UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 21, 2012 (March 16, 2012)
American Realty Capital New York Recovery REIT, Inc.
(Exact Name of Registrant as Specified in Charter)
Maryland | 333-163069 | 27-1065431 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
405 Park Avenue, 15th Floor New York, New York 10022 |
(Address, including zip code, of Principal Executive Offices) Registrant's telephone number, including area code: (212) 415-6500 |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
We previously filed a Current Report on Form 8-K on March 22, 2012, dated March 21, 2012 (the “Original Form 8-K”) reporting our acquisition of a fee-simple interest in four commercial condominiums located at 350 West 42nd Street in the Midtown neighborhood of Manhattan, New York (the “42nd Street Portfolio”). This Current Report on Form 8-K/A is being filed for the purposes of amending the Original Form 8-K to provide (i) the financial information related to such acquisition required by Item 9.01 and (ii) certain additional information with respect to such acquisition. No other changes have been made to the Original Form 8-K.
Item 2.01. Completion of Acquisition or Disposition of Assets
In evaluating the 42nd Street Portfolio as a potential acquisition and determining the appropriate amount of consideration to be paid, we have considered a variety of factors including: location; demographics; credit quality of the tenants; duration of the in-place leases; strong occupancy and the fact that the overall rental rates are comparable to market rates; expenses; utility rates; ad valorem tax rates; maintenance expenses; and the lack of required capital improvements.
We believe that the 42nd Street Portfolio is well located, has acceptable roadway access and is well maintained. The 42nd Street Portfolio is subject to competition from similar properties within its respective market area, and the economic performance of the tenants in the 42nd Street Portfolio could be affected by changes in local economic conditions. We did not consider any other factors material or relevant to the decision to acquire the 42nd Street Portfolio, nor, after reasonable inquiry, are we aware of any material factors other than those discussed above that would cause the reported financial information not to be necessarily indicative of future operating results.
Item 9.01. Financial Statements and Exhibits.
Page | |
(a) Financial statements of businesses acquired | |
The 42nd Street Portfolio Historical Summary: | |
(b) Unaudited pro forma consolidated information | |
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Report of Independent Certified Public Accounting Firm
Stockholders and Board of Directors
American Realty Capital New York Recovery REIT, Inc.
We have audited the accompanying statement of revenues and certain expenses (the “Historical Summary”) of a fee-simple interest in four commercial condominiums located at 350 West 42nd Street in the Midtown neighborhood of Manhattan, New York (the “42nd Street Portfolio”) for the year ended December 31, 2011. This Historical Summary is the responsibility of American Realty Capital New York Recovery REIT, Inc.'s management. Our responsibility is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes 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 42nd Street Portfolio's 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 Historical Summary, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the U.S. Securities and Exchange Commission and for inclusion in a Form 8-K of American Realty Capital New York Recovery REIT, Inc., as described in Note 1 to the Historical Summary, and is not intended to be a complete presentation of the 42nd Street Portfolio's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the revenues and certain expenses, as described in Note 1 to the Historical Summary, of the 42nd Street Portfolio for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
May 29, 2012
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THE 42ND STREET PORTFOLIO
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(In thousands)
Year Ended | |||
December 31, 2011 | |||
Revenues: | |||
Rental income | $ | 1,315 | |
Operating reimbursements | 25 | ||
Total revenues | 1,340 | ||
Certain expenses: | |||
Real estate taxes | 108 | ||
Common area maintenance | 80 | ||
Insurance | 3 | ||
Total certain expenses | 191 | ||
Revenues in excess of certain expenses | $ | 1,149 | |
The accompanying notes are an integral part of this Statement of Revenues and Certain Expenses.
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THE 42ND STREET PORTFOLIO
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. Background and Basis of Presentation
The accompanying Statement of Revenues and Certain Expenses include the operations of a fee-simple interest in four commercial condominiums located at 350 West 42nd Street in the Midtown neighborhood of Manhattan, New York (the “42nd Street Portfolio”) for the year ended December 31, 2011. American Realty Capital New York Recovery REIT, Inc. (the “Company”) completed its acquisition of the 42nd Street Portfolio through its sponsor, American Realty Capital III, LLC, from an unaffiliated third party on March 30, 2012, for $20.7 million. The 42nd Street Portfolio contains 42,774 rentable square feet and consists of two ground floor retail units, one storage unit, and one parking garage unit.
The accompanying Statement of Revenues and Certain Expenses (“Historical Summary”) have been prepared for the purpose of complying with the provisions of Rule 3-14 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”), which requires that certain information with respect to real estate operations be included with certain SEC filings. An audited statement of revenues and certain operating expenses is being presented for the most recent fiscal year available instead of the three most recent years based on the following factors: (a) the 42nd Street Portfolio was acquired from an unaffiliated party and (b) based on due diligence of the 42nd Street Portfolio by the Company, management is not aware of any material factors relating to the 42nd Street Portfolio that would cause this financial information not to be indicative of future operating results.
