VEREIT, Inc. - FORM 10-Q/A

VEREIT, Inc. - FORM 10-Q/A - March 2, 2015

Attached files

Attached files

VEREIT, Inc. Reports

file	filename
EX-31.2 - EX-31.2 - VEREIT, Inc.	d880874dex312.htm
EX-32.1 - EX-32.1 - VEREIT, Inc.	d880874dex321.htm
EX-32.2 - EX-32.2 - VEREIT, Inc.	d880874dex322.htm
EX-31.1 - EX-31.1 - VEREIT, Inc.	d880874dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	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: 001-35263

AMERICAN REALTY CAPITAL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)


Maryland		45-2482685
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2325 E. Camelback Road, Suite 1100, Phoenix, AZ		85016
(Address of principal executive offices)		(Zip Code)

(800) 606-3610

(Registrant’s telephone number, including area code)

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 ¨ No x

Indicate by check mark whether the registrant 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 ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of outstanding shares of the registrant’s common stock on July 28, 2014 was 907,924,095 shares.

Explanatory Note

American Realty Capital Properties, Inc. (the “Company,” “its,” “we,” “our” or “us”) is filing this Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) to its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014, originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 29, 2014 (the “Original Filing”), to restate and amend its previously-issued consolidated financial statements and related financial information for the fiscal quarters ended June 30, 2013 and 2014.

Concurrently with the filing of this Form 10-Q/A, the Company is filing (i) an amendment to its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 to restate and amend its previously-issued audited consolidated financial statements and related financial information for the fiscal years ended December 31, 2013 and 2012 and (ii) an amendment to its Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2014 to restate and amend its previously-issued unaudited consolidated financial statements and related financial information for this period and the comparable fiscal period of 2013 (collectively, with this Form 10-Q/A, the “Amended Filings”). The Company is also filing its Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2014, which is also being concurrently filed, and includes restated and amended unaudited consolidated financial statements and related financial information for the fiscal period ended September 30, 2013.

The following sections of this Form 10-Q/A contain information that has been amended where necessary to reflect the restatement and certain other events that have occurred subsequent to July 29, 2014, the date of the original filing with the SEC:

•

Part I, Item 1. Financial Statements

•

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

•

Part I, Item 4. Controls and Procedures

•

Part II, Item 1A. Risk Factors

Except as described in this Explanatory Note, the information contained in the Original Filing has not been updated to reflect any subsequent events.

Background

On October 29, 2014, the Company filed a Current Report on Form 8-K (the “October 29 8-K”) reporting that the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) had concluded that the previously-issued audited consolidated financial statements and other financial information contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, the previously issued unaudited financial statements and other financial information contained in the Company’s Quarterly Reports on Form 10-Q for the fiscal periods ended March 31, 2014 and June 30, 2014, and the Company’s earnings releases and other financial communications for these periods should no longer be relied upon.

The Audit Committee based its conclusion on the preliminary findings of its investigation into concerns regarding accounting practices and other matters that had first been reported to it on September 7, 2014. Promptly after learning of these concerns, the Audit Committee initiated an investigation, which was conducted with the assistance of independent counsel and forensic accountants. The investigation continued after the filing of the October 29 8-K and expanded in scope beyond the concerns initially brought to the Audit Committee’s attention. Certain key findings of the investigation are presented below.

The investigation found that Adjusted Funds From Operations (“AFFO”), a non-GAAP measure presented in the Company’s SEC filings and other financial communications, was overstated for fiscal year 2011, fiscal year 2012, fiscal year 2013 (including each fiscal quarter of 2013) and, as previously disclosed in the October 29 8-K, the first two fiscal quarters of 2014. Senior management considered AFFO to be an important metric used by analysts and investors in evaluating the Company’s performance and, for the first two quarters of 2014, sought to maintain reported AFFO within the 2014 guidance range of $1.13 to $1.19 per share announced at the end of 2013. The overstatements of AFFO were due in part to errors in reflecting amounts attributable to the limited partnership interests in the Company’s operating partnership, ARC Properties

Operating Partnership, L.P., held by holders other than the Company (known as non-controlling interests or “NCI”). Prior to the filing of the Quarterly Report on Form 10-Q for the first quarter of 2014, some members of senior management were aware of NCI errors but allowed the report to be filed without completing an analysis of the errors. In the Company’s Quarterly Report on Form 10-Q for the second quarter of 2014, as previously reported, the NCI errors were intentionally not corrected, and other AFFO and financial statement errors were intentionally made, resulting in an overstatement of AFFO and an understatement of the Company’s net loss for the three and six months ended June 30, 2014. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sources of Funds – Funds from Operations and Adjusted Funds from Operations (As Restated)” in Item 2 of this Form 10-Q/A.

The investigation identified certain payments made by the Company to ARC Properties Advisors, LLC (the “Former Manager”) and certain affiliates of the Former Manager that were not sufficiently documented or otherwise warrant scrutiny. The Company has recovered consideration valued at approximately $8.5 million in respect of certain such payments. The Company is considering whether it has a right to seek recovery for any other such payments and, if so, its alternatives for seeking recovery. No asset has been recognized in the financial statements related to any potential recovery. See Note 20-Related Party Transactions and Arrangements (As Restated) to the consolidated financial statements in this Form 10-Q/A.

The investigation found that the agreements relating to equity awards made to Nicholas S. Schorsch and Brian S. Block in connection with the transition from external to internal management of the Company contained provisions that, as drafted, were more favorable to them than the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) had authorized. At the time the awards took effect, Mr. Schorsch was the Company’s Executive Chairman and Chief Executive Officer and Mr. Block was the Company’s Chief Financial Officer. Immediately prior to his resignation from the Company, Mr. Schorsch and the Company agreed that the terms of his equity awards should have been consistent with the Compensation Committee’s authorization. In connection with their resignations from the Company, Mr. Block relinquished all of his equity awards and Mr. Schorsch relinquished all of his equity awards other than 1,000,000 shares of restricted stock, the vesting of which was accelerated. These shares are subject to clawback by the Company if, in any proceeding, after all appeals, Mr. Schorsch is found to have breached his fiduciary duty of loyalty or is found to have committed or admits to fraud or misconduct in connection with his responsibilities as a director or officer of the Company. See “Management Changes” below.

The investigation also found material weaknesses in the Company’s internal control over financial reporting and its disclosure controls and procedures. See “Internal Control Considerations” below.

The Audit Committee believes that the scope and process of its investigation were sufficient to identify matters that could materially affect the Company’s consolidated financial statements and the calculation of AFFO.

Effects of the Restatements and Other Corrections

The restatements contained in this Form 10-Q/A and the other Amended Filings correct errors in the consolidated financial statements contained in the original filings that were identified as a result of the Audit Committee investigation as well as additional errors identified as a result of a review performed by the Company’s new management. The restatements also reflect certain adjustments that the Company determined to be immaterial, both individually and in the aggregate, when the consolidated financial statements contained in the original filings were issued. In connection with the restatements, the Company has determined that it would be appropriate to reflect such adjustments. See Note 2 – Restatement of Previously Issued Financial Statements to the consolidated financial statements in this Form 10-Q/A.

The Amended Filings also correct errors in the calculation of AFFO contained in the original filings that were identified as a result of the Audit Committee’s investigation or that otherwise reflect restatement adjustments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sources of Funds – Funds from Operations and Adjusted Funds from Operations (As Restated)” in Item 2 of this Form 10-Q/A.

The following tables summarize the effect of the restatements on certain key items of the Company’s previously issued consolidated financial statements and on its previously-issued calculations of AFFO and AFFO per share for the year ended December 31, 2013, the three months ended March 31, 2014 and the three and six months ended June 30, 2014 (amounts in thousands, except for per share data).


	Year Ended December 31, 2013
	As Previously Reported ⁽¹⁾			As Restated			$ Change Fav/(Unfav)			% Change
Selected balance sheet amounts
Total assets	$	7,807,979		$	7,809,083		$	1,104			0.01	%
Total liabilities		5,285,446			5,310,556			(25,110	)		(0.48	)%
Total equity		2,253,234			2,229,228			(24,006	)		(1.07	)%
Selected statement of operations amounts
Total revenues	$	329,878		$	329,323		$	(555	)		(0.17	)%
Total operating expenses		640,704			665,228			(24,524	)		(3.83	)%
Net loss attributable to stockholders		(474,740	)		(491,499	)		(16,759	)		(3.53	)%
Selected cash flow amounts
Net cash provided by operating activities	$	12,769		$	11,918		$	(851	)		(6.66	)%
Net cash used in investing activities		(4,542,759	)		(4,541,718	)		1,041			0.02	%
Net cash provided by financing activities		4,290,140			4,289,950			(190	)		—	%
Net change in cash and cash equivalents		(239,850	)		(239,850	)		—			—	%
Funds from operations and adjusted funds from operations amounts - net method⁽²⁾
Funds from operations	$	(263,382	)	$	(285,076	)	$	(21,694	)		(8.24	)%
Adjusted funds from operations		236,374			192,416			(43,958	)		(18.60	)%
AFFO per share	$	1.07	⁽³⁾		0.87			(0.20	)		(18.69	)%

(1)

The amounts reflect the recasting of the Company’s historical financial statements to present the effects of the Company’s acquisition of American Realty Capital Trust IV, Inc., an entity previously deemed to be under common control with the Company, for all periods that entities were under common control as previously disclosed in the Company’s Current Report on From 8-K, dated May 20, 2014.

(2)	The net method is defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sources of Funds – Funds from Operations and Adjusted Funds from Operations (As Restated)” in Item 2 of this Form 10-Q/A.

(3)	AFFO per share was not previously reported. It has been derived utilizing the previously reported AFFO and weighted average shares of 221,378,676.

For discussion of the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements in Amendment No. 2 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the SEC.


	Three Months Ended March 31, 2014 (Unaudited)
	As Previously Reported			As Restated			$ Change Fav/(Unfav)			% Change
Selected balance sheet amounts
Total assets	$	20,480,300		$	20,488,095		$	7,795			0.04	%
Total liabilities		10,950,414			10,974,377			(23,963	)		(0.22	)%
Total equity		9,260,587			9,244,419			(16,168	)		(0.17	)%
Selected statement of operations amounts
Total revenues	$	320,614		$	321,154		$	540			0.17	%
Total operating expenses		512,851			482,128			30,723			5.99	%
Net loss attributable to stockholders		(308,681	)		(291,444	)		17,237			5.58	%
Selected cash flow amounts
Net cash provided by operating activities	$	(106,126	)	$	(122,828	)	$	(16,702	)		(15.74	)%
Net cash used in investing activities		(1,212,122	)		(1,174,407	)		37,715			3.11	%
Net cash provided by financing activities		1,348,590			1,327,726			(20,864	)		(1.55	)%
Net change in cash and cash equivalents		30,342			30,491			149			0.49	%
Funds from operations and adjusted funds from operations amounts - net method⁽¹⁾
Funds from operations	$	(183,791	)	$	(137,960	)	$	45,831			24.94	%
Adjusted funds from operations		147,389			108,892			(38,497	)		(26.12	)%
AFFO per share ⁽²⁾	$	0.26		$	0.19			(0.07	)		(26.92	)%

(1)	The net method is defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sources of Funds – Funds from Operations and Adjusted Funds from Operations (As Restated)” in Item 2 of this Form 10-Q/A.

(2)	As previously disclosed in the Company’s quarterly supplemental information furnished on Form 8-K on May 8, 2014.

For discussion of the restatement adjustments, see Note 2 – Restatement of Previously Issued Financial Statements in the Company’s Amended Quarterly Report on Form 10-Q/A for the fiscal period ended March 31, 2014.


	Three Months Ended June 30, 2014 (Unaudited)												Six Months Ended June 30, 2014 (Unaudited)
	As Previously Reported			As Restated			$ Change Fav/(Unfav)			% Change			As Previously Reported			As Restated			$ Change Fav/(Unfav)			% Change
Selected balance sheet amounts
Total assets	$	21,315,487		$	21,310,496		$	(4,991	)		(0.02	)%	$	21,315,487		$	21,310,496		$	(4,991	)		(0.02	)%
Total liabilities		10,451,698			10,485,022			(33,324	)		(0.32	)%		10,451,698			10,485,022			(33,324	)		(0.32	)%
Total equity		10,594,490			10,556,175			(38,315	)		(0.36	)%		10,594,490			10,556,175			(38,315	)		(0.36	)%
Selected statement of operations amounts
Total revenues	$	381,981		$	382,178		$	197			0.05	%	$	702,595		$	703,332		$	737			0.10	%
Total operating expenses		355,573			353,284			2,289			0.64	%		867,301			835,412			31,889			3.68	%
Net loss attributable to the Company		(40,328	)		(54,720	)		(14,392	)		(35.69	)%		(349,009	)		(346,164	)		2,845			0.82	%
Selected cash flow amounts
Net cash provided by (used in) operating activities	$	139,911		$	154,021		$	14,110			10.08	%	$	33,785		$	31,193		$	(2,592	)		(7.67	)%
Net cash used in investing activities		(734,300	)		(777,649	)		(43,349	)		(5.90	)%		(1,946,422	)		(1,952,056	)		(5,634	)		(0.29	)%
Net cash provided by financing activities		705,012			735,941			30,929			4.39	%		2,053,602			2,063,667			10,065			0.49	%
Net change in cash and cash equivalents		110,623			112,313			1,690			1.53	%		140,965			142,804			1,839			1.30	%
Funds from operations and adjusted funds from operations amounts - gross method⁽¹⁾
Funds from operations	$	174,661		$	156,967		$	(17,694	)		(10.13	)%	$	(15,115	)	$	12,163		$	27,278			180.47	%
Adjusted funds from operations		205,278			185,934			(19,344	)		(9.42	)%		353,058			300,706			(52,352	)		(14.83	)%
AFFO per share ⁽²⁾	$	0.24		$	0.21			(0.03	)		(12.50	)%	$	0.49		$	0.41			(0.08	)		(16.33	)%

(1)	The gross method is defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Sources of Funds – Funds from Operations and Adjusted Funds from Operations (As Restated)” in Item 2 of this Form 10-Q/A.

(2)	As previously disclosed in the Company’s quarterly supplemental information furnished on Form 8-K on July 29, 2014.

For discussion of the restatement adjustments, see Note 2 – Restatement of Previously Issued Financial Statements in this Form 10-Q/A.

Internal Control Considerations

In light of the findings of the Audit Committee’s investigation and a review by the Company in connection with the preparation of the restatements, the Company’s new management re-evaluated the Company’s internal control over financial reporting and its disclosure controls and procedures at December 31, 2013 and concluded that they were not effective. These material weaknesses had not been remediated, and additional material weaknesses in our internal control over financial reporting existed, at March 31, 2014, June 30, 2014 and September 30, 2014. In addition, at those dates, our disclosure controls and procedures were not effective. The material weaknesses at June 30, 2014 and the Company’s plans for remediation are described in Part I, Item 4. Controls and Procedures in this Form 10-Q/A. The Company is committed to remediating its material weaknesses as promptly as possible. Implementation of the Company’s remediation plans has commenced and is being overseen by the Audit Committee.

Management Changes

During the fourth quarter of 2014, the following executive officers resigned from all positions with the Company and its subsidiaries: Mr. Schorsch, Executive Chairman of the Board of Directors; Mr. Block, Chief Financial Officer; David S. Kay, Chief Executive Officer and a director; Lisa E. Beeson, President and Chief Operating Officer; and Lisa P. McAlister, Chief Accounting Officer. In connection with their resignations, these individuals relinquished an aggregate of approximately 2.7 million shares of stock as well as all outstanding participation in the Company’s 2014 Outperformance Plan.

Following the resignations of Mr. Block and Ms. McAlister, the Company’s Board of Directors appointed Michael Sodo as Chief Financial Officer and Gavin B. Brandon as Chief Accounting Officer. Following the resignations of Messrs. Schorsch and Kay and Ms. Beeson, the Board of Directors appointed William G. Stanley, who had been serving as Lead Independent Director, as Interim Chairman of the Board and Interim Chief Executive Officer. The Compensation Committee has commenced a search, with the assistance of an independent search firm, for a new independent Chairman of the Board and a new Chief Executive Officer.

Regulatory Investigations and Litigation Related to this Matter

Prior to the filing of the October 29 8-K, the Audit Committee previewed for the SEC the information contained in that filing. Subsequent to the filing, the SEC provided notice that it had commenced a formal investigation and issued subpoenas calling for the production of documents. In addition, the United States Attorney’s Office for the Southern District of New York contacted counsel for the Audit Committee and counsel for the Company with respect to this matter, and the Secretary of the Commonwealth of Massachusetts issued a subpoena calling for the production of various documents. The Audit Committee and the Company are cooperating with these regulators in their investigations.

The Company and certain of its current and former directors and officers have been named as defendants in a number of lawsuits filed in response to the October 29 8-K, including class actions, derivative actions and individual actions under the federal securities laws and state common and corporate laws in both federal and state courts in New York and Maryland. For information concerning these lawsuits, see “Risk Factors – New Risk Factors” in Part II, Item 1A of this Form 10-Q/A and Note 25 – Subsequent Events (As Restated) to the consolidated financial statements contained in this Form 10-Q/A.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FORM 10-Q/A (Amendment No. 1)

June 30, 2014


	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (Unaudited)		1
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)		2
Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)		3
Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2014 and 2013 (Unaudited)		4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)		6
Notes to Consolidated Financial Statements as of June 30, 2014 (Unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		84
Item 3. Quantitative and Qualitative Disclosures About Market Risk		111
Item 4. Controls and Procedures		112
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		118
Item 1A. Risk Factors		118
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		118
Item 3. Defaults Upon Senior Securities		118
Item 4. Mine Safety Disclosures		118
Item 5. Other Information		118
Item 6. Exhibits		118
Signatures		119

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) (Unaudited)


	June 30, 2014 (As Restated) ⁽¹⁾			December 31, 2013 (As Restated) ⁽¹⁾
ASSETS
Real estate investments, at cost:
Land	$	3,343,235		$	1,380,308
Buildings, fixtures and improvements		12,420,626			5,297,400
Land and construction in progress		62,594			21,839
Acquired Intangible lease assets		2,227,393			759,595

Total real estate investments, at cost		18,053,848			7,459,142
Less: accumulated depreciation and amortization		(660,617	)		(267,278	)

Total real estate investments, net		17,393,231			7,191,864
Investment in unconsolidated entities		102,047			—
Investment in direct financing leases, net		62,094			66,112
Investment securities, at fair value		219,204			62,067
Loans held for investment, net		97,587			26,279
Cash and cash equivalents		195,529			52,725
Restricted cash		69,544			35,921
Intangible assets, net		347,618			—
Deferred costs and other assets, net		418,199			280,661
Goodwill		2,293,020			92,789
Due from affiliates		73,686			—
Assets held for sale		38,737			665

Total assets	$	21,310,496		$	7,809,083


LIABILITIES AND EQUITY
Mortgage notes payable, net	$	4,227,494		$	1,301,114
Corporate bonds, net		2,546,089			—
Convertible debt, net		975,003			972,490
Credit facilities		1,896,000			1,969,800
Other debt, net		146,158			104,804
Below-market lease liabilities, net		281,954			77,169
Accounts payable and accrued expenses		174,942			730,571
Deferred rent, derivative and other liabilities		223,419			40,271
Distributions payable		10,779			10,903
Due to affiliates		3,184			103,434

Total liabilities		10,485,022			5,310,556


Series D preferred stock, $0.01 par value, 21,735,008 shares (part of 100,000,000 aggregate preferred shares authorized) issued and outstanding at June 30, 2014 and December 31, 2013, respectively		269,299			269,299


Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 shares authorized and 42,730,013 and 42,199,547 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		427			422
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 907,918,821 and 239,234,725 issued and outstanding at June 30, 2014 and December 31, 2013, respectively		9,079			2,392
Additional paid-in capital		11,901,675			2,940,907
Accumulated other comprehensive income		7,058			7,666
Accumulated deficit		(1,639,208	)		(877,957	)

Total stockholders’ equity		10,279,031			2,073,430
Non-controlling interests		277,144			155,798

Total equity		10,556,175			2,229,228

Total liabilities and equity	$	21,310,496		$	7,809,083

(1)	For discussion on the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

The accompanying notes are an integral part of these statements.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014 (As Restated) ⁽¹⁾			2013 (As Restated) ⁽¹⁾			2014 (As Restated) ⁽¹⁾			2013 (As Restated) ⁽¹⁾
Revenues:
Rental income	$	314,519		$	52,664		$	558,934		$	93,651
Direct financing lease income		1,181			—			2,187			—
Operating expense reimbursements		29,256			2,281			50,732			4,191
Cole Capital revenue		37,222			—			91,479			—

Total revenues		382,178			54,945			703,332			97,842

Operating expenses:
Cole Capital reallowed fees and commissions		7,068			—			41,504			—
Acquisition related ⁽²⁾		7,201			37,266			20,618			47,593
Merger and other non-routine transactions ⁽³⁾		7,422			5,865			167,720			129,433
Property operating		39,286			3,086			69,041			5,635
Management fees to affiliates		—			—			13,888			12,493
General and administrative ⁽⁴⁾		40,012			6,283			96,504			14,055
Depreciation and amortization		250,739			33,681			424,581			60,434
Impairment of real estate		1,556			—			1,556			—

Total operating expenses		353,284			86,181			835,412			269,643

Operating income (loss)		28,894			(31,236	)		(132,080	)		(171,801	)

Other (expense) income:
Interest expense, net		(103,897	)		(11,424	)		(224,848	)		(18,225	)
Extinguishment of debt, net		(6,469	)		—			(15,868	)		—
Other income, net		11,936			1,523			22,146			2,522
Gain (loss) on derivative instruments, net		14,207			(31,174	)		7,086			(31,179	)
Loss on disposition of properties and assets held for sale, net		(1,269	)		—			(18,874	)		—
Gain on sale of investments		—			—			—			451

Total other expenses, net		(85,492	)		(41,075	)		(230,358	)		(46,431	)

Net loss from continuing operations		(56,598	)		(72,311	)		(362,438	)		(218,232	)


Discontinued operations:
Income from operations of held for sale properties		—			36			—			20

Net loss from discontinued operations		—			36			—			20


Net loss		(56,598	)		(72,275	)		(362,438	)		(218,212	)
Net loss attributable to non-controlling interests		1,878			2,672			16,274			4,729

Net loss attributable to the Company	$	(54,720	)	$	(69,603	)	$	(346,164	)	$	(213,483	)


Basic and diluted net loss per share attributable to common stockholders	$	(0.10	)	$	(0.35	)	$	(0.58	)	$	(1.17	)

(1)	For discussion on the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

(2)	Includes $113,000 and $19.9 million to affiliates for the three months ended June 30, 2014 and 2013, respectively, and $1.7 million and $26.8 million to affiliates for the six months ended June 30, 2014 and 2013, respectively.

(3)	Includes $40,000 and $255,000 to affiliates for the three months ended June 30, 2014 and 2013, respectively, and $137.8 million and $107.0 million to affiliates for the six months ended June 30, 2014 and 2013, respectively.

(4)	Includes $437,000 and $4.1 million to affiliates for the three months ended June 30, 2014 and 2013, respectively, and $16.0 million and $9.3 million to affiliates for the six months ended June 30, 2014 and 2013, respectively.

The accompanying notes are an integral part of these statements.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014 (As Restated) ⁽¹⁾			2013 (As Restated) ⁽¹⁾			2014 (As Restated)⁽¹⁾			2013 (As Restated) ⁽¹⁾

Net loss	$	(56,598	)	$	(72,275	)	$	(362,438	)	$	(218,212	)

Other comprehensive (loss) income:
Designated derivatives, fair value adjustments		(7,283	)		14,058			(9,581	)		12,881
Unrealized (loss) gain on investment securities, net		5,878			(1,793	)		8,973			(1,365	)

Total other comprehensive income (loss)		(1,405	)		12,265			(608	)		11,516

Total comprehensive loss		(58,003	)		(60,010	)		(363,046	)		(206,696	)
Net loss attributable to non-controlling interests		1,878			2,672			16,274			4,729

Total comprehensive loss attributable to the Company	$	(56,125	)	$	(57,338	)	$	(346,772	)	$	(201,967	)

(1)	For discussion on the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

The accompanying notes are an integral part of these statements.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In thousands, except for share data)

(Unaudited)

(As restated for the six months ended June 30, 2014 and as of December 31, 2013) ⁽¹⁾


	Preferred Stock				Common Stock
	Number of Shares		Par Value		Number of Shares		Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stock- holders’ Equity			Non-Controlling Interests			Total Equity
Balance, December 31, 2013 (As Restated)		42,199,547	$	422		239,234,725	$	2,392	$	2,940,907		$	7,666		$	(877,957	)	$	2,073,430		$	155,798		$	2,229,228
Issuance of common stock, net ⁽²⁾		—		—		662,305,318		6,623		8,916,947			—			—			8,923,570			—			8,923,570
Conversion of Common OP Units to common stock		—		—		1,017,355		10		14,715			—			—			14,725			(14,725	)		—
Conversion of Preferred OP Units to Series F Preferred Stock		530,466		5		—		—		10,795			—			—			10,800			(10,800	)		—
Issuance of restricted share awards, net		—		—		5,361,423		54		(2,073	)		—			—			(2,019	)		—			(2,019	)
Equity-based compensation		—		—		—		—		20,384			—			—			20,384			6,880			27,264
Distributions declared on common stock		—		—		—		—		—			—			(368,339	)		(368,339	)		—			(368,339	)
Issuance of OP Units		—		—		—		—		—			—			—			—			152,484			152,484
Distributions to non-controlling interest holders		—		—		—		—		—			—			—			—			(21,967	)		(21,967	)
Distributions to participating securities		—		—		—		—		—			—			(2,280	)		(2,280	)		—			(2,280	)
Distributions to preferred shareholders		—		—		—		—		—			—			(44,468	)		(44,468	)		—			(44,468	)
Contributions from non-controlling interest holders		—		—		—		—		—			—			—			—			982			982
Non-controlling interests retained in Cole Merger		—		—		—		—		—			—			—			—			24,766			24,766
Net loss		—		—		—		—		—			—			(346,164	)		(346,164	)		(16,274	)		(362,438	)
Other comprehensive income		—		—		—		—		—			(608	)		—			(608	)		—			(608	)


Balance, June 30, 2014 (As Restated)		42,730,013	$	427		907,918,821	$	9,079	$	11,901,675		$	7,058		$	(1,639,208	)	$	10,279,031		$	277,144		$	10,556,175

(1)	For discussion on the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

(2)	Includes $2.2 million to affiliates of the Former Manager (as defined in Note 1) for the six months ended June 30, 2014.

The consolidated statements of changes in equity continue onto the next page.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In thousands, except for share data) – (Continued)

(Unaudited)

(As restated for the six months ended June 30, 2013) ⁽¹⁾


	Preferred Stock				Common Stock
	Number of Shares		Par Value		Number of Shares			Par Value			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stock- holders’ Equity			Non- Controlling Interests			Total Equity
Balance, December 31, 2012 (As Restated)		6,990,328	$	70		184,553,676		$	1,846		$	1,778,883		$	(3,934	)	$	(124,286	)	$	1,652,579		$	16,181		$	1,668,760
Issuance of preferred stock		35,930,885		360		—			—			—			—			—			360			—			360
Issuance of common stock		—		—		63,056,895			628			1,967,315			—			—			1,967,943			—			1,967,943
Excess of ARCT IV Merger consideration over historical cost		—		—		—			—			(555,683	)		—			—			(555,683	)		—			(555,683	)
Offering cost, commissions and dealer manager fees ⁽²⁾		—		—		—			—			(163,814	)		—			—			(163,814	)		—			(163,814	)
Common stock issued through dividend reinvestment plan		—		—		832,591			8			20,607			—			—			20,615			—			20,615
Common stock repurchases		—		—		(27,697,412	)		(277	)		(350,120	)		—			—			(350,397	)		—			(350,397	)
Conversion of OP Units to common stock		—		—		599,233			6			5,793			—			—			5,799			(5,799	)		—
Equity-based compensation		—		—		345,491			3			3,106			—			—			3,109			3,682			6,791
Distributions declared on common stock		—		—		—			—			—			—			(109,972	)		(109,972	)		—			(109,972	)
Issuance of OP Units to affiliate		—		—		—			—			—			—			—			—			107,771			107,771
Distributions to non-controlling interest holders		—		—		—			—			—			—			—			—			(3,463	)		(3,463	)
Contributions from non-controlling interest holders		—		—		—			—			—			—			—			—			29,758			29,758
Net loss		—		—		—			—			—			—			(213,483	)		(213,483	)		(4,729	)		(218,212	)
Other comprehensive income		—		—		—			—			—			11,516			—			11,516			—			11,516


Balance, June 30, 2013 (As Restated)		42,921,213	$	430		221,690,474		$	2,214		$	2,706,087		$	7,582		$	(447,741	)	$	2,268,572		$	143,401		$	2,411,973

(1)	For discussion on the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

(2)	Includes $158.7 million to affiliates of the Former Manager (as defined in Note 1) for the six months ended June 30, 2013.

