UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-149290
COLE CREDIT PROPERTY TRUST III, INC.
(Exact name of registrant as specified in its charter)
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Maryland
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26-1846406 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number) |
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2555 East Camelback Road, Suite 400
Phoenix, Arizona, 85016
(Address of principal executive offices; zip code)
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(602) 778-8700
(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which Registered |
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None
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None |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated file in Rule 12b-2 of the Exchange Act. (Check one.)
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of common stock held by nonaffiliates as of June 30, 2009:
approximately $355.8 million assuming a market value of $10.00 per share based on our offering
price. No established market exists for the Registrants common stock.
The number of shares of common stock outstanding as of March 29, 2010 was 130,942,430.
Documents Incorporated by Reference:
The Registrant incorporates by reference portions of the Cole Credit Property Trust III, Inc.
Definitive Proxy Statement for the 2010 Annual Meeting of Stockholders (into Items 10, 11, 12, 13
and 14 of Part III).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K of Cole Credit Property Trust
III, Inc., other than historical facts may be considered forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We intend for
all such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as
applicable by law. Such statements include, in particular, statements about our plans, strategies,
and prospects and are subject to certain risks and uncertainties, as well as known and unknown
risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods.
Such forward-looking statements can generally be identified by our use of forward-looking
terminology such as may, will, would, could, should, expect, intend, anticipate,
estimate, believe, continue, or other similar words. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date this Annual Report on
Form 10-K is filed with the Securities and Exchange Commission (SEC). We make no representation
or warranty (express or implied) about the accuracy of any such forward-looking statements
contained in this Annual Report on Form 10-K, and we do not undertake to publicly update or revise
any forward-looking statements, whether as a result of new information, future events, or
otherwise.
Forward-looking statements that were true at the time made may ultimately prove to be
incorrect or false. We caution investors not to place undue reliance on forward-looking
statements, which reflect our managements view only as of the date of this Annual Report on Form
10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future operating results. The
forward-looking statements should be read in light of the risk factors identified in the Item 1A.
Risk Factors section of this Annual Report on Form 10-K.
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PART I
Formation
Cole Credit Property Trust III, Inc. (the Company, we, or us) is a Maryland corporation
formed on January 22, 2008, which intends to qualify as a real estate investment trust (REIT)
beginning with the taxable year ended December 31, 2009, the year during which the Company began
material operations. We were organized to acquire and operate a diversified portfolio of commercial
real estate investments primarily consisting of retail and other income producing commercial
properties located throughout the United States, including U.S. protectorates. As of December 31,
2009, we owned 133 properties located in 33 states, comprising
approximately 4.9 million gross
rentable square feet of commercial space including square feet of
buildings which are on land subject to ground leases. As of December 31, 2009, these properties were 99.9% leased.
Substantially all of our business is conducted through our operating partnership, Cole REIT
III Operating Partnership, LP (CCPT III OP), a Delaware limited partnership organized in January
2008. The Company is the sole general partner of and owns an approximately 99.99% interest in CCPT
III OP. Cole REIT Advisors III, LLC (CR III Advisors), the advisor to the Company, is
the sole limited partner and owns an insignificant noncontrolling partnership interest of less than
0.01% of CCPT III OP.
CR III Advisors acts as our advisor pursuant to an advisory agreement. CR III Advisors is
responsible for managing our affairs on a day-to-day basis, identifying and making acquisitions and
investments on our behalf and making recommendations as to dispositions of assets. Our board of
directors exercises its fiduciary duties in reviewing these recommendations and determining to
approve or reject proposed transactions. Our advisor and its affiliates also provide property
management, asset management, financing, marketing, investor relations and other administrative
services on our behalf. Our agreement with CR III Advisors is for a one-year term and is
reconsidered on an annual basis by our board of directors. We have no employees and rely upon our
advisor and its affiliates to provide substantially all of our services.
Pursuant to a Registration Statement on Form S-11 (the Registration Statement) under the
Securities Act, we are offering for sale to the public on a best efforts
basis a minimum of 250,000 and a maximum of 230,000,000 shares of common stock at a price of
$10.00 per share and up to 20,000,000 additional shares pursuant to a distribution reinvestment
plan (the DRIP) under which stockholders may elect to have distributions reinvested in additional
shares at the higher of $9.50 per share or 95% of the estimated value of a share of our common
stock (the Offering). The Registration Statement was declared effective on October 1, 2008. On
January 6, 2009, we satisfied the conditions of our minimum offering requirements and we accepted investors
subscriptions for, and issued, 262,059 shares of our common stock in the Offering, resulting in
gross proceeds of $2,614,946. As of December 31, 2009, we had issued a total of 98,007,480 shares
in the Offering, including 96,678,401 shares sold in the primary offering and 1,329,079 shares sold
pursuant to the DRIP, resulting in gross offering proceeds to us of approximately $978.2 million.
As of March 29, 2010, we had received approximately $1.3 billion in gross proceeds through the
issuance of approximately 131.0 million shares of our common stock pursuant to the Offering. As of
March 29, 2010, approximately $1.0 billion in shares (101.4 million shares) remained available for
sale to the public, exclusive of shares available under the DRIP.
On February 12, 2010, we filed a Registration Statement on Form S-11 under the Securities Act to register a maximum of 250,000,000 shares of common stock to be offered to the public
on a best efforts basis pursuant to a proposed follow-on public offering and a maximum of 25,000,000 additional shares pursuant to the DRIP.
We admit new stockholders pursuant to the Offering at least weekly, although we typically do
so on a daily basis. All subscription proceeds are held in a separate account until the subscribing
investors are admitted as stockholders. Upon admission of new stockholders, subscription proceeds
are released to us and may be utilized as consideration for investments and the payment or
reimbursement of dealer manager fees, selling commissions, organization and offering expenses, debt
service costs and operating expenses. We may use a portion of the net proceeds from the Offering to
fund all or part of our distributions to stockholders. Such distributions may constitute a return
of capital and reduce the amount of capital we ultimately invest in properties. Until required for
use, net offering proceeds are held in short-term, liquid investments.
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Our stock is not currently listed on a national securities exchange. We may seek to list our
stock for trading on a national securities exchange only if a majority of our independent directors
believe listing would be in the best interest of our stockholders. We do not intend to list our
shares at this time. We do not anticipate that there would be any market for our common stock
until our shares are listed for trading. In the event we do not list our shares of common stock on
a national securities exchange within ten years of the termination of the Offering, our charter
requires that we either: (1) seek stockholder approval of an extension or amendment of this listing
deadline; or (2) seek stockholder approval to adopt a plan of liquidation and dissolution.
If we seek and do not obtain stockholder approval of an extension or amendment to the listing
deadline, we would then be required to seek stockholder approval of our liquidation and
dissolution. If we seek and fail to obtain stockholder approval of our liquidation and dissolution,
our charter would not require us to list or liquidate and we could continue to operate as before.
In such event, there would be no public market for shares of our common stock and stockholders
could be required to hold the shares indefinitely. If we seek and obtain stockholder approval of
our liquidation and dissolution, we would begin an orderly sale of our assets and distribute,
subject to our advisors subordinated participation, our net proceeds to our stockholders.
Our principal executive offices are located at 2555 East Camelback Road, Suite 400, Phoenix,
Arizona 85016. Our telephone number is (602) 778-8700.
Investment Objectives and Policies
Our objective is to invest primarily in retail and other income producing commercial
properties located throughout the United States, including U.S. protectorates. Our primary
investment objectives are:
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to provide current income for our stockholders through the payment of
cash distributions; and |
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to preserve and return our stockholders capital contributions. |
We also seek capital gains from our investments. We cannot assure investors that we will
attain these objectives or our capital will not decrease. Our board of directors may revise our
investment policies without the concurrence of our stockholders. Our board reviews our investment
policies at least annually to determine that our policies are in the best interest of our
stockholders.
Acquisition and Investment Policies
Primary Investment Focus
We invest primarily in retail and other income producing commercial properties located
throughout the United States, including U.S. protectorates. Our retail properties are primarily net
leased to regional or national brand name, creditworthy tenants. Currently, our portfolio is
comprised primarily of freestanding, single-tenant properties net leased for use as retail
establishments. A portion of our portfolio also includes multi-tenant retail properties. In
addition, we have acquired and will continue to acquire retail properties that are subject to
long-term net leases. Our future investments may be direct investments in properties or in other
entities that own or invest in, directly or indirectly, interests in such properties. We also may
acquire single-tenant and multi-tenant office, industrial and industrial-flex, hospitality and
mini-storage and self-storage properties. In addition, we expect to further diversify our portfolio
by making and investing in mortgage and other loans secured by the same types of properties which
we may acquire directly or indirectly. We may acquire properties under development or that require
substantial refurbishment or renovation. We may also acquire majority or minority interests in
other entities (or business units of such entities) with investment objectives similar to ours or
with management, investment or development capabilities that our board of directors deems desirable
or advantageous to acquire.
Many of our properties are, and will be, leased to tenants in the chain or franchise retail
industry, including but not limited to convenience stores, drug stores and restaurant properties.
Other properties are, or will be, leased to large, national big box retailers, either standing
alone or as part of so-called power centers which are comprised of big box national, regional and
local retailers. We also have acquired, and may continue to acquire additional multi-tenant retail
properties, including grocery anchored centers and retail strip centers. Our advisor monitors
industry trends and seeks to identify properties on our behalf that will provide a favorable return
balanced with risk. Our management primarily targets regional or national name brand retail
businesses with established track records.
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We believe that our general focus on the acquisition of a large number of single-tenant and
multi-tenant retail properties net leased to creditworthy tenants presents lower investment risks
and greater stability than other sectors of todays commercial real estate market. By acquiring a
large number of single-tenant and multi-tenant retail properties, we believe that lower than
expected results of operations from one or a few investments will not necessarily preclude our
ability to realize our investment objectives of cash flow and preservation of capital from our
overall portfolio. We believe this approach can result in less risk to investors than an investment
approach that targets other asset classes. In addition,
we believe that retail properties, as compared to other asset classes, offer a distinct investment
advantage since these properties generally require less management and operating capital, have less
recurring tenant turnover and, with respect to single-tenant properties, often offer superior
locations that are less dependent on the financial stability of adjoining tenants. In addition,
since we acquire properties that are geographically diverse, we expect to minimize the potential
adverse impact of economic slowdowns or downturns in local markets. Our management believes that a
portfolio consisting of both freestanding, single tenant retail properties and multi-tenant retail
properties anchored by national big box retailers will enhance our liquidity opportunities for
investors by making the sale of individual properties, multiple properties or our investment
portfolio as a whole attractive to institutional investors and by making a possible listing of our
shares attractive to the public investment community.
To the extent feasible, we have acquired and will continue to acquire a well-balanced
portfolio diversified by geographic location, age of the property and lease maturities of the
various properties. We have pursued and will continue to pursue properties leased to tenants
representing a variety of industries so as to avoid concentration in any one industry. We expect
these industries to include all types of retail establishments, such as big box retailers,
convenience stores, drug stores and restaurant properties. We expect that tenants of our properties
will also be diversified between national, regional and local brands. We generally target
properties with lease terms in excess of ten years. We may acquire properties with shorter lease
terms if the property is in an attractive location, if the property is difficult to replace or if
the property has other significant favorable attributes. We expect that these investments will
provide long-term value by virtue of their size, location, quality and condition, and lease
characteristics. We currently expect all of our acquisitions will be in the United States,
including U.S. protectorates.
Many retail companies today are entering into sale-leaseback arrangements as a strategy for
applying capital that would otherwise be applied to their real estate holdings to their core
operating businesses. We believe that our investment strategy will enable us to take advantage of
the increased emphasis on retailers core business operations in todays competitive corporate
environment as many retailers attempt to divest from real estate assets.
There is no limitation on the number, size or type of properties that we may acquire or on the
percentage of net proceeds of the Offering that may be invested in a single property. The number
and mix of properties comprising our portfolio will depend upon real estate market conditions and
other circumstances existing at the time we acquire properties, and the amount of proceeds raised
in the Offering. For a further description, see the section below captioned Other Possible Investments.
We incur debt to acquire properties where our board determines that incurring such debt is in
our best interest. In addition, from time to time, we may acquire some properties without financing
and later incur mortgage debt secured by one or more of such properties if favorable financing
terms are available. We will use the proceeds from these loans to acquire additional properties.
See the section below captioned Borrowing Policies for a more detailed description of our borrowing
intentions and limitations.
Investment Grade and Other Creditworthy Tenants
In evaluating potential property acquisitions consistent with our investment objectives, we
apply credit underwriting criteria to the tenants of existing properties. Similarly, we will apply
credit underwriting criteria to possible new tenants when we are re-leasing properties in our
portfolio. Tenants of our properties frequently are national or super-regional retail chains that
are investment grade or otherwise creditworthy entities having high net worth and operating income.
Generally, these tenants must be experienced multi-unit operators with a proven track record in
order to meet the credit tests applied by our advisor.
A tenant will be considered investment grade when the tenant has a debt rating by Moodys
Investors Service (Moodys) of Baa3 or better or a credit rating by Standard & Poors Financial
Services, LLC (Standard & Poors) of BBB- or better, or its payments are guaranteed by a company
with such rating. Changes in tenant credit ratings, coupled with future acquisition and disposition
activity, may increase or decrease our concentration of investment grade tenants in the future.
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Moodys ratings are opinions of future relative creditworthiness based on an evaluation of
franchise value, financial statement analysis and management quality. The rating given to a debt
obligation describes the level of risk associated with receiving full and timely payment of
principal and interest on that specific debt obligation and how that risk compares with that of all
other debt obligations. The rating, therefore, measures the ability of a company to generate cash
in the future.
A Moodys debt rating of Baa3, which is the lowest investment grade rating given by Moodys,
is assigned to companies with adequate financial security. However, certain protective elements may
be lacking or may be unreliable over any given period of time. A Moodys debt rating of Aaa, which
is the highest investment grade rating given by Moodys, is assigned to companies with exceptional
financial security. Thus, investment grade tenants will be judged by Moodys to have at least
adequate financial security, and will in some cases have exceptional financial security.
Standard & Poors assigns a credit rating to both companies as a whole and to each issuance or
class of a companys debt. A Standard & Poors credit rating of BBB-, which is the lowest
investment grade rating given by Standard & Poors, is assigned to companies that exhibit adequate
protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the company to meet its financial commitments. A
Standard & Poors credit rating of AAA+, which is the highest investment grade rating given by
Standard & Poors, is assigned to companies or issuances with extremely strong capacities to meet
their financial commitments. Thus, investment grade tenants will be judged by Standard & Poors to
have at least adequate protection parameters, and will in some cases have extremely strong
financial positions.
Other creditworthy tenants are tenants with financial profiles that our advisor believes meet
our investment objectives. In evaluating the credit worthiness of a tenant or prospective tenant,
our advisor does not use specific quantifiable standards, but does consider many factors, including
other debt rating agencies, such as Dun and Bradstreet, and/or the proposed terms of the
acquisition. The factors our advisor considers include the financial condition of the tenant
and/or guarantor, the operating history of the property with such tenant or tenants, the tenants
or tenants market share and track record within its industry segment, the general health and
outlook of the tenants or tenants industry segment, and the lease length and terms at the time of
the acquisition.
Description of Leases
We typically purchase and expect to continue to acquire tenant properties with existing
leases. When spaces in a property become vacant, existing leases expire, or we acquire properties
under development or requiring substantial refurbishment or renovation, we anticipate entering into
net leases. Net leases mean leases that typically require that tenants pay all or a majority of
the operating expenses, including real estate taxes, special assessments, sales and use taxes,
utilities, insurance and building repairs related to the property, in addition to the lease
payments. There are various forms of net leases, typically classified as triple net or double net.
Triple net leases typically require the tenant to pay all costs associated with a property in
addition to the base rent and percentage rent, if any. Double net leases typically have the
landlord responsible for the roof and structure, or other aspects of the property, while the tenant
is responsible for all remaining expenses associated with the property. In the event that we
acquire multi-tenant properties, we expect to have a variety of lease arrangements with the tenants
of such properties. Since each lease is an individually negotiated contract between two or more
parties, each contract will have different obligations of both the landlord and tenant. Many large
national tenants have standard lease forms that generally do not vary from property to property,
and we will have limited ability to revise the terms of leases to those tenants.
We anticipate that a majority of our properties will have lease terms of ten years or more at
the time of our acquisition. We may acquire properties under which the lease term has partially
expired. We also may acquire properties with shorter lease terms if the property is in an
attractive location, if the property is difficult to replace or if the property has other
significant favorable real estate attributes. Under most commercial leases, tenants are obligated
to pay a predetermined annual base rent. Some of the leases for our properties also will contain
provisions that increase the amount of base rent payable at points during the lease term and/or
percentage rent that can be calculated by a number of factors.
Generally, the leases require each tenant to procure, at its own expense, commercial general
liability insurance, as well as property insurance covering the building for the full replacement
value and naming the ownership entity and the lender, if applicable, as the additional insured on
the policy. As a precautionary measure, our advisor may obtain, to the extent available, secondary
liability insurance, as well as loss of rents insurance that covers one year of annual rent in the
event of a rental loss. The secondary insurance coverage names the ownership entity as the named
insured on the policy.
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Some leases require that we procure insurance for both commercial general liability and
property damage insurance; however, the premiums are generally reimbursable from the tenant. When
we procure such insurance, the policy lists us as the named insured on the policy and the tenant as
the additional insured. Tenants are required to provide proof of insurance by furnishing a
certificate of insurance to our advisor on an annual basis. The insurance certificates are
carefully tracked and reviewed for compliance by our advisors property management department. In
general, leases may not be assigned or subleased without our prior written consent. If we do
consent to an assignment or sublease, the original tenant generally will remain fully liable under
the lease unless we release the tenant from its obligations under the lease.
Other Possible Investments
Although we expect to invest primarily in single-tenant and multi-tenant retail properties, we
may make other investments. For example, we may invest in other income producing commercial
properties such as office buildings, industrial and industrial-flex properties including
manufacturing facilities, warehouse and distribution facilities, and mini-storage and self-storage
properties. We may also acquire majority or minority interests in other entities (or business units
of such entities) with investment objectives similar to ours or with management, investment or
development capabilities, in order to enhance overall portfolio returns or reduce overall portfolio
risks, if our board of directors determines that it would be advantageous to do so. We also may
make or invest in mortgage, bridge or mezzanine loans, or in participations in such loans, secured
directly or indirectly by the same types of commercial properties that we may acquire directly, and
we may invest in other real estate-related securities. Our board of directors has broad discretion
to change our investment policies in order for us to achieve our investment objectives.
Investment Decisions
CR III Advisors has substantial discretion with respect to the selection of specific
investments and the purchase and sale of our properties, subject to the approval of our board of
directors. In pursuing our investment objectives and making investment decisions for us, CR III
Advisors evaluates the proposed terms of the purchase against all aspects of the transaction,
including the condition and financial performance of the property, the terms of existing leases,
the creditworthiness of the tenant and/or lease guarantor and property and location
characteristics. Because the factors considered, including the specific weight we place on each
factor, vary for each investment, we do not, and are not able to, assign a specific weight or level
of importance to any particular factor.
In addition to procuring and reviewing an independent valuation estimate and property
condition report, our advisor also will, to the extent such information is available, consider the
following:
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tenant rolls and tenant creditworthiness; |
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a property condition report; |
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unit level store performance; |
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property location, visibility and access; |
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age of the property, physical condition and curb appeal; |
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the prospects for long-range appreciation and liquidity; |
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suitability of the property for any development contemplated or in progress; |
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the propertys income producing capacity; |
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neighboring property uses; |
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local market conditions including vacancy rates; |
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area demographics, including trade area population and average household income; |
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neighborhood growth patterns and economic conditions; |
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presence of nearby properties that may positively or negatively impact store sales at the subject property; and |
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lease terms including length of lease term, scope of landlord responsibilities, presence and frequency of
contractual rental increases, renewal option provisions, exclusive and permitted use provisions, co-tenancy
requirements and termination options. |
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Our advisor considers properties leased and/or guaranteed by companies that maintain an
investment grade rating by either Standard & Poors or Moodys Investors Service. Our advisor also
considers non-rated and non-investment grade rated tenants that we consider creditworthy, as
described in Investment Grade and Other Creditworthy Tenants above.
Conditions to Closing Our Acquisitions
Generally, we condition our obligation to close the purchase of any investment on the delivery
and verification of certain documents from the seller or developer, including, where appropriate:
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plans and specifications; |
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surveys; |
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evidence of marketable title, subject to such liens and encumbrances as are acceptable to CR III Advisors; |
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financial statements covering recent operations of properties having operating histories; |
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title and liability insurance policies; and |
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tenant estoppel certificates. |
We generally will not purchase any property unless and until we also obtain what is generally
referred to as a Phase I environmental site assessment and are generally satisfied with the
environmental status of the property. However, we may purchase a property without obtaining such an
assessment if our advisor determines it is not warranted. A Phase I environmental site assessment
basically consists of a visual survey of the building and the property in an attempt to identify
areas of potential environmental concerns, visually observing neighboring properties to assess
surface conditions or activities that may have an adverse environmental impact on the property, and
contacting local governmental agency personnel who perform a regulatory agency file search in an
attempt to determine any known environmental concerns in the immediate identity of the property. A
Phase I environmental site assessment does not generally include any sampling or testing of soil,
ground water or building materials from the property and may not reveal all environmental hazards
on the property.
We may enter into purchase and sale arrangements with a seller or developer of a suitable
property under development or construction. In such cases, we will be obligated to purchase the
property at the completion of construction, provided that the construction substantially conforms
to definitive plans, specifications, and costs approved by us in advance. In such cases, prior to
our acquiring the property, we generally would receive a certificate of an architect, engineer or
other appropriate party, stating that the property substantially complies with all plans and
specifications. If renovation or remodeling is required prior to the purchase of a property, we
expect to pay a negotiated maximum amount to the seller upon completion. We do not currently
intend to construct or develop properties or to render any services in connection with such
development or construction.
In determining whether to purchase a particular property, we may, in accordance with customary
practices, obtain an option on such property. The amount paid for an option, if any, normally is
surrendered if the property is not purchased and normally is credited against the purchase price if
the property is purchased.
Ownership Structure
Our investment in real estate generally takes the form of holding fee title or a long-term
leasehold estate. We expect to continue to acquire such interests either directly through our
operating partnership or indirectly through limited liability companies, limited partnerships or
through investments in joint ventures, partnerships, co-tenancies or other co-ownership
arrangements with the developers of properties, affiliates of CR III Advisors or other persons.
See the Joint Venture Investments section below. In addition, in certain cases we may
purchase properties and lease them back to the sellers of such properties. While we will use our
best efforts to structure any such sale-leaseback transaction such that the lease is characterized
as a true lease so that we will be treated as the owner of the property for federal income tax
purposes, the Internal Revenue Service could challenge such characterization. In the event that any
such sale-leaseback transaction is re-characterized as a financing transaction for federal income
tax purposes, deductions for depreciation and cost recovery relating to such property would be
disallowed.
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Joint Venture Investments
We may enter into joint ventures, partnerships, co-tenancies and other co-ownership
arrangements with affiliated entities of our advisors, including other real estate programs
sponsored by affiliates of our advisor, and other third parties for the acquisition, development or
improvement of properties or the acquisition of other real estate-related investments. We may also
enter into such arrangements with real estate developers, owners and other unaffiliated third
parties for the purpose of developing, owning and operating real properties. In determining whether
to invest in a particular joint venture, CR III Advisors will evaluate the real property that such
joint venture owns or is being formed to own under the same criteria described above in
Investment Decisions for the selection of our real property investments. CR III Advisors also will
evaluate the joint venture or co-ownership partner and the proposed terms of the joint venture or a
co-ownership arrangement.
Our general policy will be to invest in joint ventures only when we will have a right of first
refusal to purchase the co-venturers interest in the joint venture if the co-venturer elects to
sell such interest. In the event that the co-venturer elects to sell property held in any such
joint venture, however, we may not have sufficient funds to exercise our right of first refusal to
buy the other co-venturers interest in the property held by the joint venture. In the event that
any joint venture with an affiliated entity holds interests in more than one property, the interest
in each such property may be specially allocated based upon the respective proportion of funds
invested by each co-venturer in each such property.
CR III Advisors officers and key persons may have conflicts of interest in determining which
Cole sponsored program should enter into any particular joint venture agreement. The co-venturer
may have economic or business interests or goals that are or may become inconsistent with our
business interests or goals. In addition, if the joint venture is with an affiliate, CR III
Advisors may face a conflict in structuring the terms of the relationship between our interests and
the interest of the affiliated co-venturer and in managing the joint venture. Since some or all of
CR III Advisors and its affiliates will also advise the affiliated co-venturer, agreements and
transactions between us and any other Cole-sponsored co-venturer will not have the benefit of
arms-length negotiation of the type normally conducted between unrelated co-venturers, which may
result in the co-venturer receiving benefits greater than the benefits that we receive. In
addition, we may assume liabilities related to the joint venture that exceed the percentage of our
investment in the joint venture.
We may enter into joint ventures with other Cole real estate programs only if a majority of
our directors not otherwise interested in the transaction and a majority of our independent
directors approve the transaction as being fair and reasonable to us and on substantially the same
terms and conditions as those received by other joint venturers.
Borrowing Policies
Our advisor believes that utilizing borrowing is consistent with our investment objective of
maximizing the return to investors. By operating on a leveraged basis, we will have more funds
available for investment in properties. This will allow us to make more investments than would
otherwise be possible, resulting in a more diversified portfolio. There is no limitation on the
amount we may borrow against any single improved property. However, pursuant to our charter, we are
required to limit our aggregate borrowings to 75% of the greater of cost (or 300% of net assets)
(before deducting depreciation or other non-cash reserves) or fair market value of our gross
assets, unless excess borrowing is approved by a majority of the independent directors and
disclosed to our stockholders in the next quarterly report along with the justification for such
excess borrowing. Our board of directors has adopted a policy to further limit our borrowings to
60% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair
market value of our gross assets unless such borrowing is approved by a majority of the independent
directors and disclosed to our stockholders in the next quarterly report along with a justification
for such excess borrowing.
Our advisor uses its best efforts to obtain financing on the most favorable terms available to
us. All of our financing arrangements must be approved by a majority of our board members,
including a majority of our independent directors. Lenders may have recourse to assets not securing
the repayment of the indebtedness. Our advisor may refinance properties during the term of a loan
only in limited circumstances, such as when a decline in interest rates makes it beneficial to
prepay an existing mortgage, when an existing mortgage matures or if an attractive investment
becomes available and the proceeds from the refinancing can be used to purchase such investment.
The benefits of the refinancing may include increased cash flow resulting from reduced debt service
requirements, an increase in dividend distributions from proceeds of the refinancing, if any, and
an increase in property ownership if some refinancing proceeds are reinvested in real estate.
9
Our ability to increase our diversification through borrowing may be adversely impacted if
banks and other lending institutions reduce the amount of funds available for loans secured by real
estate. When interest rates on mortgage loans are high or financing is otherwise unavailable on a
timely basis, we may purchase properties for cash with the intention of obtaining a mortgage loan
for a portion of the purchase price at a later time. To the extent that we do not obtain mortgage
loans on our properties, our ability to acquire additional properties will be restricted and we may
not be able to adequately diversify our portfolio.
Although there are signs of recovery, the current mortgage lending and interest rate
environment for real estate, in general, continues to be disrupted and the overall economic
fundamentals remain uncertain. We have experienced, and may continue to experience, more stringent
lending criteria, which may affect our ability to finance certain property acquisitions.
Additionally, for properties in which we are able to obtain acquisition financing, the interest
rates and other terms on such loans may be unacceptable. We expect to manage the current mortgage
lending environment by utilizing fixed rate loans if the terms are acceptable, borrowing on our
existing $25.0 million revolving term loan (the TCF Loan), obtaining short-term variable rate
loans, assuming existing mortgage loans in connection with property acquisitions, or entering into
interest rate lock or swap agreements, or any combination of the
foregoing. In addition, we have approximately $71.5 million of
available borrowings under our $100.0 million revolving credit
facility, which we entered into subsequent to December 31, 2009. We have acquired, and
may continue to acquire, our properties for cash without financing. Our operating results are
primarily influenced by rental income from our commercial properties.
Rental and other property income accounted for
approximately 98% of total revenue during the year ended December 31, 2009. If we are unable to
obtain suitable financing for future acquisitions or we acquire a large percentage of our
properties for cash without financing, our results of operations may be adversely affected.
Additionally, if we are unable to identify suitable properties at appropriate prices in the current
credit environment, we may have a large amount of uninvested cash, which may adversely affect our
results of operations since any interest we may earn on uninvested cash, or returns on short-term investments we may make with cash
pending investment in properties, is likely to be significantly less than rental income would be. We will continue to evaluate alternatives
in the current market, including purchasing or originating debt backed by real estate, which could
produce attractive yields in the current market environment.
We may not borrow money from any of our directors or from our advisor or its affiliates unless
such loan is approved by a majority of the directors not otherwise interested in the transaction
(including a majority of the independent directors) as fair, competitive and commercially
reasonable and no less favorable to us than a comparable loan between unaffiliated parties. During
the year ended December 31, 2009, we acquired a 100% interest in six single-tenant net leased
commercial properties for an aggregate purchase price of approximately $46.2 million from
affiliates of our advisor. The acquisitions were acquired with the use of cash from net proceeds of
the Offering, and the issuance of approximately $41.6 million of variable rate loans from
affiliates of our advisor. The loans were repaid in full during the year ended December 31, 2009,
with gross offering proceeds and cash flows generated from operations. We did not borrow any funds
from affiliates of our advisor during the period ended December 31, 2008.
Acquisition of Properties from Affiliates
We may acquire properties or interests in properties from or in co-ownership arrangements with
entities affiliated with our advisor, including properties acquired from affiliates of our advisor
engaged in construction and development of commercial real properties. We will not acquire any
property from an affiliate of our advisor unless a majority of our directors not otherwise
interested in the transaction and a majority of our independent directors determine that the
transaction is fair and reasonable to us. The purchase price that we will pay for any property we
acquire from affiliates of our advisor, including property developed by an affiliate of our advisor
as well as property held by an affiliate of our advisor that has already been developed, will not
exceed the current appraised value of the property. In addition, the price of the property we
acquire from an affiliate of our advisor may not exceed the cost of the property to the affiliate
of our advisor, unless a majority of our directors and a majority of our independent directors
determine that substantial justification for the excess exists and the excess is reasonable. During
the year ended December 31, 2009, we acquired a 100% interest in six single-tenant net leased
commercial properties for an aggregate purchase price of approximately $46.2 million from
affiliates of our advisor. The acquisitions were acquired with the use of cash from net proceeds of
the Offering, and the issuance of approximately $41.6 million of variable rate loans from
affiliates of our advisor. The loans were repaid in full during the year ended December 31, 2009,
with gross offering proceeds and cash flows generated from operations. During the period ended
December 31, 2008, we did not purchase any properties from affiliates of our advisor.
10
Conflicts of Interest
We are subject to various conflicts of interest arising out of our relationship with CR III
Advisors and its affiliates, including conflicts related to the arrangements pursuant to which CR
III Advisors and its affiliates will be compensated by us. The agreements and compensation
arrangements between us and our advisor and its affiliates were not determined by arms-length
negotiations. Some of the conflicts of interest in our transactions with our advisor and its
affiliates, and the limitations on our advisor adopted to address these conflicts, are described
below. Additionally, one of our directors and both of our executive officers are affiliates of
CR III Advisors, as well as other Cole-sponsored real estate programs.
Our advisor and its affiliates try to balance our interests with their duties to other
Cole-sponsored programs. However, to the extent that our advisor or its affiliates take actions
that are more favorable to other entities than to us, these actions could have a negative impact on
our financial performance and, consequently, on distributions to our stockholders and the value of
our stock. In addition, our directors, officers and certain of our stockholders may engage for
their own account in business activities of the types conducted or to be conducted by our
subsidiaries and us.
Our independent directors have an obligation to function on our behalf in all situations in
which a conflict of interest may arise, and all of our directors have a fiduciary obligation to act
on behalf of our stockholders.
Interests in Other Real Estate Programs
Affiliates of our advisor act as an advisor to, and our
executive officers and two of our directors act as officers and/or directors of Cole Credit Property Trust, Inc. (CCPT), and/or Cole Credit
Property Trust II, Inc. (CCPT II), each of which is a real estate investment trust that has
investment objectives and targeted assets similar to ours. CCPT is no longer offering shares for
investment, and currently is not pursuing acquisitions of additional properties. CCPT II is no
longer offering shares for investment, however, it may pursue investment options. In the event
that CCPT or CCPT II pursues investment options, they may seek to acquire additional properties,
which may be similar to properties in which we invest. Affiliates of our directors and officers,
and entities owned or managed by such affiliates also may acquire or develop real estate for their
own accounts, and have done so in the past. Furthermore, affiliates of our directors and officers,
and entities owned or managed by such affiliates, intend to form additional real estate investment
entities in the future, whether public or private, which can be expected to have the same or
similar investment objectives and policies as we do and which may be involved in the same
geographic area. Our advisor, its affiliates and affiliates of our directors and officers are not
obligated to present to us any particular investment opportunity that comes to their attention,
even if such opportunity is of a character that might be suitable for investment by us. Our advisor
and its affiliates likely will experience conflicts of interest as they simultaneously perform
services for us and other Cole-sponsored real estate programs.
Any affiliated entity, whether or not currently existing, could compete with us in the sale or
operation of our properties. We will seek to achieve any operating efficiencies or similar savings
that may result from affiliated management of competitive properties. However, to the extent that
affiliates own or acquire property that is adjacent, or in close proximity, to a property we own,
our property may compete with the affiliates property for tenants or purchasers.
Every transaction that we enter into with our advisor or its affiliates is subject to an
inherent conflict of interest. Our board of directors may encounter conflicts of interest in
enforcing our rights against any affiliate in the event of a default by or disagreement with an
affiliate or in invoking powers, rights or options pursuant to any agreement between us and our
advisor, any of its affiliates or another Cole-sponsored real estate program.
Other Activities of CR III Advisors and its Affiliates
We rely on CR III Advisors for the day-to-day operation of our business pursuant to an
advisory agreement. As a result of the interests of members of its management in other
Cole-sponsored programs and the fact that they have also engaged and will continue to engage in
other business activities, CR III Advisors and its affiliates have conflicts of interest in
allocating their time between us and other Cole-sponsored programs and other activities in which
they are involved. However, CR III Advisors believes that it and its affiliates have sufficient
personnel to discharge fully their responsibilities to all of the Cole-sponsored programs and other
ventures in which they are involved.
In addition, most of our executive officers, including Christopher H. Cole, who also serves as
the chairman of our board of directors, also serves as an officer of our advisor, our property
manager, and/or other affiliated entities. As a result, these individuals owe fiduciary duties to
these other entities, which may conflict with the fiduciary duties that he owes to us and our
stockholders.
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Competition in Acquiring, Leasing and Operating of Properties
Conflicts of interest may exist to the extent that we have acquired, and in the future may
acquire, properties in the same geographic areas where properties owned by other Cole-sponsored
programs are located. In such a case, a conflict could arise in the leasing of properties in the
event that we and another Cole-sponsored program were to compete for the same tenants in
negotiating leases, or a conflict could arise in connection with the resale of properties in the
event that we and another Cole-sponsored program were to attempt to sell similar properties at the
same time. Conflicts of interest may also exist at such time as we or our affiliates managing
property on our behalf seek to employ developers, contractors or building managers, as well as
under other circumstances. CR III Advisors will seek to reduce conflicts relating to the employment
of developers, contractors or building managers by making prospective employees aware of all such
properties seeking to employ such persons. In addition, CR III Advisors will seek to reduce
conflicts that may arise with respect to properties available for sale or rent by making
prospective purchasers or tenants aware of all such properties. However, these conflicts cannot be
fully avoided in that there may be established differing compensation arrangements for employees at
different properties or differing terms for resale or leasing of the various properties.
Affiliated Dealer Manager
Since Cole Capital Corporation (Cole Capital), our dealer manager, is an affiliate of CR III
Advisors, we did not have the benefit of an independent due diligence review and investigation of
the type normally performed by an unaffiliated, independent underwriter in connection with our
Offering.
Affiliated Property Manager
We anticipate that properties we acquire in the future will be managed and leased by our
affiliated property manager, Cole Realty Advisors, Inc. (Cole Realty), pursuant to a property
management and leasing agreement. Cole Realty also serves as property manager for properties owned
by Cole affiliated real estate programs, some of which may be in competition with our properties.
Management fees to be paid to our property manager are based on a percentage of the gross revenue
received by the managed properties.
Lack of Separate Representation
Morris, Manning & Martin, LLP acts, and may in the future act, as counsel to us, CR III
Advisors, Cole Capital and their affiliates in connection with the Offering. There is a possibility
that in the future the interests of the various parties may become adverse, and under the Code of
Professional Responsibility of the legal profession, Morris, Manning & Martin, LLP may be precluded
from representing any one or all of such parties. In the event that a dispute were to arise between
us, CR III Advisors, Cole Capital or any of our respective affiliates, separate counsel for such
matters will be retained as and when appropriate.
Receipt of Fees and Other Compensation by CR III Advisors and Its Affiliates
A transaction involving the purchase and sale of properties may result in the receipt of
commissions, fees and other compensation by CR III Advisors and its affiliates, including
acquisition and advisory fees, financing coordination fees, property management and leasing fees,
asset management fees, selling commissions, real estate commissions, acquisition expenses,
operating expenses, subordinated participation in net sale proceeds and subordinated performance
fees. Subject to oversight by our board of directors, CR III Advisors will have considerable
discretion with respect to all decisions relating to the terms and timing of all transactions.
Therefore, CR III Advisors may have conflicts of interest concerning certain actions taken on our
behalf, particularly due to the fact that such fees will generally be payable to CR III Advisors
and its affiliates regardless of the quality of the properties acquired or the services provided to
us.
Certain Conflict Resolution Procedures
Every transaction that we enter into with CR III Advisors or its affiliates will be subject to
an inherent conflict of interest. Our board of directors may encounter conflicts of interest in
enforcing our rights against our advisor or its affiliates in the event of a default by or
disagreement with our advisor or its affiliates or in invoking powers, rights or options pursuant
to any agreement between us and CR III Advisors or any of its affiliates.
