definition of fair value under U.S. generally accepted accounting principles set forth in FASB’s Topic ASC 820, Fair Value Measurements and Disclosures.

 

 Distribution Reinvestment Plan and Share Repurchase Program

 

Pursuant to the Company’s DRIP, the price per share for shares of common stock purchased under the DRIP is the most-recent Estimated Per-Share NAV as determined by the Board from time to time.

 

Accordingly, under the DRIP, beginning with reinvestments made on or about November 1, 2017, distributions may be reinvested in shares of common stock at a price of $20.26 per share instead of the previous Estimated Per-Share NAV, $21.25 per share.

 

As set forth in the SRP, the repurchase price per share of any repurchases approved by the Board pursuant to the SRP will be based on Estimated Per-Share NAV on the last day of the applicable six-month period ending June 30 or December 31 with respect to which the Company may repurchase shares pursuant to the SRP.

 

  This Current Report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to buy securities, and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction.

 

Forward-Looking Statements

 

This Current Report on Form 8-K contains certain statements that are the Company’s 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 risks and uncertainties. The Company’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and the Company may not release revisions to these forward-looking statements to reflect changes after the Company has made these 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 Securities and Exchange Commission including, but not limited to, the Company’s Annual Reports on Form 10-K, the Company’s Quarterly Reports on Form 10-Q, as well as the Company’s Current Reports on Form 8-K. 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.
     
     
Date: October 26, 2017 By: /s/ Nicholas Radesca
    Name: Nicholas Radesca
    Title: Interim Chief Financial Officer and Treasurer