The accompanying notes are an integral part of these statements.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Six Months Ended June 30,
	2014 (As Restated) ⁽¹⁾			2013 (As Restated) ⁽¹⁾
Cash flows from operating activities:
Net loss	$	(362,438	)	$	(218,212	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Issuance of OP Units		92,884			107,771
Depreciation and amortization		473,184			64,780
Loss on disposition of properties and assets held for sale, net		18,874			—
Equity-based compensation		27,264			6,791
Equity in income of unconsolidated entities		385			—
Distributions from unconsolidated entities		4,033			—
(Gain) loss on derivative instruments		(7,086	)		45
Gain on sale of investments, net		—			(451	)
Impairment of real estate		1,556			—
Unrealized loss on contingent value rights obligations, net of settlement payments		—			31,134
Gain on extinguishment of debt		(16,985	)		—
Changes in assets and liabilities:
Investment in direct financing leases		525			—
Deferred costs and other assets, net		(93,553	)		(10,263	)
Due from affiliates		(5,685	)		—
Accounts payable and accrued expenses		(51,771	)		4,160
Deferred rent, derivative and other liabilities		(8,732	)		2,676
Due to affiliates		(41,262	)		1,349

Net cash provided by (used in) operating activities		31,193			(10,220	)

Cash flows from investing activities:
Investments in real estate and other assets		(1,246,588	)		(2,129,677	)
Acquisition of a real estate business, net of cash acquired		(756,232	)		—
Investment in direct financing leases		—			(76,410	)
Capital expenditures		(9,989	)		(30	)
Real estate developments		(21,733	)		—
Principal repayments received from borrowers		4,155			—
Investments in unconsolidated entities		(2,500	)		—
Proceeds from disposition of properties		94,823			—
Investment in intangible assets		(266	)		—
Deposits for real estate investments		(129,602	)		(47,086	)
Uses and refunds of deposits for real estate investments		196,075			—
Purchases of investment securities		—			(81,460	)
Line of credit advances to affiliates		(80,300	)		—
Line of credit repayments from affiliates		15,600			—
Proceeds from sale of investment securities		—			44,188
Change in restricted cash		(15,499	)		—

Net cash used in investing activities		(1,952,056	)		(2,290,475	)

Cash flows from financing activities:
Proceeds from mortgage notes payable		718,275			6,924
Payments on mortgage notes payable		(876,874	)		—
Payments on other debt		(7,524	)		—
Proceeds from credit facilities		3,246,000			825,000
Payments on credit facilities		(4,628,800	)		(349,604	)
Proceeds from corporate bonds		2,545,760			—
Payments of deferred financing costs		(84,165	)		(41,461	)
Common stock repurchases		—			(350,396	)
Proceeds from issuances of preferred shares		—			445,000
Proceeds from issuances of common stock, net offering costs		1,593,462			1,810,042
Consideration to the Former Manager (as defined in Note 1) for internalization		—			—
Contributions from non-controlling interest holders		982			29,758
Distributions to non-controlling interest holders		(15,831	)		(3,111	)
Distributions paid		(427,618	)		(90,740	)
Change in restricted cash		—			(844	)

Net cash provided by financing activities		2,063,667			2,280,568

The consolidated statements of cash flows continue onto the next page.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands) (Unaudited)


	Six Months Ended June 30,
	2014 (As Restated) ⁽¹⁾		2013 (As Restated) ⁽¹⁾
Net change in cash and cash equivalents	$	142,804	$	(20,127	)
Cash and cash equivalents, beginning of period		52,725		292,575

Cash and cash equivalents, end of period	$	195,529	$	272,448


Supplemental disclosures:
Cash paid for interest	$	137,844	$	11,004
Cash paid for income taxes	$	7,622	$	382
Non-cash investing and financing activities:
Accrued capital expenditures and real estate developments		5,534		—
Common stock issued through distribution reinvestment plan	$	—	$	20,619

(1)	For discussion on the restatement adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

The accompanying notes are an integral part of these statements.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

Note 1 — Organization

American Realty Capital Properties, Inc. (the “Company” or “ARCP”) is a self-managed Maryland corporation incorporated on December 2, 2010 that qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. On September 6, 2011, the Company completed its initial public offering (the “IPO”). The Company’s common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ARCP.”

The Company operates through two business segments, Real Estate Investment (“REI”) and private capital management, Cole Capital (“Cole Capital”), as further discussed in Note 6 — Segment Reporting (As Restated). Substantially all of the Company’s REI segment is conducted through ARC Properties Operating Partnership, L.P., a Delaware limited partnership (the “OP”). The Company is the sole general partner and holder of 97.3% of the common equity interests in the OP as of June 30, 2014. As of June 30, 2014, certain affiliates of the Company and certain unaffiliated investors are limited partners and owners of 1.7% and 1.0%, respectively, of the common equity interests in the OP. Under the limited partnership agreement of the OP (“LPA”), after holding units of limited partner interests in the OP (“OP Units”) for a period of one year, unless otherwise consented to by the Company, holders of OP Units have the right to redeem the OP Units for the cash value of a corresponding number of shares of the Company’s common stock or, at the option of the Company, a corresponding number of shares of the Company’s common stock. The remaining rights of the holders of OP Units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP’s assets. Substantially all of the Cole Capital segment is conducted through Cole Capital Advisors, Inc. (“CCA”), an Arizona corporation and a wholly owned subsidiary of the OP. CCA is treated as a taxable REIT subsidiary (“TRS”) under Section 856 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

Prior to January 8, 2014, ARC Properties Advisors, LLC (the “Former Manager”), a wholly owned subsidiary of AR Capital, LLC (“ARC”), managed the Company’s affairs on a day-to-day basis, with the exception of certain acquisition, accounting and portfolio management services performed by employees of the Company. In August 2013, the Company’s board of directors determined that it was in the best interests of the Company and its stockholders to become self-managed, and the Company completed its transition to self-management on January 8, 2014. In connection with becoming self-managed, the Company terminated the management agreement with its Former Manager. See Note 20 — Related Party Transactions and Arrangements (As Restated) for further discussion.

The Company has advanced its investment objectives by not only growing its net lease portfolio through granular, self-originated acquisitions, but also through strategic mergers and acquisitions. See Note 3 — Mergers and Acquisitions (As Restated) for further discussion.

On June 11, 2014, the OP, through indirect subsidiaries (the “Sellers”), entered into an agreement of purchase and sale with BRE DDR Retail Holdings III LLC (the “Purchaser”), an entity indirectly jointly owned by affiliates of Blackstone Real Estate Partners VII L.P. and DDR Corp., by which the Sellers have agreed to sell to the Purchaser and the Purchaser has agreed to purchase from the Sellers 67 multi-tenant properties and nine single-tenant properties and the adjacent land and related property (the “Multi-Tenant Portfolio”). The purchase price of the Multi-Tenant Portfolio is $1.975 billion, subject to customary real estate adjustments. Properties may be excluded from the transaction in certain circumstances, in which case the purchase price will be reduced by the portion of the purchase price allocated to the excluded properties. See Note 3 — Mergers and Acquisitions (As Restated) for further discussion.

Note 2 — Restatement of Previously Issued Financial Statements

The Company has restated its consolidated balance sheets as of June 30, 2014 and December 31, 2013 and its consolidated statements of operations and consolidated statements of comprehensive loss for the three and six months ended June 30, 2014 and 2013. In addition, the Company has restated its consolidated statements of changes in equity and consolidated statements of cash flows for the three and six months ended June 30, 2014 and 2013, along with certain related notes to such restated

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

consolidated financial statements. In addition, the December 31, 2013 and June 30, 2013 balance sheets, as disclosed in Note 3 — Mergers and Acquisitions (As Restated), have also been recast in applying the carryover basis of accounting to include the effects of the merger with American Realty Capital Trust IV, Inc. (“ARCT IV”).

The Company determined that the restatement was necessary after an investigation was conducted by the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) with the assistance of independent counsel and forensic accountants. The Audit Committee initiated the investigation in response to concerns regarding accounting practices and other matters that were first reported to it on September 7, 2014. The restatement corrects errors that were identified as a result of the investigation, as well as certain other errors that were identified by the Company. In addition, the restatement reflects corrections of certain immaterial errors and certain previously identified errors that were identified by the Company in the normal course of business and were determined to be immaterial, both individually and in the aggregate, when the consolidated financial statements for the three and six months ended June 30, 2014 were originally issued. In connection with the restatement, the Company has determined that it would be appropriate to correct such errors.

Year ended December 31, 2013 Error Corrections

Corrections to the Company’s consolidated financial statements for the year ended December 31, 2013 are disclosed within Amendment No. 2 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the U.S. Securities and Exchange Commission (“SEC”) (the “Amended 10-K”). The corrections reported in the Amended 10-K relate primarily to bonus accruals, real estate impairments, goodwill, merger and acquisition related expenses, transfer tax accrual and the accounting and reporting of non-controlling interests.

Three Months Ended and Six Months Ended June 30, 2013 Error Corrections

Merger and Other Non-routine Transaction Related

In light of findings of the investigation conducted by the Audit Committee, the Company performed an internal review of all acquisition, merger and other non-routine transaction related expenses. The work resulted in the identification of the following errors:

•

The Company identified $13.0 million of management fees that were improperly classified as merger and other non-routine transaction related expenses. Such amounts have been properly classified as management fees to affiliates for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013.

•

Upon consummation of the ARCT III Merger (as defined in Note 3 — Mergers and Acquisitions (As Restated)), the OP entered into an agreement with an affiliate to acquire certain furniture, fixtures, equipment (“FF&E”) and other assets. The Company originally capitalized $4.1 million of FF&E costs and expensed $1.7 million of costs during the six months ended June 30, 2013. The Company has concluded that there was no evidence of the receipt and it could not support the value of the FF&E. As such, the Company has expensed the amount originally capitalized and recognized the expense in merger and other non-routine transaction related expense for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013. See Note 20 — Related Party Transactions and Arrangements (As Restated) for further discussion.

•

The Company has determined that it should have recorded a controlling interest transfer tax liability totaling $1.1 million upon consummation of the ARCT III Merger (each, as defined in Note 3 — Merger and Acquisitions (As Restated)). The accrual and corresponding merger and other non-routine transaction related expense are recorded for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013.

•

The Company identified $1.0 million of costs during the six months ended June 30, 2013 that were improperly classified as merger and other non-routine transaction related expenses that should have been capitalized as deferred financing costs and amortized accordingly. As such, an adjustment to properly record and amortize the deferred financing costs has been made for the six months ended June 30, 2013. As a result of capitalizing these deferred financing costs, additional interest expense of $0.6 million was recorded for the six months ended June 30, 2013. No such expenses were identified in the three months ended June 30, 2013.

•

During the three and six months ended June 30, 2013, the Company improperly classified $0.4 million and $5.9 million, respectively, as “merger-related.” As restated, the amounts have been reclassified from merger and other non-routine transaction related expenses to general and administrative expenses.

•

The Company identified a net amount of $87,000 of merger and other non-routine transaction related expenses that were improperly recorded in each of the three and six months ended June 30, 2013. As such, the Company properly decreased merger and other non-routine transaction related expense by this amount in the period.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The Company has updated the caption from “merger and other transaction related” to “merger and other non-routine transactions” to appropriately include non-recurring costs that may not have been incurred solely for a merger transaction. See Note 4 — Summary of Significant Accounting Policies (As Restated) for a further breakout of the merger costs and other non-routine transactions.

In addition, the Company has included $3.5 million and $4.3 million during the three and six months ended June 30, 2013, respectively, in equity-based compensation that was previously reported on a separate line item, within general and administrative expenses.

Operating Fees to Affiliate

The Company identified $0.5 million of operating fees to affiliate was incorrectly recorded in the six months ended June 30, 2013. Therefore, the Company decreased operating fees to affiliate by this amount. No such expenses were identified in the three months ended June 30, 2013.

This line item caption has been updated to “management fees to affiliates” in the accompanying consolidated statements of operations.

Net Loss Attributable to Non-controlling Interests

The original calculation of the net loss attributable to non-controlling interest holders for the six months ended June 30, 2013 excluded expenses that were improperly recorded at the Company level. These expenses were incurred by the OP, and therefore should have been included in the Company’s determination of the net loss attributable to its non-controlling interest holders. In addition, the net loss attributable to the non-controlling interest holders has been adjusted to reflect the impact of the cumulative restatement adjustments discussed and presented herein. As a result, the Company recorded an adjustment of $2.2 million for the three months ended June 30, 2013 and $3.8 million for the six months ended June 30, 2013 for net loss attributable to non-controlling interest holders.

Three Months Ended and Six Months Ended June 30, 2014 Error Corrections

Merger and Other Non-routine Transaction Related

In light of the findings of the investigation conducted by the Audit Committee, the Company performed an internal review of all acquisition, merger and other non-routine transaction related expenses. The work resulted in the identification of the following errors:

•

The Company identified a net amount of $16.1 million of merger and other non-routine transaction related expenses that were improperly recorded in the three months ended March 31, 2014. Of this amount, a net amount of $14.5 million has been properly recorded in the year ended December 31, 2013 and a net amount of $1.6 million has been properly recorded in the three months ended June 30, 2014. Additional expenses of $1.2 million were identified and recorded in the three months ended June 30, 2014. These adjustments resulted in a net decrease in merger and other non-routine transaction related expenses of $13.4 million for the six months ended June 30, 2014.

•

Upon consummation of the ARCT IV Merger (as defined in Note 3 — Mergers and Acquisitions (As Restated)), the OP entered into an agreement with an affiliate to acquire certain furniture, fixtures, equipment (“FF&E”) and other assets. The Company originally capitalized $2.1 million of FF&E costs during the six months ended June 30, 2014. The Company has concluded that there was no evidence of the receipt and it could not support the value of the FF&E. As such, the Company has expensed the amount originally capitalized and recognized the expense in merger and other non-routine transaction related expense for the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014. See Note 20 — Related Party Transactions and Arrangements for further discussion.

•

The Company identified $0.8 million and $21.3 million of costs during the three and six months ended June 30, 2014, respectively, that were improperly classified as merger and other non-routine transaction related expense that should have been capitalized as deferred financing costs and amortized accordingly. As such, an adjustment to properly record and amortize the deferred financing costs has been made for the three and six months ended June 30, 2014. As a result

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

of capitalizing these deferred financing costs, additional interest expense of $1.3 million and $10.0 million and extinguishment of debt expense of $0.9 million and $3.2 million was recorded for the three and six months ended June 30, 2014, respectively.

•

The Company identified $1.4 million of merger and other non-routine transaction related expenses that should have been classified as loss on disposition of properties. Such amount has been properly classified for the three and six months ended June 30, 2014.

•

The Company improperly classified $5.2 million and $14.5 million of expenses in the three and six months ended June 30, 2014, respectively, as merger related. However, the Company has determined that such amounts should have been accounted for as general and administrative expenses for the respective periods.

•

The Company identified $13.8 million of management fees that were improperly classified as merger and other non-routine transaction related expenses. Such amounts have been properly classified as management fees to affiliates for the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

•

Upon consummation of the ARCT III Merger and CapLease Merger (each, as defined in Note 3 – Merger and Acquisitions (As Restated)) in 2013, the Company did not properly accrue a controlling interest transfer tax liability for each respective merger. As such, the Company properly recorded an estimated $8.9 million as of December 31, 2013. The Company considered its existing accrual amount for such liabilities, in determining the liability amounts for the ARCT IV and Cole mergers that were consummated, noting that it had over accrued for such liabilities, and as a result recorded too much expense. Therefore, the Company properly reduced the expense recorded in the period by recording $4.0 million less expense for the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

•

The Company improperly classified $0.7 million as merger and other non-routine transaction expenses that should have been classified as acquisition related expenses. Such amount has been properly classified for the three and six months ended June 30, 2014.

The Company has updated the caption from “merger and other transaction related” to “merger and other non-routine transactions” to appropriately include non-recurring costs that may not have been incurred solely for a merger transaction. See Note 4 —Summary of Significant Accounting Policies (As Restated) for a further breakout of the merger costs and non-routine transactions.

Acquisition-Related

The Company identified $0.5 million of general and administrative salary expense had been improperly recorded as acquisition related expense in the three months ended June 30, 2014. Additionally, the Company identified $1.0 million of acquisition related salary expense had been improperly recorded as general and administrative expense in the three months ended March 30, 2014 resulting in a net understatement of acquisition related expenses of $0.5 million in the six months ended June 30, 2014. As such, the Company properly recorded the expense in the three and six months ended June 30, 2014.

The Company identified $1.8 million of acquisition related expense had been recorded twice in the three and six months ended June 30, 2014. As such, the company properly adjusted the acquisition related expense and corresponding cash account.

General and Administrative

The Company’s estimate of annual bonuses of $5.8 million should have been accrued for and expensed as of and for the period ended June 30, 2014, in accordance with the Company’s accounting policy of accruing estimated bonuses throughout the year. As such, the Company recorded the bonus accrual and corresponding general and administrative expense for the three and six months ended June 30, 2014.

The Company identified $0.9 million and $2.5 million of general and administrative expenses that were recorded in the incorrect period. As such, the Company recorded these amounts as additional expense in the three and six months ended June 30, 2014, respectively.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Equity-based Compensation

The investigation found that equity awards made to Nicholas S. Schorsch and Brian S. Block in connection with the Company’s transition from external to internal management contained vesting provisions that, as drafted, were more favorable to them than the Compensation Committee had authorized. In addition, the investigation found that the Compensation Committee’s intention in respect of the OPP was that the maximum award pool opportunity should have been based upon the Company’s equity market capitalization as of the date of the approval of the OPP in October 2013, equaling approximately $120.0 million, rather than $218.1 million which was derived from a pro forma equity market capitalization giving effect to the closing of various transactions as of the Company’s transition to self-management. These items resulted in a decrease to stock-based compensation reported in general and administrative expense for the three and six months ended June 30, 2014 of $2.2 million and $8.4 million, respectively.

In addition, the Company assessed its accrual for distributions recorded on LTIP units, noting distributions had not been properly recorded. As a result, the Company increased the distributions recorded in equity and the accrual recorded for distributions payable for LTIP awards by $6.3 million as of June 30, 2014.

The Company also determined that the documentation of awards granted to its directors provided for accelerated vesting of shares upon voluntary resignation of the directors. As a result, the Company determined there was no required service period for the vesting of such awards, which decreased the stock based compensation reported in general and administrative expense by $1.2 million and increased the expense by $2.1 million for the three and six months ended June 30, 2014, respectively. Based upon the findings of the Audit Committee and the Company in connection with the recent review of the Company’s previously filed financial statements, the Company has subsequently modified such awards to provide that voluntary resignation would not accelerate the vesting of such awards.

The Company originally reported $9.3 million and $31.8 million during the three and six months ended June 30, 2014, respectively, in equity-based compensation in its own line item, however it now reports such compensation as general and administrative expenses.

Depreciation and Amortization

The Company identified that its depreciation expense was understated by $2.3 million in the three months ended March 31, 2014 and was overstated by the same amount in the three months ended June 30, 2014. As such, the Company properly adjusted depreciation expense for these periods.

In addition, the Company improperly recorded depreciation expense of $6.0 million in the three months ended June 30, 2014 for real estate properties acquired as of March 31, 2014. As such, the Company decreased depreciation expense by this amount for the three months ended June 30, 2014 and properly recorded this expense in the three months ended March 31, 2014.

Other Expense

As a result of the restatement corrections, the Company updated its tax provision calculation which resulted in additional tax expense of $2.2 million and $0.9 million for the three and six months ended June 30, 2014, respectively.

Gain (Loss) on Disposition of Properties and Held for Sale Assets

Subsequent to the CapLease Merger and Cole Merger (each, as defined in Note 3 — Mergers and Acquisitions (As Restated)), the Company disposed of certain properties acquired in those mergers. The disposition of such properties resulted in a net gain on disposition for the three months ended June 30, 2014 and a net loss on disposition for the six months ended June 30, 2014; however, the Company incorrectly adjusted its purchase price allocation by adjusting its goodwill recorded in connection with the Mergers by $2.6 million and $10.9 million for the three and six months ended June 30, 2014, respectively. The Company has determined that there was not sufficient evidence to support adjusting its goodwill as a measurement period adjustment. As a result, the Company reversed the measurement period adjustments that were made to goodwill and recognized a net gain and loss on disposition for the three and six months ended June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

In addition, the Company assigned goodwill associated with the certain Mergers to the Company’s REI segment. However, the Company determined that it did not properly account for disposals of real estate because a portion of goodwill was not included in the carrying amount of the associated real estate in its determination of the gain or loss on disposition. To correct the accounting, the Company allocated $2.2 million and $9.2 million in the three and six months ended June 30, 2014, respectively, of goodwill to real estate dispositions, which increased the loss on disposition of properties recognized in the three and six months ended June 30, 2014.

The Company did not properly classify a property as held for sale as of June 30, 2014. As such, the Company adjusted the fair value of the property at that date and recognized a loss on held for sale assets of $1.8 million for the three and six months ended June 30, 2014.

Gain (Loss) on Derivative Instruments

The Company determined that a portion of one of its interest rate swaps was incorrectly designated as effective, rather than ineffective for the three and six months ended June 30, 2014. Therefore, the Company incorrectly recorded the ineffective portion of the hedge through other comprehensive income (“OCI”), rather than earnings. The Company recorded a gain of $0.5 million and $1.5 million for the three and six months ended June 30, 2014, respectively, and reversed the amounts from OCI for the respective periods.

As part of the Cole Merger, the Company acquired a derivative liability in the amount of $10.0 million for interest rate swaps. The swaps were subsequently settled in connection with the extinguishment of the related debt. This settlement should have been recorded as a reduction of the derivative liability acquired, however it was recorded as a loss on derivative instruments in the three months ended March 31, 2014. The Company previously corrected this in the three months ended June 30, 2014. In order to correct the period in which this adjustment was made, the Company decreased the amount recorded as a loss on derivative instruments in the three months ended March 31, 2014 and increased the amount recorded as a loss on derivative instruments in the three months ended June 30, 2014.

The Company identified a swap interest payment of $1.8 million was incorrectly classified as a loss on derivative instruments. To correct the accounting, the Company reclassified the loss on derivative instruments to interest expense in the three and six months ended June 30, 2014. Additionally, the Company identified $2.1 million recorded as loss on derivative instruments that should have been recorded as interest expense. The Company reclassified loss on derivative instruments to interest expense in the six months ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

Interest Expense

The Company determined that the breakage costs of an interest rate lock was incorrectly recorded as interest expense in the six months ended June 30, 2014, rather than OCI and amortized over the term of the lock. As such, $3.9 million of expense was reclassified from interest expense to OCI in the period ended June 30, 2014. No such expenses were identified in the three months ended June 30, 2014.

The Company identified a credit for interest expense of $1.1 million was incorrectly recorded in the three and six months ended June 30, 2014 as the credit was already recorded through a separate transaction. As such, the Company increased interest expense and decreased the receivable for this amount in the three and six months ended June 30, 2014.

The Company concluded that the interest expense related to a swap was underestimated by $1.4 million for the six months ended June 30, 2014. As such, the Company recorded additional interest expense for the respective amount. No such expenses were identified in the three months ended June 30, 2014.

The Company concluded that $5.0 million and $12.8 million of debt extinguishment costs for the three and six months ended June 30, 2014, respectively, which were originally reported as interest expense, should be reported as a separate line item caption within the consolidated statements of operations for the three and six months ended June 30, 2014. As such, the Company decreased interest expense by these amounts for the respective periods.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Net Loss Attributable to Non-controlling Interests

The original calculation of the net loss attributable to non-controlling interest holders for the three and six months ended June 30, 2014 excluded expenses that were improperly recorded at the Company level. These expenses were incurred by the OP, and therefore should have been included in the Company’s determination of the net loss attributable to its non-controlling interest holders. In addition, the net loss attributable to the non-controlling interest holders has been adjusted to reflect the impact of the cumulative restatement adjustments discussed and presented herein. As a result, the Company recorded an adjustment of $1.1 million and $1.4 million for the three and six months ended June 30, 2014, respectively, for net loss attributable to non-controlling interest holders.

Other Changes

Along with restating the consolidated financial statements to correct the errors discussed above, the Company recorded adjustments for certain previously identified immaterial accounting errors related to the three and six months ended June 30, 2014 that arose in the normal course of business. In connection with the original financial statement issuance, the Company assessed the impact of these immaterial errors and concluded that they were not material, individually or in the aggregate, to the consolidated financial statements. However, in conjunction with the restatement, the Company determined that it would be appropriate to correct such errors.

The original calculations of net loss per share for the three and six months ended June 30, 2014 were based on an incorrect weighted average share count. The original weighted average share count treated a portion of certain restricted share awards as outstanding common stock prior to the actual vesting date of such awards, and as a result, the weighted average share count was overstated for both periods. Therefore, the 2014 restated consolidated financial statements reflect decreases of 334,276 shares and 332,939 shares to the weighted average share counts used in the net loss per share calculations for the three and six months ended June 30, 2014.

The Company also recorded certain reclassifications to conform the presentation of its consolidated statement of operations for the six months ended June 30, 2014 and 2013.

In addition to the restatement of the consolidated financial statements, the Company has also restated the following notes for the three months ended June 30, 2014 and June 30, 2013 to reflect the error corrections noted above.