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In order to reduce or to eliminate certain potential conflicts of interest, our charter
contains a number of restrictions relating to (1) transactions we enter into with CR III Advisors
and its affiliates, (2) certain future offerings, and (3) allocation of investment opportunities
among affiliated entities. These restrictions include, among others, the following:
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We will not purchase or lease properties in which CR III Advisors, any of our directors or any of their respective
affiliates has an interest without a determination by a majority of the directors, including a majority of the
independent directors not otherwise interested in such transaction, that such transaction is fair and reasonable
to us and at a price to us no greater than the cost of the property to the seller or lessor unless there is
substantial justification for any amount that exceeds such cost and such excess amount is determined to be
reasonable. In no event will we acquire any such property at an amount in excess of its appraised value. We will
not sell or lease properties to CR III Advisors, any of our directors or any of their respective affiliates unless
a majority of the directors, including a majority of the independent directors not otherwise interested in the
transaction, determines that the transaction is fair and reasonable to us. |
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We will not make any loans to CR III Advisors, any of our directors or any of their respective affiliates, except
that we may make or invest in mortgage loans involving CR III Advisors, our directors or their respective
affiliates, provided that an appraisal of the underlying property is obtained from an independent appraiser and
the transaction is approved as fair and reasonable to us and on terms no less favorable to us than those available
from third parties. In addition, CR III Advisors, any of our directors and any of their respective affiliates
will not make loans to us or to joint ventures in which we are a joint venture partner unless approved by a
majority of the directors, including a majority of the independent directors not otherwise interested in the
transaction, as fair, competitive and commercially reasonable, and no less favorable to us than comparable loans
between unaffiliated parties. |
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CR III Advisors and its affiliates will be entitled to reimbursement, at cost, for actual expenses incurred by
them on behalf of us or joint ventures in which we are a joint venture partner; provided, however, CR III Advisors
must reimburse us for the amount, if any, by which our total operating expenses, including the advisor asset
management fee, paid during the previous fiscal year exceeded the greater of: (i) 2.0% of our average invested
assets for that fiscal year, or (ii) 25.0% of our net income, before any additions to reserves for depreciation,
bad debts or other similar non-cash reserves and before any gain from the sale of our assets, for that fiscal
year. |
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In the event that an investment opportunity becomes available that is suitable, under all of the factors
considered by CR III Advisors, for both us and one or more other entities affiliated with CR III Advisors, and for
which more than one of such entities has sufficient uninvested funds, then the entity that has had the longest
period of time elapse since it was offered an investment opportunity will first be offered such investment
opportunity. It will be the duty of our board of directors, including the independent directors, to insure that
this method is applied fairly to us. In determining whether or not an investment opportunity is suitable for more
than one program, CR III Advisors, subject to approval by our board of directors, shall examine, among others, the
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the anticipated cash flow of the property to be acquired and the cash requirements of each program; |
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the effect of the acquisition on diversification of each programs investments by type of
property, geographic area and tenant concentration; |
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the policy of each program relating to leverage of properties; |
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the income tax effects of the purchase to each program; |
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the size of the investment; and |
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the amount of funds available to each program and the length of time such funds have been
available for investment. |
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If a subsequent development, such as a delay in the closing of a property or a delay in the construction of a
property, causes any such investment, in the opinion of CR III Advisors, to be more appropriate for a program
other than the program that committed to make the investment, CR III Advisors may determine that another program
affiliated with CR III Advisors or its affiliates will make the investment. |
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We will not accept goods or services from CR III Advisors or its affiliates or enter into any other transaction
with CR III Advisors or its affiliates unless a majority of our directors, including a majority of the independent
directors, not otherwise interested in the transaction approve such transaction as fair and reasonable to us and
on terms and conditions not less favorable to us than those available from unaffiliated third parties. |
13
Employees
We have no direct employees. The employees of CR III Advisors and other affiliates of our
advisor provide services for us related to acquisition, property management, asset management,
financing, accounting, investor relations, and all other administrative services. The employees of
Cole Capital, our affiliated dealer manager, provide wholesale brokerage services.
We are dependent on our advisor and its affiliates for services that are essential to us,
including the sale of shares of our common stock, asset acquisition decisions, property management
and other general administrative responsibilities. In the event that these companies were unable to
provide these services to us, we would be required to obtain such services from other sources.
We reimburse CR III Advisors and its affiliates for expenses incurred in connection with its
provision of administrative services to us, including personnel costs, subject to certain
limitations. During the year ended December 31, 2009, approximately $13.4 million was recorded for
personnel costs and third-party costs allocated in connection with the issuance of shares pursuant
to the Offering. During the period ended December 31, 2008, no amounts were recorded for
such services.
Insurance
See the section captioned Description of Leases above.
Reportable Segments
We operate on a consolidated basis in our commercial properties segment. See Note 2 to our
consolidated financial statements in this Annual Report on Form 10-K.
Competition
As we purchase properties for our portfolio, we are in competition with other potential buyers
for the same properties, and may have to pay more to purchase the property than if there were no
other potential acquirers or we may have to locate another property that meets our investment
criteria. Although our properties are currently 99.9% leased and we intend to acquire properties
subject to existing leases, the leasing of real estate is highly competitive in the current market,
and we may experience competition for tenants from owners and managers of competing projects. As a
result, we may have to provide free rent, incur charges for tenant improvements, or offer other
inducements, or we might not be able to timely lease the space, all of which may have an adverse
impact on our results of operations. At the time we elect to dispose of our properties, we will
also be in competition with sellers of similar properties to locate suitable purchasers for its
properties.
Concentration of Credit Risk
As of December 31, 2009, we had cash on deposit in five financial institutions, all of which
had deposits in excess of current federally insured levels totaling approximately $277.5 million;
however we have not experienced any losses in such accounts. We limit investment of cash
investments to financial institutions with high credit standing; therefore, we believe we are not
exposed to any significant credit risk on cash.
As of December 31, 2009, two tenants in the drugstore, two tenants in the home improvement and
24 tenants in the specialty retail industries comprised approximately 25%, 17% and 12%,
respectively, of 2009 gross annualized base rental revenues. As of December 31, 2009, two tenants
in the drugstore industry accounted for approximately 15% and 10%, respectively, and one tenant in
the home improvement industry accounted for approximately 14% of 2009 gross annualized base rental
revenues. Additionally, the Company has certain geographic concentrations in its property
holdings. In particular, as of December 31, 2009, 40 of the Companys properties were located in
Texas, accounting for approximately 27% of 2009 gross annualized base rental revenues. As of
December 31, 2008, we did not own any real estate assets.
Litigation
In the ordinary course of business, we may become subject to litigation or claims. There are
no material pending legal proceedings, or known to be contemplated, against us.
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Environmental Matters
All real property and the operations conducted on real property are subject to federal, state
and local laws and regulations relating to environmental protection and human health and safety. In
connection with ownership and operation of real estate, the Company may be potentially liable for
costs and damages related to environmental matters. We will continue to take commercially
reasonable steps to protect ourselves from the impact of these laws, including obtaining
environmental assessments and related insurance for most properties that we acquire.
Available Information
We electronically file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to those reports with the SEC. We have also filed a
Registration Statement on Form S-11, amendments to our Registration Statement and supplements to
our prospectus in connection with our Offering, and a Registration Statement relating to our proposed follow-on offering. Copies of our filings with the SEC may be obtained
from the SECs website, at http://www.sec.gov. Access to these filings is free of charge.
Set forth below are investment risks that we believe are material to investors.
Risks Related to an Investment in Cole Credit Property Trust III, Inc.
There is no public trading market for our shares and there may never be one; therefore, it will be
difficult for you to sell your shares.
There currently is no public market for our common stock and there may never be one. In
addition, we do not have a fixed liquidation date. If you are able to find a buyer for your shares,
you may not sell your shares unless the buyer meets applicable suitability and minimum purchase
standards. Our charter also prohibits the ownership of more than 9.8% in value of our stock, or more
than 9.8% in value or number of shares (whichever is more restrictive) of our common stock, by a single
investor, unless exempted by our board of directors, which may inhibit large investors from
desiring to purchase your shares. Moreover, our share redemption program includes numerous
restrictions that limit your ability to sell your shares to us. Our board of directors may reject
any request for redemption of shares, or amend, suspend or terminate our share redemption program
upon ten days prior notice to our stockholders. Therefore, it will be difficult for you to sell
your shares promptly or at all and you may have to hold your shares indefinitely. If you are able
to sell your shares, you will likely have to sell them at a substantial discount to the price you
paid for the shares. It also is likely that your shares would not be accepted as the primary
collateral for a loan. You should purchase the shares only as a long-term investment because of the
illiquid nature of the shares.
You will not have the opportunity to evaluate our future investments before we make them, which
makes an investment in us more speculative.
We will not provide you with a significant amount of information, if any, for you to evaluate
our future investments prior to our making them. We will seek to use the net proceeds from the
Offering, after the payment of fees and expenses, to acquire a portfolio of commercial real estate
investments comprised primarily of single-tenant properties, power centers comprised of big box
national, regional and local retailers and multi-tenant retail properties, including grocery
anchored centers and retail strip centers. We may also, in the discretion of our advisor, invest in
other types of real estate or in entities that invest in real estate. In addition, our advisor may
make or invest in mortgage loans or participations therein on our behalf if our board of directors
determines, due to the state of the real estate market or in order to diversify our investment
portfolio or otherwise, that such investments are advantageous to us. We have established policies
relating to the creditworthiness of tenants of our properties, but our board of directors will have
wide discretion in implementing these policies, and you will not have the opportunity to evaluate
potential tenants. Additionally, our board of directors has discretion to determine the location,
number and size of our investments and the percentage of net proceeds we may dedicate to a single
investment.
15
If we, through CR III Advisors, are unable to find suitable investments, then we may not be able to
achieve our investment objectives or pay distributions.
Our ability to achieve our investment objectives and to pay distributions to you is dependent
upon the performance of our advisor in selecting investments for us to make, selecting tenants for
our properties and securing financing arrangements. Except for the investments described in the prospectus relating to the Offering, investors generally will have no opportunity to evaluate the terms of
transactions or other economic or financial data concerning our investments. You must rely entirely
on the management ability of our advisor and the oversight of our board of directors. We cannot be
sure that our advisor will be successful in identifying suitable investments on financially
attractive terms or that, if it identifies suitable investments, our investment objectives will be
achieved. If we, through our advisor, are unable to find suitable investments, we will hold the
proceeds of the Offering in an interest-bearing account or invest the proceeds in short-term,
investment-grade investments. In such an event, our ability to pay distributions to you would be
adversely affected.
We may suffer from delays in locating suitable investments, which could adversely affect our
ability to pay distributions to you and the value of your investment.
We could suffer from delays in locating suitable investments. Delays we encounter in the
selection, acquisition and, in the event we develop properties, development of income-producing
properties likely would adversely affect our ability to pay distributions to you and the value of
your overall returns. In such event, we may pay all or a substantial portion of our distributions
from the proceeds of the Offering or from borrowings in anticipation of future cash flow, which may
constitute a return of your capital. Distributions from the proceeds of the Offering or from
borrowings also could reduce the amount of capital we ultimately invest in properties. This, in
turn, would reduce the value of your investment. In particular, where we acquire properties prior
to the start of construction or during the early stages of construction, it will typically take
several months to complete construction and rent available space. Therefore, you could suffer
delays in the receipt of cash distributions attributable to those particular properties. If our
advisor is unable to identify suitable investments, we will hold the proceeds of the Offering in an
interest-bearing account or invest the proceeds in short-term, investment-grade investments.
If our advisor loses or is unable to obtain key personnel, including in the event another
Cole-sponsored program internalizes its advisor, our ability to achieve our investment objectives
could be delayed or hindered, which could adversely affect our ability to pay distributions to you
and the value of your investment.
Our success depends to a significant degree upon the contributions of certain of our executive
officers and other key personnel of our advisor, each of whom would be difficult to replace. Our
advisor does not have an employment agreement with any of these key personnel and we cannot
guarantee that all, or any particular one, will remain affiliated with us and/or our advisor. If
any of our key personnel were to cease their affiliation with our advisor, our operating results
could suffer. This could occur, among other ways, if another Cole-sponsored program internalizes
its advisor. If that occurs, key personnel of our advisor, who also are key personnel of the
internalized advisors, would become employees of the other program and would no longer be available
to our advisor. Further, we do not intend to separately maintain key person life insurance on our,
and our advisors chief executive officer and president, Christopher H. Cole or any other person.
We believe that our future success depends, in large part, upon our advisors ability to hire and
retain highly skilled managerial, operational and marketing personnel. Competition for such
personnel is intense, and we cannot assure you that our advisor will be successful in attracting
and retaining such skilled personnel. If our advisor loses or is unable to obtain the services of
key personnel, our ability to implement our investment strategies could be delayed or hindered, and
the value of your investment may decline.
If we pay distributions from sources other than our cash flow from operations, we will have fewer
funds available for the acquisition of properties, and your overall return may be reduced.
Our organizational documents permit us to make distributions from any source. If we fund
distributions from financings or the net proceeds from our offerings, we will have fewer funds
available for acquiring properties and other investments, and the overall value of your investment
may be reduced. Further, to the extent distributions exceed cash flow from operations, a
stockholders basis in our stock will be reduced and, to the extent distributions exceed a
stockholders basis, the stockholder may recognize capital gain. In addition, we may make, and have
made, distributions prior to generating sufficient cash flow from operations.
16
If we internalize our management functions, your interest in us could be diluted, and we could
incur other significant costs associated with being self-managed.
Our strategy may involve internalizing our management functions. If we internalize our
management functions, we may elect to negotiate to acquire our advisors assets and personnel. At
this time, we cannot be sure of the form or amount of consideration or other terms relating to any
such acquisition. Such consideration could take many forms, including cash payments, promissory
notes and shares of our stock. The payment of such consideration could result in dilution of your
interests as a stockholder and could reduce the net income per share and funds from operations per
share attributable to your investment.
In addition, while we would no longer bear the costs of the various fees and expenses we
expect to pay to our advisor under the advisory agreement, our direct expenses would include
general and administrative costs, including legal, accounting, and other expenses related to
corporate governance, Securities and Exchange Commission reporting and compliance. We would also
incur the compensation and benefits costs of our officers and other employees and consultants that
we now expect will be paid by our advisor or its affiliates. In addition, we may issue equity
awards to officers, employees and consultants, which awards would decrease net income and funds
from operations and may further dilute your investment. We cannot reasonably estimate the amount of
fees to our advisor we would save and the costs we would incur if we became self-managed. If the
expenses we assume as a result of an internalization are higher than the expenses we avoid paying
to our advisor, our net income per share and funds from operations per share would be lower as a
result of the internalization than it otherwise would have been, potentially decreasing the amount
of funds available to distribute to you and the value of our shares.
As currently organized, we do not directly have any employees. If we elect to internalize our
operations, we would employ personnel and would be subject to potential liabilities commonly faced
by employers, such as workers disability and compensation claims, potential labor disputes and
other employee-related liabilities and grievances. Upon any internalization of our advisor, certain
key personnel may not remain with our advisor, but instead will remain employees of our sponsor or
its affiliates.
If we internalize our management functions, we could have difficulty integrating these
functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset
management and general and administrative functions, including accounting and financial reporting,
for multiple entities. They have a great deal of know-how and can experience economies of scale. We
may fail to properly identify the appropriate mix of personnel and capital needs to operate as a
stand-alone entity. An inability to manage an internalization transaction effectively could thus
result in our incurring excess costs and/or suffering deficiencies in our disclosure controls and
procedures or our internal control over financial reporting. Such deficiencies could cause us to
incur additional costs, and our managements attention could be diverted from most effectively
managing our properties.
Our rights and the rights of our stockholders to recover claims against our officers, directors and
our advisor are limited, which could reduce your and our recovery against them if they cause us to
incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs
his or her duties in good faith, in a manner he or she reasonably believes to be in the
corporations best interests and with the care that an ordinarily prudent person in a like position
would use under similar circumstances. Our charter, in the case of our directors and officers, and
our charter and the advisory agreement, in the case of our advisor and its affiliates, require us,
subject to certain exceptions, to indemnify and advance expenses to our directors, our officers,
and our advisor and its affiliates. Our charter permits us to provide such indemnification and
advance for expenses to our employees and agents. Additionally, our charter limits, subject to
certain exceptions, the liability of our directors and officers to us and our stockholders for
monetary damages. Although our charter does not allow us to indemnify our directors or our advisor
and its affiliates for any liability or loss suffered by them or hold harmless our directors or our
advisor and its affiliates for any loss or liability suffered by us to a greater extent than
permitted under Maryland law or the Statement of Policy Regarding Real Estate Investment Trusts
published by the North American Securities Administrators Association, also known as the NASAA REIT
Guidelines, we and our stockholders may have more limited rights against our directors, officers,
employees and agents, and our advisor and its affiliates, than might otherwise exist under common
law, which could reduce your and our recovery against them. In addition, we may be obligated to
fund the defense costs incurred by our directors, officers, employees and agents or our advisor in
some cases, which would decrease the cash otherwise available for distribution to you.
17
Risks Related to Conflicts of Interest
We are subject to conflicts of interest arising out of our relationships with our advisor and
its affiliates, including the material conflicts discussed below. The Conflicts of Interest
section of Part I, Item I of this Annual Report on Form 10-K provides a more detailed discussion of
the conflicts of interest between us and our advisor and its affiliates, and our policies to reduce
or eliminate certain potential conflicts.
A number of Cole real estate programs use investment strategies that are similar to ours, therefore
our advisor and its and our executive officers will face conflicts of interest relating to the
purchase and leasing of properties, and such conflicts may not be resolved in our favor.
Our sponsor may have simultaneous offerings of funds that have a substantially similar mix of
fund characteristics, including targeted investment types, investment objectives and criteria, and
anticipated fund terms. As a result, we may be buying properties and other real estate-related
investments at the same time as one or more of the other Cole-sponsored programs managed by
officers and key personnel of our advisor and/or its affiliates, and these other Cole-sponsored
programs may use investment strategies and have investment objectives that are similar to ours. Our
executive officers and the executive officers of our advisor also are the executive officers of
other Cole-sponsored REITs and/or their advisors, the general partners of Cole-sponsored
partnerships and/or the advisors or fiduciaries of other Cole-sponsored programs. There is a risk
that our advisor will choose a property that provides lower returns to us than a property purchased
by another Cole-sponsored program. In the event these conflicts arise, our best interests may not
be met when officers and key persons acting on behalf of our advisor and on behalf of advisors and
managers of other Cole-sponsored programs decide whether to allocate any particular property to us
or to another Cole-sponsored program or affiliate that has an investment strategy similar to ours.
In addition, we may acquire properties in geographic areas where other Cole-sponsored programs own
properties. If one of the other Cole-sponsored programs attracts a tenant that we are competing
for, we could suffer a loss of revenue due to delays in locating another suitable tenant. Similar
conflicts of interest may arise if we acquire properties from or sell properties to other
Cole-sponsored programs, or if our advisor recommends that we make or purchase mortgage loans or
participations in mortgage loans, since other Cole-sponsored programs may be competing with us for
these investments. You will not have the opportunity to evaluate the manner in which these
conflicts of interest are resolved before or after making your investment.
CR III Advisors faces conflicts of interest relating to joint ventures or other co-ownership
arrangements that we enter into with other Cole-sponsored programs, which could result in a
disproportionate benefit to another Cole-sponsored program.
We may enter into joint ventures with other Cole-sponsored programs for the acquisition,
development or improvement of properties as well as the acquisition of real-estate related
investments. Officers and key persons of our advisor also are officers and key persons of other
Cole-sponsored REITs and their advisors, the general partners of other Cole-sponsored partnerships
and/or the advisors or fiduciaries of other Cole-sponsored programs. These officers and key persons
will face conflicts of interest in determining which Cole-sponsored program should enter into any
particular joint venture or co-ownership arrangement. These persons also may have a conflict in
structuring the terms of the relationship between us and the Cole-affiliated co-venturer or
co-owner, as well as conflicts of interests in managing the joint venture.
In the event we enter into joint venture or other co-ownership arrangements with another
Cole-sponsored program, our advisor and its affiliates may have a conflict of interest when
determining when and whether to buy or sell a particular property, or to make or dispose of another
real estate-related investment. In addition, if we become listed for trading on a national
securities exchange, we may develop more divergent goals and objectives from a Cole-affiliated
co-venturer or co-owner that is not listed for trading. In the event we enter into a joint venture
or other co-ownership arrangement with a Cole-sponsored program that has a term shorter than ours,
the joint venture may be required to sell its properties earlier than we may desire to sell the
properties. Even if the terms of any joint venture or other co-ownership agreement between us and
another Cole-sponsored program grant us the right of first refusal to buy such properties, we may
not have sufficient funds or borrowing capacity to exercise our right of first refusal under these
circumstances.
Since Mr. Cole and his affiliates control our advisor and other Cole-sponsored programs,
agreements and transactions between or among the parties with respect to any joint venture or other
co-ownership arrangement will not have the benefit of arms-length negotiation of the type normally
conducted between unrelated co-venturers or co-owners, which may result in the co-venturer or
co-owner receiving benefits greater than the benefits that we receive. In addition, we may assume
liabilities related to the joint venture that exceed the percentage of our investment in the joint
venture.
18
We may participate in 1031 exchange programs with affiliates of our advisor that will not be the
result of arms-length negotiations and will result in conflicts of interest.
Cole Capital Partners, LLC (Cole Capital Partners), an affiliate of our advisor, has
developed programs to facilitate the acquisition of real estate properties in co-ownership
arrangements with persons who are looking to invest proceeds from a sale of real estate in order to
qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code (a
Section 1031 Program). Section 1031 Programs are structured as co-ownership arrangements with
other investors in the property (Section 1031 Participants) who are seeking to defer taxes under
Section 1031 of the Internal Revenue Code. These programs are structured either as a
tenant-in-common program or by use of a Delaware Statutory Trust. When Cole Capital Partners
develops such a program, it generally organizes a new entity (a Cole Exchange Entity) to acquire
all or part of a property. We may participate in the program by either co-investing in the property
with the Cole Exchange Entity or purchasing a co-ownership interest from the Cole Exchange Entity,
generally at the Cole Exchange Entitys cost. In that event, as a co-owner of properties, we will
be subject to the risks inherent in the co-ownership arrangements with unrelated third parties. Our
purchase of co-ownership interests will present conflicts of interest between us and affiliates of
our advisor. The business interests of Cole Capital Partners and the Cole Exchange Entity may be
adverse to, or to the detriment of, our interests. Further, any agreement that we enter into with a
Cole Exchange Entity will not be negotiated in an arms-length transaction and, as a result of the
affiliation between our advisor, Cole Capital Partners and the Cole Exchange Entity, our advisor
may be reluctant to enforce the agreements against such entities.
CR III Advisors and its officers and key personnel and certain of our key personnel face competing
demands relating to their time, and this may cause our operating results to suffer.
CR III Advisors and its officers and key personnel and their respective affiliates are
officers, key personnel, general partners and sponsors of other real estate programs that have
investment objectives, targeted assets, and legal and financial obligations similar to ours and may
have other business interests as well. In addition, we have only two executive officers, each of
whom also is an officer, director and/or key person of other Cole-sponsored real estate programs
that have investment objectives, targeted assets and legal and financial obligations similar to
ours, and may also have other business interests. Due to competing demands on their time and
resources, these persons may have conflicts of interest in allocating their time between our
business and these other activities. During times of intense activity in other programs and
ventures, they may devote less time and fewer resources to our business than is necessary or
appropriate. If this occurs, the returns on our investments may suffer.
Our officers face conflicts of interest related to the positions they hold with affiliated
entities, which could hinder our ability to successfully implement our business strategy and to
generate returns to you.
Each of our executive officers, including Christopher H. Cole, who also serves as the chairman
of our board of directors, also are officers of our advisor, our property manager, our dealer
manager and other affiliated entities. As a result, these individuals owe fiduciary duties to these
other entities and their stockholders, members and limited partners. These additional fiduciary
duties may conflict with the duties that they owe to us and our stockholders. Their loyalties to
these other entities could result in actions or inactions that are detrimental to our business,
which could harm the implementation of our investment strategy and our investment and leasing
opportunities. Conflicts with our business and interests are most likely to arise from involvement
in activities related to (i) allocation of new investments and management time and services between
us and the other entities, (ii) our purchase of properties from, or sale of properties to,
affiliated entities, (iii) the timing and terms of the investment in or sale of an asset,
(iv) development of our properties by affiliates, (v) investments with affiliates of our advisor,
(vi) compensation to our advisor, and (vii) our relationship with our dealer manager and property
manager. If we do not successfully implement our investment strategy, we may be unable to generate
cash needed to pay distributions to you and to maintain or increase the value of our assets.
19
CR III Advisors faces conflicts of interest relating to the incentive fee structure under our
advisory agreement, which could result in actions that are not necessarily in the long-term best
interests of our stockholders.
Pursuant to the terms of our advisory agreement, CR III Advisors is entitled to fees that are
structured in a manner intended to provide incentives to our advisor to perform in our best
interests and in the best interests of our stockholders. However, because our advisor does not
maintain a significant equity interest in us and is entitled to receive substantial compensation
regardless of performance, our advisors interests are not wholly aligned with those of our
stockholders. In that regard, our advisor could be motivated to recommend riskier or more
speculative investments in order for us to generate the specified levels of performance or sales
proceeds that would entitle our advisor to fees. In addition, our advisors entitlement to fees
upon the sale of our assets and to participate in sale proceeds could result in our advisor
recommending sales of our investments at the earliest possible time at which sales of investments
would produce the level of return that would entitle the advisor to compensation relating to such
sales, even if continued ownership of those investments might be in our best long-term interest.
Our advisory agreement requires us to pay a performance-based termination fee to our advisor in the
event that we terminate the advisor prior to the listing of our shares for trading on an exchange
or, absent such listing, in respect of its participation in net sales proceeds. To avoid paying
this fee, our independent directors may decide against terminating the advisory agreement prior to
our listing of our shares or disposition of our investments even if, but for the termination fee,
termination of the advisory agreement would be in our best interest. In addition, the requirement
to pay the fee to the advisor at the termination of the advisory agreement could cause us to make
different investment or disposition decisions than we would otherwise make, in order to satisfy our
obligation to pay the fee to the terminated advisor. Moreover, our advisor has the right to
terminate the advisory agreement upon a change of control of our company and thereby trigger the
payment of the performance fee, which could have the effect of delaying, deferring or preventing
the change of control.
There is no separate counsel for us and our affiliates, which could result in conflicts of
interest.
Morris, Manning & Martin, LLP acts as legal counsel to us and also represents our advisor and
some of its affiliates. There is a possibility in the future that the interests of the various
parties may become adverse and, under the Code of Professional Responsibility of the legal
profession, Morris, Manning & Martin, LLP may be precluded from representing any one or all of such
parties. If any situation arises in which our interests appear to be in conflict with those of our
advisor or its affiliates, additional counsel may be retained by one or more of the parties to
assure that their interests are adequately protected. Moreover, should a conflict of interest not
be readily apparent, Morris, Manning & Martin, LLP may inadvertently act in derogation of the
interest of the parties, which could affect our ability to meet our investment objectives.
Risks Related to Our Corporate Structure
The limit on the number of shares a person may own may discourage a takeover that could otherwise
result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are
necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of
directors, no person may own more than 9.8% in value of our outstanding stock, or more than 9.8% in
value or number, whichever is more restrictive, of our outstanding common stock. This restriction may have
the effect of delaying, deferring or preventing a change in control of us, including an
extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of
our assets) that might provide a premium to the purchase price of our common stock for our
stockholders.
Our charter permits our board of directors to issue stock with terms that may subordinate the
rights of common stockholders or discourage a third party from acquiring us in a manner that might
result in a premium price to our stockholders.
Our charter permits our board of directors to issue up to 500,000,000 shares of stock,
including 10,000,000 shares of preferred stock. In addition, our board of directors, without any
action by our stockholders, may amend our charter from time to time to increase or decrease the
aggregate number of shares or the number of shares of any class or series of stock that we have
authority to issue. Our board of directors may classify or reclassify any unissued common stock or
preferred stock and establish the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms or conditions of redemption
of any such stock. Thus, if also approved by a majority of our independent directors not otherwise
interested in the transaction, who will have access at our expense to our legal counsel or to
independent legal counsel, our board of directors could authorize the issuance of preferred stock
with terms and conditions that could have a priority as to distributions and amounts payable upon
liquidation over the rights of the holders of our common stock. Preferred stock could also have the
effect of delaying, deferring or preventing a change in control of us, including an extraordinary
transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that
might provide a premium price for holders of our common stock.
20
Maryland law prohibits certain business combinations, which may make it more difficult for us to be
acquired and may limit your ability to dispose of your shares.
Under Maryland law, business combinations between a Maryland corporation and an interested
stockholder or an affiliate of an interested stockholder are prohibited for five years after the
most recent date on which the interested stockholder becomes an interested stockholder. These
business combinations include a merger, consolidation, share exchange or, in circumstances
specified in the statute, an asset transfer or issuance or reclassification of equity securities.
An interested stockholder is defined as:
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any person who beneficially owns 10% or more of the voting power of the corporations shares; or |
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an affiliate or associate of the corporation who, at any time within the two-year period prior
to the date in question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of the corporation. |
A person is not an interested stockholder under the statute if the board of directors approved
in advance the transaction by which he or she otherwise would have become an interested
stockholder. However, in approving a transaction, the board of directors may provide that its
approval is subject to compliance, at or after the time of approval, with any terms and conditions
determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and
an interested stockholder generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares
of voting stock of the corporation; and |
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two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested
stockholder with whom or with whose affiliate the business combination
is to be effected or held by an affiliate or associate of the
interested stockholder. |
These super-majority vote requirements do not apply if the corporations stockholders receive
a minimum price, as defined under Maryland law, for their shares in the form of cash or other
consideration in the same form as previously paid by the interested stockholder for its shares. The
business combination statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of directors prior to the time that the interested
stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has
exempted any business combination involving our advisor or any affiliate of our advisor.
Consequently, the five-year prohibition and the super-majority vote requirements will not apply to
business combinations between us and our advisor or any affiliate of our advisor. As a result, our
advisor and any affiliate of our advisor may be able to enter into business combinations with us
that may not be in the best interest of our stockholders, without compliance with the
super-majority vote requirements and the other provisions of the statute. The business combination
statute may discourage others from trying to acquire control of us and increase the difficulty of
consummating any offer.
Maryland law also limits the ability of a third party to buy a large percentage of our outstanding
shares and exercise voting control in electing directors.
Under its Control Share Acquisition Act, Maryland law also provides that control shares of a
Maryland corporation acquired in a control share acquisition have no voting rights except to the
extent approved by the corporations disinterested stockholders by a vote of two-thirds of the
votes entitled to be cast on the matter. Shares of stock owned by interested stockholders, that is,
by the acquirer, or officers of the corporation or employees of the corporation who are directors
of the corporation, are excluded from shares entitled to vote on the matter. Control shares are
voting shares of stock that would entitle the acquirer, except solely by virtue of a revocable
proxy, to exercise voting control in electing directors within specified ranges of voting control.
Control shares do not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A control share acquisition means the
acquisition of control shares. The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the corporation is a party to the
transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the
corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any
and all acquisitions of our stock by any person. This statute could have the effect of discouraging
offers from third parties to acquire us and increasing the difficulty of successfully completing
this type of offer by anyone other than our advisor, its affiliates or any of their affiliates.
21
Our charter includes an anti-takeover provision that may discourage a stockholder from launching a
tender offer for our shares.
Our charter requires that any tender offer made by a stockholder, including any mini-tender
offer, must comply with Regulation 14D of the Exchange Act. The offering stockholder must provide
our company notice of the tender offer at least ten business days before initiating the tender
offer. If the offering stockholder does not comply with these requirements, we will have the right
to redeem that stockholders shares and any shares acquired in such tender offer. In addition, the
non-complying stockholder shall be responsible for all of our expenses in connection with that
stockholders noncompliance. This charter provision of our charter may discourage a stockholder
from initiating a tender offer for our shares and prevent you from receiving a premium to your
purchase price for your shares in such a transaction.
If we are required to register as an investment company under the Investment Company Act of 1940,
as amended, we could not continue our business, which may significantly reduce the value of your
investment.
We are not registered as an investment company under the Investment Company Act of 1940, as
amended (the Investment Company Act), pursuant to an exemption in Section 3(c)(5)(C) of the
Investment Company Act and certain No-Action Letters from the Securities and Exchange Commission.
Pursuant to this exemption, (1) at least 55% of our assets must consist of real estate fee
interests or loans secured exclusively by real estate or both, (2) at least 25% of our assets must
consist of loans secured primarily by real estate (this percentage will be reduced by the amount by
which the percentage in (1) above is increased); and (3) up to 20% of our assets may consist of
miscellaneous investments. We intend to monitor compliance with these requirements on an ongoing
basis. If we were obligated to register as an investment company, we would have to comply with a
variety of substantive requirements under the Investment Company Act imposing, among other things:
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limitations on capital structure; |
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restrictions on specified investments; |
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prohibitions on transactions with affiliates; and |
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compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations that would significantly change our
operations. |
In order to maintain our exemption from regulation under the Investment Company Act, we must
engage primarily in the business of buying real estate, and these investments must be made within a
year after the offering ends. If we are unable to invest a significant portion of the proceeds of
the Offering in properties within one year of the termination of the offering, we may avoid being
required to register as an investment company by temporarily investing any unused proceeds in
government securities with low returns. This would reduce the cash available for distribution to
investors and possibly lower your returns.
To maintain compliance with the Investment Company Act exemption, we may be unable to sell
assets we would otherwise want to sell and may need to sell assets we would otherwise wish to
retain. In addition, we may have to acquire additional income or loss generating assets that we
might not otherwise have acquired or may have to forgo opportunities to acquire interests in
companies that we would otherwise want to acquire and would be important to our investment
strategy. If we were required to register as an investment company but failed to do so, we would be
prohibited from engaging in our business, and criminal and civil actions could be brought against
us. In addition, our contracts would be unenforceable unless a court were to require enforcement,
and a court could appoint a receiver to take control of us and liquidate our business.
22
If you do not agree with the decisions of our board of directors, you only have limited control
over changes in our policies and operations and may not be able to change such policies and
operations.
Our board of directors determines our major policies, including our policies regarding
investments, financing, growth, debt capitalization, REIT qualification and distributions. Our
board of directors may amend or revise these and other policies without a vote of the stockholders.
Under the Maryland General Corporation Law and our charter, our stockholders generally have a right
to vote only on the following:
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the election or removal of directors; |
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any amendment of our charter, except that our board of directors may amend our charter without
stockholder approval to increase or decrease the aggregate number of our shares, to increase or
decrease the number of our shares of any class or series that we have the authority to issue, to
change our name, to change the name or other designation or the par value of any class or series of
our stock and the aggregate par value of our stock or to effect certain reverse stock splits;
provided however, that any such amendment does not adversely affect the rights, preferences and
privileges of the stockholders; |
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our dissolution; and |
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a merger or consolidation of the sale or other disposition of all or substantially all of our assets. |
All other matters are subject to the discretion of our board of directors.
Our board of directors may change our investment policies without stockholder approval, which could
alter the nature of your investment.
Our charter requires that our independent directors review our investment policies at least
annually to determine that the policies we are following are in the best interest of the
stockholders. These policies may change over time. The methods of implementing our investment
policies also may vary, as new real estate development trends emerge and new investment techniques
are developed. Our investment policies, the methods for their implementation, and our other
objectives, policies and procedures may be altered by our board of directors without the approval
of our stockholders, unless otherwise provided in our organizational documents. As a result, the
nature of your investment could change without your consent.
You are limited in your ability to sell your shares pursuant to our share redemption program and
may have to hold your shares for an indefinite period of time.
Our board of directors may amend the terms of, terminate or suspend our share redemption
program without stockholder approval upon ten days prior notice, or reject any request for
redemption. In addition, the share redemption program includes numerous restrictions that would
limit your ability to sell your shares. Generally, you must have held your shares for at least one
year in order to participate in our share redemption program. Subject to funds being available, we
will limit the number of shares redeemed pursuant to our share redemption program as follows:
(1) during any calendar year, we will not redeem in excess of 5% of the weighted average number of
shares outstanding during the prior calendar year (shares requested for redemption upon the death
of a stockholder will not be subject to this limitation); and (2) funding for the redemption of
shares will be limited to the net proceeds we receive from the sale of shares under our
distribution reinvestment plan. These limits might prevent us from accommodating all redemption
requests made in any year. These restrictions severely limit your ability to sell your shares
should you require liquidity, and limit your ability to recover the value you invested or the fair
market value of your shares.
23
Your interest in us will be diluted if we issue additional shares.
Stockholders do not have preemptive rights to any shares issued by us in the future. Our
charter currently has authorized 500,000,000 shares of stock, of which 490,000,000 shares are
designated as common stock and 10,000,000 are designated as preferred stock. Subject to any
limitations set forth under Maryland law, our board of directors may increase the number of
authorized shares of stock, increase or decrease the number of shares of any class or series of
stock designated, or classify or reclassify any unissued shares without the necessity of obtaining
stockholder approval. All of such shares may be issued in the discretion of our board of directors,
except that the issuance of preferred stock must also be approved by a majority of our independent
directors not otherwise interested in the transaction, who will have access at our expense to our
legal counsel or to independent legal counsel. Stockholders likely will suffer dilution of their
equity investment in us, in the event that we (1) sell additional shares in the future, including
those issued pursuant to our distribution reinvestment plan, (2) sell securities that are
convertible into shares of our common stock, (3) issue shares of our common stock in a private
offering of securities to institutional investors, (4) issue shares of our common stock to our
advisor, its successors or assigns, in payment of an outstanding fee obligation as set forth under
our advisory agreement or (5) issue shares of our common stock to sellers of properties acquired by
us in connection with an exchange of limited partnership interests of CCPT III OP. In addition, the
partnership agreement for CCPT III OP contains provisions that would allow, under certain
circumstances, other entities, including other Cole-sponsored programs, to merge into or cause the
exchange or conversion of their interest in that entity for interests of CCPT III OP. Because the
limited partnership interests of CCPT III OP may, in the discretion of our board of directors, be
exchanged for shares of our common stock, any merger, exchange or conversion between CCPT III OP
and another entity ultimately could result in the issuance of a substantial number of shares of our
common stock, thereby diluting the percentage ownership interest of other stockholders. Because of
these and other reasons described in this Risk Factors section, you should not expect to be able
to own a significant percentage of our shares.
Payment of fees to CR III Advisors and its affiliates reduces cash available for investment and
distribution.
We do not have any paid employees and we are externally advised by CR III Advisors. CR III
Advisors and its affiliates perform services for us in connection with the offer and sale of the
shares, the selection and acquisition of our investments, the management and leasing of our
properties, the servicing of our mortgage loans, if any, and the administration of our other
investments. We pay substantial fees to these companies for these services, which reduces the
amount of cash available for investment in properties or distribution to stockholders.
We may be unable to pay or maintain cash distributions or increase distributions over time.
There are many factors that can affect the availability and timing of cash distributions to
our stockholders. Distributions are based principally on cash available from our operations. The
amount of cash available for distributions is affected by many factors, such as our ability to buy
properties as offering proceeds become available, rental income from our properties, and our
operating expense levels, as well as many other variables. Actual cash available for distributions
may vary substantially from estimates. We may not be able to pay distributions to you and any
distributions we do make may not increase over time. In addition, rents from our properties may not
increase, the securities we may buy may not increase in value or provide constant or increased
distributions over time, and our acquisitions of real properties, mortgage loans or any investments
in securities may decrease our cash available for distributions to stockholders. Our actual results
may differ significantly from the assumptions used by our board of directors in establishing the
distribution rate to our stockholders. In addition, we may not have sufficient cash from operations
to make a distribution required to maintain our REIT status.
Until proceeds from the Offering are invested and generating operating cash flow sufficient to make
distributions to our stockholders, we may make some or all of our distributions from sources other
than cash flow from operations, including the proceeds of the Offering, cash advanced to us by our
advisor, cash resulting from a deferral of asset management fees and/or from borrowings (including
borrowings secured by our assets) in anticipation of future operating cash flow, which may reduce
the amount of capital we ultimately invest and negatively impact the value of your investment.
We expect that cash distributions to you generally will be paid from cash available or
anticipated from the cash flow from our investments in properties, real estate securities,
mortgage, bridge or mezzanine loans and other real estate-related assets. However, until proceeds
from our offerings are invested and generating operating cash flow sufficient to make distributions
to you, we have made, and in the future may make, some or all of our distributions from the
proceeds of the Offering, cash advanced to us by our advisor, cash resulting from a waiver or
deferral of asset management fees and/or from borrowings (including borrowings secured by our
assets) in anticipation of future cash flow. In addition, to the extent our investments are in
development or redevelopment projects, or in other properties that have significant capital
requirements and/or delays in their ability to generate income, our ability to make distributions
may be negatively impacted, especially during our early period of operation. Accordingly, the
amount of distributions paid at any time may not reflect current cash flow from our operations.