2. Summary of Significant Accounting Policies
Revenue Recognition
Under the terms of the leases, the tenants pay monthly rent reimbursements to the property's owner for certain expenses. Reimbursements from the tenants are recognized as revenue in the period the applicable expenses are incurred. Rental income includes the effect of amortizing the aggregate minimum lease payments over the terms of the leases, which amounted to an increase to rental income of $410,000 over the rent payments received in cash for the year ended December 31, 2011.
The following table lists the tenants whose annualized rental income on a straight-line basis represented greater than 10% of total annualized rental income for all tenants on a straight-line basis as of December 31, 2011:
December 31, | |||
Tenant | 2011 | ||
42 Parking LLC | 65.1 | % | |
350-42 Fruit &Vegetables Corp. | 31.9 | % | |
The termination, delinquency or non-renewal of one of the above tenants may have a material adverse effect on revenues. No other tenant represents more than 10% of annualized rental income as of December 31, 2011.
Use of Estimates
The preparation of the Historical Summary in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions of the reported amounts of revenues and certain expenses during the reporting period. Actual results could differ from those estimates used in the preparation of the Historical Summary.
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THE 42ND STREET PORTFOLIO
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
3. Future Minimum Lease Payments
At December 31, 2011, the 42nd Street Portfolio was 97.0% leased under non-cancelable operating leases with a remaining lease term of 15.7 years on a weighted average basis. Future minimum lease payments are as follows (in thousands):
2012 | $ | 1,306 | |
2013 | 1,372 | ||
2014 | 1,405 | ||
2015 | 1,440 | ||
2016 | 1,475 | ||
2017 and thereafter | 18,172 | ||
Total | $ | 25,170 | |
4. Subsequent Events
The Company has evaluated subsequent events through May 29, 2012, the date which this historical summary has been issued and has determined that there have not been any events that have occurred that would require adjustments to the disclosures in the audited historical summary.
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AMERICAN REALTY CAPITAL NEW YORK RECOVERY REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2011
(In thousands)
The following unaudited pro forma Consolidated Balance Sheet is presented as if American Realty Capital New York Recovery REIT, Inc. (“the Company”) had acquired the 42nd Street Portfolio as of December 31, 2011. This financial statement should be read in conjunction with the unaudited pro forma Consolidated Statement of Operations and the Company's historical financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The pro forma Consolidated Balance Sheet is unaudited and is not necessarily indicative of what the actual financial position would have been had the Company acquired the 42nd Street Portfolio as of December 31, 2011, nor does it purport to present the future financial position of the Company.
American Realty Capital New York Recovery REIT, Inc.(1) | 42nd Street Portfolio (2) | Pro Forma American Realty Capital New York Recovery REIT, Inc. | |||||||||
Assets | |||||||||||
Real estate investments, at cost: | |||||||||||
Land | $ | 18,439 | $ | — | $ | 18,439 | |||||
Buildings, fixtures and improvements | 96,596 | 19,870 | 116,466 | ||||||||
Acquired intangible lease assets | 10,591 | 2,218 | 12,809 | ||||||||
Total real estate investments, at cost | 125,626 | 22,088 | 147,714 | ||||||||
Less: accumulated depreciation and amortization | (4,175 | ) | — | (4,175 | ) | ||||||
Total real estate investments, net | 121,451 | 22,088 | 143,539 | ||||||||
Cash and cash equivalents | 10,222 | — | 10,222 | ||||||||
Restricted cash | 179 | — | 179 | ||||||||
Due from affiliates, net | 358 | — | 358 | ||||||||
Prepaid expenses and other assets | 1,856 | — | 1,856 | ||||||||
Deferred costs, net | 2,898 | — | 2,898 | ||||||||
Total assets | $ | 136,964 | $ | 22,088 | $ | 159,052 | |||||
Liabilities and Equity | |||||||||||
Mortgage notes payable | $ | 75,250 | $ | — | $ | 75,250 | |||||
Notes payable | 5,933 | — | 5,933 | ||||||||
Below market lease liabilities, net | 1,579 | 1,388 | 2,967 | ||||||||
Derivative, at fair value | 204 | — | 204 | ||||||||
Accounts payable and accrued expenses | 2,293 | 215 | 2,508 | ||||||||
Deferred rent and other liabilities | 227 | — | 227 | ||||||||
Distributions payable | 287 | — | 287 | ||||||||
Total liabilities | 85,773 | 1,603 | 87,376 | ||||||||
Common stock | 67 | 20 | 87 | ||||||||
Additional paid-in capital | 47,786 | 20,465 | 68,251 | ||||||||
Accumulated other comprehensive loss | (201 | ) | — | (201 | ) | ||||||
Accumulated deficit | (8,597 | ) | — | (8,597 | ) | ||||||
Total stockholders' equity | 39,055 | 20,485 | 59,540 | ||||||||
Non-controlling interests | 12,136 | — | 12,136 | ||||||||
Total Equity | 51,191 | 20,485 | 71,676 | ||||||||
Total liabilities and equity | $ | 136,964 | $ | 22,088 | $ | 159,052 | |||||
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AMERICAN REALTY CAPITAL NEW YORK RECOVERY REIT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 2011
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2011:
(1) Reflects the Company's historical audited Balance Sheet as of December 31, 2011, as previously filed.