•

Note 3 – Mergers and Acquisitions

•

Note 4 – Summary of Significant Accounting Policies

•

Note 5 – Acquisitions of CapLease, Cole and CCPT

•

Note 6 – Segment Reporting

•

Note 7 – Real Estate Investments

•

Note 10 – Deferred Costs and Other Assets, Net

•

Note 11 – Fair Value of Financial Instruments

•

Note 12 – Mortgage Notes Payable

•

Note 15 – Derivatives and Hedging Activities

•

Note 16 – Accounts Payable and Accrued Expenses

•

Note 19 – Equity-based Compensation

•

Note 20 – Related Party Transactions and Arrangements

•

Note 22 – Net Loss Per Share

•

Note 23 – Property Dispositions

•

Note 24 – Income Taxes

•

Note 25 – Subsequent Events

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The following tables present the combined impact of all changes, as described above, to the applicable line items in the consolidated financial statements to the Company’s previously issued consolidated financial statements for the periods ended June 30, 2014 and 2013 and the year ended December 31, 2013 (in thousands, except share and per share amounts):

June 30, 2014 and December 31, 2013 Restated Consolidated Balance Sheets


	June 30, 2014												December 31, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported ⁽¹⁾			Reclassifications			Restatement Adjustments			As Restated
ASSETS
Real estate investments, at cost:
Land	$	3,361,195		$	—		$	(17,960	)	$	3,343,235		$	1,379,453		$	—		$	855		$	1,380,308
Buildings, fixtures and improvements		12,445,972			(3,623	)		(21,723	)		12,420,626			5,291,031			—			6,369			5,297,400
Land and construction in progress		62,594			—			—			62,594			21,839			—			—			21,839
Acquired intangible lease assets		2,231,675			382			(4,664	)		2,227,393			758,376			382			837			759,595

Total real estate investments, at cost		18,101,436			(3,241	)		(44,347	)		18,053,848			7,450,699			382			8,061			7,459,142
Less: accumulated depreciation and amortization		(661,005	)		(281	)		669			(660,617	)		(267,352	)		(155	)		229			(267,278	)

Total real estate investments, net		17,440,431			(3,522	)		(43,678	)		17,393,231			7,183,347			227			8,290			7,191,864
Investment in unconsolidated entities		102,047			—			—			102,047			—			—			—			—
Investment in direct financing leases, net		62,094			—			—			62,094			66,112			—			—			66,112
Investment securities, at fair value		219,204			—			—			219,204			62,067			—			—			62,067
Loans held for investment, net		97,587			—			—			97,587			26,279			—			—			26,279
Cash and cash equivalents		193,690			—			1,839			195,529			52,725			—			—			52,725
Derivative assets, at fair value ⁽²⁾		—			—			—			—			9,189			(9,189	)		—			—
Restricted cash		69,544			—			—			69,544			35,921			—			—			35,921
Prepaid Expenses ⁽²⁾		—			—			—			—			187,930			(187,930	)		—			—
Intangible assets, net		347,618			—			—			347,618			—			—			—			—
Deferred costs and other assets, net		405,056			3,522			9,621			418,199			—			281,865			(1,204	)		280,661
Goodwill		2,304,880			—			(11,860	)		2,293,020			102,419			—			(9,630	)		92,789
Due from affiliates		73,336			—			350			73,686			—			—						—
Deferred Costs ⁽²⁾		—			—			—			—			81,311			(84,973	)		3,662			—
Assets held for sale		—						38,737			38,737			679			—			(14	)		665

Total assets	$	21,315,487		$	—		$	(4,991	)	$	21,310,496		$	7,807,979		$	—		$	1,104		$	7,809,083

LIABILITIES AND EQUITY
Mortgage notes payable, net	$	4,227,494		$	—		$	—		$	4,227,494		$	1,301,114		$	—		$	—		$	1,301,114
Corporate bonds, net		2,546,089			—			—			2,546,089			—			—			—			—
Convertible debt, net		975,003			—			—			975,003			972,490			—			—			972,490
Senior corporate credit facilities ⁽³⁾		—			—			—			—			1,819,800			(1,819,800	)		—			—
Secured credit facility ⁽³⁾		—			—			—			—			150,000			(150,000	)		—			—
Credit facilities		1,896,000			—			—			1,896,000			—			1,969,800			—			1,969,800
Other debt, net		146,158			—			—			146,158			104,804			—			—			104,804
Below-market lease liabilities, net		283,518			—			(1,564	)		281,954			77,789			—			(620	)		77,169
Accounts payable and accrued expenses		154,741			—			20,201			174,942			808,900			—			(78,329	)		730,571
Derivative liabilities, at fair value ⁽⁴⁾		—			—			—			—			18,455			(18,455	)		—			—
Deferred rent and other liabilities		218,023			—			5,396			223,419			21,816			18,455			—			40,271
Distributions payable		3,837			—			6,942			10,779			10,278			—			625			10,903
Due to affiliates		835			—			2,349			3,184			—			—			103,434			103,434

Total liabilities		10,451,698			—			33,324			10,485,022			5,285,446			—			25,110			5,310,556

The consolidated balance sheets continue onto the next page.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)


	June 30, 2014											December 31, 2013
	As Previously Reported			Reclassifications		Restatement Adjustments			As Restated			As Previously Reported			Reclassifications		Restatement Adjustments			As Restated
Series D preferred stock, $0.01 par value, 21,735,008 shares (part of 100,000,000 aggregate preferred shares authorized) issued and outstanding at June 30, 2014 and December 31, 2013, respectively	$	269,299		$	—	$	—		$	269,299		$	269,299		$	—	$	—		$	269,299

Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 shares authorized and 42,730,013 and 42,199,547 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		427			—		—			427			422			—		—			422
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 907,918,821 and 239,234,725 issued and outstanding at June 30, 2014 and December 31, 2013, respectively		9,079			—		—			9,079			2,392			—		—			2,392

Additional paid-in capital		11,904,537			—		(2,862	)		11,901,675			2,939,287			—		1,620			2,940,907
Accumulated other comprehensive income		12,392			—		(5,334	)		7,058			7,666			—		—			7,666
Accumulated deficit		(1,628,354	)		—		(10,854	)		(1,639,208	)		(864,516	)		—		(13,441	)		(877,957	)

Total stockholders’ equity		10,298,081			—		(19,050	)		10,279,031			2,085,251			—		(11,821	)		2,073,430
Non-controlling interests		296,409			—		(19,265	)		277,144			167,983			—		(12,185	)		155,798


Total equity		10,594,490			—		(38,315	)		10,556,175			2,253,234			—		(24,006	)		2,229,228

Total liabilities and equity	$	21,315,487		$	—	$	(4,991	)	$	21,310,496		$	7,807,979		$	—	$	1,104		$	7,809,083

(1)	This line item caption has been reclassified and included within deferred costs and other assets, net in the accompanying consolidated balance sheets for the period ended June 30, 2014.

(2)	This line item caption has been reclassified and included within credit facilities in the accompanying consolidated balance sheets for the period ended June 30, 2014.

(3)	This line item caption has been reclassified and included within deferred rent, derivative and other liabilities in the accompanying consolidated balance sheets for the period ended June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

June 30, 2013 Restated Consolidated Balance Sheet


	June 30, 2013
	As Previously Reported			ARCT IV Adjustments ⁽¹⁾			Reclassifications			Restatement Adjustments			As Restated
ASSETS
Real estate investments, at cost:
Land	$	504,562		$	249,931		$	—		$	—		$	754,493
Buildings, fixtures and improvements		2,043,270			770,009			—			—			2,813,279
Acquired intangible lease assets		318,488			113,465			347			—			432,300

Total real estate investments, at cost		2,866,320			1,133,405			347			—			4,000,072
Less: accumulated depreciation and amortization		(108,765	)		(7,905	)		(132	)		—			(116,802	)

Total real estate investments, net		2,757,555			1,125,500			215			—			3,883,270
Investment in direct financing leases, net		67,518			8,892			—			—			76,410
Investment securities, at fair value		9,920			68,082			—			—			78,002
Cash and cash equivalents		10,958			261,490			—			—			272,448
Derivative assets, at fair value		10,161			41			(10,202	)		—			—
Restricted cash		1,576			—			—			—			1,576
Deferred costs and other assets, net		—			—			128,825			(642	)		128,183
Prepaid expenses and other assets, net		14,626			50,262			(64,888	)		—			—
Receivable for issuance of common stock		—			443			(443	)		—			—
Deferred costs, net		38,443			15,064			(53,507	)		—			—
Assets held for sale		6,028			—			—			(14	)		6,014

Total assets	$	2,916,785		$	1,529,774		$	—		$	(656	)	$	4,445,903


LIABILITIES AND EQUITY
Mortgage notes payable, net		269,918			2,124			—			—			272,042
Senior corporate credit facilities		600,000			—			—			—			—
Credit facilities		—			—			—			—			600,000
Convertible Obligation to Series C Convertible Preferred Stockholders		445,000			—			—			—			445,000
Contingent value rights obligation to preferred and common investors		31,134			—			—			—			31,134
Derivative liabilities		1,186			—			—			—			—
Accounts payable and accrued expenses		12,060			654,518			(103	)		(395	)		666,080
Deferred rent and other liabilities		5,274			1,796			1,289			—			8,359
Distributions payable		1			9,717			—			248			9,966
Due to affiliates		—			—			—			1,349			1,349

Total liabilities		1,364,573			668,155			—			1,202			2,033,930


Preferred stock (excluding Series D Preferred Stock), $0.01 par value, 100,000,000 shares authorized and 42,921,213 shares issued and outstanding at June 30, 2013		8			422			—			—			430
Common stock, $0.01 par value, 1,500,000,000 shares authorized and 221,690,474 issued and outstanding at June 30, 2013		1,846			368			—			—			2,214
Additional paid-in capital		1,801,460			901,592			—			3,035			2,706,087
Accumulated other comprehensive income		8,919			(1,337	)		—			—			7,582
Accumulated deficit		(379,502	)		(68,175	)		—			(64	)		(447,741	)

Total stockholders’ equity		1,432,731			832,870			—			2,971			2,268,572
Non-controlling interests		119,481			28,749			—			(4,829	)		143,401

Total equity		1,552,212			861,619			—			(1,858	)		2,411,973

Total liabilities and equity	$	2,916,785		$	1,529,774		$	—		$	(656	)	$	4,445,903

(1)	Adjustments to financial statements in order to apply the carryover basis of accounting to include the effects of the merger with ARCT IV.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Restated Consolidated Statements of Operations (for the three months ended June 30, 2014 and 2013)


	Three Months Ended												Three Months Ended
	June 30, 2014												June 30, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported			Reclassifications			Restatement Adjustments			As Restated
Revenues:
Rental income	$	314,843		$	—		$	(324	)	$	314,519		$	52,664		$	—		$	—		$	52,664
Direct financing lease income		1,181			—			—			1,181			—			—			—			—
Operating expense reimbursements		28,545			—			711			29,256			2,281			—			—			2,281
Cole Capital revenue		37,412			(190	)		—			37,222			—			—			—			—

Total revenues		381,981			(190	)		387			382,178			54,945			—			—			54,945

Operating expenses:
Cole Capital reallowed fees and commissions		7,068			—			—			7,068			—			—			—			—
Acquisition related		8,453			—			(1,252	)		7,201			37,289			—			(23	)		37,266
Merger and other transaction related ⁽¹⁾		13,286			—			(5,864	)		7,422			6,393			—			(528	)		5,865
Property operating		39,372			—			(86	)		39,286			3,086			—			—			3,086
General and administrative		19,063			2,788			18,161			40,012			2,361			23			3,899			6,283
Equity-based compensation ⁽²⁾		9,338			—			(9,338	)		—			3,458			—			(3,458	)		—
Depreciation and amortization		258,993			—			(8,254	)		250,739			33,752			(23	)		(48	)		33,681
Impairment of real estate ⁽³⁾		—			—			1,556			1,556			—			—			—			—

Total operating expenses		355,573			2,788			(5,077	)		353,284			86,339			—			(158	)		86,181

Operating income (loss)		26,408			(2,978	)		5,464			28,894			(31,394	)		—			158			(31,236	)

Other (expense) income:
Interest expense, net		(99,635	)		(4,619	)		357			(103,897	)		(11,068	)		(356	)		—			(11,424	)
Extinguishment of debt, net ⁽³⁾		—			—			(6,469	)		(6,469	)		—			—			—			—
Other income, net		6,526			7,597			(2,187	)		11,936			1,167			356			—			1,523
Gain (loss) on derivative instruments, net		21,926			—			(7,719	)		14,207			(40	)		(31,134	)		—			(31,174	)
Loss on contingent value rights		—			—			—			—			(31,134	)		31,134			—			—
Gain on disposition of properties, net		1,510			—			(2,779	)		(1,269	)		—			—			—			—

Total other expenses, net		(69,673	)		2,978			(18,797	)		(85,492	)		(41,075	)		—			—			(41,075	)

Net loss from continuing operations		(43,265	)		—			(13,333	)		(56,598	)		(72,469	)		—			158			(72,311	)


Discontinued operations:
Income from operations of held for sale properties		—			—			—			—			36			—			—			36

Net loss from discontinued operations		—			—			—			—			36			—			—			36


Net loss		(43,265	)		—			(13,333	)		(56,598	)		(72,433	)		—			158			(72,275	)
Net loss attributable to non-controlling interests		2,937			—			(1,059	)		1,878			475			—			2,197			2,672

Net loss attributable to the Company	$	(40,328	)	$	—		$	(14,392	)	$	(54,720	)	$	(71,958	)	$	—		$	2,355		$	(69,603	)



Basic and diluted net loss per share attributable to common stockholders	$	(0.08	)	$	—		$	—		$	(0.10	)	$	(0.36	)	$	—		$	—		$	(0.35	)

(1)	This line item caption has been updated to “merger and other non-routine transactions” in the accompanying consolidated statements of operations.

(2)	As disclosed above, this line item caption has been reclassified into “general and administrative” in the accompanying consolidated statements of operations.

(3)	This line item caption has been added and is included in the accompanying consolidated statements of operations for the period ended June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Restated Consolidated Statements of Operations (for the six months ended June 30, 2014 and 2013)


	Six Months Ended												Six Months Ended
	June 30, 2014												June 30, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported			Reclassifications			Restatement Adjustments			As Restated
Revenues:
Rental income	$	559,288		$	—		$	(354	)	$	558,934		$	93,651		$	—		$	—		$	93,651
Direct financing lease income		2,187			—			—			2,187			—			—			—			—
Operating expense reimbursements		49,641			—			1,091			50,732			4,191			—			—			4,191
Cole Capital revenue		91,479			—			—			91,479			—			—			—			—

Total revenues		702,595			—			737			703,332			97,842			—			—			97,842

Operating expenses:
Cole Capital reallowed fees and commissions		41,504			—			—			41,504			—			—			—			—
Acquisition related		20,337			—			281			20,618			47,616			—			(23	)		47,593
Merger and other non-routine transactions ⁽¹⁾		235,478			—			(67,758	)		167,720			144,162			—			(14,729	)		129,433
Property operating		69,030			—			11			69,041			5,635			—			—			5,635
Management fees to affiliate		—			—			13,888			13,888			—			—			12,493			12,493
General and administrative		44,748			3,911			47,845			96,504			3,815			23			10,217			14,055
Equity-based compensation ⁽²⁾		31,848			—			(31,848	)		—			4,339			—			(4,339	)		—
Depreciation and amortization		424,356			—			225			424,581			60,505			(23	)		(48	)		60,434
Impairment of real estate ⁽³⁾		—			—			1,556			1,556			—			—			—			—

Total operating expenses		867,301			3,911			(35,800	)		835,412			266,072			—			3,571			269,643

Operating income (loss)		(164,706	)		(3,911	)		36,537			(132,080	)		(168,230	)		—			(3,571	)		(171,801	)

Other (expense) income:
Interest expense, net		(216,347	)		(8,272	)		(229	)		(224,848	)		(17,124	)		(502	)		(599	)		(18,225	)
Extinguishment of debt, net ⁽⁴⁾		—			—			(15,868	)		(15,868	)		—			—			—			—
Other income, net		10,915			12,183			(952	)		22,146			2,020			502			—			2,522
Gain (loss) on derivative instruments, net		1,729			—			5,357			7,086			(45	)		(31,134	)		—			(31,179	)
Loss on contingent value rights		—			—			—			—			(31,134	)		31,134			—			—
Gain (loss) on disposition of properties and held for sale assets, net		4,489			—			(23,363	)		(18,874	)		—			—			—			—
Gain on sale of investments		—			—			—			—			451			—			—			451

Total other expenses, net		(199,214	)		3,911			(35,055	)		(230,358	)		(45,832	)		—			(599	)		(46,431	)

Net loss from continuing operations		(363,920	)		—			1,482			(362,438	)		(214,062	)		—			(4,170	)		(218,232	)


Discontinued operations:
Income from operations of held for sale properties		—			—			—			—			20			—			—			20
Gain on held for sale properties		—			—			—			—			14			—			(14	)		—

Net loss from discontinued operations		—			—			—			—			34			—			(14	)		20


Net loss		(363,920	)		—			1,482			(362,438	)		(214,028	)		—			(4,184	)		(218,212	)
Net loss attributable to non-controlling interests		14,911			—			1,363			16,274			907			—			3,822			4,729

Net loss attributable to the Company	$	(349,009	)	$	—		$	2,845		$	(346,164	)	$	(213,121	)	$	—		$	(362	)	$	(213,483	)

Basic and diluted net loss per share attributable to common stockholders	$	(0.58	)	$	—		$	—		$	(0.58	)	$	(1.16	)	$	—		$	—		$	(1.17	)

(1)	This line item caption has been updated to merger and other non-routine transactions in the accompanying consolidated statements of operations.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

(2)	As disclosed above, this line item caption has been reclassified into “general and administrative” in the accompanying consolidated statements of operations.

(3)	This line item caption has been added and is included in the accompanying consolidated statements of operations for the period ended June 30, 2014.

Restated Statements of Comprehensive Loss (for the three months ended June 30, 2014 and 2013)


	Three Months Ended									Three Months Ended
	June 30, 2014									June 30, 2013
	As Previously Reported			Restatement Adjustments			As Restated			As Previously Reported			Restatement Adjustments		As Restated
Net loss ⁽¹⁾	$	(43,265	)	$	(13,333	)	$	(56,598	)	$	(72,433	)	$	158	$	(72,275	)

Other comprehensive (loss) income:
Designated derivatives, fair value adjustments		(6,883	)		(400	)		(7,283	)		14,058			—		14,058
Unrealized gain (loss) on investment securities, net		5,878			—			5,878			(1,793	)		—		(1,793	)

Total other comprehensive (loss) income		(1,005	)		(400	)		(1,405	)		12,265			—		12,265

Total comprehensive loss		(44,270	)		(13,733	)		(58,003	)		(60,168	)		158		(60,010	)
Net loss attributable to non-controlling interests		2,937			(1,059	)		1,878			475			2,197		2,672

Total comprehensive loss attributable to the Company	$	(41,333	)	$	(14,792	)	$	(56,125	)	$	(59,693	)	$	2,355	$	(57,338	)

(1)	The statement of comprehensive loss previously began with net loss attributable to common stockholders. The statement has been updated to begin with net loss to properly show the total comprehensive loss.

Restated Statements of Comprehensive Loss (for the six months ended June 30, 2014 and 2013)


	Six Months Ended									Six Months Ended
	June 30, 2014									June 30, 2013
	As Previously Reported			Restatement Adjustments			As Restated			As Previously Reported			Restatement Adjustments			As Restated
Net loss	$	(363,920	)	$	1,482		$	(362,438	)	$	(214,028	)	$	(4,184	)	$	(218,212	)
Other comprehensive (loss) income:
Designated derivatives, fair value adjustments		(4,247	)		(5,334	)		(9,581	)		12,881			—			12,881
Unrealized gain (loss) on investment securities, net		8,973			—			8,973			(1,365	)		—			(1,365	)

Total other comprehensive (loss) income		4,726			(5,334	)		(608	)		11,516			—			11,516


Total comprehensive loss		(359,194	)		(3,852	)		(363,046	)		(202,512	)		(4,184	)		(206,696	)
Net loss attributable to non-controlling interests		14,911			1,363			16,274			907			3,822			4,729

Total comprehensive loss attributable to the Company	$	(344,283	)	$	(2,489	)	$	(346,772	)	$	(201,605	)	$	(362	)	$	(201,967	)

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Restated Statements of Cash Flows


	Six Months Ended												Six Months Ended
	June 30, 2014												June 30, 2013
	As Previously Reported			Reclassifications			Restatement Adjustments			As Restated			As Previously Reported			Reclassifications		Restatement Adjustments			As Restated
Cash flows from operating activities:
Net loss	$	(363,920	)	$	—		$	1,482		$	(362,438	)	$	(214,028	)	$	—	$	(4,184	)	$	(218,212	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Issuance of OP Units		153,885			—			(61,001	)		92,884			108,247			—		(476	)		107,771
Depreciation and amortization		452,446			—			20,738			473,184			64,243			—		537			64,780
Gain on disposition of properties		(4,489	)		—			23,363			18,874			(14	)		—		14			—
Equity-based compensation		31,848			—			(4,584	)		27,264			6,717			—		74			6,791
Equity in income of unconsolidated entities		385			—			—			385			—			—		—			—
Distributions from unconsolidated entities ⁽¹⁾		—			—			4,033			4,033			—			—		—			—
Net direct financing lease adjustments⁽¹⁾		—			—			—			—			—			—		—			—
Loss on derivative instruments		8,048			—			(15,134	)		(7,086	)		45			—		—			45
Gain on sale of investments, net		—			—			—			—			(451	)		—		—			(451	)
Impairment of real estate		—			—			1,556			1,556
Gain on extinguishment of debt		(8,398	)		—			(8,587	)		(16,985	)		—			—		—			—
Unrealized loss on contingent value rights obligations, net of settlement payments		—			—			—			—			31,134			—		—			31,134
Changes in assets and liabilities:					—			—			—			—			—		—			—
Investment in direct financing leases		525			—			—			525			—			—		—			—
Deferred costs and other assets, net		(62,175	)		—			(31,378	)		(93,553	)		(10,300	)		—		37			(10,263	)
Due from affiliates		(5,335	)		—			(350	)		(5,685	)		—			—		—			—
Accounts payable and accrued expenses		(133,960	)		—			82,189			(51,771	)		4,554			—		(394	)		4,160
Deferred rent, derivative and other liabilities		(35,298	)		—			26,566			(8,732	)		2,676			—		—			2,676
Due to affiliates		223			—			(41,485	)		(41,262	)		—			—		1,349			1,349

Net cash provided by (used in) operating activities		33,785			—			(2,592	)		31,193			(7,177	)		—		(3,043	)		(10,220	)

Cash flows from investing activities:
Investments in real estate and other assets		(1,246,588	)		—			—			(1,246,588	)		(2,129,677	)		—		—			(2,129,677	)
Acquisition of a real estate business, net of cash acquired		(755,701	)		—			(531	)		(756,232	)		—			—		—			—
Investment in direct financing leases		—			—			—			—			(76,410	)		—		—			(76,410	)
Capital expenditures		(46,649	)		21,733			14,927			(9,989	)		(30	)		—		—			(30	)
Real estate developments		—			(21,733	)		—			(21,733	)		—			—		—			—
Distributions from unconsolidated entities⁽¹⁾		4,033			—			(4,033	)		—			—			—		—			—
Principal repayments received from borrowers		4,155			—			—			4,155			—			—		—			—
Investments in unconsolidated entities		(2,500	)		—			—			(2,500	)		—			—		—			—
Return of investment from unconsolidated entities		—			—			—			—			—			—		—			—
Proceeds from disposition of properties		95,321			—			(498	)		94,823			—			—		—			—
Investment in intangible assets		(266	)		—			—			(266	)		—			—		—			—
Investment in other assets		—			—			—			—			(1,041	)		—		1,041			—
Deposits for real estate investments		(129,602	)		—			—			(129,602	)		(47,086	)		—		—			(47,086	)
Uses and refunds of deposits for real estate investments		196,075			—			—			196,075			—			—		—			—
Purchases of investment securities		—			—			—			—			(81,460	)		—		—			(81,460	)

The consolidated statements of cash flows continue onto the next page.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)


	Six Months Ended											Six Months Ended
	June 30, 2014											June 30, 2013
	As Previously Reported			Reclassifications		Restatement Adjustments			As Restated			As Previously Reported			Reclassifications		Restatement Adjustments			As Restated
Line of credit advances to affiliates	$	(80,300	)	$	—	$	—		$	(80,300	)	$	—		$	—	$	—		$	—
Line of credit repayments from affiliates		15,600			—		—			15,600			—			—		—			—
Proceeds from sale of investment securities		—			—		—			—			44,188			—		—			44,188
Change in restricted cash		—			—		(15,499	)		(15,499	)

Net cash used in investing activities		(1,946,422	)		—		(5,634	)		(1,952,056	)		(2,291,516	)		—		1,041			(2,290,475	)
Cash flows from financing activities:
Proceeds from mortgage notes payable		718,275			—		—			718,275			6,924			—		—			6,924
Payments on mortgage notes payable		(876,874	)		—		—			(876,874	)		—			—		—			—
Payments on other debt		(7,524	)		—		—			(7,524	)		—			—		—			—
Proceeds from credit facilities		3,246,000			—		—			3,246,000			825,000			—		—			825,000
Payments on credit facilities		(4,628,800	)		—		—			(4,628,800	)		(349,604	)		—		—			(349,604	)
Proceeds from corporate bonds		2,545,760			—		—			2,545,760			—			—		—			—
Payments of deferred financing costs		(80,515	)		—		(3,650	)		(84,165	)		(40,488	)		—		(973	)		(41,461	)
Common stock repurchases		—			—		—			—			(350,396	)		—		—			(350,396	)
Proceeds from issuances of preferred shares		—			—		—			—			445,000			—		—			445,000
Proceeds from issuances of common stock, net offering costs		1,595,735			—		(2,273	)		1,593,462			1,810,116			—		(74	)		1,810,042
Consideration to Former Manager for internalization		—			—		—			—			(3,035	)		—		3,035			—
Contributions from non-controlling interest holders		1,043			—		(61	)		982			29,758			—		—			29,758
Distributions to non-controlling interest holders		(16,418	)		—		587			(15,831	)		(3,111	)		—		—			(3,111	)
Distributions paid		(427,541	)		—		(77	)		(427,618	)		(90,740	)		—		—			(90,740	)
Change in restricted cash		(15,539	)		—		15,539			—			(844	)		—		—			(844	)

Net cash provided by financing activities		2,053,602			—		10,065			2,063,667			2,278,580			—		1,988			2,280,568

Net change in cash and cash equivalents		140,965			—		1,839			142,804			(20,113	)		—		(14	)		(20,127	)

Cash and cash equivalents, beginning of period		52,725			—		—			52,725			292,575								292,575

Cash and cash equivalents, end of period	$	193,690		$	—	$	1,839		$	195,529		$	272,462		$	—	$	(14	)	$	272,448

(1)	This line item caption has been added and is included in the accompanying consolidated statements of cash flows for the period ended June 30, 2014.

Note 3 — Mergers and Acquisitions (As Restated)

Completed Mergers and Significant Acquisitions

American Realty Capital Trust III, Inc. Merger

On December 14, 2012, the Company entered into an Agreement and Plan of Merger (the “ARCT III Merger Agreement”) with American Realty Capital Trust III, Inc. (“ARCT III”) and certain subsidiaries of each company. The ARCT III Merger Agreement provided for the merger of ARCT III with and into a subsidiary of the Company (the “ARCT III Merger”). The ARCT III Merger was consummated on February 28, 2013.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Pursuant to the terms and subject to the conditions set forth in the ARCT III Merger Agreement, each outstanding share of common stock of ARCT III, including restricted shares which became vested, was converted into the right to receive (i) 0.95 of a share of the Company’s common stock (the “ARCT III Exchange Ratio”) or (ii) $12.00 in cash. In addition, each outstanding unit of equity ownership of ARCT III’s operating partnership (the “ARCT III OP”) was converted into the right to receive 0.95 of the same class of unit of equity ownership in the OP.

Upon the closing of the ARCT III Merger on February 28, 2013, the Company paid an aggregate of $350 million in cash for 29.2 million shares that elected cash consideration, or 16.5% of the then outstanding shares of ARCT III’s common stock (which is equivalent to 27.7 million shares of the Company’s common stock based on the ARCT III Exchange Ratio). In addition, 140.7 million shares of the Company’s common stock were issued in exchange for 148.1 million shares of ARCT III’s common stock adjusted for the ARCT III Exchange Ratio.

Upon the consummation of the ARCT III Merger, American Realty Capital Trust III Special Limited Partner, LLC (the “ARCT III Special Limited Partner”), the holder of the special limited partner interest in the ARCT III OP, was entitled to subordinated distributions of net sales proceeds from the ARCT III OP which resulted in the issuance of units of limited partner interests in the ARCT III OP, when after applying the ARCT III Exchange Ratio, resulting in the issuance of an additional 7.3 million OP Units to affiliates of the Former Manager. The parties had agreed that such OP Units would be subject to a minimum one-year holding period from the date of issuance before being redeemable by the holder for cash or, at the option of the Company, the Company’s common stock.

Also in connection with the ARCT III Merger, the Company entered into an agreement with ARC and its affiliates to internalize certain functions performed by them prior to the ARCT III Merger, reduce certain fees paid to affiliates and pay certain merger related fees. See Note 20 — Related Party Transactions and Arrangements (As Restated).

Accounting Treatment for the ARCT III Merger

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

CapLease, Inc. Merger

On May 28, 2013, the Company entered into an Agreement and Plan of Merger (the “CapLease Merger Agreement”) with CapLease, Inc., a Maryland corporation (“CapLease”), and certain subsidiaries of each company. The CapLease Merger Agreement provided for the merger of CapLease with and into a subsidiary of the Company (the “CapLease Merger”).

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

On November 5, 2013, the Company completed the CapLease Merger. Pursuant to the terms of the CapLease Merger Agreement, each outstanding share of common stock of CapLease, other than shares owned by the Company, CapLease or any of their respective wholly owned subsidiaries, was converted into the right to receive $8.50. Each outstanding share of preferred stock of CapLease, other than shares owned by the Company, CapLease or any of their respective wholly owned subsidiaries, was converted into the right to receive an amount in cash equal to the sum of $25.00 plus all accrued and unpaid dividends on such shares of preferred stock. In addition, in connection with the merger of Caplease, LP with and into the OP, each outstanding unit of equity ownership of CapLease’s operating partnership, other than units owned by CapLease or any wholly owned subsidiary of CapLease, was converted into the right to receive $8.50. Vesting of CapLease’s outstanding restricted stock was accelerated and restricted stock and any outstanding performance shares were fully earned and received $8.50 per share. In total, cash consideration of $920.7 million was paid to CapLease’s common and preferred shareholders.

Accounting Treatment for the CapLease Merger

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

American Realty Capital Trust IV, Inc. Merger

On July 1, 2013, the Company entered into an Agreement and Plan of Merger, as amended on October 6, 2013 and October 11, 2013 (the “ARCT IV Merger Agreement”), with ARCT IV, and certain subsidiaries of each company. The ARCT IV Merger Agreement provided for the merger of ARCT IV with and into a subsidiary of the OP (the “ARCT IV Merger”). The Company consummated the ARCT IV Merger on January 3, 2014 (the “ARCT IV Merger Date”).