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To the extent distributions are paid from the proceeds of the Offering, cash advanced to us by
our advisor, cash resulting from a deferral of asset management fees and/or from borrowings
(including borrowings secured by our assets) in anticipation of future cash flow, we will have less
capital available to invest in real estate and other real estate-related investments, which may
negatively impact our ability to make investments and substantially reduce current returns and
capital appreciation. In that event, we may not be able to invest 87.9% of the gross proceeds
raised in the Offering (87.2% if no shares are sold pursuant to our distribution reinvestment plan)
until such time as we have sufficient cash flows from operations to fully fund our distributions.
General Risks Related to Investments in Real Estate
Our operating results have been, and may continue to be, affected by economic and regulatory
changes that have an adverse impact on the real estate market in general, which may prevent us from
being profitable or from realizing growth in the value of our real estate properties.
Our operating results are subject to risks generally incident to the ownership of real estate,
including:
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changes in general economic or local conditions; |
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changes in supply of or demand for similar or competing properties in an area; |
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changes in interest rates and availability of permanent mortgage funds that
may render the sale of a property difficult or unattractive; |
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the illiquidity of real estate investments generally; |
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changes in tax, real estate, environmental and zoning laws; and |
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periods of high interest rates and tight money supply. |
These risk and other factors may prevent us from being profitable, or from maintaining or
growing the value of our real estate properties.
Many of our retail properties depend upon a single tenant, or a limited number of major tenants,
for all or a majority of its rental income; therefore, our financial condition and ability to make
distributions to you may be adversely affected by the bankruptcy or insolvency, a downturn in the
business, or a lease termination of a single tenant.
Many of our properties are occupied by only one tenant or derive a majority of its rental
income from a limited number of major tenants and, therefore, the success of those properties are
materially dependent on the financial stability of such tenants. Lease payment defaults by tenants
could cause us to reduce the amount of distributions we pay. A default of a tenant on its lease
payments to us would cause us to lose revenue from the property and force us to find an alternative
source of revenue to meet any expenses associated with the property and prevent a foreclosure if
the property is subject to a mortgage. In the event of a default by a single or major tenant, we
may experience delays in enforcing our rights as landlord and may incur substantial costs in
protecting our investment and re-letting the property. If a lease is terminated, we may not be able
to lease the property for the rent previously received or sell the property without incurring a
loss. A default by a tenant, the failure of a guarantor to fulfill its obligations or other
premature termination of a lease, or a tenants election not to extend a lease upon its expiration,
could have an adverse effect on our financial condition and our ability to pay distributions to
you.
A high concentration of our properties in a particular geographic area, or with tenants in a
similar industry, would magnify the effects of downturns in that geographic area or industry.
We expect that our properties will continue to be diverse according to geographic area and
industry of our tenants. However, in the event that we have a concentration of properties in any
particular geographic area, any adverse situation that disproportionately effects that geographic
area would have a magnified adverse effect on our portfolio. Similarly, if tenants of our
properties become concentrated in a certain industry or industries, any adverse effect to that
industry generally would have a disproportionately adverse effect on our portfolio.
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If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.
Any of our tenants, or any guarantor of one of our tenants lease obligations, could be
subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United
States. Such a bankruptcy filing would bar us from attempting to collect pre-bankruptcy debts from
the bankrupt tenant or its properties unless we receive an enabling order from the bankruptcy
court. Post-bankruptcy debts would be paid currently. If we assume a lease, all pre-bankruptcy
balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we
would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would
receive any payments from the tenant because our claim would be capped at the rent reserved under
the lease, without acceleration, for the greater of one year or 15% of the remaining term of the
lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid
only in the event funds were available, and then only in the same percentage as that realized on
other unsecured claims.
The bankruptcy of a tenant or lease guarantor could delay our efforts to collect past due
balances under the relevant lease, and could ultimately preclude full collection of these sums.
Such an event also could cause a decrease or cessation of current rental payments, reducing our
cash flow and the amount available for distributions to you. In the event a tenant or lease
guarantor declares bankruptcy, the tenant or its trustee may not assume our lease or its guaranty.
If a given lease or guaranty is not assumed, our cash flow and the amounts available for
distributions to you may be adversely affected.
If a sale-leaseback transaction is re-characterized in a tenants bankruptcy proceeding, our
financial condition could be adversely affected.
We have entered and may continue to enter into sale-leaseback transactions, whereby we would
purchase a property and then lease the same property back to the person from whom we purchased it.
In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be
re-characterized as either a financing or a joint venture, either of which outcomes could adversely
affect our financial condition, cash flow and the amount available for distributions to you.
If the sale-leaseback were re-characterized as a financing, we might not be considered the
owner of the property, and as a result would have the status of a creditor in relation to the
tenant. In that event, we would no longer have the right to sell or encumber our ownership interest
in the property. Instead, we would have a claim against the tenant for the amounts owed under the
lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to
propose a plan restructuring the term, interest rate and amortization schedule of its outstanding
balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented
from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint
venture, our lessee and we could be treated as co-venturers with regard to the property. As a
result, we could be held liable, under some circumstances, for debts incurred by the lessee
relating to the property.
Properties that have vacancies for a significant period of time could be difficult to sell, which
could diminish the return on your investment.
A property may incur vacancies either by the continued default of a tenant under its leases,
the expiration of a tenant lease or early termination of a lease by a tenant. If vacancies continue
for a long period of time, we may suffer reduced revenues resulting in less cash to be distributed
to you. In addition, because a propertys market value depends principally upon the value of the
propertys leases, the resale value of a property with prolonged vacancies could decline, which
could further reduce your return.
We may be unable to secure funds for future tenant improvements or capital needs, which could
adversely impact our ability to pay cash distributions to you.
When tenants do not renew their leases or otherwise vacate their space, it is usual that, in
order to attract replacement tenants, we will be required to expend substantial funds for tenant
improvements and tenant refurbishments to the vacated space. In addition, although we expect that
our leases with tenants will require tenants to pay routine property maintenance costs, we will
likely be responsible for any major structural repairs, such as repairs to the foundation, exterior
walls and rooftops. We will use substantially all of the gross proceeds from the Offering to buy
real estate and real estate-related investments and to pay various fees and expenses. We intend to
reserve only approximately 0.1% of the gross proceeds from the Offering for future capital needs.
Accordingly, if we need additional capital in the future to improve or maintain our properties or
for any other reason, we will have to obtain financing from other sources, such as cash flow from
operations, borrowings, property sales or future equity offerings. These sources of funding may not
be available on attractive terms or at all. If we cannot procure additional funding for capital
improvements, our investments may generate lower cash flows or decline in value, or both.
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We may obtain only limited warranties when we purchase a property and would have only limited
recourse in the event our due diligence did not identify any issues that lower the value of our
property.
The seller of a property often sells such property in its as is condition on a where is
basis and with all faults, without any warranties of merchantability or fitness for a particular
use or purpose. In addition, purchase agreements may contain only limited warranties,
representations and indemnifications that will only survive for a limited period after the closing.
The purchase of properties with limited warranties increases the risk that we may lose some or all
of our invested capital in the property, as well as the loss of rental income from that property.
Our inability to sell a property when we desire to do so could adversely impact our ability to pay
cash distributions to you.
The real estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates, supply and demand, and other factors that are beyond our
control. We cannot predict whether we will be able to sell any property for the price or on the
terms set by us, or whether any price or other terms offered by a prospective purchaser would be
acceptable to us. We may be required to expend funds to correct defects or to make improvements
before a property can be sold. We may not have adequate funds available to correct such defects or
to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that
prohibit the sale of that property for a period of time or impose other restrictions, such as a
limitation on the amount of debt that can be placed or repaid on that property. We cannot predict
the length of time needed to find a willing purchaser and to close the sale of a property. Our
inability to sell a property when we desire to do so may cause us to reduce our selling price for
the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a
property could adversely impact our ability to pay distributions to you.
We may not be able to sell our properties at a price equal to, or greater than, the price for which
we purchased such property, which may lead to a decrease in the value of our assets.
Many of our leases will not contain rental increases over time. When that is the case, the
value of the leased property to a potential purchaser may not increase over time, which may
restrict our ability to sell that property, or if we are able to sell that property, may result in
a sale price less than the price that we paid to purchase the property.
We may acquire or finance properties with lock-out provisions, which may prohibit us from selling a
property, or may require us to maintain specified debt levels for a period of years on some
properties.
A lock-out provision is a provision that prohibits the prepayment of a loan during a specified
period of time. Lock-out provisions may include terms that provide strong financial disincentives
for borrowers to prepay their outstanding loan balance and exist in order to protect the yield
expectations of investors. We expect that many of our properties will be subject to lock-out
provisions. Lock-out provisions could materially restrict us from selling or otherwise disposing of
or refinancing properties when we may desire to do so. Lock-out provisions may prohibit us from
reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness
on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such
properties. Lock-out provisions could impair our ability to take other actions during the lock-out
period that could be in the best interests of our stockholders and, therefore, may have an adverse
impact on the value of our shares relative to the value that would result if the lock-out
provisions did not exist. In particular, lock-out provisions could preclude us from participating
in major transactions that could result in a disposition of our assets or a change in control even
though that disposition or change in control might be in the best interests of our stockholders.
Increased operating expenses could reduce cash flow from operations and funds available to acquire
investments or make distributions.
Our properties, including those that we acquire in the future, are and will be, subject to
operating risks common to real estate in general, any or all of which may negatively affect us. If
any property is not fully occupied or if rents are being paid in an amount that is insufficient to
cover operating expenses, we could be required to expend funds with respect to that property for
operating expenses. The properties will be subject to increases in tax rates, utility costs,
insurance costs, repairs and maintenance costs, administrative costs and other operating expenses.
While many of our property leases require the tenants to pay all or a portion of these expenses,
some of our leases or future leases may not be negotiated on that basis, in which event we may have
to pay these costs. If we are unable to lease properties on terms that require the tenants to pay
all or some of the properties operating expenses, if our tenants fail to pay these expenses as
required or if expenses we are required to pay exceed our expectations, we could have less funds
available for future acquisitions or cash available for distributions to you.
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The current market environment may materially adversely affect our business, financial condition
and results of operations and our ability to pay distributions to our stockholders.
The global financial markets have undergone pervasive and fundamental disruptions since
mid-2007. The disruptions in the global financial markets had an adverse impact on the
availability of credit to businesses generally. To the extent that the global economic recession
continues and/or, intensifies, it has the potential to materially adversely affect the value of our
properties and other investments we make, the availability or the terms of financing that we may
anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any
outstanding debt when due, and/or the ability of our tenants/operators to enter into new leasing
transactions or satisfy rental payments under existing leases. The current market environment also
could materially adversely affect our business, financial condition and results of operations and
our ability to pay distributions to our stockholders as follows:
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Debt Market Although there are signs of
recovery, the real estate debt markets are currently experiencing volatility as
a result of certain factors, including the tightening of underwriting standards by
lenders and credit rating agencies. Should overall borrowing costs increase, either by
increases in the index rates or by increases in lender spreads, our operations may
generate lower returns. In addition, the recent dislocations in the debt markets have
reduced the amount of capital that is available to finance real estate, which, in turn:
(1) limits the ability of real estate investors to make new acquisitions and to
potentially benefit from reduced real estate values or to realize enhanced returns on
real estate investments; (2) has slowed real estate transaction activity; and (3) may
result in an inability to refinance debt as it becomes due. In addition, the state of
the debt markets could have a material adverse impact on the overall amount of capital
being invested in real estate, which may result in price or value decreases of real
estate assets and impact our ability to raise equity capital. |
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Commercial Real Estate Market The recent global economic recession has caused
commercial real estate values to decline substantially. As a result, there may be
uncertainty in the valuation, or in the stability of the value, of the properties we
acquire that could result in a substantial decrease in the value of our properties
after we purchase them. Consequently, we may not be able to recover the carrying
amount of our properties, which may require us to recognize an impairment charge in
earnings. |
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Government Intervention The disruptions in the global financial markets have led
to extensive and unprecedented government intervention. Although the government
intervention is intended to stimulate the flow of capital and to strengthen the U.S.
economy in the short term, it is impossible to predict the actual effect of the
government intervention and what effect, if any, additional interim or permanent
governmental intervention may have on the financial markets and/or the effect of such
intervention on us. |
Adverse economic and geopolitical conditions may negatively affect our returns and profitability.
Our operating results may be affected by market and economic challenges, which may result from
a continued or exacerbated general economic downturn experienced by the nation as a whole, by the
local economies where our properties may be located, or by the real estate industry including the
following:
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poor economic conditions may result in tenant defaults under leases; |
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poor economic conditions may result in lower revenue to us from retailers who pay us a
percentage of their revenues under percentage rent leases; |
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re-leasing may require concessions or reduced rental rates under the new leases; |
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constricted access to credit may result in tenant defaults or non-renewals under leases; and |
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increased insurance premiums may reduce funds available for distribution or, to the extent
such increases are passed through to tenants, may lead to tenant defaults. Increased
insurance premiums may make it difficult to increase rents to tenants on turnover, which
may adversely affect our ability to increase our returns. |
The length and severity of any economic slow down or downturn cannot be predicted. Our
operations could be negatively affected to the extent that an economic slow down or downturn is
prolonged or becomes more severe.
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The United States armed conflict in various parts of the world could have a further impact on
our tenants. The consequences of any armed conflict are unpredictable, and we may not be able to
foresee events that could have an adverse effect on our business or your investment. More
generally, any of these events could result in increased volatility in or damage to the United
States and worldwide financial markets and economy. They also could result in higher energy costs
and increased economic uncertainty in the United States or abroad. Our revenues will be dependent
upon payment of rent by retailers, which may be particularly vulnerable to uncertainty in the local
economy. Adverse economic conditions could affect the ability of our tenants to pay rent, which
could have a material adverse effect on our operating results and financial condition, as well as
our ability to pay distributions to you.
The failure of any bank in which we deposit our funds could reduce the amount of cash we have
available to pay distributions and make additional investments.
We diversify our cash and cash equivalents, and will continue to do so, among several banking
institutions in an attempt to minimize exposure to any one of these entities. However, the Federal
Deposit Insurance Corporation, or FDIC, only insures amounts up to $250,000 per depositor per
insured bank. As of December 31, 2009, we had cash and cash equivalents and restricted cash
deposited in certain financial institutions in excess of federally insured levels. If any of the
banking institutions in which we have deposited funds ultimately fails, we may lose our deposits
over the federally insured level. The loss of our deposits could reduce the amount of cash we have
available to distribute or invest and could result in a decline in the value of your investment.
If we suffer losses that are not covered by insurance or that are in excess of insurance coverage,
we could lose invested capital and anticipated profits.
Generally, each of our tenants is, and we expect will be, responsible for insuring its goods
and premises and, in some circumstances, may be required to reimburse us for a share of the cost of
acquiring comprehensive insurance for the property, including casualty, liability, fire and
extended coverage customarily obtained for similar properties in amounts that our advisor
determines are sufficient to cover reasonably foreseeable losses. Tenants of single-user properties
leased on a triple-net-lease basis typically are required to pay all insurance costs associated
with those properties. Material losses may occur in excess of insurance proceeds with respect to
any property, as insurance may not be sufficient to fund the losses. However, there are types of
losses, generally of a catastrophic nature, such as losses due to wars, acts of terrorism,
earthquakes, floods, hurricanes, pollution or environmental matters, which are either uninsurable
or not economically insurable, or may be insured subject to limitations, such as large deductibles
or co-payments. Insurance risks associated with potential terrorism acts could sharply increase the
premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders
in some cases insist that commercial property owners purchase specific coverage against terrorism
as a condition for providing mortgage loans. It is uncertain whether such insurance policies will
be available, or available at reasonable cost, which could inhibit our ability to finance or
refinance our potential properties. In these instances, we may be required to provide other
financial support, either through financial assurances or self-insurance, to cover potential
losses. We may not have adequate, or any, coverage for such losses. The Terrorism Risk Insurance
Act of 2002 is designed for a sharing of terrorism losses between insurance companies and the
federal government. We cannot be certain how this act will impact us or what additional cost to us,
if any, could result. If such an event damaged or destroyed one or more of our properties, we could
lose both our invested capital and anticipated profits from such property.
Real estate related taxes may increase, and if these increases are not passed on to tenants, our
income will be reduced.
Local real property tax assessors may reassess our properties, which may result in increased
taxes. Generally, property taxes increase as property values or assessment rates change, or for
other reasons deemed relevant by property tax assessors. An increase in the assessed valuation of a
property for real estate tax purposes will result in an increase in the related real estate taxes
on that property. Although some tenant leases may permit us to pass through such tax increases to
the tenants for payment, renewal leases or future leases may not be negotiated on the same basis.
Tax increases not passed through to tenants may adversely affect our income, cash available for
distributions, and the amount of distributions to you.
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CC&Rs may restrict our ability to operate a property.
Some of our properties are, and we expect certain additional properties will be, contiguous to
other parcels of real property, comprising part of the same retail center. In connection with such
properties, we are subject to significant covenants, conditions and restrictions, known as CC&Rs,
restricting the operation of such properties and any improvements on such properties, and related
to granting easements on such properties. Moreover, the operation and management of the contiguous
properties may impact such properties. Compliance with CC&Rs may adversely affect our operating
costs and reduce the amount of funds that we have available to pay distributions to you.
Our operating results may be negatively affected by potential development and construction delays
and resultant increased costs and risks.
While we do not currently intend to do so, we may acquire properties upon which we will
construct improvements. If we engage in development or construction projects, we will be subject to
uncertainties associated with re-zoning for development, environmental concerns of governmental
entities and/or community groups, and our builders ability to build in conformity with plans,
specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to
legal action to rescind the purchase or the construction contract or to compel performance. A
builders performance may also be affected or delayed by conditions beyond the builders control.
Delays in completion of construction could also give tenants the right to terminate preconstruction
leases. We may incur additional risks if we make periodic progress payments or other advances to
builders before they complete construction. These and other such factors can result in increased
costs of a project or loss of our investment. In addition, we will be subject to normal lease-up
risks relating to newly constructed projects. We also must rely on rental income and expense
projections and estimates of the fair market value of property upon completion of construction when
agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we
may pay too much for a property, and our return on our investment could suffer.
While we do not currently intend to do so, we may invest in unimproved real property. Returns
from development of unimproved properties are also subject to risks associated with re-zoning the
land for development and environmental concerns of governmental entities and/or community groups.
Although we intend to limit any investment in unimproved real property to real property we intend
to develop, your investment, nevertheless, is subject to the risks associated with investments in
unimproved real property.
If we contract with a development company for newly developed property, our earnest money deposit
made to the development company may not be fully refunded.
We may enter into one or more contracts, either directly or indirectly through joint ventures
with affiliates or others, to acquire real property from an affiliate of our advisor that is
engaged in construction and development of commercial real properties. Properties acquired from a
development company may be either existing income-producing properties, properties to be developed
or properties under development. We anticipate that we will be obligated to pay a substantial
earnest money deposit at the time of contracting to acquire such properties. In the case of
properties to be developed by a development company, we anticipate that we will be required to
close the purchase of the property upon completion of the development of the property. At the time
of contracting and the payment of the earnest money deposit by us, the development company
typically will not have acquired title to any real property. Typically, the development company
will only have a contract to acquire land, a development agreement to develop a building on the
land and an agreement with one or more tenants to lease all or part of the property upon its
completion. We may enter into such a contract with the development company even if at the time we
enter into the contract, we have not yet raised sufficient proceeds in our offering to enable us to
close the purchase of such property. However, we may not be required to close a purchase from the
development company, and may be entitled to a refund of our earnest money, in the following
circumstances:
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the development company fails to develop the property; |
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all or a specified portion of the pre-leased tenants fail to take
possession under their leases for any reason; or |
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we are unable to raise sufficient proceeds from our offering to pay
the purchase price at closing. |
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The obligation of the development company to refund our earnest money will be unsecured, and
we may not be able to obtain a refund of such earnest money deposit from it under these
circumstances since the development company may be an entity without substantial assets or
operations. However, if the development company is an affiliate of our advisor, its obligation to
refund our earnest money deposit may be guaranteed by Cole Realty Advisors, our property manager,
which will enter into contracts to provide property management and leasing services to various
Cole-sponsored programs, including us, for substantial monthly fees. As of the time Cole Realty
Advisors may be required to perform under any guaranty, Cole Realty Advisors may not have
sufficient assets to refund all of our earnest money deposit in a lump sum payment. If we were
forced to collect our earnest money deposit by enforcing the guaranty of Cole Realty Advisors, we
would likely be required to accept installment payments over time payable out of the revenues of
Cole Realty Advisors operations. We may not be able to collect the entire amount of our earnest
money deposit under such circumstances.
Competition with third parties in acquiring properties and other investments may reduce our
profitability and the return on your investment.
We compete with many other entities engaged in real estate investment activities, including
individuals, corporations, bank and insurance company investment accounts, other REITs, real estate
limited partnerships, and other entities engaged in real estate investment activities, many of
which have greater resources than we do. Larger competitors may enjoy significant advantages that
result from, among other things, a lower cost of capital and enhanced operating efficiencies. In
addition, the number of entities and the amount of funds competing for suitable investments may
increase. Any such increase would result in increased demand for these assets and therefore
increased prices paid for them. If we pay higher prices for properties and other investments as a
result of competition with third parties without a corresponding increase in tenant lease rates,
our profitability will be reduced, and you may experience a lower return on your investment.
Our properties face competition that may affect tenants ability to pay rent and the amount of rent
paid to us may affect the cash available for distributions to you and the amount of distributions.
We typically acquire properties located in developed areas. Therefore, there are and will be
numerous other retail properties within the market area of each of our properties that will compete
with us for tenants. The number of competitive properties could have a material effect on our
ability to rent space at our properties and the amount of rents charged. We could be adversely
affected if additional competitive properties are built in close proximity to our properties,
causing increased competition for customer traffic and creditworthy tenants. This could result in
decreased cash flow from tenants and may require us to make capital improvements to properties that
we would not have otherwise made, thus affecting cash available for distributions to you and the
amount of distributions we pay.
Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect
our operations.
From time to time, we acquire multiple properties in a single transaction. Portfolio
acquisitions are more complex and expensive than single property acquisitions, and the risk that a
multiple-property acquisition does not close may be greater than in a single-property acquisition.
Portfolio acquisitions may also result in us owning investments in geographically dispersed
markets, placing additional demands on our ability to manage the properties in the portfolio. In
addition, a seller may require that a group of properties be purchased as a package even though we
may not want to purchase one or more properties in the portfolio. In these situations, if we are
unable to identify another person or entity to acquire the unwanted properties, we may be required
to operate or attempt to dispose of these properties. To acquire multiple properties in a single
transaction we may be required to accumulate a large amount of cash. We would expect the returns
that we earn on such cash to be less than the ultimate returns on real property, therefore
accumulating such cash could reduce our funds available for distributions to you. Any of the
foregoing events may have an adverse effect on our operations.
If we set aside insufficient capital reserves, we may be required to defer necessary capital
improvements.
If we do not have enough reserves for capital to supply needed funds for capital improvements
throughout the life of the investment in a property and there is insufficient cash available from
our operations, we may be required to defer necessary improvements to a property, which may cause
that property to suffer from a greater risk of obsolescence or a decline in value, or a greater
risk of decreased cash flow as a result of fewer potential tenants being attracted to the property.
If this happens, we may not be able to maintain projected rental rates for affected properties, and
our results of operations may be negatively impacted.
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Costs of complying with environmental laws and regulations may adversely affect our income and the
cash available for any distributions.
All real property and the operations conducted on real property are subject to federal, state
and local laws and regulations relating to environmental protection and human health and safety.
These laws and regulations generally govern wastewater discharges, air emissions, the operation and
removal of underground and above-ground storage tanks, the use, storage, treatment, transportation
and disposal of solid hazardous materials, and the remediation of contamination associated with
disposals. Some of these laws and regulations may impose joint and several liability on tenants,
owners or operators for the costs of investigation or remediation of contaminated properties,
regardless of fault or whether the acts causing the contamination were legal. This liability could
be substantial. In addition, the presence of hazardous substances, or the failure to properly
remediate these substances, may adversely affect our ability to sell or rent such property or to
use such property as collateral for future borrowing.
Compliance with new or more stringent laws or regulations or stricter interpretation of
existing laws may require material expenditures by us. Future laws, ordinances or regulations may
impose material environmental liability. Additionally, our properties may be affected by our
tenants operations, the existing condition of land when we buy it, operations in the vicinity of
our properties, such as the presence of underground storage tanks, or activities of unrelated third
parties. In addition, there are various local, state and federal fire, health, life-safety and
similar regulations that we may be required to comply with, and that may subject us to liability in
the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we
must pay will reduce our ability to make distributions to you and may reduce the value of your
investment.
We may not obtain an independent third-party environmental assessment for every property we
acquire. In addition, any such assessment that we do obtain may not reveal all environmental
liabilities. The cost of defending against claims of liability, of compliance with environmental
regulatory requirements, of remediating any contaminated property, or of paying personal injury
claims would materially adversely affect our business, assets or results of operations and,
consequently, amounts available for distribution to you.
Discovery of previously undetected environmentally hazardous conditions may adversely affect our
operating results.
Under various federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the cost of removal or
remediation of hazardous or toxic substances on, under or in such property. The costs of removal or
remediation could be substantial. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property may be used or
businesses may be operated, and these restrictions may require substantial expenditures.
Environmental laws provide for sanctions in the event of noncompliance and may be enforced by
governmental agencies or, in certain circumstances, by private parties. Certain environmental laws
and common law principles could be used to impose liability for release of and exposure to
hazardous substances, including asbestos-containing materials into the air, and third parties may
seek recovery from owners or operators of real properties for personal injury or property damage
associated with exposure to released hazardous substances. The cost of defending against claims of
liability, of compliance with environmental regulatory requirements, of remediating any
contaminated property, or of paying personal injury claims could materially adversely affect our
business, assets or results of operations and, consequently, amounts available for distribution to
you.
If we sell properties by providing financing to purchasers, defaults by the purchasers would
adversely affect our cash flows.
If we decide to sell any of our properties, we intend to use our best efforts to sell them for
cash. However, in some instances we may sell our properties by providing financing to purchasers.
When we provide financing to purchasers, we will bear the risk that the purchaser may default on
its obligations under the financing, which could negatively impact cash flows. Even in the absence
of a purchaser default, the distribution of sale proceeds, or their reinvestment in other assets,
will be delayed until the promissory notes or other property we may accept upon the sale are
actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial
down payments in cash and other property in the year of sale in an amount less than the selling
price, and subsequent payments will be spread over a number of years. If any purchaser defaults
under a financing arrangement with us, it could negatively impact our ability to pay cash
distributions to you.
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Our costs associated with complying with the Americans with Disabilities Act of 1990, as amended,
may affect cash available for distributions.
Our properties generally are subject to the Americans with Disabilities Act of 1990, as
amended (Disabilities Act). Under the Disabilities Act, all places of public accommodation are
required to comply with federal requirements related to access and use by disabled persons. The
Disabilities Act has separate compliance requirements for public accommodations and commercial
facilities that generally require that buildings and services be made accessible and available to
people with disabilities. The Disabilities Acts requirements could require removal of access
barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some
cases, an award of damages. We will attempt to acquire properties that comply with the Disabilities
Act or place the burden on the seller or other third party, such as a tenant, to ensure compliance
with the Disabilities Act. However, we cannot assure you that we will be able to acquire properties
or allocate responsibilities in this manner. If we cannot, our funds used for Disabilities Act
compliance may affect cash available for distributions and the amount of distributions to you.
Risks Associated with Debt Financing
We have incurred mortgage indebtedness and other borrowings, which may increase our business risks,
hinder our ability to make distributions, and decrease the value of your investment.
We have acquired real estate and other real estate-related investments by borrowing new funds.
In addition, we may incur mortgage debt and pledge all or some of our real properties as security
for that debt to obtain funds to acquire additional real properties and other investments and to
pay distributions to stockholders. We may borrow additional funds if we need funds to satisfy the
REIT tax qualification requirement that we distribute at least 90% of our annual taxable
income to our stockholders. We may also borrow additional funds if we otherwise deem it necessary
or advisable to assure that we maintain our qualification as a REIT for federal income tax
purposes.
Our advisor believes that utilizing borrowing is consistent with our investment objective of
maximizing the return to investors. There is no limitation on the amount we may borrow against any
individual property or other investment. However, under our charter, we are required to limit our
borrowings to 75% of the greater of cost (before deducting depreciation or other non-cash reserves)
or fair market value of our gross assets, unless excess borrowing is approved by a majority of the
independent directors and disclosed to our stockholders in our next quarterly report, along with a
justification for such excess borrowing. Moreover, our board of directors has adopted a policy to
further limit our borrowings to 60% of the greater of cost (before deducting depreciation or other
non-cash reserves) or fair market value of our gross assets. Our borrowings will not exceed 300% of
our net assets as of the date of any borrowing, which is the maximum level of indebtedness
permitted under the NASAA REIT Guidelines, however we may exceed that limit if approved by a
majority of our independent directors. We expect that during the period of the Offering, high debt
levels would cause us to incur higher interest charges, would result in higher debt service
payments, and could be accompanied by restrictive covenants. These factors could limit the amount
of cash we have available to distribute to you and could result in a decline in the value of your
investment.
We do not intend to incur mortgage debt on a particular property unless we believe the
propertys projected cash flow is sufficient to service the mortgage debt. However, if there is a
shortfall between the cash flow from a property and the cash flow needed to service mortgage debt
on a property, the amount available for distributions to you may be reduced. In addition, incurring
mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may
result in lenders initiating foreclosure actions. In that case, we could lose the property securing
the loan that is in default, thus reducing the value of your investment. For tax purposes, a
foreclosure of any of our properties would be treated as a sale of the property for a purchase
price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding
balance of the debt secured by the mortgage exceeds our tax basis in the property, we would
recognize taxable income on foreclosure, but would not receive any cash proceeds from the
foreclosure. In such event, we may be unable to pay the amount of distributions required in order
to maintain our REIT status. We have given, and in the future may give, full or partial guarantees
to lenders of mortgage debt to the entities that own our properties. When we provide a guaranty on
behalf of an entity that owns one of our properties, we are responsible to the lender for
satisfaction of the debt if it is not paid by such entity. If any mortgages contain
cross-collateralization or cross-default provisions, a default on a single property could affect
multiple properties. If any of our properties are foreclosed upon due to a default, our ability to
pay cash distributions to you will be adversely affected, which could result in our losing our REIT
status and would result in a decrease in the value of your investment.
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High interest rates may make it difficult for us to finance or refinance properties, which
could reduce the number of properties we can acquire and the amount of cash distributions we can
make to you.
We run the risk of being unable to finance or refinance our properties on favorable terms or
at all. If interest rates are higher when we desire to mortgage our properties or when existing
loans come due and the properties need to be refinanced, we may not be able to finance the
properties and we would be required to use cash to purchase or repay outstanding obligations. Our
inability to use debt to finance or refinance our properties could reduce the number of properties
we can acquire, which could reduce our operating income and the amount of cash distributions we can
make to you. Higher costs of capital also could negatively impact operating income and returns on
our investments.
Increases in interest rates could increase the amount of our debt payments and adversely affect our
ability to pay distributions to you.
We have incurred, and in the future may incur additional, indebtedness that bears interest at
a variable rate. To the extent that we incur variable rate debt, increases in interest rates would
increase our interest costs, which could reduce our cash flows and our ability to pay distributions
to you. In addition, if we need to repay existing debt during periods of rising interest rates, we
could be required to liquidate one or more of our investments at times that may not permit
realization of the maximum return on such investments.
Lenders may require us to enter into restrictive covenants relating to our operations, which could
limit our ability to make distributions to you.
In connection with providing us financing, a lender could impose restrictions on us that
affect our distribution and operating policies and our ability to incur additional debt. In
general, our loan agreements restrict our ability to encumber or otherwise transfer our interest in
the respective property without the prior consent of the lender. Loan documents we enter into may
contain covenants that limit our ability to further mortgage the property, discontinue insurance
coverage or replace CR III Advisors as our advisor. These or other limitations imposed by a lender
may adversely affect our flexibility and our ability to achieve our investment and operating
objectives, which could limit our ability to make distributions to you.
Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds
available for distribution to you.
We have financed our property acquisitions using interest-only mortgage indebtedness and may
continue to do so. During the interest-only period, the amount of each scheduled payment will be
less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage
loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly
payments of principal during this period. After the interest-only period, we will be required
either to make scheduled payments of amortized principal and interest or to make a lump-sum or
balloon payment at maturity. These required principal or balloon payments will increase the
amount of our scheduled payments and may increase our risk of default under the related mortgage
loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments
also may increase at a time of rising interest rates. Increased payments and substantial principal
or balloon maturity payments will reduce the funds available for distribution to our stockholders
because cash otherwise available for distribution will be required to pay principal and interest
associated with these mortgage loans.
To hedge against exchange rate and interest rate fluctuations, we may use derivative financial
instruments that may be costly and ineffective and may reduce the overall returns on your
investment.
We have entered into, and in the future may use additional, derivative financial instruments
to hedge our exposure to changes in exchange rates and interest rates on loans secured by our
assets and investments in commercial mortgage-backed securities (CMBS). Derivative instruments
may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward
contracts, options or repurchase agreements. Our actual hedging decisions will be determined in
light of the facts and circumstances existing at the time of the hedge and may differ from time to
time.
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To the extent that we use derivative financial instruments to hedge against exchange rate and
interest rate fluctuations, we will be exposed to credit risk, basis risk and legal enforceability
risks. In this context, credit risk is the failure of the counterparty to perform under the terms
of the derivative contract. If the fair value of a derivative contract is positive, the
counterparty owes us, which creates credit risk for us. We intend to manage credit risk by dealing
only with major financial institutions that have high credit ratings. Basis risk occurs when the
index upon which the contract is based is more or less variable than the index upon which the
hedged asset or liability is based, thereby making the hedge less effective. We intend to manage
basis risk by matching, to a reasonable extent, the contract index to the index upon which the
hedged asset or liability is based. Finally, legal enforceability risks encompass general
contractual risks, including the risk that the counterparty will breach the terms of, or fail to
perform its obligations under, the derivative contract. We intend to manage legal enforceability
risks by ensuring, to the best of our ability, that we contract with reputable counterparties and
that each counterparty complies with the terms and conditions of the derivative contract. If we are
unable to manage these risks effectively, our results of operations, financial condition and
ability to pay distributions to you will be adversely affected.
If we enter into financing arrangements involving balloon payment obligations, it may adversely
affect our ability to make distributions to you.
Some of our financing arrangements may require us to make a lump-sum or balloon payment at
maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our
ability to obtain additional financing or our ability to sell the property. At the time the balloon
payment is due, we may or may not be able to refinance the loan on terms as favorable as the
original loan or sell the property at a price sufficient to make the balloon payment. The effect of
a refinancing or sale could affect the rate of return to stockholders and the projected time of
disposition of our assets. In addition, payments of principal and interest made to service our
debts may leave us with insufficient cash to pay the distributions that we are required to pay to
maintain our qualification as a REIT. Any of these results would have a significant, negative
impact on your investment.
Risks Associated with Co-Ownership Transactions
Our participation in a co-ownership arrangement would subject us to risks that otherwise may not be
present in other real estate investments.
We may enter in co-ownership arrangements with respect to a portion of the properties we
acquire. Co-ownership arrangements involve risks generally not otherwise present with an investment
in real estate, such as the following:
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the risk that a co-owner may at any time have economic or business
interests or goals that are or become inconsistent with our business
interests or goals; |
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the risk that a co-owner may be in a position to take action contrary
to our instructions or requests or contrary to our policies or
objectives; |
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the possibility that an individual co-owner might become insolvent or
bankrupt, or otherwise default under the applicable mortgage loan
financing documents, which may constitute an event of default under
all of the applicable mortgage loan financing documents or allow the
bankruptcy court to reject the agreements entered into by the
co-owners owning interests in the property; |
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the possibility that a co-owner might not have adequate liquid assets
to make cash advances that may be required in order to fund
operations, maintenance and other expenses related to the property,
which could result in the loss of current or prospective tenants and
may otherwise adversely affect the operation and maintenance of the
property, and could cause a default under the mortgage loan financing
documents applicable to the property and may result in late charges,
penalties and interest, and may lead to the exercise of foreclosure
and other remedies by the lender; |
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the risk that a co-owner could breach agreements related to the
property, which may cause a default, or result in personal liability
for, the applicable mortgage loan financing documents, violate
applicable securities law, result in a foreclosure or otherwise
adversely affect the property and the co-ownership arrangement; |
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the risk that a default by any co-tenant would constitute a default
under the applicable mortgage loan financing documents that could
result in a foreclosure and the loss of all or a substantial portion
of the investment made by the co-tenants; |
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the risk that we could have limited control and rights, with
management decisions made entirely by a third-party; and |
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the possibility that we will not have the right to sell the property
at a time that otherwise could result in the property being sold for
its maximum value. |
In the event that our interests become adverse to those of the other co-owners, we may not
have the contractual right to purchase the co-ownership interests from the other co-owners. Even if
we are given the opportunity to purchase such co-ownership interests in the future, we cannot
guarantee that we will have sufficient funds available at the time to purchase co-ownership
interests from the co-owners.
We might want to sell our co-ownership interests in a given property at a time when the other
co-owners in such property do not desire to sell their interests. Therefore, because we anticipate
that it will be much more difficult to find a willing buyer for our co-ownership interests in a
property than it would be to find a buyer for a property we owned outright, we may not be able to
sell our interest in a property at the time we would like to sell.
Risks Associated with Investments in Mortgage Bridge and Mezzanine Loans and Real Estate-Related Securities
Investing in mortgage, bridge or mezzanine loans could adversely affect our return on our loan
investments.
We may make or acquire mortgage, bridge or mezzanine loans, or participations in such loans,
to the extent our advisor and board of directors determine that it is advantageous for us to do so.
However, if we make or invest in mortgage, bridge or mezzanine loans, we will be at risk of
defaults on those loans caused by many conditions beyond our control, including local and other
economic conditions affecting real estate values, interest rate changes, rezoning, and failure by
the borrower to maintain the property. If there are defaults under these loans, we may not be able
to repossess and sell quickly any properties securing such loans. An action to foreclose on a
property securing a loan is regulated by state statutes and regulations and is subject to many of
the delays and expenses of any lawsuit brought in connection with the foreclosure if the defendant
raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among
other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain
proceeds sufficient to repay all amounts due to us on the loan, which could reduce the value of our
investment in the defaulted loan. In addition, investments in mezzanine loans involve a higher
degree of risk than long-term senior mortgage loans secured by income-producing real property
because the investment may become unsecured as a result of foreclosure on the underlying real
property by the senior lender.
We may invest in various types of real estate-related securities.
Aside from investments in real estate, we are permitted to invest in real estate-related
securities, including securities issued by other real estate companies, CMBS, mortgage, bridge,
mezzanine or other loans and Section 1031 tenant-in-common interests, and we may invest in real
estate-related securities of both publicly traded and private real estate companies. We are
focused, however, on acquiring interests in retail and other income-producing properties. We may
not have the expertise necessary to maximize the return on our investment in real estate-related
securities. If our advisor determines that it is advantageous to us to make the types of
investments in which our advisor or its affiliates do not have experience, our advisor intends to
employ persons, engage consultants or partner with third parties that have, in our advisors
opinion, the relevant expertise necessary to assist our advisor in evaluating, making and
administering such investments.
Investments in real estate-related securities will be subject to specific risks relating to the
particular issuer of the securities and may be subject to the general risks of investing in
subordinated real estate securities, which may result in losses to us.
Our investments in real estate-related securities will involve special risks relating to the
particular issuer of the securities, including the financial condition and business outlook of the
issuer. Issuers of real estate-related equity securities generally invest in real estate or real
estate-related assets and are subject to the inherent risks associated with real estate-related
investments discussed herein, including risks relating to rising interest rates.
