CONTACTS

From: Anthony J. DeFazio	For: Brian S. Block, EVP & CFO
DeFazio Communications, LLC	American Realty Capital Daily Net Asset Value Trust, Inc.
tony@defaziocommunications.com	bblock@arlcap.com
Ph: (484-532-7783)	Ph: (212-415-6500)

 

FOR IMMEDIATE RELEASE

 

American Realty Capital Daily Net Asset Value Trust Reports Second Quarter 2012 Results

 

New York, New York, August 9, 2012 ˗ American Realty Capital Daily Net Asset Value Trust, Inc. (“ARC DNAV” or the “Company”) announced its operating results for the quarter ended June 30, 2012.

 

Second Quarter 2012 and Subsequent Events Highlights

 

	-	For the quarter ended June 30, 2012, the Company acquired one freestanding, single tenant property, comprised of 3,050 rentable square feet, for a base purchase price of $2.0 million at a capitalization rate of 7.7% (calculated as annualized rental income on a straight line basis plus operating expense reimbursement revenue less property operating expenses) with a remaining lease term at acquisition of 12.0 years.
	-	As of June 30, 2012, the Company owned a total of six properties, which were 100% leased, containing 148,248 rentable square feet for an aggregate purchase price of $25.2 million.  These properties have a remaining weighted average lease term of 14.0 years and an aggregate capitalization rate of 7.9% (calculated as annualized rental income on a straight line basis plus operating expense reimbursement revenue less property operating expenses).  As of June 30, 2012, rental revenues derived from investment grade tenants, as rated by a major rating agency, represented 100% of annualized rental income on a straight-line basis.
	-	During the second quarter of 2012, the Company generated revenues of $0.5 million, based on generally accepted accounting principles (“GAAP”).  For the quarter ended June 30, 2012, the Company generated modified funds from operations of $0.1 million. (See non-GAAP tabular reconciliations and accompanying notes contained within this release for additional information.)

 

The following table summarizes the changes to the Company’s net asset value (“NAV”) per common share for both share classes following the initial purchase of such shares:

 

Share Class	January 5, 2012 (Escrow Break)	June 30, 2012	August 9, 2012
Retail	$   9.00	$   9.16	$   9.85
Institutional	$   9.00	$   9.11	$   9.78

 

 

AMERICAN REALTY CAPITAL DAILY NET ASSET VALUE TRUST, INC.

 

CONSOLIDATED SUMMARY BALANCE SHEETS

(In thousands)

 

			June 30,				December 31,
			2012				2011
			(Unaudited)
ASSETS
Total real estate investments, net		$	24,807			$	—
Cash			1,281				—
Restricted cash			150				—
Prepaid expenses and other assets			102				85
Deferred costs, net			411				—
Total assets		$	26,751			$	85
LIABILITIES AND EQUITY
Mortgage notes payable		$	16,155			$	—
Note payable			5,000				—
Derivatives, at fair value			317				—
Accounts payable and accrued expenses			3,132				2,283
Deferred rent and other liabilities			123				—
Distributions payable			46				—
Total liabilities			24,773				2,283
Temporary equity:
Redeemable common stock			319				—
Permanent equity:
Stockholders' equity (deficit):
Common stock			7				—
Additional paid-in capital			2,901				(2,190	)
Accumulated other comprehensive loss			(317	)			—
Accumulated deficit			(932	)			(8	)
Total stockholders' equity (deficit)			1,659				(2,198	)
Total liabilities and equity		$	26,751			$	85

 

 

 

 

 

AMERICAN REALTY CAPITAL DAILY NET ASSET VALUE TRUST, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

  