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

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

On January 3, 2014, the OP entered into a Contribution and Exchange Agreement (the “ARCT IV Contribution and Exchange Agreement”) with the ARCT IV OP, the ARCT IV Special Limited Partner and ARC Real Estate Partners, LLC (“ARC Real Estate”), an entity affiliated with the Former Manager. The ARCT IV Special Limited Partner was entitled to receive certain distributions from the ARCT IV OP, including the subordinated distribution of net sales proceeds resulting from an “investment liquidity event” (as defined in the agreement of limited partnership of the ARCT IV OP). The ARCT IV Merger constituted an “investment liquidity event,” as a result of which the ARCT IV Special Limited Partner, in connection with management’s successful attainment of the 6.0% performance hurdle and the return to ARCT IV’s stockholders of $358.3 million in addition to their initial investment, was entitled to receive a subordinated distribution of net sales proceeds from the ARCT IV OP equal to $63.2 million. Pursuant to the ARCT IV Contribution and Exchange Agreement, the ARCT IV Special Limited Partner contributed its interest in the ARCT IV OP, inclusive of the subordinated distribution proceeds received, to the ARCT IV OP in exchange for 2.8 million equity units of the ARCT IV OP, based on a price per share of $22.50. The fair value of these units at date of issuance was $78.2 million and has been included in merger and other non-routine transactions in the accompanying consolidated statement of operations for the six months ended June 30, 2014. Upon consummation of the ARCT IV Merger, these equity units were immediately converted to 6.7 million OP Units after application of the exchange ratio of 2.3961 per share. In conjunction with the ARCT IV Merger Agreement, the ARCT IV Special Limited Partner agreed to a minimum two-year holding period for these OP units before being redeemable by the holder for cash or, at the option of the Company, the Company’s common stock.

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

Accounting Treatment for the ARCT IV Merger

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

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Fortress Portfolio Acquisition

On July 24, 2013, ARC and another related entity, on behalf of the Company and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with affiliates of funds managed by Fortress Investment Group LLC (“Fortress”) for the purchase of 196 properties owned by Fortress, for an aggregate contract purchase price of $972.5 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which were allocated to the Company based on the pro rata fair value of the properties acquired by the Company relative to the fair value of all 196 properties to be acquired from Fortress. Of the 196 properties, 120 properties were allocated to and assigned by the Company (the “Fortress Portfolio”). On October 1, 2013, the Company closed on 41 of the 120 properties with a total purchase price of $200.3 million, exclusive of closing costs. During the six months ended June 30, 2014, the Company closed the acquisition of the remaining 79 properties in the Fortress Portfolio for an aggregate contract purchase price of $400.9 million, exclusive of closing costs. The total purchase price of the Fortress Portfolio was $601.2 million, exclusive of closing costs.

Cole Real Estate Investments, Inc. Merger

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

Pursuant to the terms of the Cole Merger Agreement, each share of common stock of Cole issued and outstanding immediately prior to the effectiveness of the Cole Merger, including unvested restricted stock units and performance stock units that vested in conjunction with the Cole Merger, other than shares owned by the Company, any subsidiary of the Company or any wholly owned subsidiary of Cole, was converted into the right to receive either (i) 1.0929 shares of common stock of the Company (the “Stock Consideration”) or (ii) $13.82 in cash (the “Cash Consideration” and together with the Stock Consideration, the “Merger Consideration”). Approximately 98% of all outstanding Cole shareholders received Stock Consideration and approximately 2% of outstanding Cole shareholders elected to receive Cash Consideration, pursuant to the terms of the Cole Merger Agreement, resulting in the Company issuing approximately 520.8 million shares of the Company’s common stock and paying $181.8 million in cash to Cole’s shareholders based on their elections.

In addition, the Company issued approximately 2.8 million shares of the Company’s common stock, in the aggregate, to certain executives of Cole pursuant to letter agreements entered into between the Company and such individuals concurrently with the execution of the Cole Merger Agreement, as previously disclosed by the Company. Additionally, effective as of the Cole Acquisition Date, the Company issued, but has not yet allocated, 0.4 million shares with dividend equivalent rights commensurate with the Company’s common stock.

Accounting Treatment for the Cole Merger

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

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Inland Portfolio Acquisition

On August 8, 2013, ARC and another related entity, on behalf of the Company and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with Inland American Real Estate Trust, Inc. (“Inland”) for the purchase of the equity interests of 67 companies owned by Inland for an aggregate contract purchase price of approximately $2.3 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. Of the 67 companies, the equity interests of 10 companies (the “Inland Portfolio”) were allocated to the Company for a purchase price of approximately $501.0 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to the Company based on the pro rata fair value of the Inland Portfolio relative to the fair value of all 67 companies to be acquired from Inland by the Company and the other entities sponsored directly or indirectly by ARC. The Inland Portfolio is comprised of 33 properties. As of June 30, 2014, the Company had closed on 32 of the 33 properties for a total purchase price of $288.2 million, exclusive of closing costs. The Company will not close on the remaining one property.

Cole Credit Property Trust, Inc. Merger

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

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

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

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

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

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Accounting Treatment for the CCPT Merger

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

Pending Significant Acquisition

Purchase Agreement for Red Lobster Portfolio

On May 15, 2014, the Company, through a wholly owned subsidiary, entered into a master purchase agreement to acquire 500 properties, substantially all of which are operating as Red Lobster^® restaurants (the “Red Lobster Portfolio”) from a third party. The transaction is structured as a sale-leaseback in which the Company will purchase the Red Lobster Portfolio and will immediately lease the portfolio back to the third party pursuant to the terms of multiple master leases (the “Master Leases”). The overall sale-leaseback transaction consists of 522 Red Lobster^® restaurants and 20 other branded restaurant properties for a purchase price of $1.7 billion.

Other

Abandoned Spin-off of Multi-Tenant Shopping Center Portfolio

On March 13, 2014, the Company announced its intention to spin off its multi-tenant shopping center business (“MT Spin-off”) into a publicly traded REIT, American Realty Capital Centers, Inc., which was expected to operate under the name “ARCenters” and to trade on the NASDAQ Global Market under the symbol “ARCM.” The OP was expected to retain 25% ownership of ARCM. The spin-off was expected to be effectuated through a pro rata taxable special distribution of one share of ARCM common stock for every 10 shares of the Company’s common stock and every 10 OP Units held by third parties in the OP. On April 4, 2014, ARCM filed a Registration Statement on Form 10 to register ARCM’s common stock, par value $0.01 per share, pursuant to Section 12(b) of the Exchange Act so that, upon consummation of the spin-off, shares of ARCM received by holders of the Company’s common stock, or OP Units, as applicable, could freely trade their newly received ARCM common stock. ARCM was expected to be externally managed by the Company. On May 21, 2014, the Company announced that it had reassessed its plans for the multi-tenant shopping center portfolio and entered into a letter of intent to sell such portfolio to Blackstone, expecting to finalize pertinent documentation related thereto within 30 days of such date. The properties included in such sale were the same properties that would have been spun off into ARCM and, consequently, the Company abandoned its proposed spin-off at such time. On June 11, 2014, as described in Note 1 — Organization, indirect subsidiaries of the Company entered into an agreement of purchase and sale with the Purchaser, pursuant to which the parties definitively documented the sale of the Multi-Tenant Portfolio. In light of the Company’s entry into such agreement, it abandoned its previously contemplated spin-off.

Note 4 — Summary of Significant Accounting Policies (As Restated)

The consolidated financial statements of the Company included herein were prepared in conformity with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results for the entire year or any subsequent interim period.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2013 of the Company, which are included in the Amended 10-K. There have been no significant changes to these policies during the six months ended June 30, 2014, other than the updates described below.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, consolidated joint venture arrangements and its subsidiaries. The portions of the consolidated joint venture arrangements not owned by the Company are presented as non-controlling interests. In addition, as described in Note 1 — Organization, certain affiliates and non-affiliated third parties have been issued OP Units. Holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interest is reflected as equity in the consolidated balance sheets. In addition, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of common shares issued and the carrying value of the OP Units converted is recorded as a component of equity. As of June 30, 2014 and December 31, 2013, there were 24,771,215 and 9,591,174 outstanding OP Units held by third parties (other than the Company), respectively. In addition, as discussed in Note 3 — Mergers and Acquisitions (As Restated), the historical information of ARCT III and ARCT IV has been presented as if the mergers had occurred from the earliest date of common control for each merger.

The Company evaluates its relationships and investments to determine if it has variable interests. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. The Company’s evaluation includes consideration of the qualitative and quantitative significance of fees the Company earns from certain of its relationships and investments. If the Company determines that it has a variable interest in an entity, it evaluates whether such interest is in a variable interest entity (“VIE”). A VIE is broadly defined as an entity where either (1) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance or (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.

A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance, its form of ownership interest, its representation on the entity’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions and to replace the manager of and/or liquidate the entity. The Company consolidates any VIEs when it is determined to be the primary beneficiary of the VIE’s operations and the difference between consolidating the VIE and accounting for it on the equity method would be material to the Company’s financial statements.

The Company continually evaluates the need to consolidate joint ventures and the managed investment programs based on standards set forth in GAAP as described above.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Investment in Unconsolidated Entities

Investment in Unconsolidated Joint Ventures

Investment in unconsolidated joint ventures as of June 30, 2014 consisted of the Company’s interest in six joint ventures that owned six properties (the “Unconsolidated Joint Ventures”). As of June 30, 2014, the Company owned aggregate equity investments of $98.1 million in the Unconsolidated Joint Ventures. The Company accounts for the Unconsolidated Joint Ventures using the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over operating and financial policies of these investments. The equity method of accounting requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the joint ventures’ earnings and distributions.

Investment in Managed REITs

As of June 30, 2014, the Company owned aggregate equity investments of $3.9 million in the following publicly registered, non-traded REITs: Cole Credit Property Trust IV, Inc. (“CCPT IV”); Cole Corporate Income Trust, Inc. (“CCIT”); Cole Real Estate Income Strategy (Daily NAV), Inc. (“INAV”); Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”); and Cole Credit Property Trust V, Inc. (“CCPT V,” and collectively with CCPT IV, CCIT, INAV and CCIT II, the “Managed REITs”). Prior to the CCPT Acquisition Date, CCPT was a Managed REIT and accounted for using the equity method. As of the CCPT Acquisition Date, the Company had an approximate $5,000 equity investment in CCPT. The Company accounts for these investments using the equity method of accounting, which requires the investment to be initially recorded at cost and subsequently adjusted for the Company’s share of equity in the respective Managed REIT’s earnings and distributions.

Leasehold Improvements and Property and Equipment

The Company leases its office facilities under operating leases. Leasehold improvements related to these are recorded at cost less accumulated amortization. Leasehold improvements are amortized over the lesser of the estimated useful life or remaining lease term.

Property and equipment, which primarily include office furniture, fixtures and equipment and computer hardware and software, are stated at cost less accumulated depreciation. Property and equipment are depreciated on a straight-line method over the estimated useful lives of the assets, which range from five to seven years. The Company reassesses the useful lives of its property and equipment and adjusts the future monthly depreciation expense based on the new useful life, as applicable. If the Company disposes of an asset, the asset and related accumulated depreciation are written off upon disposal.

Impairments

Investment in Unconsolidated Entities

The Company is required to determine whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of any of its investment in the unconsolidated entities. If an event or change in circumstance has occurred, the Company is required to evaluate its investment in the unconsolidated entity for potential impairment and determine if the carrying amount of its investment exceeds its fair value. An impairment charge is recorded when an impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until the carrying amount is fully recovered. The evaluation of an investment in an unconsolidated entity for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Leasehold Improvements and Property and Equipment

Leasehold improvements and property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If this review indicates that the carrying amount of the asset is not recoverable, the Company records an impairment loss, measured at fair value by estimated discounted cash flows or market appraisals. The Company identified eight properties during the three and six months ended June 30, 2014 with impairment indicators four of which the undiscounted future cash flows expected as a result of the use and eventual disposition of the real estate and related assets was less than the carrying amount of each respective properties, as discussed in Note 11 — Fair Value of Financial Instruments (As Restated). The evaluation of an investment in an unconsolidated property for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions.

Goodwill

In the case of a business combination, after identifying all tangible and intangible assets and liabilities, the excess consideration paid over the fair value of the assets and liabilities acquired and assumed, respectively, represents goodwill. Goodwill that arose as a result of the Company’s mergers and acquisitions was recorded in the Company’s consolidated financial statements.

In the event the Company disposes of a property that constitutes a business under U.S. GAAP from a reporting unit with goodwill, the Company will allocate a portion of the reporting unit’s goodwill to that business in determining the gain or loss on the disposal of the business. The amount of goodwill allocated to the business will be based on the relative fair value of the business to the fair value of the reporting unit. The REI segment and Cole Capital each comprise one reporting unit.

The Company will evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value, by reporting unit, may not be recoverable. The Company’s annual testing date is during the fourth quarter. The Company will test goodwill for impairment by first comparing the book value of net assets to the fair value of each reporting unit. If the fair value is determined to be less than the book value or if qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company will estimate the fair value of the reporting units using discounted cash flows and relevant competitor multiples. The evaluation of goodwill for potential impairment requires the Company’s management to exercise significant judgment and to make certain assumptions. The use of different judgments and assumptions could result in different conclusions.

The following summarizes the Company’s goodwill activity during the six months ended June 30, 2014 by segment (in thousands):


	REI Segment			Cole Capital		Consolidated
Balance as of January 1, 2014	$	92,789		$	—	$	92,789
Cole Merger ⁽¹⁾		1,654,085			558,835		2,212,920
Goodwill allocated to dispositions ⁽²⁾		(12,689	)		—		(12,689	)

Balance as of June 30, 2014	$	1,734,185		$	558,835	$	2,293,020

(1)

Goodwill recognized from the Cole Merger was assigned to the REI segment and Cole Capital based on the excess consideration paid over the fair value of the assets and liabilities acquired and assumed in each segment. Refer to Note 5 — Acquisitions of CapLease, Cole and CCPT (As Restated) for further discussion.

(2)	Goodwill allocated to the cost basis of properties sold or classified as held for sale is included in loss on held for sale assets and disposition of properties, net, in the consolidated statement of operations.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Program Development Costs

The Company pays for organization, registration and offering expenses associated with the sale of common stock of the Managed REITs. The reimbursement of these expenses by the Managed REITs is limited to a certain percentage of the proceeds raised from their offerings, in accordance with their respective advisory agreements and charters. Such expenses paid by the Company on behalf of the Managed REITs in excess of these limits that are expected to be collected are recorded as program development costs. The Company assesses the collectability of the program development costs, considering the offering period and historical and forecasted sales of shares under the Managed REITs’ respective offering and reserves for any balances considered not collectible. No reserves were recorded as of June 30, 2014, as the Company expects to be reimbursed for all of the program development costs by the Managed REITs as additional proceeds from their respective offerings are raised. Program development costs are included in deferred costs and other assets, net in the accompanying consolidated balance sheets.

Acquisition Related Expenses and Merger and Other Non-routine Transaction Related Expenses

All direct costs incurred as a result of a business combination are classified as acquisition costs or merger and other non-routine transaction costs and expensed as incurred. In addition, indirect costs, such as internal salaries, that are tracked and documented in a manner that clearly indicate that the activities driving the cost directly relate to activities necessary to complete, or effect, a business combination are classified as acquisition related expenses. Similar costs incurred in relation to mergers with entities under common control (which are not accounted for as acquisitions) are included in the caption “merger and other non-routine transactions.” Acquisition related expenses include legal and other transaction related costs incurred in connection with self-originated acquisitions including purchases of portfolios. Other non-routine transaction costs are also presented within the line item merger and other non-routine transactions in the consolidated statements of operations.

Merger and other non-routine transaction related expenses include the following costs (amounts in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(As Restated)		(As Restated)		(As Restated)		(As Restated)
Merger related costs:
Strategic advisory services	$	—	$	1,500	$	32,615	$	11,799
Transfer Taxes		—		—		5,109		1,085
Legal fees and expenses		1,563		1,511		4,547		3,191
Personnel costs and other reimbursement		—		255		751		639
Multi-tenant spin off		2,859		—		5,180		—
Proxy support services		—		—		—		—
Other fees and expenses		346		2,594		1,676		5,459
Other non-routine costs
Post-transaction support services		—		—		14,251		2,000
Subordinated distribution fees		—		—		78,244		98,360
Merger consideration		—		—		—		—
Furniture, fixtures and equipment		—		—		14,085		5,800
Legal fees and expenses		—		—		1,826		950
Personnel costs and other reimbursement		275		—		2,718		—
Other fees and expenses		2,379		5		6,718		150

Total	$	7,422	$	5,865	$	167,720	$	129,433

Due from Affiliates

The Company receives or may be entitled to receive compensation and reimbursement for services primarily relating to the Managed REITs’ offerings and the investment, management, financing and disposition of their respective assets. Refer to Note 20 — Related Party Transactions and Arrangements (As Restated) for further explanation.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Reportable Segments

The Company has concluded that it has two reportable segments as it has organized its operations into two segments for management and internal financial reporting purposes, REI and Cole Capital. The identification and aggregation of reportable segments requires the Company’s management to exercise certain judgments. Refer to Note 6 — Segment Reporting (As Restated) for further information.

Revenue Recognition - Cole Capital

Revenue consists of securities sales commissions and dealer manager fees, real estate acquisition fees, property management fees, advisory fees, asset management fees and performance fees for services relating to the Managed REITs’ offerings and the investment and management of their respective assets, in accordance with the respective advisory and dealer manager agreements. The Company records revenue related to acquisition fees, securities sales commissions and dealer manager fees upon completion of a transaction and advisory, asset and property management fees as services are performed. The Company is also reimbursed for certain costs incurred in providing these services. Securities sales commission and dealer manager reimbursements are recorded as revenue as the expenses are incurred. Other reimbursements are recorded as revenue when reimbursements are reasonably assured.

Income Taxes

The Company currently qualifies and has elected to be taxed as a REIT for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code. As a REIT, except as discussed below, the Company generally is not subject to federal income tax on taxable income that it distributes to its stockholders so long as it distributes at least 90% of its annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). REITs are subject to a number of other organizational and operational requirements. Even if the Company maintains its qualification 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.

The Company conducts substantially all of its Cole Capital business operations through a TRS. A TRS is a subsidiary of a REIT that is subject to corporate federal, state and local income taxes, as applicable. The Company’s use of a TRS enables it to engage in certain business activities while complying with the REIT qualification requirements and to retain any income generated by these businesses for reinvestment without the requirement to distribute those earnings. The Company conducts all of its business in the United States, and as a result, the Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. Certain of the Company’s inter-company transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation.

The Company provides for income taxes in accordance with current authoritative accounting and tax guidance. The tax expense or benefit related to significant, unusual or extraordinary items is recognized in the quarter in which those items occur. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the quarter in which the change occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.

Repurchase Agreements

In certain circumstances, the Company may obtain financing through a repurchase agreement. The Company evaluates the initial transfer of a financial instrument and the related repurchase agreement for sale accounting treatment. In instances where the Company maintains effective control over the transferred securities, the Company accounts for the transaction as a secured borrowing, and accordingly, both the securities and related repurchase agreement payable are recorded separately in the accompanying consolidated balance sheets in investment securities, at fair value and other debt, net, respectively. In instances where the Company does not maintain effective control over the transferred securities, the Company accounts for the transaction as a sale of securities for proceeds consisting of cash and a forward purchase contract.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Recent Accounting Pronouncements

In April 2014, the U.S. Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), 2014-08 Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”), which amends the reporting requirements for discontinued operations by updating the definition of a discontinued operation to be a component of an entity that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, resulting in fewer disposals that qualify for discontinued operations reporting yet the pronouncement also requires expanded disclosures for discontinued operations. The Company adopted ASU 2014-08 effective January 1, 2014. Starting with the first quarter of 2014, the results of operations for all properties sold and properties classified as held for sale that do not meet the criteria to qualify as a discontinued operation and were not previously reported in discontinued operations in the Amended 10-K for the year ended December 31, 2013 will be presented within income from continuing operations on the accompanying consolidated statements of income.

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the impact of the new standard on its financial statements.

Note 5 — Acquisitions of CapLease, Cole and CCPT (As Restated)

CapLease Acquisition

On November 5, 2013 (the “CapLease Acquisition Date”), the Company completed the CapLease Merger, an acquisition of a real estate investment trust that primarily owned and managed a diversified portfolio of single tenant commercial real estate properties subject to long-term leases, the majority of which were net leases, to high credit quality tenants, by acquiring 100% of the outstanding common stock and voting interests of CapLease. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The Company’s consolidated financial statements include the results of operations of CapLease subsequent to the CapLease Acquisition Date.

The purchase price includes a cash payment of $920.7 million, which was funded by the Company through additional borrowings under its revolving credit facility and the credit facility assumed from CapLease. See Note 13 — Other Debt and Note 14 — Credit Facilities.

The purchase price allocation for the CapLease Merger is considered preliminary, and additional adjustments may be recorded during the measurement period in accordance with U.S. GAAP. The purchase price allocation will be finalized as the Company receives additional information relevant to the acquisition, including a final valuation of the assets purchased and liabilities assumed.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The preliminary purchase price for the acquisition was allocated to assets acquired and liabilities assumed based on their estimated fair value and reflects a goodwill adjustment identified in the Amended 10-K in Note 2 — Restatement of Previously Issued Financial Statements. The following table presents the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the CapLease Acquisition Date (in thousands):


	As of the CapLease Acquisition Date ⁽¹⁾
Fair value of consideration given	$	920,697


Assets purchased, at fair value:
Land		235,843
Buildings, fixtures and improvements		1,596,481
Land and construction in process		12,352
Acquired intangible lease assets		191,964

Total real estate investments		2,036,640
Cash and cash equivalents		41,799
Investment securities		60,730
Loans held for investment		26,457
Restricted cash		29,119
Deferred costs and other assets, net		21,574

Total identifiable assets purchased		2,216,319


Liabilities assumed, at fair value:
Mortgage notes payable		1,037,510
Secured credit facility		121,000
Other debt		114,208
Below-market leases		57,058
Derivative liabilities		158
Accounts payable and accrued expenses		49,291
Deferred rent, derivative and other liabilities		8,619

Total liabilities assumed		1,387,844


Non-controlling interest retained by third party		567


Net identifiable assets acquired by Company		827,908

Goodwill	$	92,789

(1)	As reported in the Amended 10-K.

Management is in the process of further evaluating the purchase price accounting. The fair value of real estate investments and below-market leases have been estimated by the Company with the assistance of third party valuation firms. Based on a preliminary analysis received to-date, the estimated fair value of these assets and liabilities total $2.0 billion and $57.1 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analysis, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result. Such post-closing adjustments are customary in nature in accordance with ASC 805, Business Combinations.

The ascribed value of the non-controlling interest has been estimated based on the fair value of the percentage ownership of The Woodlands, Texas development activity not held by the Company. See Note 7 — Real Estate Investments (As Restated) for further information on this development project.

The fair value of the remaining CapLease assets and liabilities have been calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in the Amended 10-K for the year ended December 31, 2013.

Goodwill of approximately $92.8 million has been preliminarily assigned to the REI segment. The goodwill recognized is attributed to the enhancement of the Company’s year-round rental revenue stream, expected synergies and the assembled work force at CapLease.

The pro forma consolidated statements of operations in Note 7 — Real Estate Investments (As Restated) are presented as if CapLease had been included in the consolidated results of the Company for the entire periods ended June 30, 2014 and 2013.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Cole Acquisition

The Company accounted for the Cole Merger as a business combination under the acquisition method of accounting. Therefore, the Company’s consolidated financial statements include the results of operations of Cole subsequent to the Cole Acquisition Date.

Fair Value of Consideration Transferred

The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of the consideration transferred; thus, the fair values of currently recorded assets and liabilities are subject to change. The estimated fair value of the consideration transferred at the Cole Acquisition Date totaled approximately $7.5 billion and consisted of the following (in thousands):


	As of Cole Acquisition Date (Preliminary)
Estimated Fair Value of Consideration Transferred:
Cash	$	181,775
Common stock		7,285,868

Total consideration transferred	$	7,467,643

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

Allocation of Consideration

The consideration transferred pursuant to the Cole Merger Agreement was allocated to the assets acquired and liabilities assumed for the REI segment and Cole Capital, based upon their preliminary estimated fair values as of the Cole Acquisition Date. The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill are subject to change. Such post-closing adjustments are customary in nature in accordance with ASC 805, Business Combinations. The measurement periods recorded for the period from the Cole Acquisition Date to June 30, 2014 are presented consolidated and by segments in the tables below.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, including all measurement period adjustments, at the Cole Acquisition Date (in thousands):


	Preliminary
	REI Segment		Cole Capital		Total as of Cole Acquisition Date
Identifiable Assets Acquired at Fair Value:
Land	$	1,737,839	$	—	$	1,737,839
Buildings, fixtures and improvements		5,901,827		—		5,901,827
Intangible lease assets		1,324,217		—		1,324,217

Total real estate investments		8,963,883		—		8,963,883
Investment in unconsolidated entities		100,659		3,307		103,966
Investment securities		151,197		—		151,197
Loans held for investment		72,326		—		72,326
Cash and cash equivalents		129,552		20,413		149,965
Restricted cash		15,704		—		15,704
Intangible assets		—		385,368		385,368
Deferred costs and other assets		43,774		50,893		94,667
Due from affiliates		—		3,301		3,301

Total identifiable assets acquired		9,477,095		463,282		9,940,377

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)


	Preliminary
	REI Segment		Cole Capital		Total as of Cole Acquisition Date

Identifiable Liabilities Assumed at Fair Value:
Mortgage notes payable	$	2,706,585	$	—	$	2,706,585
Credit facilities		1,309,000		—		1,309,000
Other debt, net		49,013		—		49,013
Below-market lease intangibles		212,433		—		212,433
Accounts payable and accrued expenses		87,628		54,615		142,243
Prepaid rent, derivative and other liabilities		67,841		167,458		235,299
Dividends payable		6,271		—		6,271
Due to affiliates		—		44		44

Total liabilities assumed		4,438,771		222,117		4,660,888


Non-controlling interests		24,766		—		24,766

Net identifiable assets acquired		5,013,558		241,165		5,254,723
Goodwill		1,654,085		558,835		2,212,920

Net assets acquired	$	6,667,643	$	800,000	$	7,467,643

The fair value of real estate investments, including acquired lease intangibles, and below-market lease liabilities allocated to the REI segment have been estimated by the Company with the assistance of a third party valuation firm. Based on a preliminary analysis received to date, the estimated fair value of these assets and liabilities total $9.0 billion and $212.4 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analysis, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result.

The intangible assets acquired primarily consist of management and advisory contracts that the Company has with the Managed REITs and are subject to an estimated useful life of approximately four years. The Company recorded $38.0 million of amortization expense for the period from the Cole Acquisition Date to June 30, 2014. The estimated amortization expense for the remainder of the year ending December 31, 2014 is $48.6 million. The estimated amortization expense for each of the years ending December 31, 2015, 2016 and 2017 is $96.3 million and the estimated amortization expense for the year ending December 31, 2018 is $9.8 million.

Goodwill of approximately $1.7 billion has been preliminarily assigned to the REI segment. The goodwill recognized is attributed to the enhancement of the Company’s year-round rental revenue stream, realized and expected synergies, the impact of the merger on lowering the Company’s cost of capital, as well as the benefits of critical mass, improved portfolio diversification and enhanced access to capital markets. Goodwill of approximately $558.8 million has been preliminarily assigned to Cole Capital. The goodwill is primarily supported by management’s belief that Cole Capital brings an established management platform with numerous strategic benefits including growth from new income streams and the ability to offer new products. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the remaining Cole assets and liabilities have been calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in the Amended10-K for the year ended December 31, 2013.

The amounts of revenue and net income related to Cole property acquisitions and Cole Capital included in the accompanying consolidated statements of operations from the Cole Acquisition Date to the period ended June 30, 2014 were $366.2 million and $32.0 million, respectively.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The pro forma consolidated statements of operations in Note 7 — Real Estate Investments (As Restated) are presented as if Cole had been included in the consolidated results of the Company for the entire periods ended June 30, 2014 and 2013.

CCPT Acquisition

On May 19, 2014, the Company completed its acquisition of CCPT, as discussed in Note 3 — Mergers and Acquisitions (As Restated). The Company accounted for the CCPT Merger as a business combination under the acquisition method of accounting. Therefore, the Company’s consolidated financial statements include the results of operations of CCPT subsequent to the CCPT Acquisition Date.