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Real estate-related securities are often unsecured and also may be subordinated to other
obligations of the issuer. As a result, investments in real estate-related securities are subject
to risks of (1) limited liquidity in the secondary trading market in the case of unlisted or thinly
traded securities, (2) substantial market price volatility resulting from changes in prevailing
interest rates in the case of traded equity securities, (3) subordination to the prior claims of
banks and other senior lenders to the issuer, (4) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates that could cause the issuer
to reinvest redemption proceeds in lower yielding assets, (5) the possibility that earnings of the
issuer may be insufficient to meet its debt service and distribution obligations and (6) the
declining creditworthiness and potential for insolvency of the issuer during periods of rising
interest rates and economic slow down or downturn. These risks may adversely affect the value of
outstanding real estate-related securities and the ability of the issuers thereof to repay
principal and interest or make distribution payments.
The CMBS in which we may invest are subject to all of the risks of the underlying mortgage loans,
the risks of the securitization process and dislocations in the mortgage-backed securities market
in general.
CMBS are securities that evidence interests in, or are secured by, a single commercial
mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to
all of the risks of the underlying mortgage loans. In a rising interest rate environment, the value
of CMBS may be adversely affected when payments on underlying mortgages do not occur as
anticipated, resulting in the extension of the securitys effective maturity and the related
increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also
change due to shifts in the markets perception of issuers and regulatory or tax changes adversely
affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit
risk associated with the performance of the underlying mortgage properties. CMBS are issued by
investment banks, not financial institutions, and are not insured or guaranteed by the
U.S. government.
CMBS are also subject to several risks created through the securitization process. Subordinate
CMBS are paid interest only to the extent that there are funds available to make payments. To the
extent the collateral pool includes delinquent loans, there is a risk that interest payments on
subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk
than those CMBS that are more highly rated. In certain instances, third-party guarantees or other
forms of credit support can reduce the credit risk.
Although we intend to invest only in mortgage-backed securities collateralized by commercial
loans, the value of such CMBS can be negatively impacted by any dislocation in the mortgage-backed
securities market in general. Currently, the mortgage-backed securities market is suffering from a
severe dislocation created by mortgage pools that include sub-prime mortgages secured by
residential real estate. Sub-prime loans often have high interest rates and are often made to
borrowers with credit scores that would not qualify them for prime conventional loans. In recent
years, banks made a great number of the sub-prime residential mortgage loans with high interest
rates, floating interest rates, interest rates that reset from time to time, and/or interest-only
payment features that expire over time. These terms, coupled with rising interest rates, have
caused an increasing number of homeowners to default on their mortgages. Purchasers of
mortgage-backed securities collateralized by mortgage pools that include risky sub-prime
residential mortgages have experienced severe losses as a result of the defaults and such losses
have had a negative impact on the CMBS market.
Federal Income Tax Risks
Failure to qualify as a REIT would adversely affect our operations and our ability to make
distributions.
Morris, Manning & Martin, LLP, our legal counsel, will render an opinion to us that we will be
organized in conformity with the requirements for qualification and taxation as a REIT under the
Internal Revenue Code for our taxable year ended December 31, 2009, the year during which we began
material operations and that our proposed method of operations enabled us to meet the requirements
for qualification and taxation as a REIT beginning with our taxable year ended December 31, 2009,
the year during which we began material operations. This opinion is based upon our representations
as to the manner in which we are and will be owned, invest in assets and operate, among other
things. However, our qualification as a REIT will depend upon our ability to meet requirements
regarding our organization and ownership, distributions of our income, the nature and
diversification of our income and assets and other tests imposed by the Internal Revenue Code.
Morris, Manning & Martin, LLP will not review our operations or compliance with the REIT
qualification standards on an ongoing basis, and we may fail to satisfy the REIT requirements in
the future. Also, this opinion represents Morris, Manning & Martin, LLPs legal judgment based on
the law in effect as of the date of this report. Morris, Manning & Martin, LLPs opinion is not
binding on the Internal Revenue Service or the courts and we will not apply for a ruling from the
Internal Revenue Service regarding our status as a REIT. Future legislative, judicial or
administrative changes to the federal income tax laws could be applied retroactively, which could
result in our disqualification as a REIT.
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If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax
on our taxable income at corporate rates. In addition, we would generally be disqualified from
treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing
our REIT status would reduce our net earnings available for investment or distribution to you
because of the additional tax liability. In addition, distributions to you would no longer qualify
for the dividends paid deduction, and we would no longer be required to make distributions. If this
occurs, we might be required to borrow funds or liquidate some investments in order to pay the
applicable tax. Our failure to qualify as a REIT would adversely affect the return on your
investment.
Re-characterization of the Section 1031 Programs may result in a 100% tax on income from a
prohibited transaction, which would diminish our cash distributions to you.
The Internal Revenue Service could re-characterize transactions under a Section 1031 Program
such that CCPT III OP, rather than the Section 1031 Participant, is treated as the bona fide owner,
for tax purposes, of properties acquired and resold by a Section 1031 Participant in connection
with the Section 1031 Program. Such characterization could result in the fees paid to CCPT III OP
by a Section 1031 Participant as being deemed income from a prohibited transaction, in which event
the fee income paid to us in connection with the Section 1031 Program would be subject to a 100%
penalty tax. If this occurs, our ability to pay cash distributions to you will be adversely
affected. We anticipate that CCPT III OP will obtain a legal opinion in connection with each
co-ownership program we enter into to the effect that the program will qualify as a like-kind
exchange under Section 1031 of the Internal Revenue Code. However, no such opinion is binding on
the Internal Revenue Service and the Internal Revenue Service may take a position contrary to such
an opinion.
Re-characterization of sale-leaseback transactions may cause us to lose our REIT status.
We may purchase properties and lease them back to the sellers of such properties. While we
will use our best efforts to structure any such sale-leaseback transaction so that the lease will
be characterized as a true lease, thereby allowing us to be treated as the owner of the property
for federal income tax purposes, the IRS could challenge such characterization. In the event that
any sale-leaseback transaction is challenged and re-characterized as a financing transaction or
loan for federal income tax purposes, deductions for depreciation and cost recovery relating to
such property would be disallowed. If a sale-leaseback transaction were so re-characterized, we
might fail to satisfy the REIT qualification asset tests or the income tests and, consequently,
lose our REIT status effective with the year of re-characterization. Alternatively, the amount of
our REIT taxable income could be recalculated, which might also cause us to fail to meet the
distribution requirement for a taxable year.
You may have current tax liability on distributions you elect to reinvest in our common stock.
If you participate in our distribution reinvestment plan, you will be deemed to have received,
and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock
to the extent the amount reinvested was not a tax-free return of capital. As a result, unless you are a tax-exempt entity,
you may have to use funds from other sources to pay your tax liability on the value of the common
stock received.
If our operating partnership fails to maintain its status as a partnership, its income may be
subject to taxation, which would reduce the cash available to us for distribution to you.
We intend to maintain the status of CCPT III OP, our operating partnership, as a partnership
for federal income tax purposes. However, if the Internal Revenue Service were to successfully
challenge the status of our operating partnership as an entity taxable as a partnership, CCPT III
OP would be taxable as a corporation. In such event, this would reduce the amount of distributions
that the operating partnership could make to us. This could also result in our losing REIT status,
and becoming subject to a corporate level tax on our income. This would substantially reduce the
cash available to us to make distributions to you and the return on your investment. In addition,
if any of the partnerships or limited liability companies through which CCPT III OP owns its
properties, in whole or in part, loses its characterization as a partnership for federal income tax
purposes, it would be subject to taxation as a corporation, thereby reducing distributions to our
operating partnership. Such a re-characterization of an underlying property owner also could
threaten our ability to maintain REIT status.
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In certain circumstances, we may be subject to federal and state income taxes as a REIT, which
would reduce our cash available for distribution to you.
Even if we qualify and maintain our status as a REIT, we may be subject to federal income
taxes or state taxes. For example, net income from the sale of properties that are dealer
properties sold by a REIT (a prohibited transaction under the Internal Revenue Code) will be
subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes
applicable to REITs. We may also decide to retain income we earn from the sale or other disposition
of our property and pay income tax directly on such income. In that event, our stockholders would
be treated as if they earned that income and paid the tax on it directly. However, stockholders
that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their
deemed payment of such tax liability. We may also be subject to state and local taxes on our income
or property, either directly or at the level of CCPT III OP or at the level of the other entities
through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash
available for distribution to you.
Legislative or regulatory action could adversely affect the returns to our investors.
Changes to the tax laws are likely to occur, and such changes may adversely affect the
taxation of a stockholder. Any such changes could have an adverse effect on an investment in our
shares or on the market value or the resale potential of our assets. You are urged to consult with
your own tax advisor with respect to the status of legislative, regulatory or administrative
developments and proposals and their potential effect on an investment in our shares. You also
should note that our counsels tax opinion is based upon existing law and treasury regulations,
applicable as of the date of its opinion, all of which are subject to change, either prospectively
or retroactively.
Congress passed major federal tax legislation in 2003, with modifications to that legislation
in 2005. One of the changes effected by that legislation generally reduced the tax rate on
dividends paid by corporations to individuals to a maximum of 15% prior to 2011. REIT distributions
generally do not qualify for this reduced rate. The tax changes did not, however, reduce the
corporate tax rates. Therefore, the maximum corporate tax rate of 35% has not been affected.
However, as a REIT, we generally would not be subject to federal or state corporate income taxes on
that portion of our ordinary income or capital gain that we distribute currently to our
stockholders, and we thus expect to avoid the double taxation that other corporations are
typically subject to.
Although REITs continue to receive substantially better tax treatment than entities taxed as
corporations, it is possible that future legislation would result in a REIT having fewer tax
advantages, and it could become more advantageous for a company that invests in real estate to
elect to be taxed, for federal income tax purposes, as a corporation. As a result, our charter
provides our board of directors with the power, under certain circumstances, to revoke or otherwise
terminate our REIT election and cause us to be taxed as a corporation, without the vote of our
stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only
cause such changes in our tax treatment if it determines in good faith that such changes are in the
best interest of our stockholders.
Foreign purchasers of our common stock may be subject to FIRPTA tax upon the sale of their shares.
A foreign person disposing of a U.S. real property interest, including shares of a
U.S. corporation whose assets consist principally of U.S. real property interests, is generally
subject to the Foreign Investment in Real Property Tax Act of 1980, as amended, known as FIRPTA, on
the gain recognized on the disposition. Such FIRPTA tax does not apply, however, to the disposition
of stock in a REIT if the REIT is domestically controlled. A REIT is domestically controlled if
less than 50% of the REITs stock, by value, has been owned directly or indirectly by persons who
are not qualifying U.S. persons during a continuous five-year period ending on the date of
disposition or, if shorter, during the entire period of the REITs existence. We cannot assure you
that we will qualify as a domestically controlled REIT. If we were to fail to so qualify, gain
realized by foreign investors on a sale of our shares would be subject to FIRPTA tax, unless our
shares were traded on an established securities market and the foreign investor did not at any time
during a specified testing period directly or indirectly own more than 5% of the value of our
outstanding common stock.
39
In order to avoid triggering additional taxes and/or penalties, if you intend to invest in our
shares through pension or profit-sharing trusts or IRAs, you should consider additional factors.
If you are investing the assets of a pension, profit-sharing, 401(k), Keogh or other qualified
retirement plan or the assets of an IRA in our common stock, you should satisfy yourself that,
among other things:
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your investment is consistent with your fiduciary obligations under
ERISA and the Internal Revenue Code; |
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|
your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plans
investment policy; |
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|
your investment satisfies the prudence and diversification
requirements of ERISA and other applicable provisions of ERISA and the
Internal Revenue Code; |
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your investment will not impair the liquidity of the plan or IRA; |
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your investment will not produce UBTI for the plan or IRA; |
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you will be able to value the assets of the plan annually in
accordance with ERISA requirements and applicable provisions of the
plan or IRA; and |
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your investment will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code. |
Failure to satisfy the fiduciary standards of conduct and other applicable requirements of
ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties
and could subject the fiduciary to equitable remedies. In addition, if an investment in our shares
constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary who
authorized or directed the investment may be subject to the imposition of excise taxes with respect
to the amount invested.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
As of December 31, 2009, we owned, through separate wholly-owned limited partnerships or
limited liability companies, a portfolio of 133 properties located in 33 states comprising
approximately 4.9 million gross rentable square feet of
commercial space including square feet of buildings which are on land
subject to ground leases. As of December 31, 2009, 113 of the
properties were freestanding, single-tenant retail properties, 18 of the properties were
freestanding, single-tenant commercial properties and two of the properties were multi-tenant
retail properties. As of December 31, 2009, we had outstanding debt of approximately $129.3
million, secured by certain of our properties and the related tenant leases. As of December 31,
2009, approximately 99.9% of our rentable square feet was leased, with an average remaining lease
term of approximately 17.5 years.
40
Property Statistics
The following table shows the tenant diversification of our portfolio, based on gross
annualized base rent, as of December 31, 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Gross |
|
|
Percentage of 2009 |
|
|
|
Total Number |
|
|
Leased |
|
|
Annualized |
|
|
Gross Annualized |
|
Tenant |
|
of Leases |
|
|
Square Feet (1) |
|
|
Base Rent |
|
|
Base Rent |
|
Walgreens drug store |
|
|
24 |
|
|
|
347,545 |
|
|
$ |
9,094,239 |
|
|
|
15 |
% |
Home Depot home improvement |
|
|
7 |
|
|
|
1,110,041 |
|
|
|
8,774,796 |
|
|
|
14 |
% |
CVS drug store |
|
|
15 |
|
|
|
197,129 |
|
|
|
6,297,629 |
|
|
|
10 |
% |
Kohls department store |
|
|
6 |
|
|
|
522,985 |
|
|
|
5,114,867 |
|
|
|
8 |
% |
Cracker Barrel restaurant |
|
|
15 |
|
|
|
151,493 |
|
|
|
5,084,638 |
|
|
|
8 |
% |
Academy Sports sporting goods |
|
|
4 |
|
|
|
336,456 |
|
|
|
3,399,802 |
|
|
|
5 |
% |
Aaron Rents specialty retail |
|
|
4 |
|
|
|
241,365 |
|
|
|
2,771,643 |
|
|
|
4 |
% |
Wal-Mart discount retail |
|
|
2 |
|
|
|
427,863 |
|
|
|
2,400,000 |
|
|
|
4 |
% |
Best Buy electronics retail |
|
|
4 |
|
|
|
174,926 |
|
|
|
2,281,738 |
|
|
|
4 |
% |
LA Fitness fitness and health |
|
|
3 |
|
|
|
128,000 |
|
|
|
2,273,301 |
|
|
|
4 |
% |
Other |
|
|
80 |
|
|
|
1,220,267 |
|
|
|
14,628,268 |
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
4,858,070 |
|
|
$ |
62,120,921 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
The following table shows the tenant industry diversification of our portfolio, based on gross
annualized base rent, as of December 31, 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Gross |
|
|
Percentage of 2009 |
|
|
|
Total Number |
|
|
Leased |
|
|
Annualized |
|
|
Gross Annualized |
|
Industry |
|
of Leases |
|
|
Square Feet (1) |
|
|
Base Rent |
|
|
Base Rent |
|
Drugstore |
|
|
39 |
|
|
|
544,674 |
|
|
$ |
15,391,868 |
|
|
|
25 |
% |
Home improvement |
|
|
9 |
|
|
|
1,412,503 |
|
|
|
10,302,424 |
|
|
|
17 |
% |
Specialty Retail |
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|
36 |
|
|
|
530,725 |
|
|
|
7,334,354 |
|
|
|
12 |
% |
Restaurant |
|
|
27 |
|
|
|
175,048 |
|
|
|
5,710,425 |
|
|
|
9 |
% |
Department store |
|
|
8 |
|
|
|
581,179 |
|
|
|
5,674,007 |
|
|
|
9 |
% |
Sporting Goods |
|
|
4 |
|
|
|
336,456 |
|
|
|
3,399,802 |
|
|
|
6 |
% |
Discount Retail |
|
|
3 |
|
|
|
437,863 |
|
|
|
2,510,000 |
|
|
|
4 |
% |
Electronics Retail |
|
|
4 |
|
|
|
174,926 |
|
|
|
2,281,738 |
|
|
|
4 |
% |
Fitness and health |
|
|
3 |
|
|
|
128,000 |
|
|
|
2,273,301 |
|
|
|
4 |
% |
Convenience store |
|
|
7 |
|
|
|
35,959 |
|
|
|
1,436,553 |
|
|
|
2 |
% |
Other |
|
|
24 |
|
|
|
500,737 |
|
|
|
5,806,449 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
4,858,070 |
|
|
$ |
62,120,921 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
41
The following table shows the geographic diversification of our portfolio, based on gross
annualized base rent, as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Gross |
|
|
Percentage of 2009 |
|
|
|
Total Number |
|
|
Rentable |
|
|
Annualized |
|
|
Gross Annualized |
|
Location |
|
of Properties |
|
|
Square Feet (1) |
|
|
Base Rents |
|
|
Base Rent |
|
Texas |
|
|
40 |
|
|
|
1,040,392 |
|
|
$ |
16,573,041 |
|
|
|
27 |
% |
Virginia |
|
|
10 |
|
|
|
571,794 |
|
|
|
5,848,356 |
|
|
|
9 |
% |
California |
|
|
4 |
|
|
|
377,230 |
|
|
|
3,678,988 |
|
|
|
6 |
% |
Arizona |
|
|
3 |
|
|
|
304,352 |
|
|
|
3,535,907 |
|
|
|
6 |
% |
South Carolina |
|
|
8 |
|
|
|
196,752 |
|
|
|
3,280,349 |
|
|
|
5 |
% |
Nevada |
|
|
4 |
|
|
|
503,783 |
|
|
|
3,193,928 |
|
|
|
5 |
% |
Illinois |
|
|
6 |
|
|
|
204,931 |
|
|
|
3,147,283 |
|
|
|
5 |
% |
Indiana |
|
|
6 |
|
|
|
109,757 |
|
|
|
2,841,108 |
|
|
|
5 |
% |
Alabama |
|
|
5 |
|
|
|
257,109 |
|
|
|
2,789,405 |
|
|
|
4 |
% |
Florida |
|
|
4 |
|
|
|
239,919 |
|
|
|
2,019,156 |
|
|
|
3 |
% |
Other |
|
|
43 |
|
|
|
1,058,936 |
|
|
|
15,213,400 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
4,864,955 |
|
|
$ |
62,120,921 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
Leases
Although there are variations in the specific terms of the leases of our properties, the
following is a summary of the general structure of our leases. Generally, the leases of the
properties owned provide for initial terms of 10 to 20 years. As of December 31, 2009, the weighted
average remaining lease term was approximately 17.5 years. The properties generally are leased
under net leases pursuant to which the tenant bears responsibility for substantially all property
costs and expenses associated with ongoing maintenance and operation, including utilities, property
taxes and insurance. Certain of the leases require us to maintain the roof and structure. The
leases of the properties provide for annual base rental payments (payable in monthly installments)
ranging from approximately $6,000 to approximately $2.5 million (average of approximately
$338,000). Certain leases provide for limited increases in rent as a result of fixed increases or
increases in the consumer price index.
Generally, the property leases provide the tenant with one or more multi-year renewal options,
subject to generally the same terms and conditions as the initial lease term. Certain leases also
provide that in the event we wish to sell the property subject to that lease, we first must offer
the lessee the right to purchase the property on the same terms and conditions as any offer which
we intend to accept for the sale of the property.
The following table shows lease expirations of our portfolio as of December 31, 2009, during
each of the next ten years and thereafter, assuming no exercise of renewal options or termination
rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Gross |
|
|
Percentage of |
|
|
|
Total Number |
|
|
Leased Square |
|
|
Annualized |
|
|
2009 Gross Annualized |
|
Year of Lease Expiration |
|
of Leases |
|
|
Feet Expiring (1) |
|
|
Base Rent |
|
|
Base Rent |
|
2010 |
|
|
1 |
|
|
|
750 |
|
|
$ |
5,563 |
|
|
|
<1 |
% |
2011 |
|
|
6 |
|
|
|
16,368 |
|
|
|
307,028 |
|
|
|
<1 |
% |
2012 |
|
|
10 |
|
|
|
52,074 |
|
|
|
874,945 |
|
|
|
1 |
% |
2013 |
|
|
8 |
|
|
|
64,057 |
|
|
|
597,696 |
|
|
|
1 |
% |
2014 |
|
|
2 |
|
|
|
4,163 |
|
|
|
129,465 |
|
|
|
<1 |
% |
2015 |
|
|
5 |
|
|
|
34,426 |
|
|
|
409,089 |
|
|
|
1 |
% |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
2017 |
|
|
5 |
|
|
|
63,212 |
|
|
|
805,936 |
|
|
|
1 |
% |
2018 |
|
|
5 |
|
|
|
96,722 |
|
|
|
1,353,852 |
|
|
|
2 |
% |
2019 |
|
|
6 |
|
|
|
55,526 |
|
|
|
1,149,233 |
|
|
|
2 |
% |
Thereafter |
|
|
116 |
|
|
|
4,470,772 |
|
|
|
56,488,114 |
|
|
|
91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
4,858,070 |
|
|
$ |
62,120,921 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
42
Mortgage Information
As of December 31, 2009, we had approximately $129.3 million of fixed rate mortgage loans
outstanding, with interest rates that range from 5.54% to 6.45% per annum. The mortgage notes
payable mature on various dates from August 2012 through January 2020, with a weighted average
remaining term of approximately 6.8 years. One lender can reset the interest rates related to two
fixed rate mortgage notes payable of approximately $30.0 million and approximately $32.0 million,
respectively. Related to approximately $30.0 million of the fixed rate debt, the lender can reset
the interest rate on September 1, 2013, at which time we can accept the interest rate through the
maturity date of September 1, 2019, or we may decide to reject the rate and prepay the loan on
September 1, 2013. Related to approximately $32.0 million of the fixed rate debt, the lender can
reset the interest rate on February 1, 2015, at which time we can accept the interest rate through
the maturity date of January 1, 2020, or we may decide to reject the rate and prepay the loan on
February 1, 2015. Each of the mortgage notes payable is secured by the respective properties on
which the debt was placed. During December 2009, we entered into the TCF Loan with TCF National
Bank providing available borrowings of up to $25.0 million until December 16, 2012. Subsequent to
December 16, 2012, the TCF loan converts to an interest-only term loan of $23.0 million, which
matures on December 16, 2014. The Company will be required to repay any borrowings greater than
$23.0 million at December 16, 2012. As of December 31, 2009, the Company had no outstanding balance
under the TCF Loan. See Note 7 to our consolidated financial statements that are part of this
Annual Report on Form 10-K for terms of the Credit Facility. There were no notes payables
outstanding as of December 31, 2008.
The mortgage notes may generally be prepaid subject to meeting certain requirements and
payment of a prepayment premium as specified in the respective loan agreement. Notwithstanding the
prepayment limitations, we may sell the properties to a buyer that assumes the respective mortgage
loan. The transfer would be subject to the conditions set forth in the individual propertys
mortgage note document, including without limitation, the lenders approval of the proposed buyer
and the payment of the lenders fees, costs and expenses associated with the sale of the property
and the assumption of the loan.
The mortgage notes are generally non-recourse to us and CCPT III OP, but both are liable for
customary non-recourse carveouts. In the event a mortgage note is not paid off on the maturity
date, the mortgage loans include default provisions. Upon the occurrence of an event of default,
interest on the mortgage notes will accrue at an annual default interest rate equal to the lesser
of (a) the maximum rate permitted by applicable law, or (b) the then-current interest rate plus
4.00% to 5.55%.
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|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
In the ordinary course of business, we may become subject to litigation or claims. There are
no material pending legal proceedings or proceedings known to be contemplated against us or any of
our subsidiaries.
|
|
|
ITEM 4. |
|
REMOVED AND RESERVED |
43
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information
As of March 29, 2010, we had approximately 130.9 million shares of common stock outstanding,
held by a total of 32,301 stockholders of record. The number of stockholders is based on the
records of DST Systems, Inc., who serves as our registrar and transfer agent.
There is no established trading market for our common stock. Therefore, there is a risk that
a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder,
or at all. Pursuant to the Offering, we are selling shares of our common stock to the public at a
price of $10.00 per share and at a price of $9.50 per share pursuant to our DRIP.
Additionally, we provide discounts in our Offering for certain categories of purchasers, including
volume discounts. Pursuant to the terms of our charter, certain restrictions are imposed on the
ownership and transfer of shares.
Unless and until our shares are listed on a national securities exchange, we do not expect
that a public market for the shares will develop. To assist fiduciaries of tax-qualified pension,
stock bonus or profit-sharing plans, employee benefit plans and annuities described in Section
403(a) or (b) of the Internal Revenue Code or an individual retirement account or annuity described
in Section 408 of the Internal Revenue Code subject to the annual reporting requirements of ERISA
and IRA trustees or custodians in preparation of reports relating to an investment in the shares,
we intend to provide reports of the quarterly and annual determinations of the current value of the
net assets per outstanding share to those fiduciaries who request such reports. In addition, in
order for FINRA members and their associated persons to participate in the offering and sale of our
shares of common stock, we are required pursuant to FINRA Rule 5110(f)(2)(m) to disclose in each
annual report distributed to investors a per share estimated value of the shares, the method by
which is was developed and the date of the data used to develop the estimated value. For these
purposes, the deemed value of our common stock is $10.00 per share as of December 31, 2009.
However, as set forth above, there is no public trading market for the shares at this time and
stockholders may not receive $10.00 per share if a market did exist. Until the later of 18 months
after the termination of our Offering or the termination of any subsequent offering of our shares,
we intend to use the offering price of shares in the most recent offering as the per share net
asset value. Beginning 18 months after the last offering of shares, the value of the properties
and other assets will be based on valuations of either our properties or us as a whole, whichever
valuation method our board of directors determines to be appropriate, which may include independent
valuations of our properties or of our enterprise as a whole.
Share Redemption Program
Our board of directors has adopted a share redemption program that enables our stockholders to
sell their shares to us in limited circumstances. Our share redemption program permits stockholders
to sell their shares back to us after they have held them for at least one year, subject to the
significant conditions and limitations described below.
Our common stock is currently not listed on a national securities exchange and we will not
seek to list our stock until such time as our independent directors believe that the listing of our
stock would be in the best interest of our stockholders. In order to provide stockholders with the
benefit of interim liquidity, stockholders who have held their shares for at least one year may
present all or a portion of the holders shares to us for redemption at any time in accordance with
the procedures outlined below. At that time, we may, subject to the conditions and limitations
described below, redeem the shares presented for redemption for cash to the extent that we have
sufficient funds available to us to fund such redemption. We will not pay to our board of
directors, advisor or its affiliates any fees to complete any transactions under our share
redemption program.
44
During the term of the Offering and any subsequent public offering of our shares, the
redemption price per share will depend on the length of time the stockholders have held such shares
as follows: after one year from the purchase date, 95% of the amount paid for each share; after two
years from the purchase date, 97.5% of the amount paid for each share; and after three years from
the purchase date, 100% of the amount paid for each share (in each case, as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to our common stock).
At any time we are engaged in an offering of shares, the per share price for shares purchased under
our redemption program will always be equal to or lower than the applicable per share offering
price. Thereafter, the per share redemption price will be based on the then-current net asset value
of the shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the
like with respect to our common stock). Our board of directors will announce any redemption price
adjustment and the time period of its effectiveness as a part of its regular communications with
our stockholders. At any time the redemption price is determined by any method other than the net
asset value of the shares, if we have sold property and have made one or more special distributions
to our stockholders of all or a portion of the net proceeds from such sales, the per share
redemption price will be reduced by the net sale proceeds per share distributed to investors prior
to the redemption date. Our board of directors will, in its sole discretion, determine which
distributions, if any, constitute a special distribution. While our board of directors does not
have specific criteria for determining a special distribution, we expect that a special
distribution will only occur upon the sale of a property and the subsequent distribution of the net
sale proceeds. Upon receipt of a request for redemption, we will conduct a Uniform Commercial Code
search to ensure that no liens are held against the shares. We will not redeem any shares subject
to a lien. Any costs in conducting the Uniform Commercial Code search will be borne by us.
We will not redeem in excess of 5% of the weighted average number of shares outstanding during
the trailing twelve-month period prior to the redemption date; provided, however, that shares
subject to a redemption requested upon the death of a stockholder will not be subject to this cap.
The cash available for redemption will be limited to the proceeds from the sale of shares pursuant
to our distribution reinvestment plan.
We will redeem our shares on the last business day of the calendar month. Requests for
redemption would have to be received on or prior to the end of the calendar month in order for us
to repurchase the shares as of the end of the next month. Stockholders may withdraw their request
to have their shares redeemed at any time prior to the last day of the applicable calendar month in
which they submitted their request.
If we cannot purchase all shares presented for redemption in any calendar month, based upon
insufficient cash available and/or the limit on the number of shares we may redeem during any
twelve-month period, we will attempt to honor redemption requests on a pro rata basis; provided,
however, that we may give priority to the redemption of a deceased stockholders shares. We will
treat the unsatisfied portion of the redemption request as a request for redemption the following
calendar month if sufficient funds are available at that time. At such time, stockholders may then
withdraw their request for redemption. We will determine whether we have sufficient funds available
as soon as practicable after the end of each calendar month, but in any event prior to the
applicable payment date.
Our board of directors may choose to amend, suspend or terminate our share redemption program
at any time upon ten days prior notice to our stockholders. Additionally, we will be required to
discontinue sales of shares under the distribution reinvestment plan on the earlier of October 1,
2010, which is two years from the effective date of the Offering, unless the distribution
reinvestment plan offering is extended, or the date we sell all of the shares registered for sale
under the distribution reinvestment plan, unless we file a new registration statement with the
Securities and Exchange Commission and applicable states. Because the redemption of shares will be
funded with the net proceeds we receive from the sale of shares under the distribution reinvestment
plan, the discontinuance or termination of the distribution reinvestment plan will adversely affect
our ability to redeem shares under the share redemption program. We would notify the stockholders
of such developments (i) in our annual or quarterly reports or (ii) by means of a separate mailing
to the stockholders, accompanied by disclosure in a current or periodic report under the Exchange
Act. During the Offering, we would also include this information in a prospectus supplement or
post-effective amendment to the registration statement, as then required under federal securities
laws.
Our share redemption program is only intended to provide our stockholders with limited interim
liquidity for their shares until a liquidity event occurs, such as listing of the shares on a
national securities exchange or our merger with a listed company. The share redemption program will
be terminated if the shares become listed on a national securities exchange. We cannot guarantee
that a liquidity event will occur.
45
The shares we redeem under our share redemption program will be cancelled and will return to
the status of authorized but unissued shares. We do not intend to resell such shares to the public
unless they are first registered with the Securities and Exchange Commission under the Securities
Act and under appropriate state securities laws or otherwise sold in compliance with such laws.
During the year ended December 31, 2009, we redeemed approximately 25,000 shares under our
share redemption program, at an average redemption price of $9.72 per share for an aggregate
redemption price of approximately $244,000. During the year ended December 31, 2009, we issued
approximately 1.3 million shares of common stock under the DRIP for proceeds of approximately $12.6
million which was recorded as redeemable common stock on the consolidated balance sheets, net of
redeemed shares. During the period ended December 31, 2008, no shares were issued under DRIP or
redeemed.
During the three-month period ended December 31, 2009, we redeemed shares as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
|
|
Total Number |
|
|
|
|
|
|
Part of Publicly |
|
|
Shares that May Yet Be |
|
|
|
of Shares |
|
|
Average Price |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
|
|
Redeemed |
|
|
Paid per Share |
|
|
Programs |
|
|
Plans or Programs |
|
October 2009 |
|
|
5,000 |
|
|
$ |
10.00 |
|
|
|
50,000 |
|
|
|
(1 |
) |
November 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
December 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,000 |
|
|
|
|
|
|
|
50,000 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A description of the maximum number of shares that may be purchased
under our redemption program is included in the narrative preceding
this table. |
Distributions
We will elect to be treated as a REIT beginning with the taxable year ended December 31, 2009,
the year during which we began material operations. As a REIT, we intend to make distributions each
taxable year (not including a return of capital for federal income tax purposes) equal to at least
90% of our taxable income. One of our primary goals is to pay regular (monthly) distributions to
our stockholders.
For income tax purposes, distributions to common stockholders are characterized as ordinary
dividends, capital gain dividends, or as nontaxable distributions. To the extent that we make a
distribution in excess of our current or accumulated earnings and profits, the distribution will be
a non-taxable return of capital, reducing the tax basis in each U.S. stockholders shares, and the
amount of each distribution in excess of a U.S. stockholders tax basis in its shares will be
taxable as gain realized from the sale of its shares.
The following table shows the distributions we paid during the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Distributions Paid |
|
|
|
|
|
|
|
Year |
|
Distributions Paid |
|
|
per Common Share |
|
|
Return of Capital |
|
|
Ordinary Income |
|
2009 |
|
$ |
21,763,857 |
|
|
$ |
0.54 |
|
|
$ |
0.30 |
|
|
$ |
0.24 |
|
No distributions were paid during the period ended December 31, 2008.
46
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The following data should be read in conjunction with our consolidated financial statements
and the notes thereto and Item 7 Managements Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this Annual Report on Form 10-K. The selected
financial data presented below was derived from our audited consolidated financial statements.
|
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|
|
|
|
|
|
|
|
|
For the period from |
|
|
|
|
|
|
|
January 22, 2008 |
|
|
|
Year Ended |
|
|
(Date of Inception) to |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
Total investment in real estate assets, net |
|
$ |
718,368,218 |
|
|
$ |
|
|
Cash and cash equivalents |
|
$ |
278,716,714 |
|
|
$ |
172,493 |
|
Restricted cash |
|
$ |
1,191,249 |
|
|
$ |
2,849,043 |
|
Total assets |
|
$ |
1,005,895,070 |
|
|
$ |
3,032,829 |
|
Notes payable |
|
$ |
129,302,100 |
|
|
$ |
|
|
Escrowed investor proceeds |
|
$ |
1,121,400 |
|
|
$ |
2,849,043 |
|
Due to affiliates |
|
$ |
743,353 |
|
|
$ |
|
|
Acquired below market lease intangibles, net |
|
$ |
20,032,213 |
|
|
$ |
|
|
Total liabilities |
|
$ |
162,049,474 |
|
|
$ |
2,933,977 |
|
Stockholders equity |
|
$ |
831,463,171 |
|
|
$ |
98,852 |
|
Operating Data: |
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
23,003,534 |
|
|
$ |
|
|
General and administrative |
|
$ |
2,160,974 |
|
|
$ |
104,769 |
|
Property operating expenses |
|
$ |
594,455 |
|
|
$ |
|
|
Property and asset management expenses |
|
$ |
1,992,937 |
|
|
$ |
|
|
Acquisition related expenses |
|
$ |
18,563,994 |
|
|
$ |
|
|
Depreciation and amortization |
|
$ |
5,474,070 |
|
|
$ |
|
|
Operating loss |
|
$ |
(5,782,896 |
) |
|
$ |
(104,769 |
) |
Interest income |
|
$ |
500,226 |
|
|
$ |
3,621 |
|
Interest expense |
|
$ |
2,538,176 |
|
|
$ |
|
|
Net loss |
|
$ |
(7,820,846 |
) |
|
$ |
(101,148 |
) |
Modified funds from operations (1) |
|
$ |
16,217,218 |
|
|
$ |
|
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities |
|
$ |
74,038 |
|
|
$ |
(27,507 |
) |
Cash flows used in investing activities |
|
$ |
702,104,818 |
|
|
$ |
2,849,043 |
|
Cash flows provided by financing activities |
|
$ |
980,575,001 |
|
|
$ |
3,049,043 |
|
Per Share Data: |
|
|
|
|
|
|
|
|
Net loss basic and diluted |
|
$ |
(0.20 |
) |
|
$ |
(5.06 |
) |
Weighted average dividends declared |
|
$ |
0.68 |
|
|
$ |
|
|
Weighted average shares outstanding basic and diluted |
|
|
40,060,709 |
|
|
|
20,000 |
|
|
|
|
(1) |
|
See Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations Modified Funds from Operations
for information regarding why we present modified funds from
operations and for a reconciliation of this non-GAAP financial measure
to net loss. As we commenced our principal operations on January 6,
2009, this non-GAAP financial measure is not applicable for the
period from January 22, 2008 (date of inception) to December 31, 2008. |
47
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the notes thereto,
included in this Annual Report on Form 10-K.
Overview
We were formed on January 22, 2008 to acquire and operate a diverse portfolio of commercial
real estate investments primarily consisting of retail and other income producing commercial
properties located throughout the United States, including U.S. protectorates. We commenced our
principal operations on January 6, 2009, when we issued the initial 262,059 shares of common stock
in the Offering. Prior to such date, we were considered a development stage company. We acquired
our first real estate property on January 6, 2009. We have no paid employees and are externally
advised and managed by CR III Advisors, an affiliate of ours. We intend to qualify as a real
estate investment trust for federal income tax purposes.
Our operating results and cash flows are primarily influenced by rental income from our
commercial properties and interest expense on our property acquisition indebtedness. Rental and
other property income accounted for approximately 98% of total revenue during the year ended
December 31, 2009. As approximately 99.9% of our rentable square feet was under lease as of
December 31, 2009, with an average remaining lease term of approximately 17.5 years, we believe our
exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except
for vacancies caused by tenant bankruptcies or other factors. We did not acquire any real estate
investments during the period from January 22, 2008 (date of inception) through December 31, 2008.
Our advisor regularly monitors the creditworthiness of our tenants by reviewing the tenants
financial results, credit rating agency reports (if any) on the tenant or guarantor, the operating
history of the property with such tenant, the tenants market share and track record within its
industry segment, the general health and outlook of the tenants industry segment, and other
information for changes and possible trends. If our advisor identifies significant changes or
trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth
knowledge of the tenants financial condition and, if necessary, attempt to mitigate the tenant
credit risk by evaluating the possible sale of the property, or identifying a possible replacement
tenant should the current tenant fail to perform on the lease. As of December 31, 2009, the debt
leverage ratio of our portfolio, which is the ratio of debt to total gross real estate and related
assets net of gross intangible lease liabilities, was approximately 18%. As we acquire additional
commercial real estate, we will be subject to changes in real estate prices and changes in interest
rates on any new indebtedness used to acquire the properties. We may manage our risk of changes in
real estate prices on future property acquisitions by entering into purchase agreements and loan
commitments simultaneously so that our operating yield is determinable at the time we enter into a
purchase agreement, by contracting with developers for future delivery of properties, or by
entering into sale-leaseback transactions. We expect to manage our interest rate risk by
monitoring the interest rate environment in connection with our planned property acquisitions to
determine the appropriate acquisition financing, which may include fixed rate loans, variable rate
loans or interest rate hedges. If we are unable to acquire suitable properties or obtain suitable
financing for future acquisitions, our results of operations may be adversely affected.
Recent Market Conditions
Although there are signs of recovery, the current mortgage lending and interest rate
environment for real estate in general continues to be disrupted and the overall economic
fundamentals remain uncertain. Domestic and international financial markets experienced
significant disruptions that were brought about in large part by challenges in the world-wide
banking system. These disruptions have severely impacted the availability of credit and have
contributed to rising costs associated with obtaining credit. We have and expect to continue to
experience stringent lending criteria, which may affect our ability to finance certain property
acquisitions. Additionally, for properties in which we are able to obtain acquisition financing,
the interest rates on such loans may be unacceptable. We have and expect to continue to manage the
current mortgage lending environment by utilizing fixed rate loans if the terms are acceptable,
short-term variable rate loans, assuming existing mortgage loans in connection with property
acquisitions, or entering into interest rate lock or swap agreements, or any combination of the
foregoing. We have and expect to continue to acquire properties for cash without financing, which
will reduce the number of properties we can purchase, and the return on the properties we do
purchase may be lower. If we are unable to obtain suitable financing for future acquisitions or we
are unable to identify suitable properties at appropriate prices in the current credit environment,
we may have a large amount of uninvested cash, which may adversely affect our results of
operations. We will continue to evaluate alternatives in the current market, including purchasing
or originating debt backed by real estate, which could produce attractive yields in the current
market environment. All of these events would have a material adverse effect on our results of
operations, financial condition and ability to pay distributions and redeem shares.