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
Revenues:
Rental income	$	482			$	—			$	586			$	—
Operating expense reimbursement	—				—				2				—
Total revenues	482				—				588				—
Operating expenses:
Property operating	—				—				3				—
Operating fees to affiliate	—				—				—				—
Acquisition and transaction related	46				—				560				—
General and administrative	42				4				46				23
Depreciation and amortization	357				—				397				—
Total operating expenses	445				4				1,006				23
Operating income (loss)	37				(4		)		(418		)		(23		)
Interest expense	(322		)		—				(369		)		—
Net loss	$	(285	)		$	(4	)		$	(787	)		$	(23	)
Other comprehensive loss:
Designated derivatives, fair value adjustment	(157		)		—				(317		)		—
Comprehensive loss	$	(442	)		$	(4	)		$	(1,104	)		$	(23	)
Basic and diluted weighted average shares outstanding	672,790				22,222				458,245				22,222
Basic and diluted net loss per share	$	(0.42	)		NM				$	(1.72	)		NM

 

_______________

 

NM — Not Meaningful

 

 

American Realty Capital Daily Net Asset Value Trust, Inc.

Non-GAAP Measures – Funds from Operations and Modified Funds from Operations

  

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under GAAP.

 

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

 

The historical accounting convention used for real estate assets requires depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.

 

Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

 

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. As disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, we will use the proceeds raised in our ongoing initial public offering (“IPO”) to acquire properties, and intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale or another similar transaction) within three to five years of the completion of our IPO. Thus, we will not continuously purchase assets and will have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association (“IPA”), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. As disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, by providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our IPO has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, as disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, we believe MFFO is useful in comparing the sustainability of our operating performance after our IPO and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. As disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

 

 

American Realty Capital Daily Net Asset Value Trust, Inc.

Non-GAAP Measures – Funds from Operations and Modified Funds from Operations

  

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO; as such gains and losses are not reflective of on-going operations.

 

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to non-listed REITs that have completed their acquisition activities and have similar operating characteristics. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance. As disclosed elsewhere in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, the purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. As disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, acquisition fees and expenses will not be reimbursed by our advisor if there are no further proceeds from the sale of shares in our IPO, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

 

 

American Realty Capital Daily Net Asset Value Trust, Inc.

Non-GAAP Measures – Funds from Operations and Modified Funds from Operations

 

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allows us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, as disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, acquisition costs are funded from the proceeds of our IPO and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

 

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. As disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during our offering stage and for a period thereafter. As disclosed in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after our offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

 

Neither the Securities and Exchange Commission (“SEC”), NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

 

 

American Realty Capital Daily Net Asset Value Trust, Inc.

Non-GAAP Measures – Funds from Operations and Modified Funds from Operations

 

The below table reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the periods presented. Items are presented net of non-controlling interest portions where applicable.

 

		Three Months Ended								Six Months Ended
(In thousands)		March 31, 2012				June 30, 2012				June 30, 2012
Net loss (in accordance with GAAP)		$	(502	)		$	(285	)		$	(787	)
Depreciation and amortization		40				357				397
FFO		(462		)		72				(390		)
Acquisition fees and expenses (1)		514				46				560
Straight-line rent (2)		(1		)		(11		)		(12		)
MFFO		$	51			$	107			$	158

_________________

 

(1)

In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.

 

(2)

Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

 

 

 

 

ARC DNAV is a publicly registered, non-traded real estate investment program.

 

The statements in this press release that are not historical facts may be forward-looking statements. These forward-looking statements involve substantial risks and uncertainties. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements ARC DNAV makes. Forward-looking statements may include, but are not limited to, statements regarding stockholder liquidity and investment value and returns. The words “anticipates,” “believes,” “expects,” “estimates,” “projects,” “plans,” “intends,” “may,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Factors that might cause such differences include, but are not limited to: the impact of current and future regulation; the impact of credit rating changes; the effects of competition; the ability to attract, develop and retain executives and other qualified employees; changes in general economic or market conditions; and other factors, many of which are beyond our control, including other factors included in our reports filed with the SEC, particularly in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of ARC DNAV’s latest Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, each as filed with the SEC, as such Risk Factors may be updated from time to time in subsequent reports. ARC DNAV does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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