Fair Value of Consideration Transferred

The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of the consideration transferred; thus, the fair values of currently recorded assets and liabilities are subject to change. The estimated fair value of the consideration transferred at the CCPT Acquisition Date totaled approximately $73.2 million, which was paid in cash. The acquisition was funded by the Company through additional borrowings under its revolving credit facility.

Allocation of Consideration

The consideration transferred pursuant to the CCPT Merger Agreement was allocated to the assets acquired and liabilities assumed based upon their preliminary estimated fair values as of the CCPT Acquisition Date. The Company is in the process of gathering certain additional information in order to finalize its assessment of the fair value of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill are subject to change. Such post-closing adjustments are customary in nature in accordance with ASC 805, Business Combinations. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by segment at the CCPT Acquisition Date (in thousands):


	Preliminary May 19, 2014
Identifiable Assets Acquired at Fair Value:
Land	$	28,258
Buildings, fixtures and improvements		113,296
Acquired intangible lease assets		17,960

Total real estate investments		159,514
Cash and cash equivalents		167
Restricted cash		2,420
Prepaid expenses and other assets		297

Total identifiable assets acquired		162,398

Identifiable Liabilities Assumed at Fair Value:
Mortgage notes payable		85,286
Unsecured credit facility		800
Accounts payable and accrued expenses		443
Below-market lease liability		1,752
Due to affiliates		568
Deferred rent and other liabilities		390

Total liabilities assumed		89,239



Net identifiable assets acquired	$	73,159

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The fair value of real estate investments, including acquired lease intangibles, and below-market lease liabilities have been estimated by the Company with the assistance of a third party valuation firm. Based on a preliminary analysis received to date, the estimated fair value of these assets and liabilities total $159.5 million and $1.8 million, respectively. The recorded values represent the estimated fair values related to such assets and liabilities. Upon completion of the analysis, including a review of the appraisals and assessment of current market rates, changes to the estimated fair values may result.

The fair value of the remaining CCPT assets and liabilities have been calculated in accordance with the Company’s policy on purchase price allocation, as disclosed in the Amended 10-K for the year ended December 31, 2013.

The amounts of revenue and net loss related to CCPT property acquisitions included in the accompanying consolidated statements of operations from the Cole Acquisition Date to the period ended June 30, 2014 were $1.5 million and $0.3 million, respectively.

Note 6 — Segment Reporting (As Restated)

The Company operates under two segments, REI and Cole Capital.

REI – Through its REI segment, the Company acquires, owns and operates primarily single-tenant, freestanding commercial real estate properties primarily subject to net leases with high credit quality tenants. The Company focuses on investing in properties that are net leased to credit tenants, which are generally large public companies with investment-grade ratings and other creditworthy tenants. The Company’s long-term business strategy is to continue to acquire a diverse portfolio consisting of approximately 70% long-term leases and 30% medium-term leases, with an average remaining primary lease term of approximately 10 to 12 years. The Company considers properties that are leased on a “medium-term” basis to mean properties originally leased long-term (10 years or longer) that currently have a primary remaining lease duration of generally three to eight years, on average. The Company seeks to acquire granular, self-originated single-tenant net lease assets, which may be purchased through sale-leaseback transactions, small portfolio acquisitions and in connection with build-to-suit opportunities, to the extent they are appropriate in terms of capitalization rate and scale. The Company expects this investment strategy to provide for stable income from credit tenants and for growth opportunities from re-leasing of current below market leases. As of June 30, 2014, the Company owned 3,966 properties comprising 106.8 million square feet of single and multi-tenant retail and commercial space located in 49 states, which include properties owned through consolidated joint ventures. As of June 30, 2014, the rentable space at these properties was 98.8% leased with a weighted average remaining lease term of 9.95 years. As of June 30, 2014, the Company also owned 25 commercial mortgage-backed securities (“CMBS”), 14 loans held for investment and, through the Unconsolidated Joint Ventures, had interests in six properties comprising 1.6 million rentable square feet of commercial and retail space.

Cole Capital – Cole Capital is contractually responsible for managing the Managed REITs’ affairs on a day-to-day basis, identifying and making acquisitions and investments on the Managed REITs’ behalf and recommending to each of the Managed REIT’s respective board of directors an approach for providing investors with liquidity. Cole Capital serves as the dealer manager and distributes shares of common stock for certain Managed REITs and advises them regarding offerings, manages relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to the offerings. Cole Capital receives compensation and reimbursement for services relating to the Managed REITs’ offerings and the investment, management, financing and disposition of their respective assets, as applicable. Cole Capital also develops new REIT offerings, including obtaining regulatory approvals from the SEC, the Financial Industry Regulatory Authority, Inc. (“FINRA”) and various blue sky jurisdictions for such offerings.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The Company allocates certain operating expenses, such as audit and legal fees, board of director fees, employee-related costs and benefits and general overhead expenses between its two segments. The following tables present a summary of the comparative financial results and total assets for each business segment (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(As Restated)			(As Restated)			(As Restated)			(As Restated)
REI:
Rental income	$	314,519		$	52,664		$	558,934		$	93,651
Direct financing lease income		1,181			—			2,187			—
Operating expense reimbursements		29,256			2,281			50,732			4,191

Total real estate investment revenues		344,956			54,945			611,853			97,842

Acquisition related		7,201			37,266			20,618			47,593
Merger and other non-routine transactions		5,999			5,865			165,793			129,433
Property operating expenses		39,286			3,086			69,041			5,635
Management fees to affiliate		—			—			13,888			12,493
General and administrative expenses		17,977			6,283			53,638			14,055
Depreciation and amortization		225,965			33,681			385,448			60,434
Impairment of real estate		1,556			—			1,556			—

Total operating expenses		297,984			86,181			709,982			269,643

Operating income (loss)		46,972			(31,236	)		(98,129	)		(171,801	)

Interest expense, net		(103,897	)		(11,424	)		(224,848	)		(18,225	)
Extinguishment of debt, net	$	(6,469	)	$	—		$	(15,868	)	$	—
Other (expense) income, net		4,332			1,523			8,291			2,522
Gain (loss) on derivative instruments, net		14,207			(31,174	)		7,086			(31,179	)
Loss on disposition of properties, net		(1,269	)		—			(18,874	)		—
Gain on sale of investments		—			—			—			451

Total other expenses, net		(93,096	)		(41,075	)		(244,213	)		(46,431	)

Net loss from continuing operations		(46,124	)		(72,311	)		(342,342	)		(218,232	)

Discontinued operations:
Income from operations of held for sale properties	$	—		$	36		$	—		$	20

Net income from discontinued operations		—			36			—			20

Net loss	$	(46,124	)	$	(72,275	)	$	(342,342	)	$	(218,212	)


Cole Capital:
Dealer manager and distribution fees, selling commissions and offering reimbursements	$	9,969		$	—		$	52,422		$	—
Transaction service fees		14,411			—			18,970			—
Management fees and reimbursements		12,842			—			20,087			—

Total Cole Capital revenues		37,222			—			91,479			—

Cole Capital reallowed fees and commissions		7,068			—			41,504			—
Merger and other non-routine transactions		1,423			—			1,927			—
General and administrative expenses		22,035			—			42,866			—
Depreciation and amortization		24,774			—			39,133			—

Total operating expenses		55,300			—			125,430			—

Total other income		7,604			—			13,855			—

Net income (loss)	$	(10,474	)	$	—		$	(20,096	)	$	—


Total Company:
Total revenues	$	382,178		$	54,945		$	703,332		$	97,842
Total operating expenses	$	353,284		$	86,181		$	835,412		$	269,643
Total other expense	$	(85,492	)	$	(41,075	)	$	(230,358	)	$	(46,431	)
Loss from continuing operations	$	(56,598	)	$	(72,311	)	$	(362,438	)	$	(218,232	)
Income from discontinued operations	$	—		$	36		$	—		$	20
Net loss	$	(56,598	)	$	(72,275	)	$	(362,438	)	$	(218,212	)

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)


	Total Assets
	June 30, 2014 (As Restated)		December 31, 2013 (As Restated)
REI	$	20,182,178	$	7,809,083
Cole Capital		1,128,318		—

Total Company	$	21,310,496	$	7,809,083

Note 7 — Real Estate Investments (As Restated)

Excluding the Cole Merger, the ARCT IV Merger and the CCPT Merger, the Company acquired interests in 337 commercial properties, including 18 land parcels, for an aggregate purchase price of $1.5 billion during the six months ended June 30, 2014 (the “2014 Acquisitions”). The Company is in the process of obtaining and reviewing the final third party appraisals for some of the 2014 Acquisitions, and as such, the fair value of the related assets acquired and liabilities assumed during the six months ended June 30, 2014 are provisionally allocated. The following table presents the allocation of the fair value of the assets acquired and liabilities assumed during the periods presented (dollar amounts in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
Real estate investments, at cost:
Land	$	109,075		$	416,887	$	239,663		$	493,029
Buildings, fixtures and improvements		482,074			1,129,906		1,185,641			1,424,900

Total tangible assets		591,149			1,546,793		1,425,304			1,917,929

Acquired intangible assets:
In-place leases		30,801			165,576		128,581			211,748
Above-market leases		5,511			—		21,145			—
Assumed intangible liabilities:
Below-market leases		(1,869	)		—		(3,321	)		—
Fair value adjustment of assumed notes payable		—			—		(23,589	)		—

Total purchase price of assets acquired, net		625,592			1,712,369		1,548,120			2,129,677
Notes payable assumed		—			—		(301,532	)		—

Cash paid for acquired real estate investments	$	625,592		$	1,712,369	$	1,246,588		$	2,129,677

Number of properties acquired		122			899		337			1,011

The following table presents unaudited pro forma information as if all of the 2014 Acquisitions and the Cole Merger, ARCT IV Merger and CCPT Merger, as discussed in Note 3 — Mergers and Acquisitions (As Restated), were completed on January 1, 2013 for each period presented below. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of acquisitions to reflect the additional depreciation and amortization and interest expense that would have been charged had the acquisitions occurred on January 1, 2013. Additionally, the unaudited pro forma net loss attributable to stockholders was adjusted to exclude acquisition related expenses of $20.6 million and $47.6 million for the six months ended June 30, 2014 and 2013, respectively, and merger and other non-routine transaction related expenses of $167.7 million and $129.4 million for the six months ended June 30, 2014 and 2013, respectively (in thousands).


	Six Months Ended June 30,
	2014 As Restated			2013 As Restated
Pro forma revenues	$	828,299		$	155,269
Pro forma net income (loss) attributable to stockholders	$	(64,362	)	$	2,023

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Future Lease Payments

The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (in thousands):


	Future Minimum Operating Lease Base Rent Payments		Future Minimum Direct Financing Lease Payments⁽¹⁾
July 1, 2014 - December 31, 2014	$	677,188	$	2,485
2015		1,214,297		4,757
2016		1,191,214		4,674
2017		1,142,109		4,273
2018		1,087,444		3,183
Thereafter		7,706,549		10,052

Total	$	13,018,801	$	29,424

(1)	47 properties are subject to direct financing leases and, therefore, revenue is recognized as direct financing lease income on the discounted cash flows of the lease payments. Amounts reflected are the cash rent on these respective properties.

Investment in Direct Financing Leases, Net

The components of the Company’s net investment in direct financing leases as of June 30, 2014 and December 31, 2013 are as follows (in thousands):


	June 30, 2014			December 31, 2013
Future minimum lease payments receivable	$	29,685		$	33,729
Unguaranteed residual value of property		43,884			46,172
Unearned income		(11,475	)		(13,789	)

Net investment in direct financing leases	$	62,094		$	66,112

Development Activities

During the six months ended June 30, 2014, the Company acquired 18 land parcels, upon which single-tenant commercial properties will be developed. Based on budgeted construction costs, the remaining costs to complete the buildings is estimated to be $15.3 million in aggregate. The land acquired for an aggregate amount of $8.2 million is included in land in the accompanying consolidated balance sheet. In addition, during the six months ended June 30, 2014, the Company substantially completed the development of a 450,000 square foot distribution warehouse in Columbia, South Carolina. The build-to-suit project has an estimated total investment of $22.0 million. As of June 30, 2014, the Company had a total investment of $20.4 million, including capitalized interest of $37,000, and an estimated remaining investment of $1.7 million related to the development project.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Prior to the CapLease Acquisition Date, CapLease entered into an agreement with a major Texas-based developer to develop a 150,000 square foot speculative office building in The Woodlands, Texas, adjacent to and part of the same development as an existing office building owned by CapLease since 2012. Costs of the project, which are budgeted to be $34.0 million, are scheduled to be funded by equity contributions from the Company and its developer partner, and $17.0 million of advances during the construction period under a development loan entered into with Amegy Bank. All equity contributions are scheduled to be borne as follows: the Company, 90%; and the developer, 10%; except for cost overruns, which will be borne 50% by each. Because the Company has a controlling financial interest in the investment, the Company consolidates the investment for financial accounting purposes. The Company has an option to purchase, and the developer the option to sell to the Company, in each case at fair market value, the developer’s interest in the project upon (i) substantial completion of the project and (ii) leases being entered into for 95% of the square footage of the project. Construction activity and funding of the project commenced during the quarter ended September 30, 2013 and was expected to be completed during the second half of 2014. As of June 30, 2014, the Company had a total investment of $20.0 million, including capitalized interest of $68,000, and estimated remaining investment of $14.0 million related to the development project.

Tenant Concentration

As of June 30, 2014 and June 30, 2013, there were no tenants exceeding 10% of consolidated annualized rental income. Annualized rental income for net leases is rental income as of the period reported, which includes the effect of tenant concessions such as free rent, as applicable.

Geographic Concentration

As of June 30, 2014, properties located in Texas represented 12.9% of consolidated annualized rental income determined on a straight-line basis. There were no geographic concentrations exceeding 10% of consolidated annualized rental income at June 30, 2013.

Note 8 — Investment Securities, at Fair Value

Investment securities are considered available-for-sale and, therefore, increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income (loss) as a component of equity on the consolidated balance sheets unless the securities are considered to be other-than-temporarily impaired at which time the losses are reclassified to expense.

The following tables detail the unrealized gains and losses on investment securities as of June 30, 2014 and December 31, 2013 (in thousands):


	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investments in real estate fund	$	1,621	$	270	$	—		$	1,891
CMBS		208,584		8,775		(46	)		217,313

Total	$	210,205	$	9,045	$	(46	)	$	219,204


	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investments in real estate fund	$	1,589	$	—	$	(105	)	$	1,484
CMBS		60,452		498		(367	)		60,583

Total	$	62,041	$	498	$	(472	)	$	62,067

CMBS

In connection with the Cole Merger, the Company acquired 15 CMBS with an estimated aggregate fair value of $151.2 million as of the Cole Acquisition Date. As of June 30, 2014, the Company owned 25 CMBS with an estimated aggregate fair

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

value of $217.3 million. As of June 30, 2014, certain of these securities were pledged as collateral under repurchase agreements (the “Repurchase Agreements”), as discussed in Note 13 — Other Debt. As of December 31, 2013, the Company owned 10 CMBS with an estimated aggregate fair value of $60.6 million.

As of June 30, 2014, the fair value of one CMBS was below its amortized cost by approximately $46,000. The Company evaluated each of the securities for other-than-temporary impairment at June 30, 2014, and determined that no other-than-temporary impairment charges on its securities were appropriate. The Company believes that none of the unrealized losses on investment securities are other-than-temporary because management expects the Company will receive all contractual principal and interest related to these investments. In addition, the Company is not required, and does not intend, to sell these securities.

The scheduled maturity of the Company’s CMBS as of June 30, 2014 is as follows (in thousands):


	June 30, 2014
	Amortized Cost		Fair Value
Due within one year	$	—	$	—
Due after one year through five years		1,202		1,237
Due after five years through 10 years		178,922		186,042
Due after 10 years		28,460		30,034

	$	208,584	$	217,313

Investment in Real Estate Fund

As of June 30, 2014, the Company had investments in a real estate fund that is sponsored by an affiliate of the Former Manager of the Company and which invests primarily in equity securities of other publicly traded REITs. This investment is accounted for under the equity method of accounting because the Company has significant influence but not control.

Note 9 — Loans Held for Investment

During the six months ended June 30, 2014, in connection with the Cole Merger, the Company acquired two mortgage notes receivable, each of which is secured by an office building. The mortgage notes had a fair value of $72.3 million as of the Cole Acquisition Date. As of December 31, 2013, the Company owned 12 loans held for investment, which were acquired in connection with the CapLease Merger and consist predominantly of mortgage loans on properties subject to leases to investment-grade tenants. The loans had a fair value of $26.5 million at the CapLease Merger Date. At June 30, 2014, the Company owned 14 loans held for investment, which had a carrying value of $97.6 million and carried interest rates ranging from 5.28% to 7.24%. As of December 31, 2013, the loans held for investment had a carrying value of $26.3 million and carried interest rates ranging from 5.28% to 7.24%. The fair value adjustment is being amortized to interest expense in the consolidated statements of operations over the term of the loan, using the effective interest method.

The Company’s loan portfolio is comprised primarily of fully amortizing or nearly fully amortizing first mortgage loans on commercial real estate leased to a single tenant. Therefore, the Company’s monitoring of the credit quality of its loans held for investment is focused primarily on an analysis of the tenant, including review of tenant credit ratings (including changes in ratings) and other measures of tenant credit quality, trends in the tenant’s industry and general economic conditions and an analysis of measures of collateral coverage, such as an estimate of the loan’s loan-to-value (“LTV”) ratio (principal amount outstanding divided by estimated value of the property) and its remaining term until maturity. As of June 30, 2014 and December 31, 2013, the Company had no reserve for loan loss.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Note 10 — Deferred Costs and Other Assets, Net (As Restated)

Deferred costs and other assets, net consisted of the following as of June 30, 2014 and December 31, 2013 (in thousands):


	June 30, 2014 (As Restated)		December 31, 2013 (As Restated)
Deferred costs, net ⁽¹⁾	$	156,911	$	84,746
Accounts receivable, net ⁽²⁾		65,855		16,254
Straight-line rent receivable		43,892		19,010
Prepaid expenses ⁽¹⁾		17,379		43,801
Leasehold improvements, property and equipment, net ⁽³⁾		21,028		531
Restricted escrow deposits		49,306		101,813
Derivative assets, at fair value ⁽¹⁾		5,522		9,189
Other assets ⁽¹⁾		58,306		5,317

Total	$	418,199	$	280,661

(1)

These line items have been updated since the Amended 10-K. Certain line items have been reclassified and included within the deferred costs and other assets, net in the accompanying consolidated balance sheet. For detail on the restatement and reclassification adjustments, see Note 2 — Restatement of Previously Issued Financial Statements.

(2)	Allowance for doubtful accounts was $1.8 million and $0.2 million as of June 30, 2014 and December 31, 2013, respectively.

(3)

Amortization expense for leasehold improvements totaled $0.3 million and $0.5 million for the three and six months ended June 30, 2014, respectively. Accumulated amortization was $0.5 million and $7,000 as of June 30, 2014 and December 31, 2013, respectively. Depreciation expense for property and equipment totaled $0.8 million and $0.7 million for the three and six months ended June 30, 2014, respectively. Accumulated depreciation was $0.7 million and $5,000 as of June 30, 2014 and December 31, 2013, respectively.

Note 11 — Fair Value of Financial Instruments (As Restated)

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The guidance defines three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be infrequent.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

During the three and six months ended June 30, 2014, real estate assets with carrying amounts of $3.2 million related to four properties were deemed to be impaired and their carrying amounts were reduced to their estimated fair value, resulting in an impairment charge of $1.6 million, which is included in impairment of real estate on the consolidated statements of operations for the three and six months ended June 30, 2014. No impairments were noted during the three and six months ended June 30, 2013. During the year ended December 31, 2013, real estate assets with carrying amounts of $4.5 million related to two properties were deemed to be impaired and their carrying amounts were reduced to their estimated fair value, resulting in an impairment charge of $3.3 million.

The Company’s estimated fair values of its real estate assets were primarily based upon an income approach utilizing a present value technique to discount the expected cash flows using market participant assumptions for market rent and terminal values, which are considered to be Level 3 inputs, or based upon recent comparable sales transactions, which are considered to be Level 2 inputs. The aggregate fair value of impaired real estate assets as of June 30, 2014 and December 31, 2013 was $1.6 million and $1.2 million, respectively.

The following tables present information about the Company’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):


	Quoted Prices in Active Markets Level 1		Significant Other Observable Inputs Level 2			Significant Unobservable Inputs Level 3			Balance as of June 30, 2014
Assets:
Investments in real estate fund	$	—	$	1,891		$	—		$	1,891
CMBS		—		—			217,313			217,313
Interest rate swap assets		—		5,522			—			5,522

Total assets	$	—	$	7,413		$	217,313		$	224,726

Liabilities:
Interest rate swap liabilities	$	—	$	(12,811	)	$	—		$	(12,811	)
Series D Preferred Stock embedded derivative		—		—			(11,520	)		(11,520	)
Contingent consideration arrangements		—		—			(4,818	)		(4,818	)

Total liabilities	$	—	$	(12,811	)	$	(16,338	)	$	(29,149	)

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)


	Quoted Prices in Active Markets Level 1		Significant Other Observable Inputs Level 2			Significant Unobservable Inputs Level 3			Balance as of December 31, 2013
Assets:
Investments in real estate fund	$	—	$	1,484		$	—		$	1,484
CMBS		—		—			60,583			60,583
Interest rate swap assets		—		9,189			—			9,189

Total assets	$	—	$	10,673		$	60,583		$	71,256

Liabilities:
Interest rate swap liabilities	$	—	$	(1,719	)	$	—		$	(1,719	)
Series D Preferred Stock embedded derivative		—		—			(16,736	)		(16,736	)

Total liabilities	$	—	$	(1,719	)	$	(16,736	)	$	(18,455	)

Investments in real estate fund — The fair value of the Company’s investments in real estate fund is based on published pricing.

CMBS — The fair values of the Company’s CMBS are valued using broker quotations, collateral values, subordination levels and liquidity of the individual securities.

Derivatives — The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.

Series D Preferred Stock embedded derivative — The valuation of this derivative instrument is determined using a binomial option pricing model. Key inputs in the model include the expected term, risk-free interest rate, volatility and dividend yield.

Contingent consideration arrangements — The contingent consideration arrangements are carried at fair value and are valued using Level 3 inputs. The fair value of the contingent payments related to property acquisitions is determined based on the estimated timing and probability of successfully leasing vacant space subsequent to the Company’s acquisition of certain properties. The estimated fair value of the property-related contingent consideration arrangements totaled $4.8 million as of June 30, 2014 and is included in the accompanying consolidated balance sheet in deferred rent, derivative and other liabilities. There were no property-related contingent consideration arrangements as of December 31, 2013.

The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, due to affiliates and accounts payable approximate their carrying value on the accompanying consolidated balance sheets due to their short-term nature and are classified as Level 1 under the fair value hierarchy.

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between Level 1 and Level 2 or Level 3 of the fair value hierarchy during the six months ended June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The following is a reconciliation of the changes in instruments with Level 3 inputs in the fair value hierarchy for the six months ended June 30, 2014 (in thousands):


	CMBS			Series D Preferred Stock Embedded Derivative			Contingent Consideration Arrangements			Total
Beginning balance as of December 31, 2013	$	60,583		$	(16,736	)	$	—		$	43,847
Total gains and losses:
Unrealized gain included in other comprehensive income, net		8,598			—			—			8,598
Changes in fair value included in net income, net		—			5,216			(1,212	)		4,004
Purchases, issuances, settlements and amortization:
Purchases/issuances		151,197			—			(3,606	)		147,591
Amortization included in net income, net		(3,065	)		—			—			(3,065	)

Ending balance as of June 30, 2014	$	217,313		$	(11,520	)	$	(4,818	)	$	200,975

The fair values of the Company’s financial instruments that are not reported at fair value on the consolidated balance sheets are reported below (dollar amounts in thousands):


	Level	Carrying Amount at June 30, 2014		Fair Value at June 30, 2014		Carrying Amount at December 31, 2013		Fair Value at December 31, 2013
Assets:
Loans held for investment	3	$	97,587	$	98,902	$	26,279	$	26,435


Liabilities:
Mortgage notes payable, net	3	$	4,227,494	$	4,328,230	$	1,301,114	$	1,305,823
Corporate bonds, net	3		2,546,089		2,568,117		—		—
Convertible debt, net	3		975,003		1,035,581		972,490		976,629
Credit facilities	3		1,896,000		1,896,000		1,819,800		1,819,800
Secured term loan	3		51,296		51,411		58,979		59,049
Unsecured Credit Facility	3		—		—		150,000		150,000
Trust preferred notes	3		26,579		23,485		26,548		23,345
Other debt	3		68,283		68,414		19,278		19,350

Total liabilities		$	9,790,744	$	9,971,238	$	4,348,209	$	4,353,996

Loans held for investment — The fair value of the Company’s fixed-rate loan portfolio is estimated with a discounted cash flow analysis, utilizing scheduled cash flows and discount rates estimated by management to approximate those that a willing buyer and seller might use.

Credit facilities — Management believes that the stated interest rates (which float based on short-term interest rates) approximate market rates. As such, the fair values of these obligations are estimated to be equal to the outstanding principal amounts.

Convertible notes and Corporate bonds — The fair value of the convertible notes and corporate bonds is estimated by an independent third party using market comps from regularly traded bonds with similar terms.

Mortgage notes payable, Trust preferred notes, Other debt and Secured term loan — The fair value of mortgages payable on real estate investments and the secured term loan is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of market interest rates.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Note 12 — Mortgage Notes Payable (As Restated)

The Company’s mortgage notes payable consist of the following as of June 30, 2014 and December 31, 2013 (dollar amounts in thousands):


	Encumbered Properties		Outstanding Loan Amount		Weighted Average Effective Interest Rate ⁽¹⁾			Weighted Average Maturity ⁽²⁾
June 30, 2014		757	$	4,125,621		4.90	%		6.00
December 31, 2013		177	$	1,258,661		3.42	%		3.41

(1)	Mortgage notes payable primarily have fixed rates or are fixed by way of interest rate swap arrangements. Effective interest rates range from 2.40% to 7.20% at June 30, 2014 and 1.83% to 6.28% at December 31, 2013.

(2)	Weighted average remaining years until maturity as of June 30, 2014 and December 31, 2013, respectively.

In conjunction with the various mergers and portfolio acquisitions, as described in Note 3 — Mergers and Acquisitions (As Restated), aggregate net premiums totaling $137.4 million were recorded upon the assumption of the mortgages for above-market interest rates. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgages using the effective-interest method. As of June 30, 2014, there was $101.9 million in unamortized net premiums included in mortgage notes payable, net on the consolidated balance sheet.

The following table summarizes the scheduled aggregate principal repayments subsequent to June 30, 2014 (in thousands):


Year	Total
July 1, 2014 - December 31, 2014	$	104,043
2015		270,843
2016		250,881
2017		522,655
2018		252,292
Thereafter		2,724,907

Total	$	4,125,621

The Company’s mortgage loan agreements generally require restrictions on corporate guarantees and the maintenance of financial covenants including maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). As of June 30, 2014, the Company was in compliance with the debt covenants under the mortgage loan agreements.

During the three and six months ended June 30, 2014, the Company paid off $132.8 million and $855.1 million, respectively, of mortgage notes payable, including notes that were subject to interest rate swap agreements. In connection with the debt repayments, the Company paid prepayment fees totaling $3.8 million and $32.9 million for the three and six months ended June 30, 2014, respectively, which are included in Extinguishment of debt, net in the accompanying statements of operations. In addition, the Company paid $10.1 million during the six months ended June 30, 2014 for the settlement of interest rate swaps that were associated with certain of the mortgage notes, which approximated the fair value of the interest rate swaps. No such swap settlements were paid during the three months ended June 30, 2014. The Company wrote off the deferred financing costs and premiums and discounts associated with these mortgages, which resulted in a loss of $2.6 million during the three months ended June 30, 2014 and a gain of $17.0 million during the six months ended June 30, 2014, respectively. The recently paid off mortgages had a weighted average remaining interest rate of 4.86% and a weighted average remaining term of 2.5 years.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Note 13 — Other Debt

Corporate Bond Offering

On February 6, 2014, the OP issued, in a private offering, $2.55 billion aggregate principal amount of senior unsecured notes consisting of $1.3 billion aggregate principal amount of 2.00% senior notes due 2017 (the “2017 Notes”), $750.0 million aggregate principal amount of 3.00% senior notes due 2019 (the “2019 Notes”) and $500.0 million aggregate principal amount of 4.60% senior notes due 2024 (the “2024 Notes,” and, together with the 2017 Notes and 2019 Notes, the “Notes”). The Notes are guaranteed by the Company. The OP may redeem all or a part of any series of the Notes at any time at its option at the redemption prices set forth in the indenture governing the Notes, plus accrued and unpaid interest on the principal amount of the Notes of such series being redeemed to, but excluding, the applicable redemption date. With respect to the 2019 Notes and the 2024 Notes, if such Notes are redeemed on or after January 6, 2019 with respect to the 2019 Notes, or November 6, 2023 with respect to the 2024 Notes, the redemption price will equal 100% of the principal amount of the Notes of the applicable series to be redeemed, plus accrued and unpaid interest on the amount being redeemed to, but excluding, the applicable redemption date. In conjunction with this corporate bond offering, aggregate discounts totaling $4.2 million were recorded. As of June 30, 2014, the unamortized net discount totaled $3.9 million.