48
The current economic environment has lead to higher unemployment and a decline in consumer
spending. These economic trends have adversely impacted the retail and real estate markets causing
higher tenant vacancies, declining rental rates, and declining property values. As of December 31,
2009, 99.9% of our rentable square feet were under lease. However, if current economic conditions
persist, we may experience vacancies or be required to reduce rents on occupied space. If we do
experience vacancies, our advisor will actively seek to lease our vacant space; however, as
retailers and other tenants have been delaying or eliminating their store expansion plans, the
amount of time required to re-tenant a property has been increasing.
Application of Critical Accounting Policies
Our accounting policies have been established to conform with accounting principles generally
accepted in the United States (GAAP). The preparation of financial statements in conformity with
GAAP requires management to use judgment in the application of accounting policies, including
making estimates and assumptions. These judgments affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. If
managements judgment or interpretation of the facts and circumstances relating to various
transactions had been different, it is possible that different accounting policies would have been
applied, thus resulting in a different presentation of the financial statements. Additionally,
other companies may utilize different estimates that may impact comparability of our results of
operations to those of companies in similar businesses.
The critical accounting policies outlined below have been discussed with members of the audit
committee of the board of directors.
Investment in and Valuation of Real Estate and Related Assets
We are required to make subjective assessments as to the useful lives of our depreciable
assets. We consider the period of future benefit of the asset to determine the appropriate useful
life of each asset. Real estate assets are stated at cost, less accumulated depreciation and
amortization. Amounts capitalized to real estate assets consist of the cost of acquisition,
excluding acquisition related expenses effective January 1, 2009, construction and any tenant
improvements, major improvements and betterments that extend the useful life of the related asset
and leasing costs. All repairs and maintenance are expensed as incurred.
Assets, other than land, are depreciated or amortized on a straight line basis. The estimated
useful lives of our assets by class are generally as follows:
|
|
|
Building
|
|
40 years |
Tenant improvements
|
|
Lesser of useful life or lease term |
Intangible lease assets
|
|
Lesser of useful life or lease term |
We continually monitor events and changes in circumstances that could indicate that the
carrying amounts of our real estate and related intangible assets may not be recoverable.
Impairment indicators that we consider include, but are not limited to, bankruptcy of a propertys
major tenant, a significant decrease in a propertys revenues due to circumstances, such as lease
terminations, vacancies, co-tenancy clauses or reduced lease rates. When indicators of potential
impairment are present, we assess the recoverability of the assets by determining whether the
carrying value of the assets will be recovered through the undiscounted future operating cash flows
expected from the use of the assets and their eventual disposition. In the event that such expected
undiscounted future cash flows do not exceed the carrying value, we will reduce the real estate and
related intangible assets and liabilities to their fair value and recognize an impairment loss. We
had no assets with indicators of potential impairment as of December 31, 2009 or December 31, 2008.
Projections of expected future cash flows require us to use estimates such as future market
rental income amounts subsequent to the expiration of current lease agreements, property operating
expenses, terminal capitalization and discount rates, the number of months it takes to release the
property, required tenant improvements and the number of years the property is held for investment.
The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect
assessment of the propertys future cash flow and fair value and could result in the misstatement
of the carrying value of our real estate and related intangible assets and net income.
49
When a real estate asset is identified by management as held for sale, we cease depreciation
of the asset and estimate the sales price, net of selling costs. If, in managements opinion, the
net sales price of the asset is less than the net book value of the asset, an adjustment to the
carrying value would be recorded to reflect the estimated fair value of the property. We had no
assets identified as held for sale as of December 31, 2009 and 2008.
Allocation of Purchase Price of Real Estate and Related Assets
Upon the acquisition of real properties, we allocate the purchase price of such properties to
acquired tangible assets, consisting of land and building, and identified intangible assets and
liabilities, consisting of the value of above market and below market leases and the value of
in-place leases, based in each case on their fair values. We utilize independent appraisals to
assist in the determination of the fair values of the tangible assets of an acquired property
(which includes land and building). We obtain an independent appraisal for each real property
acquisition. The information in the appraisal, along with any additional information available to
us, is used in estimating the amount of the purchase price that is allocated to land. Other
information in the appraisal, such as building value and market rents, may be used by us in
estimating the allocation of purchase price to the building and to lease intangibles. The
appraisal firm has no involvement in managements allocation decisions other than providing this
market information.
The fair values of above market and below market in-place leases are recorded based on the
present value (using an interest rate which reflects the risks associated with the leases acquired)
of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases
and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which is
generally obtained from independent appraisals, measured over a period equal to the non-cancelable
term of the lease including any bargain renewal periods, with respect to a below market lease. The
above market and below market lease values are capitalized as intangible lease assets or
liabilities. Above market lease values are amortized as an adjustment of rental income over the
lesser of the useful life or the remaining terms of the respective leases. Below market leases are
amortized as an adjustment of rental income over the remaining terms of the respective leases,
including any bargain renewal periods. If a lease were to be terminated prior to its stated
expiration, all unamortized amounts of above market and below market in-place lease values relating
to that lease would be recorded as an adjustment to rental income.
The fair values of in-place leases include direct costs associated with obtaining a new
tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an
in-place lease. Direct costs associated with obtaining a new tenant may include commissions,
tenant improvements, and other direct costs and are estimated, in part, by utilizing information
obtained from independent appraisals and managements consideration of current market costs to
execute a similar lease. These direct costs are included in intangible lease assets in our
consolidated balance sheets and are amortized to expense over the lesser of the useful life or the
remaining terms of the respective leases. The value of opportunity costs is calculated using the
contractual amounts to be paid pursuant to the in-place leases over a market absorption period for
a similar lease. These intangibles are included in intangible lease assets in our consolidated
balance sheet and are amortized to expense over the lesser of the useful life or the remaining term
of the respective leases. If a lease were to be terminated prior to its stated expiration, all
unamortized amounts of in-place lease assets relating to that lease would be expensed.
The determination of the fair values of the assets and liabilities acquired require the use of
significant assumptions with regard to the current market rental rates, rental growth rates,
discount and capitalization rates, interest rates and other variables. The use of inappropriate
estimates would result in an incorrect assessment of our purchase price allocations, which could
impact the amount of our reported net income.
Revenue Recognition
Upon the acquisition of real estate, certain properties have leases where minimum rent
payments increase during the term of the lease. We record rental revenue for the full term of each
lease on a straight-line basis. When we acquire a property, the term of existing leases is
considered to commence as of the acquisition date for the purposes of this calculation. We defer
the recognition of contingent rental income, such as percentage rents, until the specific target
that triggers the contingent rental income is achieved. Reimbursements from tenants for
recoverable real estate taxes and operating expenses are included in rental income in the period
the related costs are incurred.
50
Income Taxes
We intend to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code.
We generally will not be subject to federal corporate income tax to the extent we distribute our
taxable income to our stockholders, and so long as we distribute at least 90% of our
taxable income (excluding capital gains). REITs are subject to a number of other complex organizational and operational
requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and
local taxes on our income and property, and federal income and excise taxes on our undistributed
income.
Derivative Instruments and Hedging Activities
ASC 815, Derivatives and Hedging (ASC 815), establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities. All derivatives are carried at fair value. Accounting for changes in
the fair value of a derivative instrument depends on the intended use of the derivative instrument
and the designation of the derivative instrument. The change in fair value of the effective
portion of the derivative instrument that is designated as a hedge is recorded as other
comprehensive income (loss). The changes in fair value for derivative instruments that are not
designated as a hedge or that do not meet the hedge accounting criteria of ASC 815 are recorded as
a gain or loss to operations. Considerable judgment is necessary to develop estimated fair values
of financial assets and liabilities, and the determination of hedge effectiveness can involve
significant estimates. If we incorrectly estimate the fair value of derivatives or hedge
effectiveness, our net income could be impacted.
Results of Operations
Year ended December 31, 2009
On January 6, 2009, we commenced our principal operations when we issued the initial 262,059
shares of our common stock in the Offering. Prior to such date, we were considered a development
stage company. As of December 31, 2009, we owned 131 single-tenant, freestanding commercial
properties and two multi-tenant properties of which approximately 99.9% of the gross rentable space
was leased. Because we did not commence principal operations until January 6, 2009, comparative
financial data is not presented for the period from January 22, 2008 (date of inception) to
December 31, 2008.
Revenue. Revenue for the year ended December 31, 2009, totaled approximately $23.0 million.
Rental and other property income accounted for approximately 98% of our revenue.
General and Administrative Expenses. General and administrative expenses for the year ended
December 31, 2009 were approximately $2.2 million, primarily relating to expense reimbursements to
our advisor pursuant to our advisory agreement of $744,000, as well as board of directors costs,
escrow and trustee fees, accounting fees and state franchise taxes.
Property Operating Expenses. For the year ended December 31, 2009, property operating expenses
were approximately $594,000, which included property taxes, insurance, and maintenance costs which
are substantially reimbursed by the tenants.
Property and Asset Management Expenses. Property and asset management expenses for the year
ended December 31, 2009 totaled approximately $2.0 million. Pursuant to the advisory agreement
with our advisor, we are required to pay to our advisor a monthly asset management fee equal to
one-twelfth of 0.50% of the aggregate asset value of our properties. Additionally, we
may be required to reimburse expenses incurred by our advisor in providing asset management
services, subject to limitations as set forth in the advisory agreement. Pursuant to the property
management agreement with our affiliated property manager, we are required to pay to our property
manager a property management fee in an amount up to 2% of gross revenues from each of our single
tenant properties and up to 4% of gross revenues from each of our multi-tenant properties. We may
also be required to reimburse our property manager expenses it incurred relating to managing or
leasing the properties, subject to limitations as set forth in the advisory agreement.
Property and asset management fees for the year ended December 31, 2009 totaled approximately
$1.8 million. Property management fees and asset management fees are directly related to the
rental income generated by such assets and the value of real estate owned by us. During the year
ended December 31, 2009, our rental revenue was approximately $22.6 million and the average
aggregate value of our real estate assets, net of gross intangible lease liabilities, was
approximately $351.9 million. During the year ended December 31, 2009, we recorded approximately
$238,000 of expenses related to reimbursement of costs incurred by our advisor in performing asset
management and property management services.
51
Acquisition Related Expenses. Acquisition related expenses totaled approximately $18.6
million, which were related to our real estate acquisitions during the year ended December 31,
2009. Pursuant to the advisory agreement with our advisor, we will pay to our advisor 2% of the
contract purchase price of each property or asset acquired. During the year ended December 31,
2009, we paid approximately $14.1 million to our advisor for acquisition fees. Pursuant to the
advisory agreement with our advisor, we may also be required to reimburse our advisor for
acquisition expenses incurred in the process of acquiring property or in the origination or
acquisition of a loan. During the year ended December 31, 2009, we reimbursed our advisor $399,000
in acquisition expenses in connection to the acquisition of 133 commercial properties with an
aggregate purchase price of approximately $703.8 million.
Depreciation and Amortization Expenses. For the year ended December 31, 2009, depreciation and
amortization expenses totaled approximately $5.5 million. Depreciation and amortization expenses
are directly related to the value of real estate and related assets owned by us. During the year
ended December 31, 2009, the average aggregate value of our real estate assets, net of gross
intangible lease liabilities, was approximately $351.9 million.
Interest Income. During the year ended December 31, 2009, interest income was approximately
$500,000. The amount of interest income earned is related to the amount of uninvested cash during
the year and interest rates earned on the uninvested cash.
Interest Expense. During the year ended December 31, 2009, we incurred interest expense of
approximately $2.5 million, which includes amortization of deferred financing costs, related to our
notes payable outstanding of approximately $129.3 million. Our debt financing costs in future
periods will vary based on our level of future borrowings, which will depend on the level of
investor proceeds raised, the cost and availability of borrowings, and the opportunity to acquire
real estate assets fitting our investment needs.
Portfolio Information
Real Estate Portfolio
As of December 31, 2009, we owned 133 properties located in 33 states, the gross rentable
space of which was approximately 99.9% leased with an average lease term remaining of approximately
17.5 years.
As of December 31, 2009, our five highest tenant concentrations, based on annualized gross
base rents, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of 2009 |
|
|
|
Total Number |
|
|
Leased |
|
|
2009 Annualized |
|
|
Annualized Gross |
|
Tenant |
|
of Leases |
|
|
Square Feet (1) |
|
|
Gross Base Rent |
|
|
Base Rent |
|
Walgreens drug store |
|
|
24 |
|
|
|
347,545 |
|
|
$ |
9,094,239 |
|
|
|
15 |
% |
Home Depot home improvement |
|
|
7 |
|
|
|
1,110,041 |
|
|
|
8,774,796 |
|
|
|
14 |
% |
CVS drug store |
|
|
15 |
|
|
|
197,129 |
|
|
|
6,297,629 |
|
|
|
10 |
% |
Kohls department store |
|
|
6 |
|
|
|
522,985 |
|
|
|
5,114,867 |
|
|
|
8 |
% |
Cracker Barrel restaurant |
|
|
15 |
|
|
|
151,493 |
|
|
|
5,084,638 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
2,329,193 |
|
|
$ |
34,366,169 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
52
As of December 31, 2009, our five highest tenant industry concentrations, based on annualized
gross base rents, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of 2009 |
|
|
|
Total Number |
|
|
Leased |
|
|
2008 Annualized |
|
|
Annualized Gross |
|
Industry |
|
of Leases |
|
|
Square Feet (1) |
|
|
Gross Base Rent |
|
|
Base Rent |
|
Drugstore |
|
|
39 |
|
|
|
544,674 |
|
|
$ |
15,391,868 |
|
|
|
25 |
% |
Home improvement |
|
|
9 |
|
|
|
1,412,503 |
|
|
|
10,302,424 |
|
|
|
17 |
% |
Specialty Retail |
|
|
36 |
|
|
|
530,725 |
|
|
|
7,334,354 |
|
|
|
12 |
% |
Restaurant |
|
|
27 |
|
|
|
175,048 |
|
|
|
5,710,425 |
|
|
|
9 |
% |
Department store |
|
|
8 |
|
|
|
581,179 |
|
|
|
5,674,007 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
|
|
3,244,129 |
|
|
$ |
44,413,078 |
|
|
|
72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
As of December 31, 2009, our five highest geographic concentrations, based on annualized gross
base rents, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of 2009 |
|
|
|
Total Number |
|
|
Rentable |
|
|
2009 Annualized |
|
|
Annualized Gross |
|
Location |
|
of Properties |
|
|
Square Feet (1) |
|
|
Gross Base Rents |
|
|
Base Rent |
|
Texas |
|
|
40 |
|
|
|
1,040,392 |
|
|
$ |
16,573,041 |
|
|
|
27 |
% |
Virginia |
|
|
10 |
|
|
|
571,794 |
|
|
|
5,848,356 |
|
|
|
9 |
% |
California |
|
|
4 |
|
|
|
377,230 |
|
|
|
3,678,988 |
|
|
|
6 |
% |
Arizona |
|
|
3 |
|
|
|
304,352 |
|
|
|
3,535,907 |
|
|
|
6 |
% |
South Carolina |
|
|
8 |
|
|
|
196,752 |
|
|
|
3,280,349 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
2,490,520 |
|
|
$ |
32,916,641 |
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of buildings which are on land subject to ground leases. |
For more information on our portfolio diversification and statistics, see Item 2
Properties above.
Modified Funds from Operations
Modified funds from operations (MFFO) is a non-GAAP supplemental financial performance
measure that our management uses in evaluating the operating performance of our real estate
investments. Similar to Funds from Operations (FFO), a non-GAAP financial performance measure
defined by the National Association of Real Estate Investment Trusts (NAREIT) widely recognized
as a measure of operating performance of a real estate company, MFFO, as defined by our company,
excludes items such as real estate depreciation and amortization, and gains and losses on the sale
of real estate assets. However, changes in the accounting and reporting rules under GAAP that have
been put into effect since the establishment of NAREITs definition of FFO have prompted a
significant increase in the amount of non-cash and non-operating items included in FFO, as defined.
In addition to the adjustments in FFO, MFFO, as defined by our company, also excludes acquisition
related expenses, which are required to be expensed in accordance with GAAP. We believe that MFFO,
which excludes these costs, is more representative of the operating performance of our real estate
portfolio. Depreciation and amortization in accordance with GAAP implicitly assumes that the value
of real estate assets diminishes predictably over time. Additionally, gains and losses on sale of
real estate assets are items that management does not include in its evaluation of the current
operating performance of its real estate investments, rather management believes that the impact of
these items will be reflected over time through changes in rental income or other related costs.
Also, management does not include acquisition related expenses in its evaluation of current
operating performance as acquisition related expenses are funded with proceeds from the Offering
and accordingly will not be incurred in future periods for real estate acquired during the periods
presented below. We believe that MFFO reflects the overall operating performance of our real
estate portfolio, which may not be immediately apparent from reported net income. As such, we
believe MFFO, in addition to net income and cash flows from operating activities, as defined by
GAAP, is a meaningful supplemental performance measure and is useful in understanding how our
management evaluates our ongoing operating performance.
53
However, MFFO should not be considered as an alternative to net income or to cash flows from
operating activities and is not intended to be used as a liquidity measure indicative of cash flow
available to fund our cash needs.
Our calculation of MFFO, and a reconciliation to net loss, which is the most directly
comparable GAAP financial measure, is presented in the following table for the year ended December
31, 2009:
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2009 |
|
Net loss |
|
$ |
(7,820,846 |
) |
Add: |
|
|
|
|
Depreciation of real estate assets |
|
|
3,178,078 |
|
Amortization of lease related costs |
|
|
2,295,992 |
|
Acquisition related expenses |
|
|
18,563,994 |
|
|
|
|
|
MFFO |
|
$ |
16,217,218 |
|
|
|
|
|
Set forth below is additional information that may be helpful in assessing our operating
results:
|
|
|
In order to recognize revenues on a straight-line basis over the terms of the respective
leases, we recognized additional revenue by straight-lining rental revenue of approximately
$2.0 million during the year ended December 31, 2009. |
|
|
|
Amortization of deferred financing costs totaled approximately $202,000 during the year
ended December 31, 2009. |
Liquidity and Capital Resources
General
Our principal demands for funds are for real estate and real estate-related investments and
the payment of acquisition related expenses, operating expenses, distributions to stockholders and
principal and interest on any future outstanding indebtedness. Generally, cash needs for items
other than acquisitions and acquisition related expenses will be generated from operations and our
current investments. The sources of our operating cash flows are primarily driven by the rental
income received from leased properties and interest earned on our cash balances. We expect to
continue to raise capital through our ongoing Offering of common stock and to utilize such funds
and proceeds from secured or unsecured financing to complete future property acquisitions. As of
December 31, 2009, we had raised approximately $978.0 million in the Offering, net of redemptions
and inclusive of amounts raised under our DRIP.
As of December 31, 2009, we had cash and cash equivalents of approximately $278.7 million.
Additionally, as of December 31, 2009, we had unencumbered properties with a gross book value of
approximately $395.8 million that may be used as collateral to secure additional financing in
future periods.
Short-term Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements through net cash provided by property
operations and proceeds from the Offering. Operating cash flows are expected to increase as
additional properties are added to our portfolio. The offering and organization costs associated
with the Offering are initially paid by CR III Advisors, which will be reimbursed for such costs up
to 1.5% of the gross capital raised by us in the Offering. As of December 31, 2009, our advisor or
its affiliates has paid approximately $13.4 million of offering and organization costs, of which we
have reimbursed approximately $12.9 million.
During the year ended December 31, 2009, we paid distributions to our stockholders of
approximately $21.8 million, including approximately $12.6 million through the issuance of shares
pursuant to our DRIP. The distributions were funded by adjusted cash flows from operations of
approximately $18.6 million and proceeds from notes payable of
approximately $3.2 million.
Adjusted cash flows from operations consists of cash flows provided by operating activities of
approximately $74,000 adjusted to add back approximately $18.6 million of real estate acquisition
related expenses incurred during the period and expensed in accordance with ASC 805, Business
Combinations.
54
Adjusted cash flows from operations is a non-GAAP financial measure and does not represent
cash flows from operating activities. Cash flows from operating activities as defined by GAAP is
the most directly comparable GAAP measure in determining our ability to generate cash from our real
estate investments because adjusted cash flows from operations includes adjustments that investor
may deem subjective, such as adding back acquisition related expenses. Accordingly, adjusted cash
flows from operations should not be considered as an alternative to cash flows from operating
activities. We consider adjusted cash flows from operations to be a meaningful measure of the
source of cash used to pay distributions to investors, as it adds back real estate acquisition
related expenses, which are a one-time occurrence, used for income generating investments that have
a long-term benefit, to arrive at the ongoing cash flows from operating our real estate assets. We
consider the real estate acquisition related expenses to have been funded by proceeds from our
ongoing Offering because the expenses were incurred to acquire our real estate investments.
On December 18, 2009, our board of directors authorized a daily distribution, based on 365
days in the calendar year, of $0.001849509 per share (which equates to approximately 6.75% on an
annualized bases calculated at the current rate, assuming a $10.00 per share purchase price) for
stockholders of record as of the close of business on each day of the period commencing on January
1, 2010 and ending on March 31, 2010.
Long-term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for real estate and real
estate-related investments and the payment of acquisition related expenses, operating expenses,
distributions and redemptions to stockholders and interest and principal on any future
indebtedness. Generally, we expect to meet cash needs for items other than acquisitions and
acquisition related expenses from our cash flow from operations, and we expect to meet cash needs
for acquisitions from the net proceeds of our Offering and from debt financings. We expect that
substantially all net cash generated from operations will be used to pay distributions to our
stockholders after certain capital expenditures, including tenant improvements and leasing
commissions, are paid at the properties; however, we may use other sources to fund distributions as
necessary, including the proceeds of our Offering, cash advanced to us by our advisor, borrowing on
our TCF Loan and/or borrowings in anticipation of future cash flow. The TCF Loan and certain notes
payable contain customary affirmative, negative and financial covenants, including requirements for
minimum net worth, debt service coverage ratios, and leverage ratios. These covenants may limit our ability to incur additional
debt and make borrowings on our TCF Loan.
Pursuant to our charter, we are required to limit our aggregate borrowings to 75% of the
greater of cost (or 300% of net assets) (before deducting depreciation or other non-cash reserves)
or fair value of our gross assets, unless excess borrowing is approved by a majority of the
independent directors and disclosed to our stockholders in the next quarterly report along with the
justification for such excess borrowing. Our board of directors has adopted a policy to further
limit our borrowings to 60% of the greater of cost (before deducting depreciation or other non-cash
reserves) or fair value of our gross assets unless such borrowing is approved by a majority of the
independent directors and disclosed to our stockholders in the next quarterly report along with a
justification for such excess borrowing. During the year ended December 31, 2009, we obtained
borrowings that caused our leverage ratio at certain times to exceed the 60% limitation, which was
approved by our independent directors. The independent directors believed such borrowing levels
were justified for the following reasons:
|
|
|
the borrowings enabled us to purchase the properties and earn rental income more quickly; |
|
|
|
the property acquisitions were likely to increase the net offering proceeds from our
initial public offering by allowing us to show potential investors actual acquisitions,
thereby improving our ability to meet our goal of acquiring a diversified portfolio of
properties to generate current income for investors and preserve investor capital; and |
|
|
|
based on expected equity sales at the time and scheduled maturities of our short-term variable
rate debt, leverage was likely to exceed the charters guidelines only for a limited period of
time. |
Additionally, the ratio of debt to total gross real estate and related assets net of gross
intangible lease liabilities, as of December 31, 2009, was approximately 18% and the weighted
average years to maturity was approximately 6.8 years.
55
Our contractual obligations as of December 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (1) (2) |
|
|
|
|
|
|
|
Less Than 1 |
|
|
|
|
|
|
|
|
|
|
More Than 5 |
|
|
|
Total |
|
|
Year |
|
|
1-3 Years |
|
|
4-5 Years |
|
|
Years |
|
Principal payments fixed rate debt |
|
$ |
129,302,100 |
|
|
$ |
357,096 |
|
|
$ |
49,738,932 |
|
|
$ |
2,030,731 |
|
|
$ |
77,175,341 |
|
Interest payments fixed rate debt |
|
|
51,653,497 |
|
|
|
7,657,920 |
|
|
|
20,188,845 |
|
|
|
9,299,647 |
|
|
|
14,507,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
180,955,597 |
|
|
$ |
8,015,016 |
|
|
$ |
69,927,777 |
|
|
$ |
11,330,378 |
|
|
$ |
91,682,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The table above does not include amounts due to our advisor or its affiliates pursuant to
our advisory agreement because such amounts are not fixed and determinable. |
|
(2) |
|
As of December 31, 2009, we had approximately $37.5 million of variable rate debt fixed
through the use of interest rate swaps. We used the fixed rates under the swap agreement to
calculate the debt payment obligations in future periods. As of December 31, 2009, we did not have
any variable rate debt outstanding for which the interest rate had not been fixed through the use
of interest rate swaps. |
Cash Flow Analysis
Year Ended December 31, 2009
Operating Activities. Net cash provided by operating activities was approximately $74,000 for
the year ended December 31, 2009, primarily due to the acquisition of 133 properties during the
year which resulted in an increase in depreciation and amortization expenses totaling approximately
$5.7 million, an increase in the change in accounts payable and accrued expenses of approximately
$3.0 million, and an increase in the change in deferred rent and other liabilities of approximately
$2.2 million, offset by an increase in net loss of approximately $7.8 million, primarily due to an
increase in acquisition related expenses of approximately $18.6 million, and a decrease in the
change in rents and tenant receivables of approximately $2.9 million for the year December 31,
2009.
Investing Activities. Net cash used in investing activities was approximately $702.1 million
for the year ended December 31, 2009, primarily due to the acquisition of 133 commercial properties
during the year ended December 31, 2009 for approximately $703.8 million.
Financing Activities. Net cash provided by financing activities was approximately $980.6
million for the year ended December 31, 2009, primarily due to net proceeds from the issuance of
common stock under the Offering of approximately $866.9 million and proceeds from notes payable of
approximately $129.4 million, offset by distributions paid to investors of approximately $9.1
million.
Period Ended December 31, 2008
As of December 31, 2008, we had not commenced principal operations. Accordingly, a cash flow
analysis for the period from January 22, 2008 (Date on Inception) to December 31, 2008
is not meaningful.
Election as a REIT
We intend to qualify as a REIT commencing with the taxable year ended December 31, 2009. To
qualify as a REIT, we must meet, and continue to meet, certain requirements relating to our
organization, sources of income, nature of assets, distributions of income to our stockholders and
recordkeeping. Accordingly, to the extent we meet the REIT qualifications, we generally will not
be subject to federal corporate income tax so long as we distribute at least 90% of our
taxable income to our stockholders.
If we fail to qualify as a REIT for any reason in a taxable year and applicable relief
provisions do not apply, we will be subject to tax, including any applicable alternative minimum
tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions
paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be
disqualified for the four taxable years following the year during which qualification was lost
unless we are entitled to relief under specific statutory provisions. Such an event could
materially adversely affect our net income and net cash available for distribution to stockholders.
However, we believe that we are organized and operate in such a manner as to qualify for treatment
as a REIT for federal income tax purposes. No provision for federal income taxes has been made in
our accompanying consolidated financial statements. We are subject to certain state and local
taxes related to the operations of properties in certain locations, which have been provided for in
our accompanying financial statements.
56
Inflation
We are exposed to inflation risk as income from long-term leases will be the primary source of
our cash flows from operations. We expect there will be provisions in many of our tenant leases
that will protect us from, and mitigate the risk of, the impact of inflation. These provisions may
include rent steps and clauses enabling us to receive payment of additional rent calculated as a
percentage of the tenants gross sales above pre-determined thresholds. In addition, most of our
leases will require the tenant to pay all or a majority of the operating expenses, including real
estate taxes, special assessments and sales and use taxes, utilities, insurance and building
repairs related to the property. However, due to the long-term nature of the leases, the leases
may not reset frequently enough to adequately offset the effects of inflation.
Commitments and Contingencies
We are subject to certain contingencies and commitments with regard to certain transactions.
Refer to Note 9 to our consolidated financial statements in this Annual Report on Form 10-K for
further explanations.
Related-Party Transactions and Agreements
We have entered into agreements with CR III Advisors and its affiliates, whereby we have paid
and may continue to pay certain fees to, or reimburse certain expenses of, CR III Advisors or its
affiliates such as acquisition and advisory fees and expenses, financing coordination fees,
organization and offering costs, sales commissions, dealer manager fees, asset and property
management fees and expenses, leasing fees and reimbursement of certain operating costs. See Note
10 to our consolidated financial statements in this Annual Report on Form 10-K for a discussion of
the various related-party transactions, agreements and fees.
Conflicts of Interest
Affiliates of CR III Advisors act as sponsor, general partner or advisor to various private
real estate limited partnerships, and other real estate-related programs, a REIT that offered its
shares pursuant to a Registration Statement on Form S-11, and a REIT that offered its shares
pursuant to an exemption from registration. As such, there are conflicts of interest where CR III
Advisors or its affiliates, while serving in the capacity as sponsor, general partner, key
personnel or advisor for another Cole sponsored program, may be in competition with us in
connection with property acquisitions, property dispositions, and property management. The
compensation arrangements between affiliates of CR III Advisors and these other Cole sponsored
programs could influence its advice to us. See Item 1. Business Conflicts of Interest in this
Annual Report on Form 10-K.
Subsequent Events
Certain events occurred subsequent to December 31, 2009 through the date of this Annual Report
on Form 10-K. Refer to Note 16 to our consolidated financial statements in this Annual Report on
Form 10-K for further explanation. Such events include:
|
|
|
Sale of shares of common stock; |
|
|
|
|
Follow-on offering; |
|
|
|
|
Redemption of shares of common stock; |
|
|
|
|
Declaration of distributions; |
|
|
|
|
Acquisition of various properties; and |
|
|
|
|
Addition of a borrowing base revolving credit facility. |
Impact of Recent Accounting Pronouncements
Refer to Note 2 to our consolidated financial statements in this Annual Report on Form 10-K
for further explanation of applicable new accounting pronouncements. There are no new accounting
pronouncements that have been issued but not yet applied by us that we believe will have a material
impact on our consolidated financial statements.
Off Balance Sheet Arrangements
As of December 31, 2009 and 2008 we had no off balance sheet arrangements.
57
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As of December 31, 2009, we had approximately $129.3 million of fixed rate debt outstanding,
which includes $37.5 million of variable rate mortgage notes for which the interest rate was fixed
through the maturity date through the use of interest rate swaps. As of December 31, 2009, we did
not have any variable rate debt outstanding for which the interest rate had not been fixed through
the use of interest rate swaps and therefore are not directly exposed to interest rate changes. In
the future we may obtain variable rate debt financing to fund certain property acquisitions, and
may be exposed to interest rate changes. Our objectives in managing interest rate risks will be to
limit the impact of interest rate changes on operations and cash flows, and to lower overall
borrowing costs. To achieve these objectives, we will borrow primarily at interest rates with the
lowest margins available and, in some cases, with the ability to convert variable interest rates to
fixed rates. We have entered and expect to continue to enter into derivative financial
instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a given
variable rate financial instrument. We will not enter into derivative or interest rate
transactions for speculative purposes. We may also enter into rate lock arrangements to lock
interest rates on future borrowings.
As of December 31, 2009, we had 16 interest rate swap agreements outstanding, which mature on
various dates from August 2012 through January 2017, with an aggregate notional amount under the
swap agreements of approximately $37.5 million and an aggregate fair value of approximately
($135,000). The fair value of these interest rate swap agreements is dependent upon existing
market interest rates and swap spreads. As of December 31, 2009, an increase of 50 basis points in
interest rates would result in an increase to the fair value of these interest rate swaps of
approximately $800,000.
We do not have any foreign operations and thus we are not exposed to foreign currency
fluctuations.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and supplementary data filed as part of this report are set forth
beginning on page F-1 of this report.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
There were no changes in or disagreements with our independent registered public accountants
during the year ended December 31, 2009.
|
|
|
ITEM 9A(T). |
|
CONTROLS AND PROCEDURES |
As required by Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), we, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures, as of December 31, 2009, were effective in all material respects to ensure
that information required to be disclosed by us in this Annual Report on Form 10-K is recorded,
processed, summarized and reported within the time periods specified by the rules and forms
promulgated under the Exchange Act, and is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
No change occurred in our internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) in connection with the foregoing evaluations that
occurred during the three months ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial reporting.
58
Managements Report on Internal Control over Financial Reporting
Cole Credit Property Trust III, Inc.s management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process to
provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a misstatement of our
financial statements would be prevented or detected. Also, projections of any evaluation of
internal control effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
Cole Credit Property Trust III, Inc.s internal control over financial reporting based on the
framework in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that Cole Credit Property Trust III, Inc.s
internal control over financial reporting was effective as of December 31, 2009.
This Annual Report on Form 10-K does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by the Companys registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit the Company to provide
only managements report in this Annual Report on Form 10-K.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
59
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with respect to our 2010 annual meeting of stockholders.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with respect to our 2010 annual meeting of stockholders.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with respect to our 2010 annual meeting of stockholders.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with respect to our 2010 annual meeting of stockholders.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with respect to our 2010 annual meeting of stockholders.
60
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) List of Documents Filed.
|
1. |
|
The list of the financial statements contained herein is set forth on page F-1 hereof. |
|
2. |
|
Financial Statement Schedules |
Schedule III Real Estate Assets and Accumulated Depreciation is set forth beginning
on page S-1 hereof.
All other schedules for which provision is made in the applicable accounting regulations of
the SEC are not required under the related instructions or are not applicable and therefore
have been omitted.
|
3. |
|
The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit
Index attached hereto. |
(b) See (a) 3 above.
(c) See (a) 2 above.
61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Financial Statements |
|
Page |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cole Credit Property Trust III, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Cole Credit Property Trust III,
Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders equity, and cash flows for the period from
January 22, 2008 (date of inception) to December 31, 2008 and for the year ended December 31, 2009.
Our audits also included the financial statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Cole Credit Property Trust III, Inc. and subsidiaries as of December 31,
2009 and 2008, and the results of their operations and their cash flows for the period from January
22, 2008 (date of inception) to December 31, 2008 and for the year ended December 31, 2009, in
conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 29, 2010
F-2
COLE CREDIT PROPERTY TRUST III, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Investment in real estate assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
231,685,827 |
|
|
$ |
|
|
Buildings and improvements, less accumulated depreciation of $3,178,078 |
|
|
361,561,015 |
|
|
|
|
|
Acquired intangible lease assets, less accumulated amortization of $2,647,608 |
|
|
125,121,376 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in real estate assets, net |
|
|
718,368,218 |
|
|
|
|
|
Cash and cash equivalents |
|
|
278,716,714 |
|
|
|
172,493 |
|
Restricted cash |
|
|
1,191,249 |
|
|
|
2,849,043 |
|
Rents and tenant receivables |
|
|
2,918,283 |
|
|
|
|
|
Prepaid expenses, mortgage loan deposits, derivative and other assets |
|
|
1,068,071 |
|
|
|
11,293 |
|
Deferred financing costs, less accumulated amortization of $201,624 |
|
|
3,632,535 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,005,895,070 |
|
|
$ |
3,032,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
129,302,100 |
|
|
$ |
|
|
Accounts payable and accrued expenses |
|
|
3,093,881 |
|
|
|
84,934 |
|
Escrowed investor proceeds |
|
|
1,121,400 |
|
|
|
2,849,043 |
|
Due to affiliates |
|
|
743,353 |
|
|
|
|
|
Acquired below market lease intangibles, less accumulated
amortization of $399,079 |
|
|
20,032,213 |
|
|
|
|
|
Distributions payable |
|
|
5,312,799 |
|
|
|
|
|
Deferred rent, derivative and other liabilities |
|
|
2,443,728 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
162,049,474 |
|
|
|
2,933,977 |
|
|
|
|
|
|
|
|
Redeemable common stock |
|
|
12,382,425 |
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued
and outstanding |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 490,000,000 shares authorized, 98,002,392 and
20,000 shares issued and outstanding, respectively |
|
|
980,024 |
|
|
|
200 |
|
Capital in excess of par value |
|
|
865,616,744 |
|
|
|
199,800 |
|
Accumulated distributions in excess of earnings |
|
|
(34,998,650 |
) |
|
|
(101,148 |
) |
Accumulated other comprehensive loss |
|
|
(134,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
831,463,171 |
|
|
|
98,852 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,005,895,070 |
|
|
$ |
3,032,829 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
COLE CREDIT PROPERTY TRUST III, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period from |
|
|
|
|
|
|
|
January 22, 2008 |
|
|
|
Year Ended |
|
|
(Date of Inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
Rental and other property income |
|
$ |
22,599,465 |
|
|
$ |
|
|
Tenant reimbursement income |
|
|
404,069 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
23,003,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
2,160,974 |
|
|
|
104,769 |
|
Property operating expenses |
|
|
594,455 |
|
|
|
|
|
Property and asset management expenses |
|
|
1,992,937 |
|
|
|
|
|
Acquisition related expenses |
|
|
18,563,994 |
|
|
|
|
|
Depreciation |
|
|
3,178,078 |
|
|
|
|
|
Amortization |
|
|
2,295,992 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
28,786,430 |
|
|
|
104,769 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(5,782,896 |
) |
|
|
(104,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
500,226 |
|
|
|
3,621 |
|
Interest expense |
|
|
(2,538,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income |
|
|
(2,037,950 |
) |
|
|
3,621 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,820,846 |
) |
|
$ |
(101,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
40,060,709 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.20 |
) |
|
$ |
(5.06 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
COLE CREDIT PROPERTY TRUST III, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
Distributions in |
|
|
Other |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Capital in Excess |
|
|
Excess of |
|
|
Comprehensive |
|
|
Total Stockholders |
|
|
|
Shares |
|
|
Par Value |
|
|
of Par Value |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
Balance, January 22, 2008
(Date of Inception) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash received from
issuance of common stock
to Cole Holdings
Corporation |
|
|
20,000 |
|
|
|
200 |
|
|
|
199,800 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,148 |
) |
|
|
|
|
|
|
(101,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2008 |
|
|
20,000 |
|
|
|
200 |
|
|
|
199,800 |
|
|
|
(101,148 |
) |
|
|
|
|
|
|
98,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
98,007,480 |
|
|
|
980,075 |
|
|
|
977,257,015 |
|
|
|
|
|
|
|
|
|
|
|
978,237,090 |
|
Distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,076,656 |
) |
|
|
|
|
|
|
(27,076,656 |
) |
Commissions on stock
sales and related dealer
manager fees |
|
|
|
|
|
|
|
|
|
|
(85,845,047 |
) |
|
|
|
|
|
|
|
|
|
|
(85,845,047 |
) |
Other offering costs |
|
|
|
|
|
|
|
|
|
|
(13,369,027 |
) |
|
|
|
|
|
|
|
|
|
|
(13,369,027 |
) |
Redemptions of common
stock |
|
|
(25,088 |
) |
|
|
(251 |
) |
|
|
(243,572 |
) |
|
|
|
|
|
|
|
|
|
|
(243,823 |
) |
Redeemable common stock |
|
|
|
|
|
|
|
|
|
|
(12,382,425 |
) |
|
|
|
|
|
|
|
|
|
|
(12,382,425 |
) |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,820,846 |
) |
|
|
|
|
|
|
(7,820,846 |
) |
Net unrealized loss
on interest rate
swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,947 |
) |
|
|
(134,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,955,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2009 |
|
|
98,002,392 |
|
|
$ |
980,024 |
|
|
$ |
865,616,744 |
|
|
$ |
(34,998,650 |
) |
|
$ |
(134,947 |
) |
|
$ |
831,463,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
COLE CREDIT PROPERTY TRUST III, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period From |
|
|
|
|
|
|
|
January 22, 2008 |
|
|
|
Year Ended |
|
|
(Date of Inception) |
|
|
|
December 31, |
|
|
to December 31, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,820,846 |
) |
|
$ |
(101,148 |
) |
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
3,178,078 |
|
|
|
|
|
Amortization |
|
|
2,248,529 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
201,624 |
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Rents and tenant receivables |
|
|
(2,918,283 |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
(231,080 |
) |
|
|
(11,293 |
) |
Accounts payable and accrued expenses |
|
|
2,993,249 |
|
|
|
84,934 |
|
Due to affiliates |
|
|
253,684 |
|
|
|
|
|
Deferred rent and other liabilities |
|
|
2,169,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
74,038 |
|
|
|
(27,507 |
) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Change in restricted cash |
|
|
1,657,794 |
|
|
|
(2,849,043 |
) |
Investments in real estate and related assets |
|
|
(703,762,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(702,104,818 |
) |
|
|
(2,849,043 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
965,610,842 |
|
|
|
200,000 |
|
Offering costs on issuance of common stock |
|
|
(98,724,405 |
) |
|
|
|
|
Redemptions of common stock |
|
|
(243,823 |
) |
|
|
|
|
Distributions to investors |
|
|
(9,137,609 |
) |
|
|
|
|
Proceeds from notes payable |
|
|
129,390,000 |
|
|
|
|
|
Repayment of notes payable |
|
|
(87,900 |
) |
|
|
|
|
Proceeds from affiliate notes payable |
|
|
41,581,000 |
|
|
|
|
|
Repayment of affiliate notes payable |
|
|
(41,581,000 |
) |
|
|
|
|
Escrowed investor proceeds liability |
|
|
(1,727,643 |
) |
|
|
2,849,043 |
|
Payment of loan deposits |
|
|
(3,183,050 |
) |
|
|
|
|
Refund of loan deposits |
|
|
2,497,050 |
|
|
|
|
|
Deferred financing costs paid |
|
|
(3,818,461 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
980,575,001 |
|
|
|
3,049,043 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
278,544,221 |
|
|
|
172,493 |
|
Cash and cash equivalents, beginning of year |
|
|
172,493 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
278,716,714 |
|
|
$ |
172,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and
Financing Activities: |
|
|
|
|
|
|
|
|
Distributions declared and unpaid |
|
$ |
5,312,799 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Common stock issued through distribution reinvestment plan |
|
$ |
12,626,248 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Net unrealized loss on interest rate swaps |
|
$ |
(134,947 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,922,018 |
|
|
$ |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND BUSINESS
Cole Credit Property Trust III, Inc. (the Company) is a Maryland corporation that was formed
on January 22, 2008, which intends to qualify as a real estate investment trust (REIT) beginning
with the taxable year ended December 31, 2009, the year during which the Company began material
operations. Substantially all of the Companys business is conducted through Cole REIT III
Operating Partnership, LP (CCPT III OP), a Delaware limited partnership. The Company is the sole
general partner of and owns an approximately 99.99% partnership interest in CCPT III OP. Cole REIT
Advisors III, LLC (CR III Advisors), the affiliate advisor to the Company, is the sole limited
partner and owner of an insignificant noncontrolling partnership interest of less than 0.01% of
CCPT III OP.
Pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as
amended, the Company is offering for sale to the public on a best efforts basis a minimum of
250,000 shares and a maximum of 230,000,000 shares of its common stock at a price of $10.00 per
share and up to 20,000,000 additional shares pursuant to a distribution reinvestment plan, (the
DRIP), under which its stockholders may elect to have distributions reinvested in additional
shares at the higher of $9.50 per share or 95% of the estimated value of a share of our common
stock (the Offering). The registration statement for the Offering was declared effective on
October 1, 2008. Pursuant to the terms of the Offering, all subscription proceeds were held in
escrow until the Company received subscriptions aggregating $2.5 million. The Company satisfied
the conditions of escrow on January 6, 2009. Additionally, the Company had a special escrow
account for subscriptions from residents of Pennsylvania. The conditions of that special escrow
account were satisfied during the three months ended March 31, 2009.
On January 6, 2009, the Company issued the initial 262,059 shares under the Offering and
commenced its principal operations. Prior to such date, the Company was considered a development
stage company. As of December 31, 2009, the Company had issued approximately 98.0 million shares
of its common stock in the Offering, including approximately 96.7 million shares sold in the
primary offering and approximately 1.3 million shares sold pursuant to the DRIP for gross offering
proceeds of approximately $978.2 million before offering costs and selling commissions of
approximately $99.2 million. The Company intends to use substantially all of the net proceeds from
the Offering to acquire and operate a diversified portfolio of commercial real estate investments
primarily consisting of retail and other income producing commercial properties located throughout
the United States, including U.S. protectorates.
The Companys common stock is not currently listed on a national securities exchange. The
Company may seek to list its common stock for trading on a national securities exchange only if a
majority of its independent directors believe listing would be in the best interest of its
stockholders. The Company does not intend to list its shares at this time. The Company does not
anticipate that there would be any market for its common stock until its shares are listed on a
national securities exchange. In the event it does not obtain listing prior to the tenth
anniversary of the completion or termination of the Offering, its charter requires that it either:
(1) seek stockholder approval of an extension or amendment of this listing deadline; or (2) seek
stockholder approval to adopt a plan of liquidation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies presented below is designed to assist in
understanding the Companys consolidated financial statements. These accounting policies conform
to accounting principles generally accepted in the United States (GAAP), in all material
respects, and have been consistently applied in preparing the accompanying consolidated financial
statements.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment in and Valuation of Real Estate and Related Assets
Real estate assets are stated at cost, less accumulated depreciation and amortization.
Amounts capitalized to real estate assets consist of the cost of acquisition, excluding acquisition
related expenses effective January 1, 2009, construction and any tenant improvements, major
improvements and betterments that extend the useful life of the related asset and leasing costs.
All repairs and maintenance are expensed as incurred.
Assets, other than land, are depreciated or amortized on a straight line basis. The estimated
useful lives of our assets by class are generally as follows:
|
|
|
Building
|
|
40 years |
Tenant improvements
|
|
Lesser of useful life or lease term |
Intangible lease assets
|
|
Lesser of useful life or lease term |
The Company continually monitors events and changes in circumstances that could indicate that the
carrying amounts of its real estate and related intangible assets may not be
recoverable. Impairment indicators that the Company considers include, but are not limited to,
bankruptcy of a propertys major tenant, a significant decrease in a propertys revenues due to lease terminations, vacancies, co-tenancy
clauses, reduced lease rates or other circumstances.
When indicators of potential impairment are present, the Company assesses the recoverability of the
assets by determining whether the carrying value of the assets will be recovered through the
undiscounted future operating cash flows expected from the use of the assets and their eventual
disposition. In the event that such expected undiscounted future cash flows do not exceed the
carrying value, the Company will reduce the real estate and related intangible assets and
liabilities to their fair value and recognize an impairment loss. The Company had no assets with
indicators of potential impairment as of December 31, 2009 or December 31, 2008.
Projections of expected future cash flows require the Company to use estimates such as future
market rental income amounts subsequent to the expiration of current lease agreements, property
operating expenses, terminal capitalization and discount rates, the number of months it takes to
release the property, required tenant improvements and the number of years the property is held for
investment. The use of inappropriate assumptions in the future cash flow analysis would result in
an incorrect assessment of the propertys future cash flow and fair value and could result in the
misstatement of the carrying value of our real estate and related intangible assets and net income.
When a real estate asset is identified as held for sale, the Company will cease depreciation
of the asset and estimate the sales price, net of selling costs. If, in the Companys opinion, the
net sales price of the asset is less than the net book value of the asset, an adjustment to the
carrying value would be recorded to reflect the estimated fair value of the property. There were no
assets identified as held for sale as of December 31, 2009 and 2008.
Allocation of Purchase Price of Real Estate and Related Assets
Upon the acquisition of real properties, the Company allocates the purchase price to acquired
tangible assets, consisting of land, buildings and improvements, and identified intangible assets
and liabilities, consisting of the value of above market and below market leases and the value of
in-place leases, based in each case on their fair values. Acquisition related expenses are
expensed as incurred. The Company utilizes independent appraisals to assist in the determination
of the fair values of the tangible assets of an acquired property (which includes land and
building). The Company obtains an independent appraisal for each real property acquisition. The
information in the appraisal, along with any additional information available to the Companys
management, is used by its management in estimating the amount of the purchase price that is
allocated to land. Other information in the appraisal, such as building value and market rents,
may be used by the Companys management in estimating the allocation of purchase price to the
building and to lease intangibles. The appraisal firm has no involvement in managements
allocation decisions other than providing this market information.
F-8
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair values of above market and below market in-place lease values are recorded based on
the present value (using an interest rate which reflects the risks associated with the leases
acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place
leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which
is generally obtained from independent appraisals, measured over a period equal to the remaining
non-cancelable term of the lease including any bargain renewal periods, with respect to a below
market lease. The above market and below market lease values are capitalized as intangible lease
assets or liabilities. Above market lease values are amortized as an adjustment of rental income
over the lesser of the useful life or the remaining terms of the respective leases. Below market
leases are amortized as an adjustment of rental income over the remaining terms of the respective
leases, including any bargain renewal periods. If a lease were to be terminated prior to its stated
expiration, all unamortized amounts of above market and below market in-place lease values relating
to that lease would be recorded as an adjustment to rental income.
The fair values of in-place leases include direct costs associated with obtaining a new tenant
and opportunity costs associated with lost rentals which are avoided by acquiring an in-place
lease. Direct costs associated with obtaining a new tenant include commissions, tenant
improvements, and other direct costs and are estimated in part by utilizing information obtained
from independent appraisals and managements consideration of current market costs to execute a
similar lease. The value of opportunity costs is calculated using the contractual amounts to be
paid pursuant to the in-place leases over a market absorption period for a similar lease. These
intangibles are capitalized as intangible lease assets and are amortized to expense over the lesser
of the useful life or the remaining term of the respective leases. If a lease were to be
terminated prior to its stated expiration, all unamortized amounts of in-place lease assets
relating to that lease would be expensed.
The determination of the fair values of the assets and liabilities acquired requires the use
of significant assumptions with regard to the current market rental rates, rental growth rates,
capitalization and discount rates, interest rates and other variables. The use of inappropriate
estimates would result in an incorrect assessment of the Companys purchase price allocations,
which could impact the amount of its reported net income.
The Company estimates the fair value of assumed mortgage notes payable based upon indications
of current market pricing for similar types of debt with similar maturities. Assumed mortgage
notes payable are initially recorded at their estimated fair value as of the assumption date, and
the difference between such estimated fair value and the mortgage notes outstanding principal
balance is amortized to interest expense over the term of the mortgage note payable.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities when purchased of three
months or less to be cash equivalents. The Company considers investments in highly liquid money
market accounts to be cash equivalents.
Restricted Cash and Escrows
The Company is currently engaged in a public offering of its common stock. Restricted cash
primarily consisted of escrowed investor proceeds for which shares of common stock had not been
issued of approximately $1.1 million and approximately $2.8 million as of December 31, 2009 and
December 31, 2008, respectively.
Rents and Tenant Receivables
Rents and tenant receivables primarily includes amounts to be collected in future periods
related to the recognition of rental income on a straight-line basis over the lease term and cost
recoveries due from tenants. The Company makes estimates of the uncollectability of its accounts
receivable related to base rents, expense reimbursements and other revenues. The Company analyzes
accounts receivable and historical bad debt levels, customer credit worthiness and current economic
trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants
in bankruptcy, if any, are analyzed and estimates are made in connection with the expected recovery
of pre-petition and post-petition claims. The Companys reported net income or loss is directly
affected by managements estimate of the collectability of accounts receivable. The Company
records allowances for those balances that the Company deems to be uncollectible, including any
amounts relating to straight-line rent receivables.
F-9
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Prepaid Expenses and Other Assets
Prepaid expenses and other assets includes expenses incurred as of the balance sheet date that
relate to future periods and will be expensed or reclassified to another account during the period
to which the costs relate. Any amounts with no future economic benefit are charged to earnings when
identified.
Derivative Instruments and Hedging Activities
ASC 815, Derivatives and Hedging (ASC 815), establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities. All derivatives are carried at fair value. Accounting for changes in
the fair value of a derivative instrument depends on the intended use of the derivative instrument
and the designation of the derivative instrument. The change in fair value of the effective
portion of the derivative instrument that is designated as a hedge is recorded as other
comprehensive income (loss). The changes in fair value for derivative instruments that are not
designated as a hedge or that do not meet the hedge accounting criteria of ASC 815 are recorded as
a gain or loss to operations.
Deferred Financing Costs
Deferred financing costs are capitalized and amortized on a straight-line basis over the term
of the related financing arrangement, which approximates the effective interest method.
Amortization of deferred financing costs for the year ended December 31, 2009 was approximately
$202,000 and was recorded in interest expense in the consolidated statements of operations. There
were no deferred financing costs as of December 31, 2008.
Revenue Recognition
Certain properties have leases where minimum rent payments increase during the term of the
lease. The Company records rental revenue for the full term of each lease on a straight-line
basis. When the Company acquires a property, the term of existing leases is considered to commence
as of the acquisition date for the purposes of this calculation. The Company defers the
recognition of contingent rental income, such as percentage rents, until the specific target that
triggers the contingent rental income is achieved. Expected reimbursements from tenants for
recoverable real estate taxes and operating expenses are included in tenant reimbursement income in
the period the related costs are incurred.
Income Taxes
The Company will make an election to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code commencing with its taxable year ended December 31, 2009. If the Company
qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate
income tax to the extent it distributes its taxable income to its stockholders, so long as it
distributes at least 90% of its taxable income. REITs are subject to a number of other
organizational and operational requirements. Even if the Company qualifies for taxation as a REIT,
it may be subject to certain state and local taxes on its income and property, and federal income
and excise taxes on its undistributed income.
Concentration of Credit Risk
As of December 31, 2009, the Company had cash on deposit in five financial institutions in
excess of current federally insured levels, totaling approximately $277.5 million, however, the
Company has not experienced any losses in such accounts. The Company limits investment of cash
investments to financial institutions with high credit standing; therefore, the Company believes it
is not exposed to any significant credit risk on cash.
As of December 31, 2009, two tenants in the drugstore, two tenants in the home improvement and
24 tenants in the specialty retail industries comprised approximately 25%, 17% and 12%,
respectively, of 2009 gross annualized base rental revenues. As of December 31, 2009, two tenants
in the drugstore industry accounted for approximately 15% and 10%, respectively, and one tenant in
the home improvement industry accounted for approximately 14% of 2009 gross annualized base rental
revenues. Additionally, the Company has certain geographic concentrations in its property
holdings. In particular, as of December 31, 2009, 40 of the Companys properties were located in
Texas, accounting for approximately 27% of 2009 gross annualized base rental revenues.
F-10
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Offering and Related Costs
CR III Advisors funds all of the organization and offering costs on the Companys behalf and
is reimbursed for such costs up to 1.5% of gross proceeds from the Offerings, excluding selling
commissions and the dealer-manager fee. During the year ended December 31, 2009, CR III Advisors
incurred organization and offering costs of approximately $13.4 million, on behalf of the Company,
of which, all were reimbursable by the Company. As of December 31, 2008, the Advisor had incurred
organization and offering costs of approximately $1.7 million, on behalf of the Company; these
costs were not included in the financial statements of the Company because such costs were not a
liability of the Company until the subscriptions for the minimum number of shares of common stock
are received and accepted by the Company. The offering costs, which include items such as legal and
accounting fees, marketing, and promotional printing costs, are recorded as a reduction of capital
in excess of par value along with sales commissions and dealer manager fees of 7% and 2%,
respectively. Organization costs are expensed as incurred. No organization costs were expensed
during the year ended December 31, 2009 and the period from January 22, 2008 (date of inception) to
December 31, 2008.
Due to Affiliates
Certain affiliates of the Company received, and will continue to receive fees, reimbursements,
and compensation in connection with the Offering, and the acquisition, management, financing,
leasing and sale of the assets of the Company. As of December 31, 2009, approximately $743,000
remained payable to the affiliates for services provided on behalf of the Company.
Stockholders Equity
As of each of December 31, 2009 and 2008, the Company was authorized to issue 490,000,000
shares of common stock and 10,000,000 shares of preferred stock. All shares of such stock have a
par value of $.01 per share. The Companys board of directors may authorize additional shares of
capital stock and amend the terms without obtaining stockholder approval.
Redeemable Common Stock
The Companys share redemption program provides that all redemptions during any calendar year,
including those upon death or qualifying disability, are limited to those that can be funded with
proceeds from the Companys DRIP. In accordance with the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, the
Company accounts for proceeds received from its DRIP as redeemable common stock, outside of
permanent equity. As of December 31, 2009, the Company had issued approximately 1.3 million shares
of common stock under the DRIP, for cumulative proceeds of approximately $12.6 million under its
DRIP, which are recorded as redeemable common stock, net of redemptions, in the consolidated
balance sheets. As of December 31, 2008, the Company had not issued any shares of common stock
under its DRIP. The Companys share redemption program permits investors to sell shares back to
the Company after they have held them for at least one year, subject to significant conditions and
limitations. The Company may waive the one-year holding period requirement upon request due to a
stockholders death or bankruptcy or other exigent circumstances. As of December 31, 2009, the
Company had redeemed approximately 25,000 shares of common stock for an aggregate price of
approximately $244,000. The Company had not redeemed any shares of common stock as of December 31,
2008.
Earnings Per Share
Earnings per share are calculated based on the weighted average number of common shares
outstanding during each period. Diluted income per share considers the effect of any potentially
dilutive share equivalents, of which the Company had none for each of the year ended December 31,
2009 and for the period from January 22, 2008 (date of inception) to December 31, 2008.
F-11
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reportable Segments
ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive
information about an enterprises reportable segments. The Companys only operating segment
consists of commercial properties, which include activities related to investing in real estate
including retail properties. The commercial properties are geographically diversified throughout
the United States, and the Companys chief operating decision maker evaluates operating performance
on an overall portfolio level. These commercial properties have similar economic characteristics;
therefore the Companys properties have been aggregated into one reportable segment.
Interest
Interest is charged to expense as it accrues. No interest costs were capitalized during the
year ended December 31, 2009 and the period from January 22, 2008 (date of inception) to December
31, 2008.
Distributions Payable and Distribution Policy
In order to qualify as a REIT, the Company is required to make distributions each taxable year
equal to at least 90% of its taxable income excluding capital gains. To the extent funds are
available, the Company intends to pay regular quarterly distributions to stockholders.
Distributions are paid to those stockholders who are stockholders of record as of applicable record
dates.
During September 2009, our board of directors declared a daily distribution of $0.001849316
per share (which equates to approximately 6.75% on an annualized bases calculated at the current
rate, assuming a $10.00 per share purchase price) for stockholders of record as of the close of
business on each day of the period commencing on October 1, 2009 and ending on December 31, 2009.
As of December 31, 2009, the Company had distributions payable of approximately $5.3 million. The
distributions were paid in January 2010, of which approximately $3.1 million was reinvested in
shares through the DRIP.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141 (revised 2007), Business Combinations, codified primarily in ASC 805, Business
Combinations (ASC 805). ASC 805 clarifies and amends the accounting guidance for how an acquirer
in a business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The provisions of ASC 805 became effective for the
Company for any business combinations occurring on or after January 1, 2009. The adoption of ASC
805 has had a material impact on the consolidated financial statements due to the expensing of
acquisition costs, which previously would have been capitalized under SFAS No. 141. The Company
expensed approximately $18.6 million of acquisition expenses during the year ended December 31,
2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB 51, codified primarily in ASC 810, Consolidation (ASC
810). This statement amends ARB 51 and revises accounting and reporting requirements for
noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of
a subsidiary. SFAS No. 160 was effective for the Company on January 1, 2009. The provisions of
this standard are applied retrospectively upon adoption. The adoption of ASC 810 has not had a
material impact on the Companys consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment to FASB Statement No. 133, codified primarily in ASC 815,
Derivatives and Hedging (ASC 815), which requires additional disclosures about an entitys
derivative and hedging activities including, descriptions of how and why the entity uses derivative
instruments, how such instruments are accounted for under SFAS No. 133 and how derivative
instruments affect the entitys financial position, operations, and cash flow. The adoption of ASC
815 has not had a material impact on the Companys consolidated financial statement disclosures.
In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, codified primarily in ASC 320, InvestmentsDebt and Equity
Securities (ASC 320), addresses other-than-temporary impairments for debt securities. The
Company elected to early adopt ASC 320 beginning January 1, 2009. The adoption of ASC 320 has not
had a material impact on the Companys consolidated financial statements.
F-12
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In May 2009, the FASB issued ASC 855-10, Subsequent Events, to establish general standards of
accounting for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The new disclosure requirement was
effective for interim reporting periods ended after June 15, 2009. The Company adopted ASC 855-10
on April 1, 2009 and provided the required disclosures. In February 2010, FASB issued ASU 2010-09,
Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements, (ASU
2010-09), which removes the requirement for an SEC filer to disclose a date in both issued and
revised financial statements. The Company adopted ASU 2010-09 in February 2010 and did not
disclose the date the financial statements are available to be issued.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards
Codification (the Codification) will become the source of authoritative GAAP. Rules and
interpretive releases of the Securities and Exchange Commission under authority of federal
securities laws are also sources of authoritative GAAP for Securities and Exchange Commission
registrants. The Codification became effective on July 1, 2009 and superseded all then-existing
non-Securities and Exchange Commission accounting and reporting standards. All other
non-grandfathered non-Securities and Exchange Commission accounting literature not included in the
Codification is nonauthoritative. The Company adopted the Codification beginning on July 1, 2009.
Because the Codification is not intended to change GAAP, it did not have a material impact on the
Companys consolidated financial statements.
In August 2009, the FASB issued Accounting Standard Update (ASU) 2009-05, Fair Value
Measurements and Disclosures (ASU 2009-05), which provides alternatives to measuring the fair
value of liabilities when a quoted price for an identical liability traded in an active market does
not exist. The alternatives include using either (1) a valuation technique that uses quoted prices
for identical or similar liabilities or (2) another valuation technique, such as a present value
technique or a technique that is based on the amount paid or received by the reporting entity to
transfer an identical liability. The amended guidance was effective for the Company beginning
October 1, 2009. The adoption of ASU 2009-05 has not had a material impact on the Companys
consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic
820), (ASU 2010-06), which amends ASC 820 to add new requirements for disclosures about transfers
into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and
settlements relating to Level 3 measurements. ASU 2010-06 also clarifies existing fair value
disclosures about the level of disaggregation and about inputs and valuation techniques used to
measure fair value. Further, ASU 2010-06 amends guidance on employers disclosures about
postretirement benefit plan assets under ASC 715, CompensationRetirement Benefits, to require that
disclosures be provided by classes of assets instead of by major categories of assets. ASU 2010-06
is effective for the first reporting period (including interim periods) beginning after December
15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU
2010-06 has not had a material impact on the Companys consolidated financial statement
disclosures. The Company does not expect the adoption of the requirement to provide Level 3
activity of purchases, sales, issuances and settlements on a gross basis of ASU 2009-06 to have a
material impact on the consolidated financial statement disclosures.
NOTE 3 FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures (ASC 820) defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair value measurements.
ASC 820 emphasizes that fair value is intended to be a market-based measurement, as opposed to a
transaction-specific measurement.
Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement
date. Depending on the nature of the asset or liability, various techniques and assumptions can be
used to estimate the fair value. Assets and liabilities are measured using inputs from three
levels of the fair value hierarchy, as follows:
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date. An active market
is defined as a market in which transactions for the assets or liabilities occur with sufficient
frequency and volume to provide pricing information on an ongoing basis.
F-13
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Level 2 Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active
(markets with few transactions), inputs other than quoted prices that are observable for the asset
or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally
from or corroborated by observable market data correlation or other means (market corroborated
inputs).
Level 3 Unobservable inputs, only used to the extent that observable inputs are not
available, reflect the Companys assumptions about the pricing of an asset or liability.
The following describes the methods the Company uses to estimate the fair value of the
Companys financial assets and liabilities:
Cash and cash equivalents, restricted cash, rents and tenant receivables, prepaid expenses and
mortgage loan deposits and accounts payable and accrued expenses - The Company considers the
carrying values of these financial instruments to approximate fair value because of the short
period of time between origination of the instruments and their expected realization.
Notes payable - The fair value is estimated using a discounted cash flow technique based on
estimated borrowing rates available to the Company as of December 31, 2009. The fair value of the
notes payable was approximately $128.6 million at December 31, 2009, as compared to the carrying
value of approximately $129.3 million as of December 31, 2009. There were no notes payable
outstanding as of December 31, 2008.
Derivative Instruments - The Companys derivative financial assets and liabilities, included
on the consolidated balance sheets, represent the Companys interest rate swaps. All of the
derivative instruments are carried at fair value and are valued using Level 2 inputs. The fair
value of these instruments is determined using interest rate market pricing models. The Company
includes the impact of credit valuation adjustments on the derivative instruments measured at fair
value.
Considerable judgment is necessary to develop estimated fair values of financial assets and
liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts the Company could realize on disposition of the financial assets and liabilities.
In accordance with the fair value hierarchy described above, the following table shows the
fair value of the Companys financial assets and liabilities that are required to be measured at
fair value on a recurring basis as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
Balance as of |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
December 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
139,698 |
|
|
$ |
|
|
|
$ |
139,698 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
274,645 |
|
|
$ |
|
|
|
$ |
274,645 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no interest rate swaps as of December 31, 2008.
F-14
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 REAL ESTATE ACQUISITIONS
During the year ended December 31, 2009, the Company acquired a 100% interest in 133
commercial properties for an aggregate purchase price of approximately $703.8 million. The Company
financed the acquisitions with net proceeds of the Offering and through the issuance of
approximately $171.0 million in mortgage notes, each of which is secured by the respective
properties on which the debt was placed. Six of the commercial properties were acquired from
affiliates of the Companys advisor. A majority of the Companys board of directors, including all
of the Companys independent directors, not otherwise interested in the acquisitions approved the
acquisitions as being fair and reasonable to the Company and that the cost to the Company was not
in excess of the current appraised value of the properties or the cost of the properties to the
affiliates. The Company allocated the purchase price of these properties to the fair value of the
assets acquired and liabilities assumed. The Company allocated the aggregate purchase price of
approximately $231.7 million to land, approximately $364.7 million to building and improvements,
approximately $108.6 million to acquired in-place leases, approximately $20.4 million to acquired
below-market leases, and approximately $19.2 million to acquired above-market leases. The Company
expensed approximately $18.6 million of acquisition costs related to the acquisitions.
The Company recorded revenue for the year ended December 31, 2009 of approximately $23.0
million and net loss for the year ended December 31, 2009 of approximately $7.8 million related to
the operations of the Companys acquired properties. The Company did not complete any acquisitions
during the period from January 22, 2008 to December 31, 2008.
The following information summarizes selected financial information from the combined results
of operations of the Company, as if all of the Companys acquisitions were completed as of the
beginning of each period presented.
The Company estimated that revenues, on a pro forma basis, for the year ended December 31,
2009, would have been approximately $63.4 million and net income, on a pro forma basis, for the
year ended December 31, 2009 would have been approximately $15.8 million.
The Company estimated that revenues, on a pro forma basis, for the period from January 22,
2008 (date of inception) to December 31, 2008 would have been approximately $59.8 million and net
income, on a pro forma basis, for the period from January 22, 2008 (date of inception) to December
31, 2008 would have been approximately $13.8 million.
This pro forma information is presented for informational purposes only and may not be
indicative of what actual results of operations would have been had the transactions occurred at
the beginning of each period, nor does it purport to represent the results of future operations.
NOTE 5 ACQUIRED INTANGIBLE LEASE ASSETS
Acquired intangible lease assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Acquired in-place leases, net of accumulated
amortization of $2,295,992 (with a weighted
average life of 219 months) |
|
$ |
106,329,066 |
|
|
$ |
|
|
Acquired above market leases, net of accumulated
amortization of $351,616 (with a weighted average
life of 191 months) |
|
|
18,792,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
125,121,376 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Amortization expense recorded on the intangible assets for the year ended December 31, 2009
was approximately $2.6 million. There were no intangible lease assets as of December 31, 2008.
F-15
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimated amortization expense of the respective intangible lease assets as of December 31,
2009 for each of the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
Year |
|
Leases In-Place |
|
|
Above Market Leases |
|
2010 |
|
$ |
6,936,864 |
|
|
$ |
1,307,176 |
|
2011 |
|
$ |
6,898,185 |
|
|
$ |
1,299,825 |
|
2012 |
|
$ |
6,611,310 |
|
|
$ |
1,257,172 |
|
2013 |
|
$ |
6,251,407 |
|
|
$ |
1,218,033 |
|
2014 |
|
$ |
6,143,510 |
|
|
$ |
1,198,114 |
|
NOTE 6 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Company uses certain types of derivative instruments for
the purpose of managing or hedging its interest rate risks. The following table summarizes the
notional amount and fair value of the Companys derivative instruments. Additional disclosures
related to the fair value of the Companys derivative instruments are included in Note 3 above.
The notional amount under the swap agreement is an indication of the extent of the Companys
involvement in each instrument at the time, but does not represent exposure to credit, interest
rate or market risks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Asset (Liability) |
|
Derivatives designated as |
|
|
|
Notional |
|
|
Interest |
|
|
Effective |
|
|
Maturity |
|
|
December 31, |
|
|
December 31, |
|
hedging instruments |
|
Balance Sheet Location |
|
Amount |
|
|
Rate |
|
|
Date |
|
|
Date |
|
|
2009 |
|
|
2008 |
|
Interest Rate Swaps (1) |
|
Deferred rent, derivative and other liabilities |
|
$ |
20,000,000 |
|
|
|
5.95 |
% |
|
|
9/8/2009 |
|
|
|
8/29/2012 |
|
|
$ |
(274,645 |
) |
|
$ |
|
|
Interest Rate Swap |
|
Prepaid expenses, mortgage loan deposits, derivative and other assets |
|
|
17,500,000 |
|
|
|
5.75 |
% |
|
|
12/18/2009 |
|
|
|
1/1/2017 |
|
|
|
139,698 |
|
|
|
|
|
|
|
|
(1) |
|
The Company executed 15 swap agreements with identical terms and with
an aggregate notional amount under the swap agreements of $20.0
million. |
Accounting for changes in the fair value of a derivative instrument depends on the intended
use of the derivative instrument and the designation of the derivative instrument. The Company
designated the interest rate swaps as cash flow hedges, to hedge the variability of the anticipated
cash flows on its variable rate notes payable. The change in fair value of the effective portion
of the derivative instrument that is designated as a hedge is recorded as other comprehensive
income or loss.
The following tables summarize the losses on the Companys derivative instruments and hedging
activities.
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Recognized in Other Comprehensive Loss |
|
|
|
|
|
|
|
For the period from |
|
|
|
|
|
|
|
January 22, 2008 |
|
|
|
Year Ended |
|
|
(Date of Inception) to |
|
Derivatives in Cash Flow Hedging Relationships |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Interest Rate Swaps (1) |
|
$ |
(134,947 |
) |
|
$ |
|
|
|
|
|
(1) |
|
There were no portions relating to the change in the fair value of the
interest rate swap agreements that were considered ineffective during
the year ended December 31, 2009. No previously effective portion of
gains or losses that were recorded in accumulated other comprehensive
loss during the term of the hedging relationship was reclassified into
earnings during the year ended December 31, 2009. |
The Company has agreements with each of its derivative counterparties that contain a provision
whereby if the Company defaults on certain of its unsecured indebtedness, then the Company could
also be declared in default on its derivative obligations, resulting in an acceleration of payment.
F-16
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is exposed to credit risk in the event of non-performance by its derivative
counterparties. The Company believes it mitigates its credit risk by entering into agreements with
credit-worthy counterparties. The Company records counterparty credit risk valuation adjustments
on its interest rate swap derivative asset in order to properly reflect the credit quality of the
counterparty. In addition, the Companys fair value of interest rate swap derivative liabilities is
adjusted to reflect the impact of the Companys credit quality. As of December 31, 2009 and
December 31, 2008, there have been no termination events or events of default related to the interest rate swaps.
NOTE 7 NOTES PAYABLE AND LINE OF CREDIT
As of December 31, 2009, the Company had approximately $129.3 million mortgage notes payable
outstanding, with fixed interest rates, which includes approximately $37.5 million of variable rate
debt swapped to fixed rates ranging from 5.54% to 6.45% per annum, each of which remained
outstanding as of December 31, 2009. The mortgage notes payable mature on various dates from
August 2012 through January 2020, with a weighted average remaining term of approximately 6.8
years. One lender can reset the interest rates related to two fixed rate mortgage notes payable of
approximately $30.0 million and $32.0 million, respectively. Related to approximately $30.0
million of the fixed rate debt, the lender can reset the interest rate on September 1, 2013, at
which time the Company can accept the interest rate through the maturity date of September 1, 2019,
or the Company may decide to reject the rate and prepay the loan on September 1, 2013. Related to
approximately $32.0 million of the fixed rate debt, the lender can reset the interest rate on
February 1, 2015, at which time the Company can accept the interest rate through the maturity date
of January 1, 2020, or the Company may decide to reject the rate and prepay the loan on February 1,
2015. Each of the mortgage notes payable is secured by the respective properties on which the debt
was placed. The mortgage notes payable are generally non-recourse to the Company and CCPT III OP,
but both are liable for customary non-recourse carve-outs. The aggregate balance of gross real
estate assets, net of gross intangible lease liabilities securing the notes payable, was
approximately $253.8 million as of December 31, 2009. The mortgage notes may generally be prepaid
subject to meeting certain requirements and payment of a prepayment premium as specified in the
respective loan agreement. In the event a mortgage note is not paid off on the maturity date, the
mortgage loans include default provisions. Generally upon the occurrence of an event of default,
interest on the mortgage notes will accrue at an annual default interest rate equal to the lesser
of (a) the maximum rate permitted by applicable law, or (b) the then-current interest rate plus a
percentage specified in the respective loan agreement, which ranges from 4.00% to 5.55%.
On December 16, 2009, the Company entered into a secured revolving term loan (the TCF Loan)
with TCF National Bank providing available borrowings of up to $25.0 million until December 16,
2012. Subsequent to December 16, 2012, the TCF loan converts to an interest-only term loan of
$23.0 million, which matures on December 16, 2014. The Company will be required to repay any
borrowings greater than $23.0 million at December 16, 2012. The Company can elect to pay a variable
interest rate equal to one-month LIBO rate plus 350 basis points or the prime rate plus 100 basis
points, each with a minimum interest rate of 4.50% per year. The TCF Loan is recourse to the
Company and CCPT III OP, and the Company fully guarantees the obligations of CCPT III OP. The TCF
Loan also includes usual and customary events of default and remedies for facilities of this
nature. As of December 31, 2009, the borrowing base under the TCF Loan was approximately $24.5
million based on the underlying collateral pool of nine single-tenant commercial properties that
the Company owns. The aggregate balance of gross real estate assets, net of gross intangible lease
liabilities securing the TCF Loan, was approximately $54.1 million as of December 31, 2009. As of
December 31, 2009, the Company had no outstanding balance and approximately $24.5 million was
available under the TCF Loan. The TCF Loan and certain notes payable contain customary
affirmative, negative and financial covenants, including requirements for minimum net worth, debt
service coverage ratios and leverage ratios. The Company believes it was in compliance with the financial covenants of the TCF
Loan as of December 31, 2009.
F-17
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2009, the Company also entered into eight loans totaling
approximately $41.6 million, all of which were variable rate debt with interest rates equal to the
3-month LIBO rate plus 250 basis points and were secured by the membership interest held by CCPT
III OP in certain of its wholly-owned subsidiaries. Of the $41.6 million, approximately $13.9
million was borrowed from Series B, LLC (Series B), approximately $15.7 million was borrowed from
Series C, LLC (Series C), and approximately $12.0 million was borrowed from Series D, LLC
(Series D), each of which is an affiliate of the Companys advisor. The loans from Series C and
Series D contain a revolving line of credit feature that allows the Company to borrow up to
approximately $15.7 million and approximately $12.0 million, respectively, and each loan matures in
January 2010. The loan from Series B matured on March 31, 2009. The Companys board of directors,
including all of the independent directors not otherwise interested in the transactions, approved
the loans as fair, competitive and commercially reasonable, and determined that their terms were no
less favorable to the Company than loans between unaffiliated third parties under similar
circumstances. The loans were repaid in full during the year ended December 31, 2009, with gross
offering proceeds and cash flows generated from operations. The Company paid approximately
$184,000 of interest and no financing coordination fee related to the aforementioned loans from
affiliated entities during the year ended December 31, 2009.
The following table summarizes the scheduled aggregate principal repayments for the five years
subsequent to December 31, 2009 and thereafter (in thousands):
|
|
|
|
|
|
|
Principal |
|
For the year ending December 31: |
|
Repayments (1) |
|
2010 |
|
$ |
357,096 |
|
2011 |
|
|
1,381,915 |
|
2012 |
|
|
21,588,161 |
|
2013 |
|
|
26,768,856 |
|
2014 |
|
|
460,254 |
|
Thereafter |
|
|
78,745,818 |
|
|
|
|
|
Total |
|
$ |
129,302,100 |
|
|
|
|
|
|
|
|
(1) |
|
Principal payment amounts reflect actual payments based on face amount of notes payable. |
NOTE 8 ACQUIRED BELOW MARKET LEASE INTANGIBLES
Acquired below market lease intangibles consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Acquired below market leases, net of accumulated
amortization of $399,079 (with a weighted average
life of 243 months). |
|
$ |
20,032,213 |
|
|
$ |
|
|
Amortization income recorded on the intangible liability, for the year ended December 31, 2009
was approximately $399,000. There was no intangible lease liability as of December 31, 2008.
Estimated amortization income of the intangible lease liability as of December 31, 2009 for
each of the five succeeding fiscal years is as follows:
|
|
|
|
|
Year |
|
Amount Below Market Leases |
|
2010 |
|
$ |
1,128,877 |
|
2011 |
|
$ |
1,125,941 |
|
2012 |
|
$ |
1,105,363 |
|
2013 |
|
$ |
1,078,347 |
|
2014 |
|
$ |
1,047,321 |
|
F-18
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, the Company may become subject to litigation or claims.
There are no material legal proceedings pending, or known to be contemplated, against the Company.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may be potentially
liable for costs and damages related to environmental matters. The Company has not been notified
by any governmental authority of any non-compliance, liability or other claim, and the Company is
not aware of any other environmental condition that it believes will have a material adverse effect
on its consolidated financial statements.
NOTE 10 RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
Certain affiliates of the Company received, and will continue to receive fees, reimbursements
and compensation in connection with the Offering, and the acquisition, financing, management,
leasing and sale of the assets of the Company. Cole Capital Corporation (Cole Capital), the
Companys affiliated dealer manager, received and will continue to receive, a selling commission of
up to 7.0% of gross offering proceeds, before reallowance of commissions earned by participating
broker-dealers, in connection with the Offering. Cole Capital intends to reallow 100% of selling
commissions earned to participating broker-dealers. In addition, Cole Capital received, and will
continue to receive, 2.0% of gross offering proceeds, before reallowance to participating
broker-dealers, as a dealer-manager fee in connection with the Offering. Cole Capital, 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 sold 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 Cole Capital or other broker-dealers in respect to shares sold under the DRIP. During the
year ended December 31, 2009, the Company paid approximately $85.8 million to Cole Capital for
selling commissions and dealer manager fees of which approximately $75.6 million was reallowed to
participating broker-dealers. No such fees were paid to Cole Capital during the period from
January 22, 2008 (date of inception) to December 31, 2008.