(2) Reflects the acquisition of the 42nd Street Portfolio. The purchase price, excluding related expenses, was $20.7 million, which was funded through funds raised through the sale of common stock.
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases. Depreciation is computed using the straight-line method over the estimated lives of forty years for buildings, fifteen years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which is estimated to be nine months. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. The value of in-place leases is amortized to expense over the initial term of the respective lease, which ranges from 5 to 29 years. If a tenant terminates its lease, the unamortized portion of the in-place lease value and intangible is charged to expense.
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 the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed. The allocations presented in the accompanying Pro Forma Consolidated Balance Sheet are substantially complete; however, there are certain items that will be finalized once additional information is received. Accordingly, these allocations are subject to revision when final information is available, although the Company does not expect future revisions to have a significant impact on its financial position or results of operations.
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AMERICAN REALTY CAPITAL NEW YORK RECOVERY REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2011, are presented as if American Realty Capital New York Recovery REIT, Inc. (“the Company”) had acquired the 42nd Street Portfolio as of the January 1, 2011. These financial statements should be read in conjunction with the Unaudited Pro Forma Consolidated Balance Sheet and the Company's historical financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The Pro Forma Consolidated Statements of Operations are unaudited and are not necessarily indicative of what the actual results of operations would have been had the Company acquired the 42nd Street Portfolio as of January 1, 2011, nor does it purport to present the future results of operations of the Company.
Unaudited Pro forma Consolidated Statement of Operations for the year ended December 31, 2011 (in thousands):
American Realty Capital New York Recovery REIT. (1) | 42nd Street Portfolio (2) | Pro Forma Adjustments 42nd Street Portfolio | Pro Forma American Realty Capital New York Recovery REIT, Inc. | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 6,891 | $ | 1,315 | $ | 148 | (3) | $ | 8,354 | ||||||
Operating expense reimbursement | 644 | 25 | — | 669 | |||||||||||
Total revenues | 7,535 | 1,340 | 148 | 9,023 | |||||||||||
Operating expenses: | |||||||||||||||
Property operating | 1,039 | 191 | — | 1,230 | |||||||||||
Acquisition and transaction related | 1,586 | — | — | 1,586 | |||||||||||
General and administrative | 220 | — | — | 220 | |||||||||||
Depreciation and amortization | 4,043 | — | 1,098 | (4) | 5,141 | ||||||||||
Total operating expenses | 6,888 | 191 | 1,098 | 8,177 | |||||||||||
Operating income (loss) | 647 | 1,149 | (950 | ) | 846 | ||||||||||
Other income (expenses): | |||||||||||||||
Interest expense | (3,910 | ) | — | — | (3,910 | ) | |||||||||
Interest income | 1 | — | — | 1 | |||||||||||
Loss on derivative instrument | (3 | ) | — | — | (3 | ) | |||||||||
Total other expenses | (3,912 | ) | — | — | (3,912 | ) | |||||||||
Net income (loss) | (3,265 | ) | 1,149 | (950 | ) | (3,066 | ) | ||||||||
Net income attributable to non-controlling interest | (154 | ) | — | — | (154 | ) | |||||||||
Net income (loss) attributable to stockholders | $ | (3,419 | ) | $ | 1,149 | $ | (950 | ) | $ | (3,220 | ) | ||||
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AMERICAN REALTY CAPITAL NEW YORK RECOVERY REIT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2011.
(1) Reflects the Company's historical operations for the period indicated as previously filed.
(2) Reflects the operations of the 42nd Street Portfolio for the period indicated.
(3) Represents adjustments to straight-line rent for lease terms as of the acquisition date as well as adjustments for below market leases.
(4) Represents the estimated depreciation and amortization of real estate investments and intangible lease assets had the property been acquired as of January 1, 2011. Depreciation is computed using the straight-line method over the estimated lives of fifteen years for land improvements, forty years for buildings and five years for fixtures. The value of in-place leases and tenant improvements are amortized to expense over the initial term of the respective leases, which ranges from 5 to 29 years.
Note: Pro forma adjustments exclude one-time acquisition costs of $0.5 million primarily representing acquisition fees to the advisor, legal fees and deed transfer fees for the acquisitions of the 42nd Street Portfolio.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AMERICAN REALTY CAPITAL NEW YORK RECOVERY REIT, INC. | ||
Date: May 29, 2012 | By: | /s/ Brian S. Block |
Brian S. Block | ||
Executive Vice President and Chief Financial Officer | ||
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