Convertible Senior Note Offering

On July 29, 2013, the Company issued $300.0 million of 3.00% convertible senior notes due 2018 and, pursuant to an over-allotment exercise by the underwriters of such offering, issued an additional $10.0 million of such notes on August 1, 2013 (collectively, the “Original 2018 Notes”). On December 10, 2013, the Company issued an additional $287.5 million of the convertible senior notes due 2018 through a reopening of the Original 2018 Notes indenture agreement (the “Reopened 2018 Notes,” together with the Original 2018 Notes, the “2018 Notes”). The 2018 Notes mature on August 1, 2018. The fair value of the Original 2018 Notes and Reopened 2018 Notes was determined at issuance to be $299.6 million and $282.1 million, respectively, resulting in a debt discount of $10.4 million and $5.4 million, respectively, with an offset recorded to additional paid-in capital representing the equity component of the notes for the conversion options. The discount is being amortized to interest expense over the expected lives of the 2018 Notes. As of June 30, 2014, the carrying value of the Original 2018 Notes and Reopened 2018 Notes was $301.5 million and $282.7 million, respectively. The holders may elect to convert the 2018 Notes into cash, common stock of the Company or a combination thereof, at the Company’s option, in limited circumstances prior to February 1, 2018 and may convert the 2018 Notes at any time into such consideration on or after February 1, 2018. The initial conversion rate is 59.805 shares of the Company’s common stock per $1,000 principal amount of 2018 Notes.

On December 10, 2013, the Company issued $402.5 million of 3.75% convertible senior notes due 2020 (the “2020 Notes”). The 2020 Notes mature on December 15, 2020. The fair value of the 2020 Notes was determined at issuance to be $389.7 million, resulting in a debt discount of $12.8 million with an offset recorded to additional paid-in capital representing the equity component of the notes for the conversion options. The discount is being amortized to interest expense over the expected life of the 2020 Notes. As of June 30, 2014, the carrying value of the 2020 Notes was $390.7 million. The holders may elect to convert the 2020 Notes into cash, common stock of the Company or a combination thereof, at the Company’s option, in limited circumstances prior to June 15, 2020 and may convert the 2020 Notes at any time into such consideration on or after June 15, 2020. The initial conversion rate is 66.0262 shares of the Company’s common stock per $1,000 principal amount of 2020 Notes.

The Company funds interest payments on the 2018 Notes and the 2020 Notes from the OP in accordance with the terms of intercompany notes that have substantially the same terms as the 2018 Notes and the 2020 Notes. The remaining unamortized discount on the 2018 Notes and 2020 Notes totaled $25.0 million as of June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Trust Preferred Notes

As part of the CapLease Merger, the Company assumed $30.9 million in aggregate principal amount of fixed/floating rate preferred notes with a fair value of $26.5 million at the CapLease Acquisition Date. The trust preferred securities represent an unsecured subordinated recourse debt obligation of the Company and require quarterly interest payments calculated at a fixed interest rate equal to 7.68% per annum through January 30, 2016, and subsequently at a variable interest rate equal to LIBOR plus 2.60% per annum. The notes must be redeemed on January 30, 2036, and may be redeemed, in whole or in part, at par, at the Company’s option, at any time. The discount recorded on the notes is being amortized to interest expense on the consolidated statements of operations over the life of the preferred notes. As of June 30, 2014, the carrying value of the preferred securities was $26.6 million, which is included in other debt, net in the accompanying consolidated balance sheets.

Secured Term Loan

As part of the CapLease Merger, the Company assumed a secured term loan with KBC Bank, N.V. with a principal balance of $59.8 million and a fair value of $60.7 million at the CapLease Acquisition Date. The interest coupon on the loan is fixed at 5.81% annually until the loan matures in January 2018. The loan is non-recourse to the Company, subject to limited non-recourse exceptions. During the six months ended June 30, 2014, the Company made principal payments of $7.5 million. The premium is being amortized to interest expense on the consolidated statements of operations over the life of the secured term loan. As of June 30, 2014, the carrying value of the secured term loan was $51.3 million, which is included in other debt, net in the accompanying consolidated balance sheets.

Amounts related to the secured term loan as of June 30, 2014 were as follows (in thousands):


	Borrowings		Collateral Carrying Value
Loans held for investment	$	31,597	$	44,670
Intercompany mortgage loans on CapLease properties		5,525		17,124
CMBS		13,529		21,900

	$	50,651	$	83,694

Other Debt

As part of the CapLease Merger, the Company assumed $19.2 million of senior notes (the “Senior Notes”) that bear interest at an annual interest rate of 7.50%, payable semi-annually on April 1 and October 1, with a fair value of $19.3 million at the CapLease Acquisition Date. The Senior Notes mature on October 1, 2027. The Company has the right to redeem the Senior Notes in whole or in part for cash at any time or from time to time at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus any accrued and unpaid interest. Holders of the Senior Notes may require the Company to repurchase their Senior Notes, in whole or in part, on October 1, 2017 and October 1, 2022, for a cash price equal to 100% of the principal amount of the Senior Notes to be repurchased, plus any accrued and unpaid interest. The discount is being amortized to interest expense on the consolidated statements of operations over the life of the Senior Notes. As of June 30, 2014, the carrying value of the Senior Notes was $19.3 million, which is included in other debt, net in the accompanying consolidated balance sheets.

In conjunction with the CapLease Merger, aggregate net discounts totaling $3.5 million were recorded upon assumption of the trust preferred notes, secured term loan and Senior Notes. As of June 30, 2014, unamortized net discounts were $3.6 million in unamortized net discounts included in other debt, net on the consolidated balance sheets.

Subsequent to June 30, 2014, the Company repaid the $19.2 million outstanding on the Senior Notes at par.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Future Minimum Repayments

The following table summarizes the scheduled aggregate principal repayments on Other Debt subsequent to June 30, 2014 (in thousands):


	Principal Repayment
July 1, 2014 - December 31, 2014	$	54,339
2015		11,862
2016		12,516
2017		7,680
2018		13,267
Thereafter		50,140

	$	149,804

Barclay’s Facility

As of December 31, 2013, the Company had available commitments from Barclays Bank PLC, and other committed parties, for up to $2.1 billion in senior secured term loans (the “Barclays Facility”) which, if funded, would have been available to fund cash amounts payable in connection with the Cole Merger. The Barclays Facility was terminated upon the issuance of the notes in February 2014. In connection with the termination, the Company recorded $32.6 million as amortization of deferred financing costs associated with the Barclays Facility, which is included in interest expense, net in the accompanying consolidated statements of operations.

Repurchase Agreements

As part of the Cole Merger, the Company assumed $49.0 million of repurchase agreements secured by a portion of the Company’s CMBS portfolio. The Repurchase Agreements have interest rates ranging from LIBOR plus 1.35% to 1.75% and mature on various dates from July 2014 through September 2014. Upon maturity, the Company may elect to renew the Repurchase Agreements for 90 days periods until the CMBS mature. The CMBS have a weighted average remaining term of 7.72 years. Under the Repurchase Agreements, the lender retains the right to mark the underlying collateral to fair value. A reduction in the value of the pledged assets would require the Company to provide additional collateral to fund margin calls. As of June 30, 2014, the securities held as collateral had a fair value of $144.8 million and an amortized cost of $139.3 million. There was no cash collateral held by the counterparty as of June 30, 2014. The Repurchase Agreements are being accounted for as secured borrowings because the Company maintains effective control of the financed assets. The Repurchase Agreements are non-recourse to the Company and the OP and are included in other debt, net in the accompanying consolidated balance sheets.

Note 14 — Credit Facilities

Senior Unsecured Credit Facility

The Company, as guarantor, and the OP, as borrower, are parties to a credit facility with Wells Fargo, National Association, as administrative agent and other lenders party thereto (the “Credit Facility”).

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

On June 30, 2014, the Company, as guarantor, and the OP, as borrower, entered into an amended and restated credit agreement (the “Agreement”), which increased the available borrowings, extended the term and decreased the interest rates associated with the prior Credit Facility. The Company and the OP accepted commitments from 20 financial institutions totaling $4.6 billion for the Facility in advance of the execution of the Agreement. The Facility is comprised of a $1.2 billion term loan facility (with a delayed draw component equal to $200.0 million), a $3.15 billion dollar-denominated revolving credit facility and a $250.0 million multi-currency revolving facility (all of which can be borrowed in dollars, at the Company’s discretion). The Credit Facility includes an accordion feature, which, if exercised in full, allows the Company to increase the aggregate commitments under the Credit Facility to $6.0 billion, subject to the receipt of such additional commitments and the satisfaction of certain customary conditions.

The revolving credit facility generally bears interest at an annual rate of LIBOR plus from 1.00% to 1.80% or Base Rate plus 0.00% to 0.80% (based upon the Company’s then current credit rating). “Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR, determined on a daily basis. The term loan facility generally bears interest at an annual rate of LIBOR plus 1.15% to 2.05%, or Base Rate plus 0.15% to 1.05% (based upon the Company’s then current credit rating). The Loans will initially be priced with an applicable margin of 1.35% in the case of LIBOR revolving loans and 1.60% in the case of LIBOR term loans. In addition, the Agreement provides the flexibility for interest rate auctions, pursuant to which, at the Company’s election, the Company may request that lenders make competitive bids to provide revolving loans, which competitive bids may be at pricing levels that differ from the foregoing interest rates.

The Agreement provides for monthly interest payments under the Credit Facility. In the event of default, at the election of the majority of the lenders (or automatically upon a bankruptcy event of default with respect to the OP or the Company), the commitments of the lenders under the Credit Facility terminate, and payment of any unpaid amounts in respect of the Credit Facility is accelerated. The revolving credit facility and the term loan facility both terminate on June 30, 2018, in each case, unless extended in accordance with the terms of the Agreement. The Agreement provides for a one-year extension option with respect to each of the revolving credit facility and the term loan facility, exercisable at the Company’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. At any time, upon timely notice by the OP and subject to any breakage fees, the OP may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The OP incurs a fee equal to 0.15% to 0.25% per annum (based upon the Company’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the dollar revolving credit facility and the multi-currency credit facility. The OP incurs an unused fee of 0.25% per annum on the unused amount of the delayed draw term loan commitments. In addition, the OP incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

The Credit Facility requires restrictions on corporate guarantees, as well as the maintenance of financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) and the maintenance of a minimum net worth. At June 30, 2014, the OP was in compliance with the debt covenants under the Credit Facility.

In connection with the Agreement, the Company expensed $3.9 million of unamortized deferred financing costs incurred in connection with the original Credit Facility, which is included in interest expense, net in the accompanying consolidated unaudited statements of operations.

As of June 30, 2014, the outstanding balance on the Credit Facility was $1.9 billion, of which $881.0 million bore a floating interest rate of 1.50%. The remaining outstanding balance on the Credit Facility of $1.0 billion is fixed through the use of derivative instruments used to hedge interest rate volatility. Including the spread, which can vary based on the Company’s credit rating, the interest rate on this portion was 2.84% at June 30, 2014. At June 30, 2014, a maximum of $2.7 billion was available to the OP for future borrowings, subject to borrowing availability. The credit facility matures on June 30, 2018.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Repayment of Previous Credit Facilities

As part of the ARCT IV Merger, the Company assumed an $800.0 million senior unsecured credit facility with various lenders, with Regions Bank acting as the administrative agent (the “ARCT IV Credit Facility”). As of the date of the ARCT IV Merger, there was $760.0 million outstanding under the ARCT IV Credit Facility, which consisted of a $300.0 million term loan facility and $460.0 million under the revolving credit facility. In connection with the ARCT IV Merger, the Company prepaid all of its loans pursuant to, and terminated all commitments available under, the ARCT IV Credit Facility.

As part of the CapLease Merger, the Company assumed an unsecured credit facility with Wells Fargo, National Association, which had commitments of up to $150.0 million. In February 2014, such credit facility was amended and certain modifications were made to the terms of the agreement (the “CapLease Credit Facility”). On June 6, 2014, the Company repaid the outstanding balance of $150.0 million and terminated the credit facility agreement. No prepayment premium or penalty was paid in connection with the termination of the CapLease Credit Facility.

On February 28, 2013, the Company repaid all of the outstanding borrowings under its previous senior secured revolving credit facility in the amount of $124.6 million and the credit agreement for such facility was terminated. The average interest rate on the borrowings during the period the balance was outstanding was 3.11%. On February 14, 2013, simultaneous with entering into the Credit Facility, the Company terminated its then effective unsecured credit facility agreement, which had been unused.

Note 15 — Derivatives and Hedging Activities (As Restated)

Risk Management Objective of Using Derivatives

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the six months ended June 30, 2014, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $10.5 million will be reclassified from other comprehensive income as an increase to interest expense. During the three and six months ended June 30, 2014, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur.

As of June 30, 2014, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):


Interest Rate Derivative	Number of Instruments		Notional Amount
Interest rate swaps		17	$	1,174,367

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of June 30, 2014 and December 31, 2013 (in thousands):


Derivatives Designated as Hedging Instruments	Balance Sheet Location	June 30, 2014			December 31, 2013
Interest rate products	Deferred costs and other assets, net	$	4,665		$	9,189
Interest rate products	Deferred rent, derivative and other liabilities	$	(9,190	)	$	(1,719	)

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2014 and 2013, respectively (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships	2014			2013			2014			2013
Amount of (loss) gain recognized in accumulated other comprehensive income on interest rate derivatives (effective portion)	$	(9,857	)	$	12,786		$	(13,696	)	$	10,926
Amount of loss reclassified from accumulated other comprehensive income into income as interest expense (effective portion)	$	(2,574	)	$	(1,272	)	$	(4,115	)	$	(1,955	)

In January 2014, the Company entered into an interest rate lock agreement with a notional amount of $250.0 million (the “Treasury Lock”). The Treasury Lock, which had an original maturity date of February 12, 2014, was entered into to hedge part of the Company’s interest rate exposure associated with the variability in future cash flows attributable to changes in the ten-year U.S. treasury rates related to the planned issuance of debt securities in conjunction with the Cole Merger. In connection with the Company’s bond offering in February 2014, the Company settled the Treasury Lock, which was accounted for as cash flow hedge, for $3.9 million, which was recorded to other comprehensive loss and will be amortized into earnings over the ten year term of the Treasury Lock. The Company amortized $0.1 million into interest expense the three and six months ended June 30, 2014 related to the Treasury Lock.

Derivatives Not Designated as Hedging Instruments

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the requirements to be classified as hedging instruments. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and were approximately a gain of $14.2 million and a gain of $7.1 million for the three and six months ended June 30, 2014, respectively. The Company recorded a loss of $31.2 million for the three and six months ended June 30, 2013 relating to the contingent value rights.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

As of June 30, 2014, the Company had the following outstanding interest rate derivatives that were not designated as qualifying hedging relationships (dollar amounts in thousands):


Interest Rate Derivative	Number of Instruments		Notional Amount
Interest rate swaps		6	$	234,316

The table below presents the fair value of the Company’s derivative financial instruments not designated as hedges as well as their classification on the consolidated balance sheets as of June 30, 2014 and December 31, 2013 (in thousands):


Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	June 30, 2014			December 31, 2013
Series D Preferred Stock embedded derivative	Deferred rent, derivative and other liabilities	$	(11,520	)	$	(16,736	)
Interest rate products	Deferred rent, derivative and other liabilities	$	(3,621	)	$	—
Interest rate products	Deferred costs and other assets, net	$	857		$	—

Refer to Note 18 — Preferred and Common Stock for additional information for the Series D Preferred Stock embedded derivative.

Tabular Disclosure Offsetting Derivatives

The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of June 30, 2014 and December 31, 2013. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets (in thousands).


Offsetting of Derivative Assets and Liabilities
	Gross Amounts of Recognized Assets		Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets			Financial Instruments		Cash Collateral Received		Net Amount
June 30, 2014	$	5,522	$	(24,331	)	$	—	$	5,522	$	(24,331	)	$	—	$	—	$	(18,809	)
December 31, 2013	$	9,189	$	(18,455	)	$	—	$	9,189	$	(18,455	)	$	—	$	—	$	(9,266	)

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

As of June 30, 2014, the fair value of the interest rate derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $14.6 million. As of June 30, 2014, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $14.6 million at June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Note 16 — Accounts Payable and Accrued Expenses (As Restated)

Accounts payable and accrued expenses consisted of the following as of June 30, 2014 and December 31, 2013 (in thousands):


	June 30, 2014 (As Restated)		December 31, 2013 (As Restated)
Accrued other	$	64,669	$	34,407
Accrued interest		54,932		14,189
Accrued real estate taxes		49,966		24,658
Accounts payable		5,375		5,887
Accrued merger costs		—		651,430

	$	174,942	$	730,571

Note 17 — 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, except as follows:

ARCT III Litigation Matters

After the announcement of the ARCT III Merger Agreement on December 17, 2012, Randell Quaal filed a putative class action lawsuit filed on January 30, 2013 against the Company, the OP, ARCT III, ARCT III OP, the members of the board of directors of ARCT III and certain subsidiaries of the Company in the Supreme Court of the State of New York. The plaintiff alleges, among other things, that the board of ARCT III breached its fiduciary duties in connection with the transactions contemplated under the ARCT III Merger Agreement. In February 2013, the parties agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of ARCT III stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required ARCT III to make certain additional disclosures related to the ARCT III Merger, which were included in a Current Report on Form 8-K filed by ARCT III with the SEC on February 21, 2013. The memorandum of understanding also added that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to ARCT III’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

CapLease Litigation Matters

Since the announcement of the CapLease Merger Agreement on May 28, 2013, the following lawsuits have been filed:

On May 28, 2013, Jacquelyn Mizani filed a putative class action lawsuit in the Supreme Court for the State of New York against the Company, the OP, Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease board of directors (the “Mizani Action”). The complaint alleges, among other things, that the merger agreement at issue was the product of breaches of fiduciary duty by the CapLease directors because the proposed merger transaction (the “CapLease Transaction”) purportedly does not provide for full and fair value for the CapLease shareholders, the CapLease Transaction allegedly was not the result of a competitive bidding process, the merger agreement allegedly contains coercive deal protection measures and the merger agreement and the CapLease Transaction purportedly were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleges that CapLease, the Company, the OP and Safari Acquisition LLC aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.

On July 3, 2013, Fred Carach filed a putative class action and derivative lawsuit in the Supreme Court for the State of New York against the Company, the OP, Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease board of directors (the “Carach Action”). The complaint alleges, among other things, that the merger agreement was the product of breaches of fiduciary duty by the CapLease directors because the merger purportedly does not provide for full and fair value for the CapLease shareholders, the CapLease Transaction allegedly was not the result of a competitive bidding process, the merger agreement allegedly contains coercive deal protection measures and the merger agreement and the CapLease Transaction purportedly were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleges that with respect to the Registration Statement and draft joint proxy statement issued in connection with the proposed CapLease Transaction on July 2, 2013, that disclosures made therein were insufficient or otherwise improper. The complaint also alleges that CapLease LP, CLF OP General Partner, LLC, the Company, the OP and Safari Acquisition LLC aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.

On June 25, 2013, Dewey Tarver filed a putative class action and derivative lawsuit in the Circuit Court for Baltimore City against the Company, the OP, Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease board of directors (the “Tarver Action”). The complaint alleges, among other things, that the merger agreement was the product of breaches of fiduciary duty by the CapLease directors because the CapLease Transaction purportedly does not provide for full and fair value for the CapLease shareholders, the CapLease Transaction allegedly was not the result of a competitive bidding process, the merger agreement allegedly contains coercive deal protection measures and the merger agreement and the CapLease Transaction purportedly were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleges that CapLease, CapLease LP, CLF OP General Partner, LLC, the Company, the OP and Safari Acquisition, LLC aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.

Counsel who filed each of these three cases reached an agreement with each other as to who will serve as lead plaintiff and lead plaintiffs’ counsel in the cases and where they will be prosecuted. Thus, on August 9, 2013, counsel in the Tarver Action filed a motion for stay in the Baltimore Court, informing the court that they had agreed to join and participate in the prosecution of the Mizani and Carach Actions in the New York Court. The Defendants consented to the stay of the Tarver Action in the Baltimore Court, and on September 5, 2013, Judge Pamela J. White issued an order granting that stay. Consequently, there has been no subsequent activity in the Baltimore Court in the Tarver Action. Also on August 9, 2013, all counsel involved in the Mizani and Carach Actions filed a joint stipulation in the New York Court, reflecting agreement among all parties that the Mizani and Carach Actions should be consolidated (jointly, “the Consolidated Actions”) and setting out a schedule for early motion practice in response to the complaints filed (the “Consolidation Stipulation”). Pursuant to the Consolidation Stipulation, an amended complaint was also filed in the New York court on August 9, 2013 and was designated as the operative complaint in the Consolidated Actions (“Operative Complaint”). Pursuant to the Consolidation Stipulation, all Defendants filed a motion to dismiss all claims asserted in the Operative Complaint on September 23, 2013. Plaintiffs’ response was due on or before

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

November 7, 2013. On November 7, 2013, Plaintiffs filed a motion seeking leave to file a second amended complaint, which the Defendants have opposed. On March 24, 2014, Plaintiffs’ counsel in the Consolidated Actions dismissed those claims without prejudice. Consequently, only the Tarver Action currently remains pending among these cases, although it remains stayed.

On October 8, 2013, John Poling filed a putative class action lawsuit in the Circuit Court for Baltimore City against the Company, the OP, Safari Acquisition LLC, CapLease, CapLease LP, CLF OP General Partner, LLC and the members of the CapLease board of directors (the “Poling Action”). The complaint alleges that the merger agreement breaches the terms of the CapLease’ 8.375% Series B Cumulative Redeemable Preferred Stock (“Series B”) and the terms of the 7.25% Series C Cumulative Redeemable Preferred Stock (“Series C”) and is in violation of the Series B Articles Supplementary and the Series C Articles Supplementary. The Complaint alleges claims for breach of contract and breach of fiduciary duty against the CapLease entities and the CapLease board of directors. The complaint also alleges that the Company, the OP and Safari Acquisition, LLC aided and abetted CapLease and the CapLease directors’ alleged breach of contract and breach of fiduciary duty.

On November 13, 2013, all counsel involved in the Poling Action filed a joint stipulation, reflecting agreement among all parties concerning a schedule for early motion practice in response to the complaint filed (the “Scheduling Stipulation”). Pursuant to the Scheduling Stipulation, all Defendants filed a motion to dismiss all claims asserted in the Operative Complaint on December 20, 2013. Plaintiff has filed an opposition to that motion, which remains pending.

Cole Litigation Matters

Three putative class action and/or derivative lawsuits, which were filed in March and April 2013, assert claims for breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment, aiding and abetting breach of fiduciary duty and other claims relating to the merger between a wholly owned subsidiary of Cole and Cole Holdings Corporation, pursuant to which Cole became a self-managed REIT. On October 22, 2013, the Circuit Court for Baltimore City granted all defendants’ motion to dismiss with prejudice the action pending before the court, but the plaintiffs have appealed that dismissal. The other two lawsuits, which also purport to assert shareholder class action claims under the Securities Act of 1933, as amended (the “Securities Act”), are pending in the United States District Court for the District of Arizona. Defendants filed a motion to dismiss both complaints on January 10, 2014. Subsequently, both of those lawsuits have been stayed by the Court pursuant to a joint request made by all parties pending final approval of the consolidated Baltimore Cole Merger Actions described below.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

To date, eleven lawsuits have been filed in connection with the Cole Merger. Two of these suits - Wunsch v. Cole, et al (“Wunsch”), No. 13-CV-2186, and Sobon v. Cole, et al (“Sobon”) - were filed as putative class actions on October 25, 2013 and November 18, 2013, respectively, in the U.S. District Court for the District of Arizona. Between October 30, 2013 and November 14, 2013, eight other putative stockholder class action or derivative lawsuits were filed in the Circuit Court for Baltimore City, Maryland, captioned as: (i) Operman v. Cole, et al (“Operman”); (ii) Branham v. Cole, et al (“Branham”); (iii) Wilfong v. Cole, et al. (“Wilfong”); (iv) Polage v. Cole, et al. (“Polage”); (v) Corwin v. Cole, et al (“Corwin”); (vi) Green v. Cole, et al (“Green”); (vii) Flynn v. Cole, et al (“Flynn”) and (viii) Morgan v. Cole, et al. (“Morgan”). All of these lawsuits name the Company, Cole and Cole’s board of directors as defendants; Wunsch, Sobon, Branham, Wilfong, Flynn, Green, Morgan and Polage also name CREInvestments, LLC, a Maryland limited liability company and a wholly-owned subsidiary of the Cole, as a defendant. All of the named plaintiffs claim to be Cole stockholders and purport to represent all holders of Cole’s stock. Each complaint generally alleges that the individual defendants breached fiduciary duties owed to plaintiff and the other public stockholders of Cole in connection with the Cole Merger, and that certain entity defendants aided and abetted those breaches. The breach of fiduciary duty claims asserted include claims that the Cole Merger does not provide for full and fair value for the Cole shareholders, that the Cole Merger was the product of an “inadequate sale process,” that the Cole Merger Agreement contains coercive deal protection measures and the Cole Merger Agreement and that the Cole Merger were approved as a result of or in a manner which facilitates improper self-dealing by certain defendants. In addition, the Flynn, Corwin, Green, Wilfong, Polage and Branham lawsuits claim that the individual defendants breached their duty of candor to shareholders and the Branham and Polage lawsuits assert claims derivatively against the individual defendants for their alleged breach of fiduciary duties owed to Cole. The Polage lawsuit also asserts derivative claims for waste of corporate assets and unjust enrichment. The Wunsch and Sobon lawsuits also assert claims against Cole and the individual defendants under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), based on allegations that the proxy materials omitted to disclose allegedly material information, and a claim against the individual defendants under Section 20(a) of the Exchange Act based on the same allegations. Among other remedies, the complaints seek unspecified money damages, costs and attorneys’ fees.

In January 2014, the parties to the eight lawsuits filed in the Circuit Court for Baltimore City, Maryland (“the consolidated Baltimore Cole Merger Actions”) entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of Cole stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required Cole to make certain additional disclosures related to the Cole Merger, which were included in a Current Report on Form 8-K filed by Cole with the SEC on January 14, 2014. The memorandum of understanding also contemplated that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to Cole’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.

The Sobon lawsuit was voluntarily dismissed on February 3, 2014. The Company believes that the Wunsch lawsuit in connection with the Cole Merger is without merit and that it has substantial meritorious defenses to the claims set forth in the complaint.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

On December 27, 2013, Realistic Partners filed a putative class action lawsuit against the Company and the members of its board of directors in the Supreme Court for the State of New York. Cole was later added as a defendant also. The plaintiff alleges, among other things, that the board of the Company breached its fiduciary duties in connection with the transactions contemplated under the Cole Merger Agreement and that Cole aided and abetted those breaches. In January 2014, the parties entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of the Company’s stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required the Company to make certain additional disclosures related to the Cole Merger, which were included in a Current Report on Form 8-K filed by the Company with the SEC on January 17, 2014. The memorandum of understanding also contemplated that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to the Company’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.

The Company maintains directors and officers liability insurance, which the Company believes should provide coverage to the Company and its officers and directors for most or all of any costs, settlements or judgments resulting from the above mentioned lawsuits.

Contractual Lease Obligations

The following table reflects the minimum base rental cash payments due from the Company over the next five years and thereafter for certain ground and office lease obligations (in thousands):


	Future Minimum Base Rent Payments
July 1, 2014 - December 31, 2014	$	6,845
2015		12,922
2016		11,575
2017		10,248
2018		7,918
Thereafter		83,734

Total	$	133,242

Purchase Commitments

Cole Capital enters into purchase and sale agreements and deposits funds into escrow towards the purchase of such acquisitions, some of which are expected to be assigned to one of the Managed REITs at or prior to the closing of the respective acquisition. As of June 30, 2014, the Company was a party to 70 purchase and sale agreements with unaffiliated third-party sellers to purchase a 100% interest in 416 properties, subject to meeting certain criteria, for an aggregate purchase price of $1.5 billion, exclusive of closing costs. As of June 30, 2014, the Company had $41.8 million of property escrow deposits held by escrow agents in connection with these future property acquisitions, which may be forfeited if the transactions are not completed under certain circumstances. The Company will be reimbursed by the assigned Managed REIT for amounts escrowed when it acquires a property.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be 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 is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.