All organization and offering expenses associated with the sale of the Companys common stock
(excluding selling commissions and the dealer-manager fee) are paid for by CR III Advisors or its
affiliates and are reimbursed by the Company up to 1.5% of gross offering proceeds. During the
year ended December 31, 2009, the Company recorded approximately $13.4 million for organization and
offering expenses of the Offering. As of December 31, 2009, approximately $490,000 of such costs
had been incurred by CR III Advisors but had not been reimbursed by the Company, and is included in
due to affiliates on the consolidated financial statements. As of December 31, 2008, no amounts
were payable to CR III Advisors for such costs. During the period from January 22, 2008 (date of
inception) to December 31, 2008, CR III Advisors incurred organization and offering costs of
approximately $1.7 million, on behalf of the Company. These costs were not included in the
financial statements of the Company because such costs were not a liability of the Company until
the subscriptions for the minimum number of shares of common stock were received and accepted by
the Company.
CR III Advisors or its affiliates also receive acquisition and advisory fees of up to 2.0% of
the contract purchase price of each asset for the acquisition, development or construction of
properties and will be reimbursed for acquisition expenses incurred in the process of acquiring
properties, so long as the total acquisition fees and expenses relating to the transaction does not
exceed 6.0% of the contract purchase price. The Company expects acquisition expenses to be
approximately 0.5% of the purchase price of each property. The Company will not reimburse CR III
Advisors for personnel costs in connection with services for which CR III Advisors receives
acquisition fees. During the year ended December 31, 2009, the Company recorded approximately
$14.1 million for acquisition fees. No such fees were paid to CR III Advisors during the period
from January 22, 2008 (date of inception) to December 31, 2008. During the year ended December 31,
2009, the Company recorded approximately $468,000 for acquisition costs incurred by CR III Advisors
in the process of acquiring properties. No such costs were incurred by CR III Advisors during the
period from January 22, 2008 (date of inception) to December 31, 2008. As of December 31, 2009,
approximately $70,000 of such costs had been incurred by CR III Advisors but had not been
reimbursed by the Company, and is included in due to affiliates on the consolidated financial
statements. As of December 31, 2008, no amounts were payable to CR III Advisors for such costs.
F-19
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If CR III Advisors, or its affiliates, provides substantial services, as determined by the
independent directors, in connection with the origination or refinancing of any debt financing
obtained by the Company that is used to acquire properties or to make other permitted investments,
or that is assumed, directly or indirectly, in connection with the acquisition of properties, the
Company will pay CR III Advisors or its affiliates a financing coordination fee equal to 1% of the
amount available under such financing; provided however, that CR III Advisors or its affiliates
shall not be entitled to a financing coordination fee in connection with the refinancing of any
loan secured by any particular property that was previously subject to a refinancing in which CR
III Advisors or its affiliates received such a fee. Financing coordination fees payable from loan
proceeds from permanent financing will be paid to CR III Advisors or its affiliates as the Company
acquires such permanent financing. With respect to any revolving line of credit, no financing
coordination fees will be paid on loan proceeds from any line of credit unless all net offering
proceeds received as of the date proceeds from the line of credit are drawn for the purpose of
acquiring properties have been invested. In addition, with respect to any revolving line of
credit, CR III Advisors or its affiliates will receive financing coordination fees only in
connection with amounts being drawn for the first time and not upon any re-drawing of amounts that
had been repaid by the Company. During the year ended December 31, 2009, the Company paid to CR
III Advisors approximately $1.3 million for financing coordination fees. No such fees were paid to
CR III Advisors during the period from January 22, 2008 (date of inception) to December 31, 2008.
As of December 31, 2009 and 2008, no amounts were payable to CR III Advisors for financing
coordination fees.
The Company paid, and expects to continue to pay, to Cole Realty Advisors, Inc. (Cole Realty
Advisors), its affiliated property manager, fees for the management and leasing of the Companys
properties. Property management fees are up to 2.0% of revenue for single-tenant properties and
4.0% of revenue for multi-tenant properties and leasing commissions will be at prevailing market
rates; provided however, that the aggregate of all property management and leasing fees paid to
affiliates plus all payments to third parties will not exceed the amount that other nonaffiliated
management and leasing companies generally charge for similar services in the same geographic
location. Cole Realty Advisors may subcontract its duties for a fee that may be less than the fee
provided for in the property management agreement. The Company will reimburse Cole Realty
Advisors costs of managing and leasing the properties. The Company will not reimburse Cole Realty
Advisors for personnel costs in connection with services for which Cole Realty Advisors receives
real estate commissions. During the year ended December 31, 2009, the Company recorded
approximately $459,000 for property management fees. During the period from January 22, 2008 (date
of inception) to December 31, 2008, the Company did not pay any fees to Cole Realty Advisors. The
Company recorded approximately $125,000 for property management costs incurred by Cole Realty
Advisors during the year ended December 31, 2009. No such costs were reimbursed, or required to be
reimbursed, to Cole Realty Advisors during the period from January 22, 2008 (date of inception) to
December 31, 2008. As of December 31, 2009, approximately $34,000 of such costs had been incurred
by CR III Advisors but had not been reimbursed by the Company, and is included in due to affiliates
on the consolidated financial statements. As of December 31, 2008, no amounts were payable to CR
III Advisors for such costs.
The Company paid, and expects to continue to pay, to CR III Advisors an annualized asset
management fee of 0.50% of the aggregate asset value of the Companys assets (the Asset Management
Fee). The fee is payable monthly in an amount equal to 0.0417% of aggregate asset value as of the
last day of the immediately preceding month. The Company will reimburse costs and expenses
incurred by Cole Realty Advisors in providing asset management services. During the year ended
December 31, 2009, the Company recorded approximately $1.3 million for asset management fees. No
such fees were paid to CR III Advisors during the period from January 22, 2008 (date of inception)
to December 31, 2008. During the year ended December 31, 2009, the Company recorded approximately
$114,000 for costs incurred by CR III Advisors in
providing asset management services. No such costs were reimbursed to CR III Advisors during
the period from January 22, 2008 (date of inception) to December 31, 2008. As of December 31,
2009, approximately $17,000 of such costs had been incurred by CR III Advisors but had not been
reimbursed by the Company, and is included in due to affiliates on the consolidated financial
statements. As of December 31, 2008, no amounts were payable to CR III Advisors for such costs.
F-20
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If CR III Advisors or its affiliates provides a substantial amount of services, as determined
by the Companys independent directors, in connection with the sale of one or more properties, the
Company will pay CR III Advisors or its affiliates up to one-half of the brokerage commission paid,
but in no event to exceed an amount equal to 3% of the sales price of each property sold. In no
event will the combined real estate commission paid to CR III Advisors, its affiliates and
unaffiliated third parties exceed 6% of the contract sales price. In addition, after investors
have received a return of their net capital contributions and an 8% cumulative, non-compounded
annual return, then CR III Advisors is entitled to receive 15% of the remaining net sale proceeds.
The Company will not reimburse CR III Advisors or its affiliates for personnel costs in connection
with services for which CR III Advisors or its affiliates receive real estate commissions. During
the year ended December 31, 2009, the Company did not pay any fees or amounts to CR III Advisors or
its affiliates relating to the sale of properties. No such fees were paid to CR III Advisors or
its affiliates during the period from January 22, 2008 (date of inception) to December 31, 2008. As
of December 31, 2009 and 2008, no amounts were payable to CR III Advisors for such fees.
Upon listing of the Companys common stock on a national securities exchange, a fee equal to
15% of the amount by which the market value of the Companys outstanding stock plus all
distributions paid by the Company prior to listing, exceeds the sum of the total amount of capital
raised from investors and the amount of cash flow necessary to generate an 8% cumulative,
non-compounded annual return to investors will be paid to CR III Advisors (the Subordinated
Incentive Listing Fee).
Upon termination of the advisory agreement with CR III Advisors, other than termination by the
Company because of a material breach of the advisory agreement by CR III Advisors, a performance
fee of 15% of the amount, if any, by which the appraised asset value at the time of such
termination plus total distributions paid to stockholders through the termination date exceeds the
aggregate capital contribution contributed by investors less distributions from sale proceeds plus
payment to investors of an 8% annual, cumulative, non-compounded return on capital. No
subordinated performance fee will be paid to the extent that the Company has already paid or become
obligated to pay CR III Advisors a subordinated participation in net sale proceeds or the
Subordinated Incentive Listing Fee.
The Company will reimburse CR III Advisors for all expenses it paid or incurred in connection
with the services provided to the Company, subject to the limitation that the Company will not
reimburse CR III Advisors for any amount by which its operating expenses (including the Asset
Management Fee) at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of
average invested assets, or (ii) 25% of net income other than any additions to reserves for
depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of
assets for that period, unless the Companys independent directors find that a higher level of
expense is justified for that year based on unusual and non-recurring factors. The Company will
not reimburse CR III Advisors for personnel costs in connection with services for which CR III
Advisors receives acquisition fees or real estate commissions. During the year ended December 31,
2009, the Company recorded approximately $744,000 for such costs incurred by CR III Advisors. No
such costs were reimbursed to CR III Advisors or its affiliates during the period from January 22,
2008 (date of inception) to December 31, 2008. As of December 31, 2009, approximately $133,000 of
such costs had been incurred by CR III Advisors but had not been reimbursed by the Company, and is
included in due to affiliates on the consolidated financial statements. As of December 31, 2008,
no amounts were payable to CR III Advisors for such costs.
During the year ended December 31, 2009, the Company acquired a 100% interest in six
commercial properties from
affiliates of the Companys advisor for an aggregate purchase price of approximately $46.2
million. A majority of the Companys board of directors, including all of the Companys
independent directors, not otherwise interested in the acquisitions, approved the acquisitions as
being fair and reasonable to the Company, and that the cost to the Company was not in excess of the
current appraised value of the properties or the cost of the properties to the affiliates.
F-21
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the real estate assets acquired from affiliates of the Companys advisor,
the Company entered into eight loans totaling approximately $41.6 million, all of which were
variable rate debt with interest rates equal to the 3-month LIBO rate plus 250 basis points and
were secured by the membership interest held by CCPT III OP in certain wholly-owned subsidiaries on
which the debt was placed. Of the $41.6 million, approximately $13.9 million was borrowed from
Series B, approximately $15.7 million was borrowed from Series C, and approximately $12.0 million
was borrowed from Series D, each of which is an affiliate of the Companys advisor. The loans from
Series C and Series D contain a revolving line of credit feature that allows the Company to borrow
up to approximately $15.7 million and approximately $12.0 million, respectively and each loan
matures in January 2010. The loan from Series B matured on March 31, 2009. The Companys board of
directors, including all of the independent directors not otherwise interested in the transactions,
approved the loans as fair, competitive and commercially reasonable, and determined that their
terms were no less favorable to the Company than loans between unaffiliated third parties under
similar circumstances. The loans were repaid in full during the year ended December 31, 2009, with
gross offering proceeds. The Company paid approximately $184,000 of interest and no financing
coordination fee related to the aforementioned loans from affiliated entities.
NOTE 11 ECONOMIC DEPENDENCY
Under various agreements, the Company has engaged or will engage CR III Advisors and its
affiliates to provide certain services that are essential to the Company, including asset
management services, supervision of the management and leasing of properties owned by the Company,
asset acquisition and disposition decisions, the sale of shares of the Companys common stock
available for issue, as well as other administrative responsibilities for the Company including
accounting services and investor relations. As a result of these relationships, the Company is
dependent upon CR III Advisors and its affiliates. In the event that these companies were unable
to provide the Company with the respective services, the Company would be required to find
alternative providers of these services.
NOTE 12 STOCKHOLDERS EQUITY
Distribution Reinvestment Plan
The Company maintains the DRIP that allows stockholders of our common stock to elect to have
the distributions the stockholders receive reinvested in additional shares of the Companys common
stock. The purchase price per share under the DRIP will be the higher of 95% of the fair market
value per share as determined by the Companys board of directors and $9.50 per share. No sales
commissions or dealer manager fees will be paid on shares sold under the DRIP. The Company may
terminate or amend the DRIP at the Companys discretion at any time upon ten days prior written
notice to the stockholders. During the year ended December 31,
2009, approximately 1.3 million
shares were purchased under the DRIP for approximately $12.6 million which were recorded as
redeemable common stock on the consolidated balance sheets, net of redemptions paid of
approximately $244,000. During the period from January 22, 2008 (date of inception) to December 31,
2008, there were no shares purchased under the DRIP.
Share Redemption Program
The Companys share redemption program permits its stockholders to sell their shares back to
the Company after they have held them for at least one year, subject to the significant conditions
and limitations described below.
There are several restrictions on the stockholders ability to sell their shares to the
Company under the program. The stockholders generally have to hold their shares for one year before
selling the shares to the Company under the program; however, the Company may waive the one-year
holding period in the event of the death or bankruptcy of a stockholder. In addition, the Company
will limit the number of shares redeemed pursuant to the Companys share redemption program as
follows: (1) during any calendar year, the Company will not redeem in excess of 5.0% of the
weighted average number of shares outstanding during trailing twelve month period prior to the
redemption date; and (2) funding for the redemption of shares will be limited to the amount of net
proceeds the Company receives from the sale of shares under the Companys DRIP. These limits may
prevent the Company from accommodating all requests made by stockholders in any year. During the
term of the Offering, and subject to certain provisions the redemption price per share will depend
on the length of time the stockholder has held such shares as follows: after one year from the
purchase date 95% of the amount the stockholder paid for each share; after two years from the
purchase date 97.5% of the amount the stockholder paid for each share; after three years from the
purchase date 100% of the amount the stockholder paid for each share.
F-22
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Upon receipt of a request for redemption, the Company will conduct a Uniform Commercial Code
search to ensure that no liens are held against the shares. Repurchases will be made on the last
business day of the calendar month. If funds are not available to redeem all requested redemptions
at the end of each month, the shares will be purchased on a pro rata basis and the unfulfilled
requests will be held until the next month, unless withdrawn. The Companys board of directors may
amend, suspend or terminate the share redemption program at any time upon 30 days prior written
notice to the stockholders. The Company redeemed approximately 25,000 shares under the share
redemption program during the period ended December 31, 2009 for approximately $244,000. During the
period from January 22, 2008 (date of inception) to December 31, 2008, there were no shares
redeemed.
NOTE 13 INCOME TAXES
For federal income tax purposes, distributions to stockholders are characterized as dividend
income, capital gain income, or as a return of a stockholders invested capital. The following
table represents the character of distributions to stockholder for the year ended December 31,
2009.
|
|
|
|
|
Character of Distributions: |
|
2009 |
|
Dividend income |
|
|
55 |
% |
Return of capital |
|
|
45 |
% |
|
|
|
|
Total |
|
|
100 |
% |
|
|
|
|
At December 31, 2009, the tax basis carrying value of the Companys land and depreciable real
estate assets was approximately $717.9 million. During the year ended December 31, 2009, the
Company incurred state and local income and franchise taxes of approximately $251,000, which were
recorded in general and administrative expenses in the consolidated statements of operations.
During the period from January 22, 2008 (date of inception) to December 31, 2008, there were no
distributions paid to stockholders or state income taxes incurred.
NOTE 14 OPERATING LEASES
The Companys operating leases terms and expirations vary. The leases frequently have
provisions to extend the lease agreement and other terms and conditions as negotiated. The Company
retains substantially all of the risks and benefits of ownership of the real estate assets leased
to tenants.
The future minimum rental income from the Companys investment in real estate assets under
non-cancelable operating leases, as of December 31, 2009, is as follows:
|
|
|
|
|
Year ending December 31: |
|
Amount |
|
2010 |
|
$ |
62,120,921 |
|
2011 |
|
|
62,087,045 |
|
2012 |
|
|
61,512,520 |
|
2013 |
|
|
60,662,414 |
|
2014 |
|
|
60,310,254 |
|
Thereafter |
|
|
780,100,890 |
|
|
|
|
|
Total |
|
$ |
1,086,794,044 |
|
|
|
|
|
F-23
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information for the year
ended December 31, 2009 and the period from January 22, 2008 (date of inception) to December 31,
2008. The Company believes that all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly, and in accordance
with GAAP, the selected quarterly information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
Revenues |
|
$ |
826,207 |
|
|
$ |
2,658,288 |
|
|
$ |
7,699,435 |
|
|
$ |
11,819,604 |
|
Operating loss |
|
|
(2,014,851 |
) |
|
|
(2,769,495 |
) |
|
|
(278,696 |
) |
|
|
(719,854 |
) |
Net loss |
|
|
(2,178,994 |
) |
|
|
(2,752,676 |
) |
|
|
(974,229 |
) |
|
|
(1,914,947 |
) |
Basic and diluted net loss per share (1) |
|
|
(0.05 |
) |
|
|
(0.07 |
) |
|
|
(0.02 |
) |
|
|
(0.06 |
) |
Distributions per share |
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104,769 |
) |
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
1,003 |
|
|
|
(102,151 |
) |
Basic and diluted
net income (loss)
per share (1) |
|
|
|
|
|
|
|
|
|
|
0.05 |
|
|
|
(5.11 |
) |
Distributions per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on the weighted average number of shares outstanding as of December 31, 2009. |
NOTE 16 SUBSEQUENT EVENTS
Sale of Shares of Common Stock
As of March 29, 2009, the Company had received approximately $1.3 billion in gross offering
proceeds through the issuance of approximately 131.0 million shares of its common stock in the
Offering (including shares sold pursuant to the DRIP). As of March 29, 2009, approximately 101.4
million shares remained available for sale to the public for an aggregate offering price of
approximately $1.0 billion in the Offering, exclusive of shares available under the DRIP.
Follow-on Offering
Subsequent to December 31, 2009, the Company filed a registration statement on Form S-11 for a
follow-on public offering of up to 275,000,000 additional shares of its common stock (the
Follow-on Offering). As of March 29, 2010, the Follow-on Offering had not commenced.
Redemption of Shares of Common Stock
Subsequent
to December 31, 2009, the Company redeemed approximately 35,000 shares for
approximately $346,000.
Declaration of Distributions
Subsequent to December 31, 2009, the board of directors of the Company authorized a daily
distribution, based on 365 days in the calendar year, of $0.001918007 per share (which equates to
approximately 7.00% on an annualized bases calculated at the current rate, assuming a $10.00 per
share purchase price) for stockholders of record as of the close of business on each day of the
period commencing on April 1, 2010 and ending on June 30, 2010.
F-24
COLE CREDIT PROPERTY TRUST III, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Real Estate Acquisitions
Subsequent to December 31, 2009, the Company acquired a 100% interest in 27 commercial real
estate properties for an aggregate purchase price of approximately $205.3 million. The
acquisitions were funded with net proceeds of the Offering. The Company has not completed its
initial purchase price allocations with respect to these properties and therefore cannot provide
the disclosures included in Note 4 for these properties. Acquisition related expenses totaling
approximately $4.8 million were expensed as incurred.
Borrowing Base Revolving Credit Facility
Subsequent to December 31, 2009, the Company entered into a secured borrowing base revolving
credit facility (the JPMorgan Credit Facility) with JPMorgan Chase Bank, N.A., JPMorgan
Securities Inc. and other lending institutions providing up to $100.0 million until the maturity
date of January 6, 2013. Provided that the Company is in compliance with the terms of the JPMorgan
Credit Facility and sufficient commitments can be arranged by JPMorgan Chase Bank, the Company may
increase the amount of the JPMorgan Credit Facility to a maximum of $200.0 million. The Company can
elect to pay a variable interest rate equal to one, two or three month LIBO rate plus 350 basis
points or the prime rate plus 100 basis points, each with a minimum interest rate of 4.50% per
year. As of March 29, 2010, the borrowing base under the JPMorgan Credit Facility was approximately
$71.5 million based on the underlying collateral pool of 24 single-tenant commercial properties
that the Company own with an aggregate purchase price of approximately $145.5 million.
F-25
COLE CREDIT PROPERTY TRUST III, INC.
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount At |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which Carried at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company |
|
|
|
|
|
|
December 31, |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building & |
|
|
Adjustments |
|
|
2009 |
|
|
Depreciation |
|
|
Date |
|
Date |
|
Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(2) (3) |
|
|
(4) (5) |
|
|
Acquired |
|
Constructed |
|
Real Estate Held for
Investment the Company has Invest in
Under Operating Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University Plaza |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flagstaff, AZ |
|
$ |
8,350,000 |
|
|
$ |
3,008,421 |
|
|
$ |
11,544,503 |
|
|
$ |
|
|
|
$ |
14,552,924 |
|
|
$ |
42,837 |
|
|
11/17/09 |
|
|
1982 |
|
Mueller Regional Retail District |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austin, TX |
|
|
|
|
|
|
9,917,899 |
|
|
|
45,299,191 |
|
|
|
|
|
|
|
55,217,090 |
|
|
|
51,522 |
|
|
12/18/09 |
|
|
2008 |
|
Aaron Rents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattanooga, TN |
|
|
|
|
|
|
587,149 |
|
|
|
383,747 |
|
|
|
|
|
|
|
970,896 |
|
|
|
5,646 |
|
|
6/18/09 |
|
|
1989 |
|
Columbia, SC |
|
|
|
|
|
|
549,007 |
|
|
|
473,145 |
|
|
|
|
|
|
|
1,022,152 |
|
|
|
6,971 |
|
|
6/18/09 |
|
|
1977 |
|
Indianapolis, IN |
|
|
|
|
|
|
170,158 |
|
|
|
653,815 |
|
|
|
|
|
|
|
823,973 |
|
|
|
10,999 |
|
|
5/29/09 |
|
|
1998 |
|
Livingston, TX |
|
|
|
|
|
|
130,810 |
|
|
|
1,051,680 |
|
|
|
|
|
|
|
1,182,490 |
|
|
|
14,663 |
|
|
6/18/09 |
|
|
2008 |
|
Pasadena, TX |
|
|
|
|
|
|
377,396 |
|
|
|
786,887 |
|
|
|
|
|
|
|
1,164,283 |
|
|
|
11,045 |
|
|
6/18/09 |
|
|
2009 |
|
Richmond, VA |
|
|
|
|
|
|
419,326 |
|
|
|
1,032,502 |
|
|
|
|
|
|
|
1,451,828 |
|
|
|
14,450 |
|
|
6/30/09 |
|
|
1988 |
|
Shawnee, OK |
|
|
|
|
|
|
428,412 |
|
|
|
633,854 |
|
|
|
|
|
|
|
1,062,266 |
|
|
|
10,337 |
|
|
5/29/09 |
|
|
2008 |
|
Odessa, TX |
|
|
|
|
|
|
67,385 |
|
|
|
567,037 |
|
|
|
|
|
|
|
634,422 |
|
|
|
9,149 |
|
|
5/29/09 |
|
|
2006 |
|
Oxford , AL |
|
|
|
|
|
|
263,156 |
|
|
|
389,095 |
|
|
|
|
|
|
|
652,251 |
|
|
|
6,443 |
|
|
5/29/09 |
|
|
1989 |
|
Minden, LA |
|
|
|
|
|
|
252,137 |
|
|
|
830,918 |
|
|
|
|
|
|
|
1,083,055 |
|
|
|
13,400 |
|
|
5/29/09 |
|
|
2008 |
|
Meadville, PA |
|
|
|
|
|
|
167,537 |
|
|
|
841,107 |
|
|
|
|
|
|
|
1,008,644 |
|
|
|
15,734 |
|
|
5/29/09 |
|
|
1994 |
|
Humble, TX |
|
|
|
|
|
|
429,929 |
|
|
|
733,607 |
|
|
|
|
|
|
|
1,163,536 |
|
|
|
11,906 |
|
|
5/29/09 |
|
|
2008 |
|
Mexia, TX |
|
|
|
|
|
|
113,628 |
|
|
|
812,581 |
|
|
|
|
|
|
|
926,209 |
|
|
|
13,058 |
|
|
5/29/09 |
|
|
2007 |
|
Statesboro, GA |
|
|
|
|
|
|
310,995 |
|
|
|
734,226 |
|
|
|
|
|
|
|
1,045,221 |
|
|
|
10,285 |
|
|
6/18/09 |
|
|
2008 |
|
Mansura, LA |
|
|
|
|
|
|
54,081 |
|
|
|
416,603 |
|
|
|
|
|
|
|
470,684 |
|
|
|
5,912 |
|
|
6/18/09 |
|
|
2000 |
|
Battle Creek, MI |
|
|
|
|
|
|
228,339 |
|
|
|
484,650 |
|
|
|
|
|
|
|
712,989 |
|
|
|
7,429 |
|
|
6/18/09 |
|
|
1956 |
|
Killeen , TX |
|
|
|
|
|
|
608,236 |
|
|
|
2,241,032 |
|
|
|
|
|
|
|
2,849,268 |
|
|
|
32,554 |
|
|
6/18/09 |
|
|
1981 |
|
Haltom City, TX |
|
|
|
|
|
|
257,811 |
|
|
|
1,184,861 |
|
|
|
|
|
|
|
1,442,672 |
|
|
|
16,403 |
|
|
6/30/09 |
|
|
2008 |
|
Port Lavaca, TX |
|
|
|
|
|
|
127,583 |
|
|
|
894,040 |
|
|
|
|
|
|
|
1,021,623 |
|
|
|
12,461 |
|
|
6/30/09 |
|
|
2007 |
|
El Dorado, AR |
|
|
|
|
|
|
207,665 |
|
|
|
456,501 |
|
|
|
|
|
|
|
664,166 |
|
|
|
6,563 |
|
|
6/30/09 |
|
|
2000 |
|
Pensacola, FL |
|
|
|
|
|
|
263,464 |
|
|
|
423,123 |
|
|
|
|
|
|
|
686,587 |
|
|
|
6,529 |
|
|
6/30/09 |
|
|
1979 |
|
Benton Harbor, MI |
|
|
|
|
|
|
261,381 |
|
|
|
384,605 |
|
|
|
|
|
|
|
645,986 |
|
|
|
6,004 |
|
|
6/30/09 |
|
|
1973 |
|
Copperas Cove, TX |
|
|
|
|
|
|
304,151 |
|
|
|
964,273 |
|
|
|
|
|
|
|
1,268,424 |
|
|
|
13,710 |
|
|
6/30/09 |
|
|
2007 |
|
Texas City, TX |
|
|
|
|
|
|
293,702 |
|
|
|
1,311,111 |
|
|
|
|
|
|
|
1,604,813 |
|
|
|
12,799 |
|
|
8/31/09 |
|
|
1991 |
|
Academy Sports |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bossier City, LA |
|
|
|
|
|
|
1,920,125 |
|
|
|
5,410,060 |
|
|
|
|
|
|
|
7,330,185 |
|
|
|
75,762 |
|
|
6/19/09 |
|
|
2008 |
|
Fort Worth, TX |
|
|
|
|
|
|
1,871,414 |
|
|
|
4,117,071 |
|
|
|
|
|
|
|
5,988,485 |
|
|
|
57,597 |
|
|
6/19/09 |
|
|
2009 |
|
S-1
COLE CREDIT PROPERTY TRUST III, INC.
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount At |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which Carried at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company |
|
|
|
|
|
|
December 31, |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building & |
|
|
Adjustments |
|
|
2009 |
|
|
Depreciation |
|
|
Date |
|
Date |
|
Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(2) (3) |
|
|
(4) (5) |
|
|
Acquired |
|
Constructed |
|
Academy Sports (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laredo, TX |
|
|
|
|
|
|
2,132,729 |
|
|
|
4,839,170 |
|
|
|
|
|
|
|
6,971,899 |
|
|
|
67,363 |
|
|
6/19/09 |
|
|
2008 |
|
Montgomery, AL |
|
|
|
|
|
|
1,289,597 |
|
|
|
5,643,885 |
|
|
|
|
|
|
|
6,933,482 |
|
|
|
80,372 |
|
|
6/19/09 |
|
|
2009 |
|
Advanced Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Humble, TX |
|
|
|
|
|
|
291,877 |
|
|
|
1,085,870 |
|
|
|
|
|
|
|
1,377,747 |
|
|
|
1,153 |
|
|
12/16/09 |
|
|
2007 |
|
Lubbock, TX |
|
|
|
|
|
|
88,491 |
|
|
|
1,011,619 |
|
|
|
|
|
|
|
1,100,110 |
|
|
|
1,074 |
|
|
12/16/09 |
|
|
2008 |
|
Huntsville, TX |
|
|
|
|
|
|
134,427 |
|
|
|
1,046,214 |
|
|
|
|
|
|
|
1,180,641 |
|
|
|
1,110 |
|
|
12/16/09 |
|
|
2008 |
|
Houston (Aldine), TX |
|
|
|
|
|
|
189,514 |
|
|
|
1,071,818 |
|
|
|
|
|
|
|
1,261,332 |
|
|
|
1,139 |
|
|
12/16/09 |
|
|
2006 |
|
Webster, TX |
|
|
|
|
|
|
292,814 |
|
|
|
1,089,355 |
|
|
|
|
|
|
|
1,382,169 |
|
|
|
1,157 |
|
|
12/16/09 |
|
|
2008 |
|
Deer Park, TX |
|
|
|
|
|
|
218,678 |
|
|
|
1,131,100 |
|
|
|
|
|
|
|
1,349,778 |
|
|
|
1,198 |
|
|
12/16/09 |
|
|
2008 |
|
Houston
(Wallisville), TX |
|
|
|
|
|
|
139,963 |
|
|
|
1,245,271 |
|
|
|
|
|
|
|
1,385,234 |
|
|
|
1,319 |
|
|
12/16/09 |
|
|
2008 |
|
Houston (Imperial),
TX |
|
|
|
|
|
|
138,948 |
|
|
|
995,171 |
|
|
|
|
|
|
|
1,134,119 |
|
|
|
1,061 |
|
|
12/16/09 |
|
|
2008 |
|
Kingwood, TX |
|
|
|
|
|
|
182,585 |
|
|
|
1,182,528 |
|
|
|
|
|
|
|
1,365,113 |
|
|
|
1,249 |
|
|
12/16/09 |
|
|
2009 |
|
Best Buy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bourbannais, IL |
|
|
|
|
|
|
1,181,175 |
|
|
|
3,809,031 |
|
|
|
|
|
|
|
4,990,206 |
|
|
|
42,258 |
|
|
8/31/09 |
|
|
1991 |
|
Coral Springs, FL |
|
|
3,400,000 |
|
|
|
2,653,620 |
|
|
|
2,958,865 |
|
|
|
|
|
|
|
5,612,485 |
|
|
|
30,933 |
|
|
8/31/09 |
|
|
1993 |
|
Lakewood , CO |
|
|
(7 |
) |
|
|
2,318,432 |
|
|
|
4,603,285 |
|
|
|
|
|
|
|
6,921,717 |
|
|
|
46,880 |
|
|
8/31/09 |
|
|
1990 |
|
Cracker Barrel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Mill, SC |
|
|
1,363,979 |
|
|
|
968,515 |
|
|
|
1,614,592 |
|
|
|
|
|
|
|
2,583,107 |
|
|
|
27,258 |
|
|
6/30/09 |
|
|
2006 |
|
Greensboro, NC |
|
|
1,354,024 |
|
|
|
1,127,351 |
|
|
|
1,472,958 |
|
|
|
|
|
|
|
2,600,309 |
|
|
|
25,060 |
|
|
6/30/09 |
|
|
2005 |
|
San Antonio, TX |
|
|
1,503,364 |
|
|
|
1,129,077 |
|
|
|
1,686,633 |
|
|
|
|
|
|
|
2,815,710 |
|
|
|
28,488 |
|
|
6/30/09 |
|
|
2005 |
|
Braselton, GA |
|
|
1,363,979 |
|
|
|
951,943 |
|
|
|
1,630,170 |
|
|
|
|
|
|
|
2,582,113 |
|
|
|
27,620 |
|
|
6/30/09 |
|
|
2005 |
|
Bremen, GA |
|
|
1,214,639 |
|
|
|
692,587 |
|
|
|
1,686,225 |
|
|
|
|
|
|
|
2,378,812 |
|
|
|
28,199 |
|
|
6/30/09 |
|
|
2006 |
|
Mebane, NC |
|
|
1,134,990 |
|
|
|
679,356 |
|
|
|
1,553,311 |
|
|
|
|
|
|
|
2,232,667 |
|
|
|
26,278 |
|
|
6/30/09 |
|
|
2004 |
|
Rocky Mount, SC |
|
|
1,234,549 |
|
|
|
920,441 |
|
|
|
1,433,195 |
|
|
|
|
|
|
|
2,353,636 |
|
|
|
24,615 |
|
|
6/30/09 |
|
|
2006 |
|
Piedmont, SC |
|
|
1,533,232 |
|
|
|
1,217,681 |
|
|
|
1,672,428 |
|
|
|
|
|
|
|
2,890,109 |
|
|
|
28,239 |
|
|
6/30/09 |
|
|
2005 |
|
Abilene, TX |
|
|
1,533,232 |
|
|
|
1,109,724 |
|
|
|
1,666,084 |
|
|
|
|
|
|
|
2,775,808 |
|
|
|
28,307 |
|
|
6/30/09 |
|
|
2005 |
|
Sherman, TX |
|
|
1,493,406 |
|
|
|
1,216,847 |
|
|
|
1,578,835 |
|
|
|
|
|
|
|
2,795,682 |
|
|
|
26,320 |
|
|
6/30/09 |
|
|
2007 |
|
Bristol, VA |
|
|
1,144,945 |
|
|
|
578,305 |
|
|
|
1,642,777 |
|
|
|
|
|
|
|
2,221,082 |
|
|
|
27,815 |
|
|
6/30/09 |
|
|
2006 |
|
Emporia, VA |
|
|
1,164,858 |
|
|
|
722,090 |
|
|
|
1,526,997 |
|
|
|
|
|
|
|
2,249,087 |
|
|
|
26,420 |
|
|
6/30/09 |
|
|
2004 |
|
Waynesboro, VA |
|
|
1,413,760 |
|
|
|
1,071,994 |
|
|
|
1,608,340 |
|
|
|
|
|
|
|
2,680,334 |
|
|
|
27,055 |
|
|
6/30/09 |
|
|
2004 |
|
Woodstock, VA |
|
|
1,115,077 |
|
|
|
851,226 |
|
|
|
1,374,717 |
|
|
|
|
|
|
|
2,225,943 |
|
|
|
23,438 |
|
|
6/30/09 |
|
|
2005 |
|
Columbus, GA |
|
|
1,344,066 |
|
|
|
1,001,648 |
|
|
|
1,534,765 |
|
|
|
|
|
|
|
2,536,413 |
|
|
|
22,213 |
|
|
7/15/09 |
|
|
2003 |
|
S-2
COLE CREDIT PROPERTY TRUST III, INC.
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount At |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which Carried at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company |
|
|
|
|
|
|
December 31, |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building & |
|
|
Adjustments |
|
|
2009 |
|
|
Depreciation |
|
|
Date |
|
Date |
|
Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(2) (3) |
|
|
(4) (5) |
|
|
Acquired |
|
Constructed |
|
CVS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredericksburg, VA |
|
|
|
|
|
|
1,936,150 |
|
|
|
3,736,549 |
|
|
|
|
|
|
|
5,672,699 |
|
|
|
89,842 |
|
|
1/6/09 |
|
|
2008 |
|
Edinburg, TX |
|
|
|
|
|
|
1,132,721 |
|
|
|
2,326,783 |
|
|
|
|
|
|
|
3,459,504 |
|
|
|
22,484 |
|
|
8/13/09 |
|
|
2008 |
|
Southaven, MS |
|
|
2,700,000 |
|
|
|
1,885,325 |
|
|
|
2,835,528 |
|
|
|
|
|
|
|
4,720,853 |
|
|
|
32,921 |
|
|
7/31/09 |
|
|
2009 |
|
Liberty, MO |
|
|
(7 |
) |
|
|
1,505,760 |
|
|
|
2,508,205 |
|
|
|
|
|
|
|
4,013,965 |
|
|
|
24,281 |
|
|
8/13/09 |
|
|
2009 |
|
McAllen, TX |
|
|
|
|
|
|
1,207,870 |
|
|
|
2,673,588 |
|
|
|
|
|
|
|
3,881,458 |
|
|
|
25,735 |
|
|
8/13/09 |
|
|
2009 |
|
Noblesville, IN |
|
|
(7 |
) |
|
|
1,084,208 |
|
|
|
2,684,399 |
|
|
|
|
|
|
|
3,768,607 |
|
|
|
25,860 |
|
|
8/13/09 |
|
|
2009 |
|
Oak Forest, IL |
|
|
(7 |
) |
|
|
1,234,898 |
|
|
|
2,731,171 |
|
|
|
|
|
|
|
3,966,069 |
|
|
|
26,181 |
|
|
8/13/09 |
|
|
2009 |
|
Newport News, VA |
|
|
|
|
|
|
1,372,246 |
|
|
|
3,140,334 |
|
|
|
|
|
|
|
4,512,580 |
|
|
|
30,681 |
|
|
8/13/09 |
|
|
2009 |
|
Virginia Beach, VA |
|
|
|
|
|
|
2,291,144 |
|
|
|
3,029,402 |
|
|
|
|
|
|
|
5,320,546 |
|
|
|
29,597 |
|
|
8/13/09 |
|
|
2009 |
|
Sparks, NV |
|
|
|
|
|
|
2,099,899 |
|
|
|
2,829,227 |
|
|
|
|
|
|
|
4,929,126 |
|
|
|
26,845 |
|
|
8/13/09 |
|
|
2009 |
|
Kyle, TX |
|
|
|
|
|
|
995,732 |
|
|
|
2,854,671 |
|
|
|
|
|
|
|
3,850,403 |
|
|
|
27,765 |
|
|
8/13/09 |
|
|
2008 |
|
Raymore, MO |
|
|
|
|
|
|
1,028,106 |
|
|
|
3,035,655 |
|
|
|
|
|
|
|
4,063,761 |
|
|
|
29,217 |
|
|
8/14/09 |
|
|
2007 |
|
Thomasville, NC |
|
|
|
|
|
|
878,477 |
|
|
|
2,062,355 |
|
|
|
|
|
|
|
2,940,832 |
|
|
|
19,474 |
|
|
8/14/09 |
|
|
2008 |
|
Lees Summit, MO |
|
|
|
|
|
|
1,198,902 |
|
|
|
2,723,045 |
|
|
|
|
|
|
|
3,921,947 |
|
|
|
20,391 |
|
|
9/29/09 |
|
|
2007 |
|
Meridianville, AL |
|
|
|
|
|
|
1,021,151 |
|
|
|
2,453,958 |
|
|
|
|
|
|
|
3,475,109 |
|
|
|
2,595 |
|
|
12/30/09 |
|
|
2008 |
|
FedEx |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effingham, IL |
|
|
|
|
|
|
1,320,608 |
|
|
|
11,136,840 |
|
|
|
|
|
|
|
12,457,448 |
|
|
|
11,762 |
|
|
12/29/09 |
|
|
2008 |
|
Harris Teeter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Durham, NC |
|
|
1,700,000 |
|
|
|
2,851,788 |
|
|
|
|
|
|
|
|
|
|
|
2,851,788 |
|
|
|
|
|
|
7/31/09 |
|
|
(6 |
) |
HH Gregg Appliances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Charleston, SC |
|
|
2,700,000 |
|
|
|
1,665,290 |
|
|
|
3,369,254 |
|
|
|
|
|
|
|
5,034,544 |
|
|
|
44,823 |
|
|
7/2/09 |
|
|
2000 |
|
Home Depot |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Vegas, NV |
|
|
|
|
|
|
7,167,378 |
|
|
|
|
|
|
|
|
|
|
|
7,167,378 |
|
|
|
|
|
|
4/15/09 |
|
|
(6 |
) |
Odessa, TX |
|
|
|
|
|
|
4,703,721 |
|
|
|
|
|
|
|
|
|
|
|
4,703,721 |
|
|
|
|
|
|
4/15/09 |
|
|
(6 |
) |
San Diego, CA |
|
|
6,350,000 |
|
|
|
10,288,307 |
|
|
|
|
|
|
|
|
|
|
|
10,288,307 |
|
|
|
|
|
|
4/15/09 |
|
|
(6 |
) |
San Jose, CA |
|
|
|
|
|
|
7,404,393 |
|
|
|
|
|
|
|
|
|
|
|
7,404,393 |
|
|
|
|
|
|
4/15/09 |
|
|
(6 |
) |
Winchester, VA |
|
|
14,900,000 |
|
|
|
1,723,952 |
|
|
|
20,702,659 |
|
|
|
|
|
|
|
22,426,611 |
|
|
|
111,311 |
|
|
10/21/09 |
|
|
2008 |
|
Tucson, AZ |
|
|
6,025,000 |
|
|
|
6,125,093 |
|
|
|
|
|
|
|
|
|
|
|
6,125,093 |
|
|
|
|
|
|
10/21/09 |
|
|
(6 |
) |
Kohls |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia, SC |
|
|
6,275,000 |
|
|
|
1,483,579 |
|
|
|
9,462,197 |
|
|
|
|
|
|
|
10,945,776 |
|
|
|
10,055 |
|
|
12/7/09 |
|
|
2007 |
|
Burnsville, MN |
|
|
(7 |
) |
|
|
3,830,388 |
|
|
|
5,854,300 |
|
|
|
|
|
|
|
9,684,688 |
|
|
|
143,926 |
|
|
1/9/09 |
|
|
1991 |
|
Tavares, FL |
|
|
4,400,000 |
|
|
|
7,926,365 |
|
|
|
|
|
|
|
|
|
|
|
7,926,365 |
|
|
|
|
|
|
6/30/09 |
|
|
(6 |
) |
S-3
COLE CREDIT PROPERTY TRUST III, INC.
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount At |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which Carried at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company |
|
|
|
|
|
|
December 31, |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building & |
|
|
Adjustments |
|
|
2009 |
|
|
Depreciation |
|
|
Date |
|
Date |
|
Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(2) (3) |
|
|
(4) (5) |
|
|
Acquired |
|
Constructed |
|
Kohls (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Orange, FL |
|
|
|
|
|
|
9,074,017 |
|
|
|
|
|
|
|
|
|
|
|
9,074,017 |
|
|
|
|
|
|
7/23/09 |
|
|
(6 |
) |
Monrovia, CA |
|
|
6,500,000 |
|
|
|
5,441,272 |
|
|
|
5,504,849 |
|
|
|
|
|
|
|
10,946,121 |
|
|
|
68,816 |
|
|
7/30/09 |
|
|
1982 |
|
Rancho Cordova, CA |
|
|
|
|
|
|
2,848,075 |
|
|
|
4,099,511 |
|
|
|
|
|
|
|
6,947,586 |
|
|
|
56,465 |
|
|
7/30/09 |
|
|
1982 |
|
Kum & Go |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rogers, AR |
|
|
|
|
|
|
788,804 |
|
|
|
918,620 |
|
|
|
|
|
|
|
1,707,424 |
|
|
|
1,016 |
|
|
12/30/09 |
|
|
2008 |
|
Lowell, AR |
|
|
|
|
|
|
727,818 |
|
|
|
1,005,444 |
|
|
|
|
|
|
|
1,733,262 |
|
|
|
1,101 |
|
|
12/30/09 |
|
|
2009 |
|
Bentonville, AR |
|
|
|
|
|
|
567,766 |
|
|
|
913,018 |
|
|
|
|
|
|
|
1,480,784 |
|
|
|
1,013 |
|
|
12/30/09 |
|
|
2009 |
|
L.A. Fitness |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carmel, IN |
|
|
|
|
|
|
1,391,937 |
|
|
|
5,435,091 |
|
|
|
|
|
|
|
6,827,028 |
|
|
|
82,112 |
|
|
6/30/09 |
|
|
2008 |
|
Glendale, AZ |
|
|
|
|
|
|
1,920,108 |
|
|
|
3,213,815 |
|
|
|
|
|
|
|
5,133,923 |
|
|
|
19,683 |
|
|
10/30/09 |
|
|
2005 |
|
Spring, TX |
|
|
|
|
|
|
1,371,671 |
|
|
|
5,011,453 |
|
|
|
|
|
|
|
6,383,124 |
|
|
|
16,114 |
|
|
11/20/09 |
|
|
2006 |
|
Lowes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Vegas, NV |
|
|
5,900,000 |
|
|
|
9,096,367 |
|
|
|
|
|
|
|
|
|
|
|
9,096,367 |
|
|
|
|
|
|
3/31/09 |
|
|
(6 |
) |
Kansas City, MO |
|
|
4,250,000 |
|
|
|
4,323,035 |
|
|
|
|
|
|
|
|
|
|
|
4,323,035 |
|
|
|
|
|
|
11/20/09 |
|
|
(6 |
) |
Publix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountain Brook, AL |
|
|
3,275,000 |
|
|
|
2,492,479 |
|
|
|
2,829,987 |
|
|
|
|
|
|
|
5,322,466 |
|
|
|
3,162 |
|
|
12/1/09 |
|
|
2004 |
|
Sams Club |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hoover, AL |
|
|
|
|
|
|
2,082,988 |
|
|
|
9,223,475 |
|
|
|
|
|
|
|
11,306,463 |
|
|
|
245,271 |
|
|
1/15/09 |
|
|
2000 |
|
Staples |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iowa City, IA |
|
|
(7 |
) |
|
|
1,222,532 |
|
|
|
2,200,558 |
|
|
|
|
|
|
|
3,423,090 |
|
|
|
7,599 |
|
|
11/13/09 |
|
|
2009 |
|
Stripes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rio Hondo, TX |
|
|
|
|
|
|
272,920 |
|
|
|
1,840,395 |
|
|
|
|
|
|
|
2,113,315 |
|
|
|
1,936 |
|
|
12/30/09 |
|
|
2007 |
|
Pharr, TX |
|
|
|
|
|
|
383,829 |
|
|
|
1,712,296 |
|
|
|
|
|
|
|
2,096,125 |
|
|
|
1,818 |
|
|
12/30/09 |
|
|
1997 |
|
Andrews, TX |
|
|
|
|
|
|
110,101 |
|
|
|
1,776,747 |
|
|
|
|
|
|
|
1,886,848 |
|
|
|
1,874 |
|
|
12/30/09 |
|
|
2008 |
|
LaFeria, TX |
|
|
|
|
|
|
321,165 |
|
|
|
1,270,962 |
|
|
|
|
|
|
|
1,592,127 |
|
|
|
1,362 |
|
|
12/30/09 |
|
|
2008 |
|
Tractor Supply |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Del Rio, TX |
|
|
|
|
|
|
657,268 |
|
|
|
1,386,541 |
|
|
|
|
|
|
|
2,043,809 |
|
|
|
17,342 |
|
|
7/27/09 |
|
|
2009 |
|
Edinburg, TX |
|
|
|
|
|
|
571,193 |
|
|
|
2,051,310 |
|
|
|
|
|
|
|
2,622,503 |
|
|
|
25,157 |
|
|
7/27/09 |
|
|
2009 |
|
Roswell, TX |
|
|
|
|
|
|
728,253 |
|
|
|
1,468,643 |
|
|
|
|
|
|
|
2,196,896 |
|
|
|
18,314 |
|
|
7/27/09 |
|
|
2009 |
|
Irmo, SC |
|
|
1,125,000 |
|
|
|
696,808 |
|
|
|
1,500,704 |
|
|
|
|
|
|
|
2,197,512 |
|
|
|
10,692 |
|
|
10/15/09 |
|
|
2009 |
|
Gloucester, NJ |
|
|
2,600,000 |
|
|
|
1,590,385 |
|
|
|
2,961,779 |
|
|
|
|
|
|
|
4,552,164 |
|
|
|
3,466 |
|
|
12/17/09 |
|
|
2009 |
|
S-4
COLE CREDIT PROPERTY TRUST III, INC.
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount At |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which Carried at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company |
|
|
|
|
|
|
December 31, |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building & |
|
|
Adjustments |
|
|
2009 |
|
|
Depreciation |
|
|
Date |
|
Date |
|
Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(2) (3) |
|
|
(4) (5) |
|
|
Acquired |
|
Constructed |
|
Walgreens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredericksburg, VA |
|
|
3,865,000 |
|
|
|
2,729,354 |
|
|
|
4,072,149 |
|
|
|
|
|
|
|
6,801,503 |
|
|
|
97,967 |
|
|
1/9/09 |
|
|
2008 |
|
Indianapolis, IN |
|
|
(7 |
) |
|
|
841,851 |
|
|
|
4,797,918 |
|
|
|
|
|
|
|
5,639,769 |
|
|
|
115,335 |
|
|
1/6/09 |
|
|
2008 |
|
Tulsa, OK |
|
|
2,065,000 |
|
|
|
1,130,250 |
|
|
|
2,414,215 |
|
|
|
|
|
|
|
3,544,465 |
|
|
|
60,326 |
|
|
1/6/09 |
|
|
2001 |
|
Dunkirk , NY |
|
|
|
|
|
|
1,042,846 |
|
|
|
2,549,180 |
|
|
|
|
|
|
|
3,592,026 |
|
|
|
40,081 |
|
|
5/29/09 |
|
|
2008 |
|
Edmond, OK |
|
|
2,250,000 |
|
|
|
900,524 |
|
|
|
2,655,912 |
|
|
|
|
|
|
|
3,556,436 |
|
|
|
34,901 |
|
|
7/7/09 |
|
|
2000 |
|
Stillwater, OK |
|
|
|
|
|
|
561,623 |
|
|
|
2,902,633 |
|
|
|
|
|
|
|
3,464,256 |
|
|
|
38,238 |
|
|
7/21/09 |
|
|
2000 |
|
Denton, TX |
|
|
|
|
|
|
886,866 |
|
|
|
3,534,563 |
|
|
|
|
|
|
|
4,421,429 |
|
|
|
41,056 |
|
|
7/24/09 |
|
|
2009 |
|
Nampa, ID |
|
|
|
|
|
|
1,028,216 |
|
|
|
2,854,694 |
|
|
|
|
|
|
|
3,882,910 |
|
|
|
21,520 |
|
|
9/18/09 |
|
|
2009 |
|
St. George, UT |
|
|
|
|
|
|
1,408,734 |
|
|
|
4,276,915 |
|
|
|
|
|
|
|
5,685,649 |
|
|
|
31,930 |
|
|
9/30/09 |
|
|
2008 |
|
McPherson, KS |
|
|
|
|
|
|
880,757 |
|
|
|
2,906,499 |
|
|
|
|
|
|
|
3,787,256 |
|
|
|
21,352 |
|
|
9/30/09 |
|
|
2009 |
|
Grand Junction, CO |
|
|
(7 |
) |
|
|
1,040,712 |
|
|
|
3,214,515 |
|
|
|
|
|
|
|
4,255,227 |
|
|
|
24,024 |
|
|
9/30/09 |
|
|
2009 |
|
Houston, TX |
|
|
|
|
|
|
1,765,518 |
|
|
|
3,214,462 |
|
|
|
|
|
|
|
4,979,980 |
|
|
|
24,190 |
|
|
9/30/09 |
|
|
2009 |
|
Spearfish, SD |
|
|
|
|
|
|
1,027,903 |
|
|
|
3,354,941 |
|
|
|
|
|
|
|
4,382,844 |
|
|
|
17,766 |
|
|
10/6/09 |
|
|
2008 |
|
Papillion, NE |
|
|
|
|
|
|
1,038,958 |
|
|
|
2,730,820 |
|
|
|
|
|
|
|
3,769,778 |
|
|
|
14,440 |
|
|
10/6/09 |
|
|
2009 |
|
Chickasha, TX |
|
|
|
|
|
|
746,061 |
|
|
|
2,900,097 |
|
|
|
|
|
|
|
3,646,158 |
|
|
|
15,925 |
|
|
10/14/09 |
|
|
2007 |
|
Warner Robins, GA |
|
|
|
|
|
|
1,170,598 |
|
|
|
2,585,071 |
|
|
|
|
|
|
|
3,755,669 |
|
|
|
14,233 |
|
|
10/20/09 |
|
|
2007 |
|
Goose Creek, SC |
|
|
2,700,000 |
|
|
|
1,276,997 |
|
|
|
3,240,066 |
|
|
|
|
|
|
|
4,517,063 |
|
|
|
17,323 |
|
|
10/29/09 |
|
|
2009 |
|
South Bend, IN |
|
|
(7 |
) |
|
|
1,233,781 |
|
|
|
3,244,938 |
|
|
|
|
|
|
|
4,478,719 |
|
|
|
10,197 |
|
|
11/18/09 |
|
|
2007 |
|
Machesney Park, IL |
|
|
|
|
|
|
875,236 |
|
|
|
2,918,017 |
|
|
|
|
|
|
|
3,793,253 |
|
|
|
3,082 |
|
|
12/16/09 |
|
|
2008 |
|
Janesville, WI |
|
|
|
|
|
|
1,423,241 |
|
|
|
3,775,559 |
|
|
|
|
|
|
|
5,198,800 |
|
|
|
3,989 |
|
|
12/18/09 |
|
|
2008 |
|
South Bend
(Ironwood), IN |
|
|
|
|
|
|
1,537,957 |
|
|
|
3,656,719 |
|
|
|
|
|
|
|
5,194,676 |
|
|
|
3,878 |
|
|
12/21/09 |
|
|
2006 |
|
Brooklyn Park, MD |
|
|
|
|
|
|
1,323,349 |
|
|
|
3,301,284 |
|
|
|
|
|
|
|
4,624,633 |
|
|
|
3,475 |
|
|
12/23/09 |
|
|
2008 |
|
St. Charles, IL |
|
|
|
|
|
|
1,457,172 |
|
|
|
2,242,678 |
|
|
|
|
|
|
|
3,699,850 |
|
|
|
2,398 |
|
|
12/30/09 |
|
|
2002 |
|
Elgin, IL |
|
|
|
|
|
|
1,561,311 |
|
|
|
2,468,896 |
|
|
|
|
|
|
|
4,030,207 |
|
|
|
2,634 |
|
|
12/30/09 |
|
|
2002 |
|
Wal-Mart |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albuquerque, NM |
|
|
9,935,000 |
|
|
|
14,432,313 |
|
|
|
|
|
|
|
|
|
|
|
14,432,313 |
|
|
|
|
|
|
3/31/09 |
|
|
(6 |
) |
Las Vegas , NV |
|
|
8,125,000 |
|
|
|
13,236,525 |
|
|
|
|
|
|
|
|
|
|
|
13,236,525 |
|
|
|
|
|
|
3/31/09 |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
129,302,100 |
|
|
$ |
231,685,827 |
|
|
$ |
364,739,093 |
|
|
$ |
|
|
|
$ |
596,424,920 |
|
|
$ |
3,178,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-5
|
|
|
(1) |
|
As of December 31, 2009, we owned 131 single-tenant, freestanding commercial properties and two
multi-tenant retail properties. |
|
(2) |
|
The aggregate cost for federal income tax purposes is approximately $721.6 million. |
|
(3) |
|
The following is a reconciliation of total real estate carrying value for the years ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Balance, beginning of period |
|
$ |
|
|
|
$ |
|
|
Additions |
|
|
|
|
|
|
|
|
Acquisitions |
|
|
596,424,920 |
|
|
|
|
|
Improvements |
|
|
|
|
|
|
|
|
Adjustment to basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions |
|
|
596,424,920 |
|
|
|
|
|
|
|
|
|
|
|
|
Deductions |
|
|
|
|
|
|
|
|
Cost of real estate sold |
|
|
|
|
|
|
|
|
Other (including
provisions for
impairment of real
estate assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
596,424,920 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
The following is a reconciliation of accumulated depreciation for the years ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Balance, beginning of period |
|
$ |
|
|
|
$ |
|
|
Additions |
|
|
|
|
|
|
|
|
Acquisitions
Depreciation Expense
for Building,
Acquisition Costs &
Tenant Improvements
Acquired |
|
|
3,178,078 |
|
|
|
|
|
Improvements
Depreciation Expense
for Tenant Improvements
and Building Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions |
|
|
3,178,078 |
|
|
|
|
|
|
|
|
|
|
|
|
Deductions |
|
|
|
|
|
|
|
|
Cost of real estate sold |
|
|
|
|
|
|
|
|
Other (including
provisions for
impairment of real
estate assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
3,178,078 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
The Companys assets are depreciated or amortized using the straight-lined
method over the useful lives of the assets by class. Generally, tenant
improvements and lease intangibles are amortized over the respective lease
term and buildings are depreciated over 40 years. |
|
(6) |
|
Subject to a ground lease and therefore date constructed is not applicable. |
|
(7) |
|
Part of the TCF Loans underlying collateral pool of nine single-tenant
commercial properties. As of December 31, 2009, the Company had no
outstanding balance under the TCF Loan. |
S-6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized this 29th day of March, 2010.
|
|
|
|
|
|
Cole Credit Property Trust III, Inc.
|
|
|
By: |
/s/ CHRISTOPHER H. COLE
|
|
|
|
Name: |
Christopher H. Cole |
|
|
|
Title: |
Chief Executive Officer and President
(Principal Executive Officer) |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacity as on the
date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ CHRISTOPHER H. COLE
Christopher H. Cole
|
|
Chief Executive Officer,
President and Director
(Principal Executive
Officer)
|
|
March 29, 2010 |
|
|
|
|
|
/s/ D. KIRK MCALLASTER, JR.
D. Kirk McAllaster, Jr.
|
|
Executive Vice President
and Chief Financial
Officer (Principal
Financial Officer)
|
|
March 29, 2010 |
|
|
|
|
|
/s/ THOMAS A. ANDRUSKEVICH
Thomas A. Andruskevich
|
|
Director
|
|
March 29, 2010 |
|
|
|
|
|
/s/ MARCUS E. BROMLEY
Marcus E. Bromley
|
|
Director
|
|
March 29, 2010 |
|
|
|
|
|
/s/ SCOTT P. SEALY
Scott P. Sealy
|
|
Director
|
|
March 29, 2010 |
|
|
|
|
|
/s/ LEONARD W. WOOD
Leonard W. Wood
|
|
Director
|
|
March 29, 2010 |
EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Annual Report on
Form 10-K for the year ended December 31, 2009 (and are numbered in accordance with Item 601 of
Regulation S-K).
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
3.1 |
|
|
Third Articles of Amendment and Restatement of Cole Credit
Property Trust III, Inc. (Incorporated by reference to Exhibit 3.1
to the Companys pre-effective amendment to its Registration
Statement on Form S-11 (File No. 333-149290), filed on
September 29, 2008). |
|
3.2 |
|
|
Amended and Restated Bylaws of Cole Credit Property Trust III,
Inc. (Incorporated by reference to Exhibit 3.2 to the Companys
pre-effective amendment to its Registration Statement on Form S-11
(File No. 333-149290), filed on May 7, 2008). |
|
4.1 |
|
|
Form of Subscription Agreement and Subscription Agreement
Signature Page (Incorporated by reference to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on January 29, 2010). |
|
4.2 |
|
|
Form of Additional Investment Subscription Agreement (Incorporated
by reference to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on January 29, 2010). |
|
10.1 |
|
|
Property Management and Leasing Agreement by and among Cole Credit
Property Trust III, Inc., Cole REIT III Operating Partnership, LP
and Cole Realty Advisors, Inc., dated October 8, 2008
(Incorporated by reference to Exhibit 10.3 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on October 9, 2008). |
|
10.2 |
|
|
Advisory Agreement by and between Cole Credit Property Trust III,
Inc. and Cole REIT Advisors III, LLC. dated October 8, 2008
(Incorporated by reference to Exhibit 10.4 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on October 9, 2008). |
|
10.3 |
|
|
Amended and Restated Agreement of Limited Partnership of Cole REIT
III Operating Partnership, LP, by and between Cole Credit Property
Trust III, Inc. and the limited partners thereto dated May 6, 2008
(Incorporated by reference to Exhibit 10.5 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on October 9, 2008). |
|
10.4 |
|
|
Distribution Reinvestment Plan (Incorporated by reference to
Appendix D to the prospectus to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File No.
333-149290), filed January 29, 2010). |
|
10.5 |
* |
|
Dealer Manager Agreement, dated September 30, 2008, between Cole
Credit Property Trust III, Inc. and Cole Capital Corporation. |
|
10.6 |
|
|
Escrow Agreement between Cole Credit Property Trust III, Inc. and
UMB Bank, N.A. dated September 16, 2008. (Incorporated by
reference to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on October 9, 2008). |
|
10.7 |
|
|
Purchase and Sale Agreement, dated January 6, 2009, between Cole
REIT III Operating Partnership, LP and Series B, LLC to purchase
100% of the membership interests in Cole CV Fredericksburg VA, LLC
(Incorporated by reference to Exhibit 10.6 to the Companys Annual
Report on Form 10-K (File No. 333-149290), filed on March 31,
2009). |
|
10.8 |
|
|
Security Agreement, dated January 6, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.7 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.9 |
|
|
Promissory Note, dated January 6, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.8 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.10 |
|
|
Instrument of Assignment and Assumption, dated January 6, 2009,
between Cole REIT III Operating Partnership, LP and Series B, LLC
(Incorporated by reference to Exhibit 10.9 to the Companys
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.11 |
|
|
Purchase and Sale Agreement, dated January 6, 2009 between Cole
REIT III Operating Partnership, LP and Series B, LLC to purchase
100% of the membership interests in Cole WG Indianapolis IN, LLC
(Incorporated by reference to Exhibit 10.10 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009) |
|
10.12 |
|
|
Security Agreement, dated January 6, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.11 to the Companys Form 10-K (File
No. 333-149290), filed on March 31, 2009). |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.13 |
|
|
Promissory Note, dated January 6, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.12 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.14 |
|
|
Instrument of Assignment and Assumption, dated January 6, 2009,
between Cole REIT III Operating Partnership, LP and Series B, LLC
(Incorporated by reference to Exhibit 10.13 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009). |
|
10.15 |
|
|
Purchase and Sale Agreement, dated January 6, 2009, between Cole
REIT III Operating Partnership, LP and Series C, LLC to purchase
100% of the membership interest in Cole WG South Yale Avenue
(Tulsa) OK, LLC (Incorporated by reference to Exhibit 10.14 to the
Companys Annual Report on Form 10-K (File No. 333-149290), filed
on March 31, 2009). |
|
10.16 |
|
|
Security Agreement, dated January 6, 2009, between Cole REIT III
Operating Partnership, LP and Series C, LLC (Incorporated by
reference to Exhibit 10.15 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.17 |
|
|
Promissory Note, dated January 6, 2009, between Cole REIT III
Operating Partnership, LP and Series C, LLC (Incorporated by
reference to Exhibit 10.16 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.18 |
|
|
Instrument of Assignment and Assumption, dated January 6, 2009,
between Cole REIT III Operating Partnership, LP and Series C, LLC
(Incorporated by reference to Exhibit 10.17 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009). |
|
10.19 |
|
|
Purchase and Sale Agreement, dated January 9, 2009, between Cole
REIT III Operating Partnership, LP and Series B, LLC to purchase
100% of the membership interest in Cole WG. Fredericksburg VA, LLC
(Incorporated by reference to Exhibit 10.18 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009). |
|
10.20 |
|
|
Security Agreement, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.19 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.21 |
|
|
Promissory Note, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.20 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.22 |
|
|
Instrument of Assignment and Assumption, dated January 9, 2009,
between Cole REIT III Operating Partnership, LP and Series B, LLC
(Incorporated by reference to Exhibit 10.21 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009). |
|
10.23 |
|
|
Purchase and Sale Agreement, dated January 9, 2009, between Cole
REIT III Operating Partnership, LP and Series B, LLC, Series C,
LLC and Series D, LLC to purchase 100% of the membership interest
in Cole KO Burnsville MN, LLC (Incorporated by reference to
Exhibit 10.22 to the Companys Annual Report on Form 10-K (File
No. 333-149290), filed on March 31, 2009). |
|
10.24 |
|
|
Security Agreement, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.23 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.25 |
|
|
Security Agreement, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series C, LLC (Incorporated by
reference to Exhibit 10.24 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.26 |
|
|
Security Agreement, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series D, LLC (Incorporated by
reference to Exhibit 10.25 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.27 |
|
|
Promissory Note, dated January 9, 2009 between Cole REIT III
Operating Partnership, LP and Series B, LLC (Incorporated by
reference to Exhibit 10.26 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.28 |
|
|
Promissory Note, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series C, LLC (Incorporated by
reference to Exhibit 10.27 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.29 |
|
|
Promissory Note, dated January 9, 2009, between Cole REIT III
Operating Partnership, LP and Series D, LLC (Incorporated by
reference to Exhibit 10.28 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.30 |
|
|
Instrument of Assignment and Assumption, dated January 9, 2009,
between Cole REIT III Operating Partnership, LP and Series B, LLC,
Series C, LLC and Series D, LLC (Incorporated by reference to
Exhibit 10.29 to the Companys Annual Report on Form 10-K (File
No. 333-149290), filed on March 31, 2009). |
|
10.31 |
|
|
Purchase and Sale Agreement, dated January 15, 2009, between Cole
REIT III Operating Partnership, LP and Series D, LLC to purchase
100% of the membership interest in Cole SC Hoover AL, LLC
(Incorporated by reference to Exhibit 10.30 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009). |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.32 |
|
|
Security Agreement, dated January 15, 2009, between Cole REIT III
Operating Partnership, LP and Series D, LLC (Incorporated by
reference to Exhibit 10.31 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.33 |
|
|
Promissory Note, dated January 15, 2009, between Cole REIT III
Operating Partnership, LP and Series D, LLC (Incorporated by
reference to Exhibit 10.32 to the Companys Annual Report on
Form 10-K (File No. 333-149290), filed on March 31, 2009). |
|
10.34 |
|
|
Instrument of Assignment and Assumption, dated January 15, 2009,
between Cole REIT III Operating Partnership, LP and Series D, LLC
(Incorporated by reference to Exhibit 10.33 to the Companys
Annual Report on Form 10-K (File No. 333-149290), filed on
March 31, 2009). |
|
10.35 |
|
|
First Mortgage, Security Agreement and Fixture Filing, dated as of
June 22, 2009, by and between Cole WM Albuquerque NM, LLC and
Aviva Life and Annuity Company (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|
10.36 |
|
|
Junior Mortgage, Security and Fixture Filing Agreement, dated as
of June 22, 2009, by and between Cole WM Albuquerque NM, LLC and
Aviva Life and Annuity Company (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|
10.37 |
|
|
Promissory Note, dated June 22, 2009, by and between Cole WM
Albuquerque NM, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K (File No. 333-149290), filed on June
26, 2009). |
|
10.38 |
|
|
First Deed of Trust, Security Agreement and Fixture Filing, dated
as of June 22, 2009, by and between Cole MT Las Vegas NV, LLC and
Aviva Life and Annuity Company (Incorporated by reference to
Exhibit 10.4 to the Companys Current Report on Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|
10.39 |
|
|
Promissory Note, dated June 22, 2009, by and between Cole MT Las
Vegas NV, LLC and Aviva Life and Annuity Company (Incorporated by
reference to Exhibit 10.5 to the Companys Current Report on Form
8-K (File No. 333-149290), filed on June 26, 2009). |
|
10.40 |
|
|
First Mortgage, Security Agreement and Fixture Filing, dated as of
June 22, 2009, by and between Cole WG South Yale Avenue (Tulsa)
OK, LLC and Aviva Life and Annuity Company (Incorporated by
reference to Exhibit 10.6 to the Companys Current Report on Form
8-K (File No. 333-149290), filed on June 26, 2009). |
|
10.41 |
|
|
Promissory Note, dated June 22, 2009, by and between Cole WG South
Yale Avenue (Tulsa) OK, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.7 to the Companys
Current Report on Form 8-K (File No. 333-149290), filed on June
26, 2009). |
|
10.42 |
|
|
First Deed of Trust, Security Agreement and Fixture Filing, dated
June 22, 2009, by and between Cole WG Fredericksburg VA, LLC and
Aviva Life and Annuity Company (Incorporated by reference to
Exhibit 10.8 to the Companys Current Report on Form 8-K (File No.
333-149290), filed on June 26, 2009). |
|
10.43 |
|
|
Promissory Note, dated June 22, 2009, by and between Cole WG
Fredericksburg VA, LLC and Aviva Life and Annuity Company
(Incorporated by reference to Exhibit 10.9 to the Companys
Current Report on Form 8-K (File No. 333-149290), filed on June
26, 2009). |
|
10.44 |
|
|
Loan Agreement dated August 31, 2009, by and between Jackson
National Life Insurance Company, as Lender and Cole HD San Diego
CA, LP; Cole HT Durham NC, LLC; Cole KO Monrovia CA, LP; COLE HH
North Charleston SC, LLC; Cole WG Edmond OK, LLC; Cole CV
Southaven MS, LLC; Cole KO Tavares FL, LLC; Cole BB Coral Springs
FL, LLC, collectively as Borrowers. (Incorporated by reference to Exhibit 10.43 to
the Companys post-effective amendment to its Registration
Statement on Form S-11 (File No. 333-149290), filed on November 2,
2009). |
|
10.45 |
|
|
Fixed Rate Promissory Note dated August 31, 2009 by and between
Jackson National Life Insurance Company, as Noteholder and Cole HD
San Diego CA, LP; Cole HT Durham NC, LLC; Cole KO Monrovia CA,
LP; COLE HH North Charleston SC, LLC; Cole WG Edmond OK, LLC; Cole
CV Southaven MS, LLC; Cole KO Tavares FL, LLC; Cole BB Coral
Springs FL, LLC collectively as Maker (Incorporated by reference
to Exhibit 10.44 to the Companys post-effective amendment to its Registration
Statement on Form S-11 (File No. 333-149290), filed on November 2,
2009). |
|
10.46 |
|
|
Affiliated Party Subordination and Cross-Default Agreement dated
August 31, 2009 by and between Cole REIT III Operating Partnership
and Jackson National Life Insurance Company (Incorporated by
reference to Exhibit 10.45 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2010). |
|
10.47 |
|
|
Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement and Fixture Filing dated as of August 31, 2009
by and between Cole CB Abilene TX, LLC and J. Edward Blakey as
Trustee for the benefit of Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.46 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.48 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Abilene TX, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.47 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.49 |
|
|
Deed to Secure Debt and Absolute Assignment of Rents and Leases
and Security Agreement dated as of August 31, 2009 by and between
Cole CB Braselton GA, LLC and Wells Fargo Bank, NA (Incorporated
by reference to Exhibit 10.48 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.50 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Braselton GA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.49 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.51 |
|
|
Deed to Secure Debt and Absolute Assignment of Rents and Leases
and Security Agreement dated as of August 31, 2009 by and between
Cole CB Bremen GA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.50 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.52 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Bremen GA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.51 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.53 |
|
|
Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Bristol VA, LLC and Alexander Title
Agency Incorporated as Trustee for the benefit of Wells Fargo
Bank, NA (Incorporated by reference to Exhibit 10.52 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on November 2, 2009). |
|
10.54 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Bristol VA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.53 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.55 |
|
|
Deed to Secure Debt and Absolute Assignment of Rents and Leases
and Security Agreement dated as of August 31, 2009 by and between
Cole CB Columbus GA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.54 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.56 |
|
|
Promissory Note dated as August 31, 2009 by and between Cole CB
Columbus GA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.55 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.57 |
|
|
Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Emporia VA, LLC and Alexander Title
Agency Incorporated as Trustee for the benefit of Wells Fargo
Bank, NA (Incorporated by reference to Exhibit 10.56 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on November 2, 2009). |
|
10.58 |
|
|
Promissory Note dated as August 31, 2009 by and between Cole CB
Emporia VA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.57 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.59 |
|
|
Mortgage and Absolute Assignment of Rents and Leases and Security
Agreement (and Fixture Filing) dated as of August 31, 2009 by and
between Cole CB Fort Mill SC, LLC and Wells Fargo Bank, NA
(Incorporated by reference to Exhibit 10.58 to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|
10.60 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Fort Mill SC, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.59 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.61 |
|
|
Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Greensboro NC, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA
(Incorporated by reference to Exhibit 10.60 to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|
10.62 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Greensboro NC, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.61 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.63 |
|
|
Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Mebane NC, LLC and J. Edward Blakey as
Trustee for the benefit of Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.62 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.64 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Mebane NC, LLC and Wells Fargo Bank, NA (Incorporated by reference
to Exhibit 10.63 to the Companys post-effective amendment to its Registration
Statement on Form S-11 (File No. 333-149290), filed on November 2,
2010). |
|
10.65 |
|
|
Mortgage and Absolute Assignment of Rents and Leases and Security
Agreement (and Fixture Filing) dated as of August 31, 2009 by and
between Cole CB Piedmont SC, LLC and Wells Fargo Bank, NA
(Incorporated by reference to Exhibit 10.64 to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.66 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Piedmont SC, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.65 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.67 |
|
|
Deed of Trust, Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Rocky Mount NC, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA
(Incorporated by reference to Exhibit 10.66 to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|
10.68 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Rocky Mount NC, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.67 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.69 |
|
|
Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB San Antonio TX, LLC and J. Edward
Blakey as Trustee for the benefit of Wells Fargo Bank, NA
(Incorporated by reference to Exhibit 10.68 to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File
No. 333-149290), filed on November 2, 2009). |
|
10.70 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
San Antonio TX, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.69 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.71 |
|
|
Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Sherman TX, LLC and J. Edward Blakey
as Trustee for the benefit of Wells Fargo Bank, NA (Incorporated
by reference to Exhibit 10.70 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.72 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Sherman TX, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.71 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.73 |
|
|
Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Waynesboro VA, LLC and Alexander Title
Agency as Trustee Incorporated for the benefit of Wells Fargo
Bank, NA (Incorporated by reference to Exhibit 10.72 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on November 2, 2009). |
|
10.74 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Waynesboro VA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.73 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.75 |
|
|
Deed of Trust and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) dated as of August 31,
2009 by and between Cole CB Woodstock VA, LLC and Alexander Title
Agency Incorporated as Trustee for the benefit of Wells Fargo
Bank, NA (Incorporated by reference to Exhibit 10.74 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on November 2, 2009). |
|
10.76 |
|
|
Promissory Note dated as of August 31, 2009 by and between Cole CB
Woodstock VA, LLC and Wells Fargo Bank, NA (Incorporated by
reference to Exhibit 10.75 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on November 2, 2009). |
|
10.77 |
|
|
Borrowing Base Revolving Line of Credit Agreement dated as of
December 16, 2009 by and between Cole REIT III Operating
Partnership, LP and certain of its wholly-owned subsidiaries,
collectively as Borrower, and TCF National Bank, a national
banking association. (Incorporated by reference to Exhibit 10.76 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on January 29, 2010). |
|
10.78 |
|
|
Deed of Trust and Security Agreement dated as of December 18, 2009
by and between Cole HD Winchester VA, LLC and Manus E. Holmes
Incorporated as Trustee for the benefit of Peoples United Bank, a
federally chartered banking corporation. (Incorporated by
reference to Exhibit 10.77 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on January 29, 2010). |
|
10.79 |
|
|
Mortgage and Security Agreement dated as of December 18, 2009 by
and between Cole TS Gloucester NJ, LLC and Peoples United Bank, a
federally chartered banking corporation. (Incorporated by
reference to Exhibit 10.78 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on January 29, 2010). |
|
10.80 |
|
|
Promissory Note dated December 18, 2009 by and between Peoples
United Bank, a federally chartered banking corporation, as Lender
and Cole TS Gloucester NJ, LLC and Cole HD Winchester VA, LLC,
collectively as Borrowers. (Incorporated by reference to Exhibit 10.79 to the
Companys post-effective amendment to its Registration Statement
on Form S-11 (File No. 333-149290), filed on January 29, 2010). |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.81 |
|
|
Loan Agreement dated December 22, 2009 by and between Jackson
National Life Insurance Company, as Lender and Cole HD Tucson AZ,
LLC, Cole MT Flagstaff AZ, LLC, Cole WG Goose Creek SC, LLC, Cole
PX Mountain Brook AL, LLC, Cole TS Irmo SC, LLC, Cole LO Kansas
City MS, LLC and Cole KO Columbia SC, LLC, collectively as
Borrowers. (Incorporated by reference to Exhibit 10.80 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on January 29, 2010). |
|
10.82 |
|
|
Fixed Rate Promissory Note dated December 22, 2009 by and between
Jackson National Life Insurance Company, as Noteholder and Cole HD
Tucson AZ, LLC, Cole MT Flagstaff AZ, LLC, Cole WG Goose Creek SC,
LLC, Cole PX Mountain Brook AL, LLC, Cole TS Irmo SC, LLC, Cole LO
Kansas City MS, LLC and Cole KO Columbia SC, LLC, collectively as
Maker. (Incorporated by reference to Exhibit 10.81 to the Companys post-effective
amendment to its Registration Statement on Form S-11 (File
No. 333-149290), filed on January 29, 2010). |
|
10.83 |
|
|
Borrowing Base Revolving Line of Credit Agreement dated as of
January 6, 2010 by and between Cole REIT III Operating
Partnership, LP and certain of its wholly-owned subsidiaries,
collectively as Borrower and JPMorgan Chase Bank, N.A., As
Administrative Agent, US Bank National Association, as Sole
Syndication Agent, RBS Citizens, N.A., D/B/A Charter One, As
Co-Documentation Agent, Comerica Bank, As Co-Documentation Agent
and J.P. Morgan Securities Inc., as Sole Bookrunner and Sole Lead
Arranger. (Incorporated by reference to Exhibit 10.82 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on January 29, 2010). |
|
10.84 |
|
|
First Deed of Trust, Security Agreement and Fixture Filing dated
as of January 27, 2010 by and between Cole MT Austin TX, LLC and
Bryan E. Loocke as Trustee for the benefit of Aviva Life and
Annuity Company. (Incorporated by reference to Exhibit 10.83 to the Companys
post-effective amendment to its Registration Statement on
Form S-11 (File No. 333-149290), filed on January 29, 2010). |
|
10.85 |
|
|
Promissory Note, dated January 27, 2010, by and between Cole MT
Austin TX, LLC and Aviva Life and Annuity Company. (Incorporated
by reference to Exhibit 10.84 to the Companys post-effective amendment to its
Registration Statement on Form S-11 (File No. 333-149290), filed
on January 29, 2010). |
|
21.1 |
|
|
List of Subsidiaries (Incorporated by reference to Exhibit 21.1 to
the Companys Pre-Effective Amendment to Form S-11 (File No.
333-149290), filed on September 29, 2008). |
|
31.1 |
* |
|
Certification of the Chief Executive Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14 (a) or 15d-14 (a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith). |
|
31.2 |
* |
|
Certification of the Chief Financial Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14 (a) or 15d-14 (a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002(filed herewith). |
|
32.1 |
** |
|
Certification of the Chief Executive Officer and Chief Financial
Officer of the Company pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith). |
|
|
|
* |
|
Filed herewith |
|
** |
|
In accordance with Item 601(b) (32) of Regulation S-K, this Exhibit is
not deemed filed for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities of that section. Such
certifications will not be deemed incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent that the registrant specifically
incorporates it by reference. |