Note 18 — Preferred and Common Stock

Series D and Series E Preferred Stock

On September 12, 2013, the Company’s board of directors unanimously approved the issuance of Series D Cumulative Convertible Preferred Stock (“Series D Preferred Stock”) and the issuance of Series E Cumulative Preferred Stock (“Series E Preferred Stock”).

On September 15, 2013, the Company entered into definitive purchase agreements pursuant to which it agreed to issue Series D Preferred Stock and common stock to certain institutional holders promptly following the close of the CapLease Merger, via a private placement. Pursuant to the definitive purchase agreements, the Company issued approximately 21.7 million shares of Series D Preferred Stock and 15.1 million shares of common stock, for gross proceeds of $288.0 million and $186.0 million, respectively, on November 12, 2013. The Series D Preferred Stock pays dividends at the rate of 5.81% per annum on its face amount of $13.59 per share (equivalent to $0.79 per share on an annualized basis). The Series D Preferred Stock is redeemable by the Company on August 31, 2014 (the “Redemption Date”). Subsequent to that date, or in certain other circumstances, the Series D Preferred Stock is convertible into common stock or Series E Preferred Stock or redeemable into cash, at the discretion of the Company upon such request for conversion by the holders of Series D Preferred Stock.

In the event of a liquidation, the holders of Series D Preferred Stock are entitled to receive the greater of (a) $13.59 per share plus accrued and unpaid dividends (the “Liquidation Preference”) plus a 20% premium; and (b) an amount the Series D Preferred Stock holders would have received had they converted into shares of common stock immediately prior to the liquidation event.

If the Company elects to redeem the Series D Preferred Stock on the Redemption Date, the Company shall pay the greater of: (a) the product of the number of Series D Preferred Stock and the 102% of the Liquidation Preference; and (b) the product of the shares of common stock that would be issued if the Series D Preferred Stock converted immediately prior to the Redemption Date and 102% of the one-day value-weighted average price (“VWAP”) of the common stock.

At any time after the Redemption Date, the holders of Series D Preferred Stock may convert some or all of their outstanding Series D Preferred Stock into shares of common stock. Upon such an election to convert, the Company may elect the following settlement options: (1) convert the shares of Series D Preferred Stock into the number of fully paid and non-assessable common stock obtained by dividing the aggregate Liquidation Preference of such Series D Preferred Stock by the Conversion Price, as defined below; (2) convert the shares of Series D Preferred Stock into an equal number of shares of Series E Preferred Stock, additional shares of Series E Preferred Stock may be issued under certain circumstances; or (3) an amount equal to the product of the number of shares of Series D Preferred Stock and the Cash Conversion Price, as defined below.

The Conversion Price shall be the lowest of (i) a 2% discount to the VWAP of the common stock for the 10 Trading Days prior to the Conversion Election Date; (ii) a 2% discount to the closing price on the Conversion Election Date; and (iii) $13.59. The Cash Conversion Price shall be the greater of: (i) 102% of the Liquidation Preference and (ii) the one-day VWAP of the common stock on the date of the election.

The Company has concluded that the conversion option qualifies as a derivative and should be bifurcated from the host instrument. At issuance, the conversion option had a fair value of $18.7 million. As of June 30, 2014, the fair value of the conversion option had a fair value of $11.5 million, compared to a fair value of $16.7 million as of December 31, 2013. The Company recorded a gain of $5.2 million due to the change in fair value of the conversion option in gain (loss) on derivative instruments, net in the consolidated statements of operations for the six months ended June 30, 2014.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

As the holders of Series D Preferred Stock are entitled to receive liquidation preferences that other equity holders are not entitled to, the Company determined the Series D Preferred Stock meets the definition of a deemed liquidation event and therefore should be classified as temporary equity under U.S. GAAP. At the date of issuance, the fair value of the Series D Preferred Stock was $269.3 million. As of June 30, 2014, the Company has determined that a liquidation event is not probable; therefore, the Company has concluded that the Series D Preferred Stock is not currently redeemable or likely to become redeemable pursuant to a liquidation event. As such, the Company has not accreted the initial value of the Series D Preferred Stock.

As of June 30, 2014, there were 21,735,008 authorized and issued shares of Series D Preferred Stock and no authorized and issued shares of Series E Preferred Stock, respectively.

Series F Preferred Stock

On October 6, 2013, in connection with the modification to the ARCT IV Merger Agrement, the Company’s board of directors unanimously approved the issuance of Series F Preferred Stock. Upon consummation of the ARCT IV Merger on January 3, 2014, 42.2 million shares of Series F Preferred Stock were issued to ARCT IV shareholders and 0.7 million units of Series F OP Units were issued to the ARCT IV OP Unit holders. Subsequent to original issuance and through June 30, 2014, 0.5 million Series F OP Units were converted into an equivalent number of shares of Series F Preferred Stock. As of June 30, 2014, there were 42.7 million shares of Series F Preferred Stock and 0.2 million Series F OP Units issued and outstanding.

The Series F Preferred Stock pays cumulative cash dividends at the rate of 6.70% per annum on its liquidation preference of $25.00 per share (equivalent to $1.675 per share on an annual basis). The Series F Preferred Stock is not redeemable by the Company before the fifth anniversary of the date on which such Series F Preferred Stock is issued (the “Initial Redemption Date”), except under circumstances intended to preserve the Company’s status as a real estate investment trust for federal and/or state income tax purposes and except upon the occurrence of a change of control. On and after the Initial Redemption Date, the Company may, at its option, redeem shares of the Series F Preferred Stock, in whole or from time to time in part, at a redemption price of $25.00 per share plus, subject to exceptions, any accrued and unpaid dividends thereon to the date fixed for redemption. The shares of Series F Preferred Stock have no stated maturity, are not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company redeems or otherwise repurchases them or they become convertible and are converted into common stock (or, if applicable, alternative consideration). The Series F Preferred Stock trades on the NASDAQ under the symbol “ARCPP.”

Increases in Authorized Common Stock

On December 9, 2013, the Company filed articles of amendment to its charter to increase the number of authorized shares of common stock to 1.5 billion shares.

Offerings

On August 1, 2012, the Company filed a $500.0 million universal shelf registration statement and a resale registration statement with the SEC. Each registration statement became effective on August 17, 2012. As of June 30, 2014, the Company had issued 2.1 million shares of common stock and no preferred stock, debt or equity-linked security had been issued under the universal shelf registration statement. The resale registration statement, as amended, registers the resale of up to 1,882,248 shares of common stock issued in connection with any future conversion of certain currently outstanding restricted shares, convertible preferred stock or limited partnership interests in the OP.

In January 2013, the Company commenced its at-the-market equity program (the “ATM”) in which it may from time to time offer and sell shares of its common stock having aggregate offering proceeds of up to $60.0 million. The shares will be issued pursuant to the Company’s universal shelf registration statement.

On March 14, 2013, the Company filed a universal automatic shelf registration statement that was automatically declared effective and achieved well-known seasoned issuer (“WKSI”) status. As a result of the delayed filing of certain of our periodic reports with the SEC, we are not currently eligible to use a shelf registration statement for the offer and sale of our securities.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

On May 28, 2014, the Company closed on an underwriting agreement relating to a public offering of 138.0 million shares of common stock at a price of $12.00 per share. The net proceeds to the Company were approximately $1.59 billion after deducting underwriting discounts, commissions and offering-related expenses, which include a $2.0 million structuring fee paid to RCS. See Note 25 — Subsequent Events (As Restated) for further discussion.

Dividends

In October 2011, the Company began paying dividends on the 15th day of each month to stockholders of record on the eighth day of such month. On October 23, 2013, the board of directors of the Company authorized an annualized dividend per share of $1.00, which became effective February 7, 2014. The per share annualized dividend of $1.00 reflects an increase of $0.06 per share from an annualized dividend of $0.94 per share. The annualized dividend rate at June 30, 2014 was $1.00 per share.

Common Stock Repurchases

On August 20, 2013, the Company’s board of directors reauthorized its $250.0 million share repurchase program, which was originally authorized in February 2013. During the six months ended June 30, 2014, the Company did not repurchase any shares of common stock under the share repurchase program.

Upon the closing of the ARCT III Merger, on February 28, 2013, 29.2 million shares, or 16.5% of the then-outstanding shares of ARCT III’s common stock, were paid in cash at $12.00 per share, which is equivalent to 27.7 million shares of the Company’s common stock based on the ARCT III Exchange Ratio. In addition, 148.1 million shares of ARCT III’s common stock were converted to shares of the Company’s common stock at the ARCT III Exchange Ratio, resulting in an additional 140.7 million shares of the Company’s common stock outstanding after the exchange.

Note 19 — Equity-based Compensation (As Restated)

Equity Plan

The Company has adopted the American Realty Capital Properties, Inc. Equity Plan (the “Equity Plan”), which provides for the grant of stock options, stock appreciation rights, restricted shares of common stock, restricted stock units, dividend equivalent rights and other stock-based awards to the Company’s and its affiliates’ non-executive directors, officers and other employees and advisors or consultants who are providing services to the Company or its affiliates.

The Company authorized and reserved a total number of shares equal to 10.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis assuming the redemption of all OP Units for shares of common stock) to be issued at any time under the Equity Plan for equity incentive awards excluding an initial grant of 167,400 shares to the Former Manager in connection with the IPO, all of which were vested as of June 30, 2014. As of June 30, 2014, the Company has awarded 6,796,599 shares under the Equity Plan. In the first quarter of 2014, the Company issued 282,854 shares to its non-executive directors pursuant to the Equity Plan. Upon issuance, the documentation provided for accelerated vesting of shares upon voluntary resignation of the independent directors. As a result, the Company determined there was no required service period and $3.6 million has been recorded as expense during the six months ended June 30, 2014. However, based upon the findings of the Audit Committee and the Company in connection with the recent review of the Company’s previously filed financial statements, the Company subsequently modified such awards to provide that voluntary resignation would not accelerate the vesting of such awards.

The fair value of restricted common stock awards awarded to employees under the Equity Plan is generally determined on the grant date using the closing stock price on NASDAQ that day and is expensed over the requisite service period. The fair value of restricted common stock awarded to non-employees under the Equity Plan is measured based upon the fair value of goods or services received or the equity instruments granted, whichever is more reliably determinable and is typically expensed in full at the date of grant.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Director Stock Plan

The Company has adopted a Non-Executive Director Stock Plan (the “Director Stock Plan”), which provides for the grant of restricted shares of common stock to each of the Company’s independent directors, each of whom is a non-executive director. Awards of restricted stock will vest in accordance with the award agreements, which generally provide for ratable vesting over a five-year period following the date of grant. The awards of restricted stock provide for “distribution equivalents” with respect to this restricted stock, whether or not vested, at the same time and in the same amounts as distributions are paid to the stockholders. At June 30, 2014, a total of 99,000 shares of common stock are reserved for issuance under the Director Stock Plan. As of June 30, 2014, the Company has awarded 45,000 shares under the Director Stock Plan.

The fair value of restricted common stock awards under the Director Stock Plan is determined on the grant date using the closing stock price on NASDAQ that day.

ARCT IV Restricted Share Plan

ARCT IV had an employee and director incentive restricted share plan (the “RSP”), which provided for the automatic grant of 1,333 restricted shares of common stock to each of its independent directors without any further action by ARCT IV’s board of directors or its stockholders on the date of initial election to the board of directors and on the date of each annual stockholder’s meeting thereafter. Restricted stock issued to independent directors vested over a five-year period following the date of grant in increments of 20% per annum. The RSP provided ARCT IV with the ability to grant awards of restricted shares to its directors, officers and employees (if ARCT IV ever had employees), employees of the ARCT IV Advisor and its affiliates, employees of entities that provided services to ARCT IV, directors of the ARCT IV Advisor or of entities that provided services to ARCT IV, certain consultants to ARCT IV and the ARCT IV Advisor and its affiliates or to entities that provided services to ARCT IV.

Immediately prior to the effective time of the ARCT IV Merger, each then-outstanding share of ARCT IV restricted stock fully vested. All shares of ARCT IV common stock then-outstanding as a result of the full vesting of shares of ARCT IV restricted stock, and the satisfaction of any applicable withholding taxes, received shares of the Company’s common stock based on the ARCT IV Exchange Ratio and additional consideration pursuant to the terms of the ARCT IV Merger Agreement.

The following table details the restricted shares activity within the Equity Plan and Director Stock Plan during the six months ended June 30, 2014:


	Equity Plan					Director Stock Plan
	Shares of Restricted Common Stock			Weighted-Average Issue Price		Shares of Restricted Common Stock			Weighted-Average Issue Price
Unvested, December 31, 2013		931,442		$	13.82		18,875		$	13.52
Granted		5,602,989			13.28		3,000			13.99
Vested		458,546			12.94		(21,875	)		13.58
Forfeited		(94,040	)		13.89		—			—

Unvested, June 30, 2014		5,981,845		$	13.38		—		$	—

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

For the three and six months ended June 30, 2014, compensation expense, excluding Outperformance Bonus expense related to the OPP, for restricted shares was $2.9 million and $20.4 million, respectively, which is recorded in general and administrative on the consolidated statement of operations.

Compensation expense for the six months ended June 30, 2014 includes $11.4 million of compensation expense recorded for 0.8 million restricted shares granted to affiliates.

Multi-Year Outperformance Plan

Upon consummation of the ARCT III Merger, the Company entered into the 2013 Advisor Multi-Year Outperformance Agreement (the “OPP”) with the Former Manager, whereby the Former Manager was able to potentially earn compensation upon the attainment of stockholder value creation targets.

Under the OPP, the Former Manager was granted 8,241,101 long-term incentive plan units of the OP (“LTIP Units”), which could be earned or forfeited based on the Company’s total return to stockholders (including both share price appreciation and common stock distributions) (“Total Return”), for the three-year period that commenced on December 11, 2012.

Pursuant to previous authorization of the Company’s board of directors, as a result of the termination of the Management Agreement, all 8,241,101 LTIP Units became fully earned, vested and convertible into OP units upon the consummation of the Company’s transition to self-management on January 8, 2014 and were converted into OP Units on such date. During the six months ended June 30, 2014, the Company recorded expenses of $1.6 million for the LTIP Units under the OPP, which is recorded in general and administrative in the accompanying consolidated statements of operations. During the three and six months ended June 30, 2013, the Company recorded expenses of $3.1 million and $3.7 million, respectively, for the LTIP Units under the OPP, which is recorded in equity-based compensation in the accompanying consolidated statements of operations. As of June 30, 2014, all LTIP Units under the OPP were earned and $93.9 million of the expense has been allocated to the non-controlling interest on the consolidated balance sheet.

New Multi-Year Outperformance Plan

On October 3, 2013, the Company approved a multi-year outperformance plan (the “New OPP”), which became effective upon the Company’s transition to self-management, which occurred on January 8, 2014. Under the New OPP, individual agreements were entered into between the Company and the participants selected by the Company’s board of directors (the “Participants”) that set forth the Participant’s participation percentage in the New OPP and the number of LTIP Units of the OP subject to the award (“OPP Agreements”). Under the New OPP and the OPP Agreements, the Participants are eligible to earn performance-based bonus awards equal to the Participant’s participation percentage of a pool that is funded up to a maximum award opportunity (the “New OPP Cap”) of approximately 5% of the Company’s equity market capitalization at the time of the approval of the New OPP (“the Initial Market Cap”).

After the Audit Committee’s and the Company’s review of the OPP, such parties have determined that the Compensation Committee’s intention in respect of the OPP was that the maximum award pool opportunity should have been $120.0 million. In October 2013, the Compensation Committee approved an aggregate award pool to be measured by the Company’s market capitalization as of the date of such approval; however, the OPP was definitively documented to measure market capitalization on a pro forma basis as of the Company’s transition to self-management (including the pro forma impact of various transactions expected to be consummated prior to the Company’s transition to self-management on January 8, 2014), which was calculated in December 2013.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Subject to the New OPP Cap, the pool will equal an amount to be determined based on the Company’s level of achievement of total return to stockholders, including both share price appreciation and common stock distributions (“Total Return”), as measured against an absolute hurdle and against a peer group of companies for a three-year performance period that commenced on October 1, 2013 (the “Performance Period”), with valuation dates on which a portion of the LTIP Units up to a specified amount of the New OPP Cap could be earned on the last day of each 12-month period during the Performance Period (each an “Annual Period”) and the initial 24-month period of the Performance Period (the “Interim Period”), as follows:


		Performance Period	Annual Period	Interim Period
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the beginning of such period:		21%	7%	14%
Relative Component: 4% of any excess Total Return attained above the median Total Return for the performance period of the Peer Group⁽¹⁾, subject to a ratable sliding scale factor as follows based on achievement of cumulative Total Return measured from the beginning of such period:
•	100% will be earned if cumulative Total Return achieved is at least:	18%	6%	12%
•	50% will be earned if a cumulative Total Return achieved is:	0%	0%	0%
•	0% will be earned if cumulative Total Return achieved is less than:	0%	0%	0%
•	a percentage from 50% to 100% calculated by linear interpolation will be earned if cumulative Total Return achieved is if between:	0% - 18%	0% - 6%	0% - 12%

(1)	The “Peer Group” is comprised of the following companies: EPR Properties; Getty Realty Corporation; Lexington Realty Trust; National Retail Properties, Inc.; Realty Income Corporation; and Spirit Realty Capital, Inc.

The New OPP provides for early calculation and vesting of the award in the event of a change in control of the Company, prior to the end of the Performance Period. The Participants are entitled to receive a tax gross-up in the event that any amounts paid to the Participant under the New OPP constitute “parachute payments” as defined in Section 280G of the Code. The LTIP Units granted under the New OPP represent units of equity ownership in the OP that are structured as a profits interest therein. Subject to the Participant’s continued service through each vesting date, one-third of any earned LTIP Units will vest on October 1, 2016, October 1, 2017 and October 1, 2018, respectively. The Participants are entitled to receive distributions on their LTIP Units to the extent provided for in the LPA, as amended from time to time. During the three and six months ended June 30, 2014, the Company recorded expenses of $2.8 million and $5.3 million, respectively, for the New OPP, which is recorded in equity-based compensation and included with general and administrative expense on the consolidated statement of operations. As of June 30, 2014, the Company recorded a total payable for distributions on LTIP units related to the OPP and the New OPP of $6.9 million.

Note 20 — Related Party Transactions and Arrangements (As Restated)

The Company, ARCT III and ARCT IV have incurred commissions, fees and expenses payable to the Former Manager and its affiliates including Realty Capital Securities, LLC (“RCS”), RCS Advisory Services, LLC (“RCS Advisory”), ARC, ARC Advisory Services, LLC (“ARC Advisory”), American Realty Capital Advisors III, LLC (the “ARCT III Advisor”), American Realty Capital Advisors IV,LLC (“the ARCT IV Advisor”), American National Stock Transfer, LLC (“ANST”) and ARC Real Estate Partners, LLC (“ARC Real Estate”). References throughout this Note 20 — Related Party Transactions and Arrangements (As Restated) to expenses incurred by ARCT III or ARCT IV are to expenses incurred before their acquisitions by the General Partner on February 28, 2013 and January 3, 2014, respectively.

The Audit Committee’s investigation identified certain payments made by the Company to the Former Manager and certain affiliates of the Former Manager that were not sufficiently documented or otherwise warrant scrutiny. As described below, the Company has recovered consideration valued at approximately $8.5 million in respect of certain such payments. The Company is considering whether it has a right to seek recovery for any other such payments and, if so, its alternatives for seeking recovery. No asset has been recognized in the financial statements related to any potential recovery.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The following table summarizes the related party fees and expenses incurred by the Company, ARCT III and ARCT IV by category and the aggregate amounts contained in such categories for the periods presented (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Related party transactions:
Expenses and capitalized costs:
Financing fees and reimbursements	$	—	$	6,296	$	—	$	13,796
Offering related costs		2,000		22,669		2,150		158,657
Acquisition related expenses		113		19,867		1,652		26,830
Merger and other non-routine transactions		40		255		137,778		106,935
Management fees to affiliates		—		—		13,888		12,493
General and administrative expenses		437		4,134		16,029		9,343
Indirect affiliate expenses		3,997		—		4,495		—
Cole Capital revenues:
Cole Capital offering related revenue		9,969		—		52,422		—
Cole Capital operating revenue		27,253		—		39,057		—

Total	$	43,809	$	53,221	$	267,471	$	328,054

The following sections below further expand on the summarized related party transactions listed above.

Financing Fees and Reimbursements

During the three and six months ended June 30, 2013, the Company, ARCT III, and ARCT IV paid the Former Manager, the ARCT III Advisor and the ARCT IV Advisor, respectively, financing coordination fees of $6.3 million and $13.8 million, respectively, which is equal to 0.75% of the amount available under any secured mortgage financing or refinancing that the Company, ARCT III or ARCT IV, obtained and used for the acquisition of properties that was arranged by the Former Manager, the ARCT III Advisor or the ARCT IV Advisor, respectively. The financing fees were payable in cash at the closing of each financing. In conjunction with the closing of the ARCT III Merger, it was agreed that these fees would no longer be paid by the Company to the Former Manager. These fees were paid by ARCT IV throughout 2013. No such fees were incurred during the six months ended June 30, 2014. Financing fees and reimbursements are included in deferred costs, net in the accompanying consolidated balance sheets.

Offering Related Costs

The Company, ARCT III and ARCT IV recorded commissions, fees and offering cost reimbursements as shown in the table below for services provided to the Company, ARCT III and ARCT IV, as applicable, by affiliates of the Former Manager during the periods indicated (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Offering related costs:
Commissions and fees	$	—	$	21,754	$	—	$	147,686
Offering costs and other reimbursements		2,000		915		2,150		10,971

Total	$	2,000	$	22,669	$	2,150	$	158,657

RCS served as the dealer-manager of the ARCT III IPO and the ARCT IV IPO. RCS received fees and compensation in connection with the sale of ARCT III’s and ARCT IV’s common stock in the respective IPOs. RCS received a selling commission of 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers in each of the IPOs. RCS received 3% of the gross proceeds from the sale of common stock, before reallowance to participating broker-dealers, as a dealer-manager fee in each of the IPOs. In addition, ARCT III and ARCT IV reimbursed the ARCT III Advisor, the ARCT IV Advisor and RCS, as applicable, for services relating to the ARCT III IPO and the ARCT IV IPO during 2013 and for

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

services relating to the Company’s ATM equity program during 2014. During the three and six months ended June 30, 2014, reimbursements in connection with the ATM totaled $2.0 million and $2.2 million, respectively. During the three and six months ended June 30, 2013, reimbursements in connection with the ARCT IV IPO totaled $22.7 million and $158.7 million, respectively. Offering related costs are included in offering costs, commissions and dealer-manager fees in the accompanying consolidated statements of changes in equity.

Acquisition Related Expenses

During the six months ended June 30, 2014, the Company paid a fee of $1.0 million (equal to 0.25% of the contract purchase price) to RCS for strategic advisory services related to its acquisition of certain properties in the Fortress Portfolio and $0.6 million (equal to 0.25% of the contract purchase price) to RCS related to its acquisition of certain properties in the Inland Portfolio. During the three months ended June 30, 2014, the Company paid a fee of $0.1 million to RCS related to its acquisition of certain properties in the Inland portfolio. No fees were incurred during the six months ended June 30, 2013 in connection with these transactions.

Separate from acquisition fees related to the acquisition of certain properties in the GE Capital Portfolio discussed below, the Company, ARCT III and ARCT IV paid acquisition fees to the Former Manager and its affiliates equal to 1.0% of the contract purchase price, inclusive of indebtedness, of each property acquired by the Company, ARCT III or ARCT IV, as applicable. The Company, ARCT III and ARCT IV additionally reimbursed certain expenses as permitted under the advisory agreements. The Company and ARCT III were no longer required to pay these fees as of the ARCT III Merger, except for those properties in the Company’s acquisition pipeline as of that date. ARCT IV incurred these fees throughout 2013. During the three and six months ended June 30, 2013, these fees and additional reimbursements totaled $6.6 million and $13.5 million, respectively. No such fees were incurred during the six months ended June 30, 2014.

During the three and six months ended June 30, 2013, the Company paid a fee of $1.9 million (equal to 0.25% of the contract purchase price) to RCS and reimbursed expenses of $6.1 million to ARC related to its acquisition of certain properties in the GE Capital Portfolio. No such fees were incurred during the six months ended June 30, 2014 in relation to the GE Capital Portfolio.

During the three and six months ended June 30, 2013, ARCT IV incurred an acquisition fee of $5.3 million to ARC related to its acquisition of certain properties in the GE Capital Portfolio.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Merger and Other Non-routine Transactions

The Company, ARCT III and ARCT IV incurred fees and expenses payable to the Former Manager and its affiliates for services related to mergers and other non-routine transactions, as discussed below. These fees are included in merger and other non-routine transactions in the accompanying consolidated statements of operations. The tables below shows fees and expenses attributable to each merger and other non-routine transaction during the three and six months ended June 30, 2014 (in thousands):


	Three Months Ended June 30, 2014
	ARCT IV Merger		Internalization and Other		Cole Merger		Multi-tenant Spin- Off		Total
Personnel costs and other reimbursements	$	—	$	—	$	40	$	—	$	40


	Six Months Ended June 30, 2014
	ARCT IV Merger		Internalization and other		Cole Merger		Multi-tenant Spin- Off		Total
Merger related costs:
Strategic advisory services	$	8,400	$	—	$	17,115	$	1,750	$	27,265
Personnel costs and other reimbursements		—		—		72		—		72

Other non-routine transactions:

Subordinated distribution fees		78,244		—		—		—		78,244
Furniture, fixtures and equipment		5,800		10,000		—		—		15,800

Other fees and expenses		—		—		2,900		—		2,900
Personnel costs and other reimbursements		417		—		1,728		—		2,145

Post-transaction support services		1,352		10,000		—		—		11,352

Total	$	94,213	$	20,000	$	21,815	$	1,750	$	137,778

The tables below shows fees and expenses attributable to each merger and other non-routine transaction during the three and six months ended June 30, 2013 (in thousands):


	Three Months Ended June 30, 2013
	ARCT III Merger		ARCT IV Merger		Other		Total
Merger related costs:
Personnel costs and other reimbursements	$	188	$	23	$	44	$	255

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)


	Six Months Ended June 30, 2013
	ARCT III Merger		ARCT IV Merger		Other		Total
Merger related costs:
Legal fees and expenses	$	125	$	—	$	—	$	125
Personnel costs and other reimbursements		522		23		44		589

Other non-routine transactions:

Subordinated distribution fees		98,360		—		—		98,360
Furniture, fixtures and equipment		5,800		—		—		5,800

Legal fees and expenses		61		—		—		61

Post-transaction support services		2,000		—		—		2,000

Total	$	106,868	$	23	$	44	$	106,935

Merger Related Costs

ARCT IV Merger

Pursuant to ARCT IV’s advisory agreement with the ARCT IV Advisor, ARCT IV agreed to pay the ARCT IV Advisor a brokerage commission on the sale of property in connection with the ARCT IV Merger. At the time of the ARCT IV Merger, ARCT IV paid $8.4 million to the ARCT IV Advisor in connection with this agreement. These commissions were included in merger and other non-routine transactions in the accompanying consolidated statements of operations for six months ended June 30, 2014. No fees were incurred under this agreement during the six months ended June 30, 2013 or during the three months ended June 30, 2014.

Cole Merger

The Company entered into an agreement with RCS, under which RCS agreed to provide strategic and financial advisory services to the Company in connection with the Cole Merger. The Company agreed to pay a fee equal to 0.25% of the transaction value upon the consummation of the transaction and reimburse out of pocket expenses. The Company incurred and recognized $14.2 million in expense from this agreement during the six months ended June 30, 2014. These fees are included in merger and other non-routine transactions in the accompanying consolidated statement of operations during the six months ended June 30, 2014. No fees relating to this agreement were incurred during the three months ended June 30, 2014 or during the six months ended June 30, 2013.

Pursuant to the Transaction Management Services Agreement dated December 9, 2013, ARCP and the OP agreed to pay RCS Advisory an aggregate fee of $2.9 million in connection with providing the following services: transaction management support related to the Cole Merger up to the date of the Transaction Management Services Agreement and ongoing transaction management support, marketing support, due diligence coordination and event coordination up to the date of the termination of the Transaction Management Services Agreement. The Transaction Management Services Agreement expired on the consummation of the Company’s transition to self-management on January 8, 2014. The Company paid RCS Advisory $2.9 million thereunder on January 8, 2014.

Multi-tenant Spin-off

The Company entered into an agreement with RCS under which RCS agreed to provide strategic and financial advisory services to the Company in connection with the Company’s previously announced spin-off of its multi-tenant shopping center

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

portfolio. During the six months ended June 30, 2014, the Company incurred $1.8 million of such fees, which are included in merger and other non-routine transactions in the accompanying consolidated statement of operations for the six months ended June 30, 2014. No such fees were incurred during the six months ended June 30, 2013.

Other Non-routine Transactions

ARCT III Merger Subordinated Distribution Fees

On February 28, 2013, the OP entered into a Contribution and Exchange Agreement (the “ARCT III Contribution and Exchange Agreement”) with the ARCT III OP and the ARCT III Special Limited Partner, the holder of the special limited partner interest in the ARCT III OP. The ARCT III Special Limited Partner was entitled to receive certain distributions from the ARCT III OP, including a subordinated distribution of net sales proceeds resulting from an “investment liquidity event” (as defined in the agreement of limited partnership of the ARCT III OP). The ARCT III Merger constituted an “investment liquidity event,” due to the attainment of the 6.0% performance hurdle and the return to ARCT III’s stockholders in addition to their initial investment. Pursuant to the ARCT III Contribution and Exchange Agreement, the ARCT III Special Limited Partner contributed its interest in the ARCT III OP, inclusive of the $98.4 million subordinated distribution proceeds received, to the ARCT III OP in exchange for 7.6 million ARCT III OP Units. Upon consummation of the ARCT III Merger, these ARCT III OP Units were immediately converted into 7.3 million OP Units after application of the ARCT III Exchange Ratio. The Company recorded an expense of $98.4 million during the six months ended June 30, 2013 in connection with this transaction. In conjunction with the ARCT III Merger Agreement, the ARCT III Special Limited Partner agreed to hold its OP Units for a minimum of one year before converting them into shares of Company common stock.

ARCT IV Merger Subordinated Distribution Fees

On January 3, 2014, the OP entered into a Contribution and Exchange Agreement (the “ARCT IV Contribution and Exchange Agreement”) with the ARCT IV OP, ARCT IV Special Limited Partner and ARC Real Estate. The ARCT IV Special Limited Partner was entitled to receive certain distributions from the ARCT IV OP, including the subordinated distribution of net sales proceeds resulting from an “investment liquidity event” (as defined in the agreement of limited partnership of the ARCT IV OP). The ARCT IV Merger constituted an “investment liquidity event,” due to the attainment of the 6.0% performance hurdle and the return to ARCT IV’s stockholders of approximately $358.3 million in addition to their initial investment. Pursuant to the ARCT IV Contribution and Exchange Agreement, the ARCT IV Special Limited Partner contributed its interest in the ARCT IV OP, inclusive of the $78.2 million of subordinated distribution proceeds received, to the ARCT IV OP in exchange for 2.8 million ARCT IV OP Units. Upon consummation of the ARCT IV Merger, these ARCT IV OP Units were immediately converted into 6.7 million OP Units after application of the ARCT IV Exchange Ratio. In conjunction with the ARCT IV Merger Agreement, the ARCT IV Special Limited Partner agreed to hold its OP Units for a minimum of two years before converting them into shares of the Company’s common stock.

Furniture, Fixtures and Equipment and Other Assets

The Company entered into three agreements with affiliates of the Former Manager and the Former Manager (the “Sellers”), as applicable, pursuant to which, concurrently with the closing of the ARCT III Merger and ARCT IV Merger and the Company’s transition to self-management, the Sellers sold the OP certain FF&E and other assets used by the Sellers in connection with managing the property level business and operations and accounting functions of the Company and the OP. The Company incurred and recorded $15.8 million and $5.8 million to purchase the FF&E and other assets during the six months ended June 30, 2014 and 2013, respectively. No costs were incurred during the three months ended June 30, 2014 and 2013, respectively. The Company has concluded that there was no evidence of the receipt and it could not support the value of the FF&E and other assets. As such, the Company has expensed the amount originally capitalized and recognized the expense in merger and other non-routine transaction-related expense.

Other Fees and Expenses

In connection with the closing of the Cole Merger, the Company paid $2.9 million to RCS Advisory during the six months ended June 30, 2014. No such payments were made during the three months ended June 30, 2014 or the six months ended June 30, 2013.

Post-Transaction Support Services

ARCT III entered into an agreement with ARC Advisory under which ARC Advisory agreed to provide support services including legal, accounting, marketing, human resources and information technology, among other services, until the earlier of

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

the ARCT III Merger closing date or one year (and an agreed upon period of up to 60 days following the ARCT III Merger). ARCT III incurred and paid $2.0 million in fees pursuant to this agreement during the six months ended June 30, 2013. No fees were incurred during the three months ended June 30, 2013 or for the three and six months ended June 30, 2014 in connection with this agreement.

In connection with its entry into the ARCT IV Merger Agreement, ARCT IV agreed to pay additional asset management fees, which totaled $1.3 million net of credits received from affiliates during the six months ended June 30, 2014. No such fees were incurred during the three month ended June 30, 2014.

Pursuant to the Amendment and Acknowledgment of Termination of Amended and Restated Management Agreement entered into as of January 8, 2014, the Former Manager agreed to provide certain transition services including accounting support, acquisition support, investor relations support, public relations support, human resources and administration, general human resources duties, payroll services, benefits services, insurance and risk management, information technology, telecommunications and Internet and services relating to office supplies. In consideration of the aforementioned services, the Company paid $10.0 million to the Former Manager on January 8, 2014. This arrangement was in effect for a 60-day term beginning on January 8, 2014.

Management Fees to Affiliates

The Company, ARCT III and ARCT IV recorded fees and reimbursements as shown in the table below for services provided by the Former Manager and its affiliates related to the operations of the Company, ARCT III and ARCT IV during the periods indicated (in thousands):


	Six Months Ended June 30,
	2014		2013
Management fees to affiliates:
Asset management fees	$	13,888	$	11,693
Property management fees		—		800

Total	$	13,888	$	12,493

Base Management Fees

Prior to the termination of the amended and restated management agreement, the Company paid the Former Manager an annual base management fee equal to 0.50% per annum of the average unadjusted book value of the Company’s real estate assets, calculated and payable monthly in advance, for the value of assets up to $3.0 billion and 0.40% per annum for the unadjusted book value of assets over $3.0 billion. The management fee was generally payable in cash however in lieu of cash. Prior to the ARCT III Merger, the Former Manager was entitled to an annual base management fee equal to 0.50% per annum for the unadjusted book value of assets with no asset threshold limitations. The Former Manager waived the management fee of $2.0 million and $2.4 million during the three and six months ended June 30, 2013, respectively.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Asset Management Fees

ARCT III

Effective July 1, 2012, as payment for the asset management fee, ARCT III issued (subject to periodic approval by its board of directors) to the ARCT III Advisor performance-based restricted partnership units of the ARCT III OP designated as “ARCT III Class B units,” which were intended to be profits interests and to vest, and no longer be subject to forfeiture, at such time as: (x) the value of the ARCT III OP’s assets plus all distributions that equaled or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “economic hurdle”); and (y) a liquidity event had occurred.

The ARCT III Advisor received distributions on unvested ARCT III Class B units equal to the distribution rate received on ARCT III common stock. In 2012, the ARCT III board of directors approved the issuance of 145,022 ARCT III Class B units to the ARCT III Advisor for asset management services it provided. In 2013, the ARCT III board of directors approved issuance of an additional 603,599 ARCT III Class B units to the ARCT III Advisor for asset management services it provided. As of December 31, 2012, ARCT III did not consider achievement of the performance condition to be probable as the shareholder vote for the ARCT III Merger, which would allow vesting of these ARCT III Class B Units, was not completed. The performance condition related to these ARCT III Class B units was satisfied upon the completion of the ARCT III Merger and as a result a $9.4 million expense was recorded during the three months ended March 31, 2013. The 748,621 ARCT III Class B units converted into ARCT III OP Units, which converted on a one-to-one basis, into 711,190 OP Units after the application of the ARCT III Exchange Ratio.

In connection with a 60-day extension of the advisory agreement which was executed in order to facilitate the smooth transition of advisory services following the consummation of the ARCT III Merger, the Company incurred and paid additional asset management fees of $2.3 million during the six months ended June 30, 2013. No such fees were incurred during the three months ended June 30, 2013 or during the six months ended June 30, 2014.

ARCT IV

In connection with the asset management services provided by the ARCT IV Advisor, ARCT IV issued (subject to periodic approval by ARCT IV’s board of directors) to the ARCT IV Advisor performance-based restricted partnership units of the ARCT IV OP designated as “ARCT IV Class B Units,” which were intended to be profit interests and to vest, and no longer be subject to forfeiture, at such time as: (x) the value of the ARCT IV OP’s assets plus all distributions that equaled or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “economic hurdle”); (y) any one of the following occurs: (1) the termination of the advisory agreement by an affirmative vote of a majority of the Company’s independent directors without cause; (2) a listing; or (3) another liquidity event; and (z) the ARCT IV Advisor was still providing advisory services to ARCT IV.

The calculation of the ARCT IV asset management fees was equal to: (i) 0.1875% of the cost of ARCT IV’s assets; divided by (ii) the value of one share of ARCT IV common stock as of the last day of such calendar quarter. When approved by the board of directors, the ARCT IV Class B Units were issued to the ARCT IV Advisor quarterly in arrears pursuant to the terms of the ARCT IV OP agreement. During the year ended December 31, 2013, ARCT IV’s board of directors approved the issuance of 492,483 ARCT IV Class B Units to the ARCT IV Advisor in connection with this arrangement. As of December 31, 2013, ARCT IV did not consider achievement of the performance condition to be probable and no expense was recorded at that time. The ARCT IV Advisor received distributions on unvested ARCT IV Class B Units equal to the distribution rate received on the ARCT IV common stock. The performance condition related to the 498,857 ARCT IV Class B Units, which includes units issued for the period of January 1, 2014 through the ARCT IV Merger Date, was satisfied upon the completion of the ARCT IV Merger. These ARCT IV Class B Units immediately converted into OP Units at the 2.3961 exchange ratio discussed in Note 3 — Mergers and Acquisitions and the Company recorded an expense of $13.9 million based on the fair value of the ARCT IV Class B Units during the six months ended June 30, 2014. No additional expense was recognized during the three months ended June 30, 2014.

Property Management Fees

ARCT III also agreed to pay an affiliate of ARC, unless it contracted with a third party, a property management fee of up to 2% of gross revenues from ARCT III’s stand-alone single-tenant net leased properties and 4% of gross revenues from its multi-tenant properties, plus, in each case, market-based leasing commissions applicable to the geographic location of the property. ARCT III also agreed to reimbursed the affiliate for property level expenses. If ARCT III contracted directly with third parties

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

for such services, it paid them customary market fees and paid the affiliated property manager an oversight fee of up to 1% of the gross revenues of the property managed. Property management fees of $0.8 million are recorded in management fees to affiliates in the accompanying consolidated statements of operations for the six months ended June 30, 2013. No property management fees were incurred during the three months ended June 30, 2013 or the six months ended June 30, 2014.

Quarterly Incentive Fee

Prior to the termination of the amended and restated management agreement as a result if internalization, the Company was required to pay the Former Manager a quarterly incentive fee, calculated based on 20% of the excess of annualized core earnings (as defined in the management agreement with the Former Manager) over the weighted-average number of shares multiplied by the weighted-average price per share of common stock. One half of each quarterly installment of the incentive fee would be payable in shares of common stock. The remainder of the incentive fee would be payable in cash. No incentive fees were incurred or paid during the six months ended June 30, 2014 or 2013.

General and Administrative Expenses

The Company, ARCT III and ARCT IV recorded general and administrative expenses as shown in the table below for services provided by the Former Manager and its affiliates related to the operations of the Company, ARCT III and ARCT IV during the periods indicated (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
General and administrative expenses:
Advisory fees and reimbursements	$	437	$	1,066	$	1,955	$	3,667
Equity awards		—		3,068		14,074		5,676

Total	$	437	$	4,134	$	16,029	$	9,343

Advisory Fees and Reimbursements

The Company, ARCT III and ARCT IV agreed to pay certain fees and reimbursements to the Former Manager and its affiliates, as applicable, for their out-of-pocket costs, including without limitation, legal fees and expenses, transfer agent fees, due diligence fees and expenses, other third party fees and expenses, costs of appraisals, travel expenses, nonrefundable option payments and deposits on properties not acquired, accounting fees and expenses, title insurance premiums and other closing costs, personnel costs and miscellaneous expenses relating to the selection, acquisition and due diligence of properties or general operation of the Company. During the three and six months ended June 30, 2014, these expenses totaled $0.4 million and $2.0 million, respectively. During the three and six months ended June 30, 2013, these expenses totaled $1.1 million and $3.7 million, respectively.

Equity Awards

Upon consummation of the ARCT III Merger, the Company entered into the OPP with the Former Manager. The OPP gave the Former Manager the opportunity to earn compensation upon the attainment of certain stockholder value creation targets.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The Company recorded $3.1 million and $3.7 million of expense during the three and six months ended June 30, 2013 in connection with the OPP. During the six months ended June 30, 2014, $1.6 million was recorded to general and administrative expenses as stock based compensation relating to the change in total return to stockholders used in computing the number of LTIP units earned between December 31, 2013 and January 8, 2014. No expenses were incurred during the three months ended June 30, 2014.

As a result of the ARCT III Merger, certain restricted shares held by employees of affiliates of the Former Manager were fully vested. This expense of $2.0 million is included in general and administrative expense in the accompanying consolidated statement of operations during the six months ended June 30, 2013. During the six months ended June 30, 2013, the Company granted 325,000 restricted stock awards to employees of affiliates of the Former Manager as compensation for certain services. The grant date fair value for this issuance was $4.5 million. No such awards were granted during the three months ended June 30, 2013.

During the six months ended June 30, 2014, the Company granted 796,075 restricted stock awards to employees of affiliates of the Former Manager as compensation for certain services and 87,202 restricted stock awards to two directors who are affiliates of the Former Manager. The grant date fair value of the awards of $12.5 million was recorded in general and administrative expenses in the accompanying consolidated statements of operations. No grants were made to employees of affiliates of the Former Manager during the three months ended June 30, 2014.

Indirect Affiliate Expenses

During 2014, the Company incurred fees and expenses payable to the Company’s affiliates or payable to a third party on behalf of the Company’s affiliates for amenities related to certain buildings, as explained below. No such fees or expenses were incurred during 2013. These expenses are depicted in the table below for the periods indicated (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2014		2014
Indirect affiliate expenses:
Audrain building	$	3,517	$	3,922
ANST office build-out		335		335
New York (405 Park Ave) office		116		187
Dresher, PA office		17		36

North Carolina office		12		15

Total	$	3,997	$	4,495

Audrain Building

During the year ended December 31, 2013, a wholly owned subsidiary of ARC Real Estate purchased a historic building in Newport, Rhode Island (“Audrain”) with plans to renovate the second floor to serve as offices for certain executives of the Company, and affiliates of the Former Manager. ARC Real Estate requested that invoices relating to the second floor renovation and tenant improvements and all building operating expenses either be reimbursed by the Company to the affiliate of the Former Manager or be paid directly to the contractors and vendors. During the three and six months ended June 30, 2014, the Company paid $3.5 million and $3.8 million, respectively, for tenant improvements and furniture and fixtures relating to the renovation. These payments were made directly to third parties.

In addition, on October 4, 2013, the Company entered into a lease agreement with the subsidiary of ARC Real Estate for a term of 15 years with annual base rent of $0.4 million requiring monthly payments beginning on that date. As there were tenants occupying the building when it was purchased, these tenants subleased their premises from the Company until their leases terminated. During the three and six months ended June 30, 2014, the Company incurred and paid $0.1 million and $0.1 million, respectively, for base rent, which was partially offset by $9,000 and $17,000, respectively, of rental revenue received from the subtenants.

Subsequent to June 30, 2014, as a result of findings of the investigation conducted by the Audit Committee, the Company terminated the lease agreement and was reimbursed for the tenant improvement and furniture costs incurred by the Company

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

totaling approximately $8.5 million, which included the tenant improvements of approximately $3.8 million incurred by the Company in the six months ended June 30, 2014. Reimbursement was made by delivery and retirement of 916,423 OP Units held by an affiliate of the Former Manager. The Company never moved into or occupied the building.

ANST Office Build-out

During the six months ended June 30, 2014, as a result of the Cole Merger, the Company worked to develop a partnership with ANST to better service clients and shareholders more efficiently, as well as create more career opportunities for the employees. Plans were made to move ANST to part of the Cole Capital office building in 2014. In order to accommodate the ANST employees, the Cole Capital office building was to be remodeled. During the six months ended June 30, 2014, the Company paid $0.3 million directly to third parties for leasehold improvements and furniture and fixtures relating to the renovation.

Subsequently, ANST never moved into the building. The Company is considering its options with regard to recovery of such payments, although no decisions have been made at this time. No asset has been recognized in the financial statements related to any potential recovery.

Office Rents

During the three and six months ended June 30, 2014, the Company paid $0.1 million and $0.2 million, respectively, to an affiliate of the Former Manager for rent related to offices in New York, Pennsylvania and North Carolina where certain of the Company’s employees shared office space with an affiliate of the Former Manager.

Additional Related Party Transactions

The following related party transactions were not included in the tables above.

Tax Protection Agreement

The Company is party to a tax protection agreement with ARC Real Estate, which contributed its 100% indirect ownership interests in 63 of the Company’s properties to the Operating Partnership in the formation transactions related to the Company’s IPO. Pursuant to the tax protection agreement, the Company has agreed to indemnify ARC Real Estate for its tax liabilities (plus an additional amount equal to the taxes incurred as a result of such indemnity payment) attributable to its built-in gain, as of the closing of the formation transactions, with respect to its interests in the contributed properties (other than two vacant properties contributed), if the Company sells, conveys, transfers or otherwise disposes of all or any portion of these interests in a taxable transaction on or prior to September 6, 2021. The sole and exclusive rights and remedies of ARC Real Estate under the tax protection agreement will be a claim against the Operating Partnership for ARC Real Estate’s tax liabilities as calculated in the tax protection agreement, and ARC Real Estate shall not be entitled to pursue a claim for specific performance or bring a claim against any person that acquires a protected party from the Operating Partnership in violation of the tax protection agreement.

Investment from the ARCT III Special Limited Partner

In connection with the ARCT III Merger, the ARCT III Special Limited Partner invested $0.8 million in the ARCT III OP and was subsequently issued 56,797 OP Units in respect thereof upon the closing of the ARCT III Merger after giving effect to the ARCT III Exchange Ratio. This investment is included in non-controlling interests in the accompanying consolidated balance sheets.

Investment in an Affiliate of the Former Manager

As of June 30, 2014 and December 31, 2013, the Company held an investment valued at $1.7 million and $1.6 million, respectively, in a real estate fund advised by an affiliate of the Former Manager, American Real Estate Income Fund, which invests primarily in equity securities of other publicly traded REITs.

Ownership by Affiliates of the Former Manager

Certain affiliates of the Former Manager own shares of the Company’s common stock, shares of unvested restricted common stock, OP Units and LTIP Units. As of June 30, 2014 and December 31, 2013, 2.77% and 4.37%, respectively, of the total equity units issued by the Company and the OP were owned by affiliates.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Due to Affiliates

Due to affiliates, as reported in the accompanying consolidated balance sheets, is comprised of the following amounts discussed above (in thousands):


	June 30, 2014		December 31, 2013
	(as Restated)		(as Restated)
Due to affiliates:
Offering related costs	$	2,000	$	220
Merger and other non-routine transactions		42		38,645
General and administrative		868		59,600
Indirect affiliate expenses		68		—
Management fees to affiliates		—		4,969
Managed REITS and Other		206		—

Total	$	3,184	$	103,434

Cole Capital

Cole Capital is contractually responsible for managing the Managed REITs’ affairs on a day-to-day basis, identifying and making acquisitions and investments on the Managed REITs’ behalf, and recommending to each of the Managed REIT’s respective board of directors an approach for providing investors with liquidity. In addition, the Company distributes the shares of common stock for certain Managed REITs and advises them regarding offerings, manages relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to the offerings. The Company receives compensation and reimbursement for services relating to the Managed REITs’ offerings and the investment, management and disposition of their respective assets, as applicable.

Cole Capital Offering Related Revenue

The Company generally receives a selling commission of up to 7.0% of gross offering proceeds related to the sale of shares of CCPT IV, CCIT II and CCPT V common stock in their primary offerings, before reallowance of commissions earned by participating broker-dealers. The Company has and intends to continue to reallow 100% of selling commissions earned to participating broker-dealers. In addition, the Company generally receives 2.0% of gross offering proceeds in the primary offerings, before reallowance to participating broker-dealers, as a dealer-manager fee in connection with the sale of CCPT IV, CCIT II and CCPT V shares of common stock. The Company, 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 the Company or other broker-dealers with respect to shares sold under the respective Managed REIT’s distribution reinvestment plans, under which the stockholders may elect to have distributions reinvested in additional shares.

In connection with the sale of INAV shares of common stock, the Company receives an asset-based dealer-manager fee that is payable in arrears on a monthly basis and accrues daily in an amount equal to (i) 1/365th of 0.55% of the net asset value (“NAV”) for Wrap Class shares of common stock (“W Shares”) for such day, (ii) 1/365th of 0.55% of the NAV for Advisor Class shares of common stock (“A Shares”) for such day and (iii) 1/365th of 0.25% of the NAV for Institutional Class shares of common stock (“I Shares”) for such day. The Company, in its sole discretion, may reallow a portion of its dealer-manager fee received on W Shares, A Shares and I Shares to participating broker-dealers. In addition, the Company receives a selling commission on A Shares sold in the primary offering of up to 3.75% of the offering price per share for A Shares. The Company has and intends to continue to reallow 100% of selling commissions earned to participating broker-dealers. The Company also receives an asset-based distribution fee for A Shares that is payable in arrears on a monthly basis and accrues daily in an amount equal to 1/365th of 0.50% of the NAV for A Shares for such day. The Company, in its sole discretion, may reallow a portion of the distribution fee to participating broker-dealers. No selling commissions are paid to the Company or other broker-dealers with respect to W Shares or I Shares or on shares of any class of INAV common stock sold pursuant to INAV’s distribution reinvestment plan, under which the stockholders may elect to have distributions reinvested in additional shares, and no distribution fees are paid to the Company or other broker-dealers with respect to W Shares or I Shares.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

All other organization and offering expenses associated with the sale of the Managed REITs’ common stock (excluding selling commissions, if applicable, and the dealer-manager fee) are paid for in advance by the Company and subject to reimbursement by the Managed REITs, up to certain limits per the respective advisory agreement. The organization and offering expenses incurred by the Company which are subject to reimbursement included costs which are paid to affiliates. As these costs are incurred, they are recorded as reimbursement revenue, up to the respective limit, and are included in dealer-manager fees, selling commissions and offering reimbursements in the financial results for Cole Capital in Note 6 — Segment Reporting (As Restated). Expenses paid on behalf of the Managed REITs in excess of these limits that are expected to be collected are recorded as program development costs. As of June 30, 2014, the Company had $7.0 million of organization and offering costs paid on behalf of the Managed REITs in excess of the limits that have not been reimbursed, which are expected to be reimbursed by the Managed REITs as they raise additional proceeds from the respective offering. The program development costs are included in deferred costs and other assets, net in the accompanying consolidated unaudited balance sheets.

The Company recorded commissions, fees and expense reimbursements as shown in the table below for services provided to the Managed REITs (as described above) during the three months ended June 30, 2014 and the period from the Cole Acquisition Date to June 30, 2014 (in thousands). As the Company did not commence operations for Cole Capital until the Cole Acquisition Date, comparative financial data is not presented for the three and six months ended June 30, 2013.


	Three Months Ended June 30, 2014
	CCPT IV⁽¹⁾			CCPT V		CCIT II		INAV		Total
Offering:
Selling commission revenue	$	(12	)	$	1,347	$	4,579	$	195	$	6,109
Selling commissions reallowance expense		(12	)		1,347		4,579		195		6,109
Dealer-manager fee revenue		(2	)		416		1,372		123		1,909
Dealer-manager fees reallowance expense		107			178		668		6		959
Other expense reimbursement revenue		(18	)		415		1,372		182		1,951

(1)	Due to net cancellations during the quarter, related to shares sold prior to the fund closing on February 25, 2014.


	Period from the Cole Acquisition Date to June 30, 2014
	CCPT IV		CCPT V		CCIT II		INAV		Total
Offering:
Selling commission revenue	$	29,113	$	1,347	$	4,950	$	216	$	35,626
Selling commissions reallowance expense		29,113		1,347		4,950		216		35,626
Dealer-manager and distribution fee revenue		8,771		416		1,486		188		10,861
Dealer-manager fees reallowance expense		4,971		178		721		8		5,878
Other expense reimbursement revenue		3,749		465		1,486		235		5,935

Cole Capital Operating Revenue

The Company earns acquisition fees related to the acquisition, development or construction of properties on behalf of certain of the Managed REITs. In addition, the Company is reimbursed for acquisition expenses incurred in the process of acquiring properties up to certain limits per the respective advisory agreement. The Company is not reimbursed for personnel costs in connection with services for which it receives acquisition fees or real estate commissions. In addition, the Company may earn disposition fees related to the sale of one or more properties, including those held indirectly through joint ventures, on behalf of a Managed REIT. Acquisition and disposition fees and reimbursements, as applicable, are included in transaction service fees in the financial results for Cole Capital in Note 6 — Segment Reporting (As Restated).

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The Company earns advisory and asset and property management fees from certain Managed REITs and other affiliates. In addition, the Company may be reimbursed for expenses incurred in providing advisory and asset and property management services, subject to certain limitations. In connection with services provided by the Company related to the origination or refinancing of any debt financing obtained by certain Managed REITs 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 is reimbursed for financing expenses incurred, subject to certain limitations. Advisory fees, asset and property management fees and reimbursements of expenses are included in management fees and reimbursements in the financial results for Cole Capital in Note 6 — Segment Reporting (As Restated).

The Company recorded fees and expense reimbursements as shown in the table below for services provided primarily to the Managed REITs (as described above) during the three months ended June 30, 2014 and the period from the Cole Acquisition Date to June 30, 2014 (in thousands). As the Company did not commence operations for Cole Capital until the Cole Acquisition Date, comparative financial data is not presented for the three and six months ended June 30, 2013.


	Three Months Ended June 30, 2014
	CCPT IV		CCPT V		CCIT		CCIT II		INAV		Other
Operations:
Acquisition fee revenue	$	6,787	$	519	$	3,232	$	3,874	$	—	$	(1	)
Asset management fee revenue	$	—	$	—	$	—	$	—	$	—	$	252
Property management and leasing fee revenue	$	—	$	—	$	—	$	—	$	—	$	284
Operating expense reimbursement revenue	$	1,538	$	166	$	758	$	79	$	135	$	—
Advisory and performance fee revenue	$	4,747	$	9	$	4,561	$	115	$	198	$	—


	Period from the Cole Acquisition Date to June 30, 2014
	CCPT IV		CCPT V		CCIT		CCIT II		INAV		Other
Operations:
Acquisition fee revenue	$	10,785	$	585	$	3,727	$	3,874	$	—	$	(1	)
Asset management fee revenue	$	—	$	—	$	—	$	—	$	—	$	403
Property management and leasing fee revenue	$	—	$	—	$	—	$	—	$	—	$	574
Operating expense reimbursement revenue	$	2,603	$	183	$	1,187	$	79	$	135	$	—
Advisory and performance fee revenue	$	7,311	$	9	$	7,156	$	141	$	306	$	—

Investment in the Managed REITs

As of June 30, 2014, the Company owned aggregate equity investments of $3.9 million in the Managed REITs, which is included in investment in unconsolidated entities in the accompanying consolidated balance sheet. The table below presents certain information related to the Company’s investments in the Managed REITs as of June 30, 2014 (carrying amount in thousands):


	June 30, 2014
Managed REIT	% of Outstanding Shares Owned			Carrying Amount of Investment
CCPT IV		0.01	%	$	137
CCPT V		12.39	%		1,732
CCIT		0.01	%		79
CCIT II		3.79	%		1,809
INAV		0.22	%		160

				$	3,917

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

Due from Affiliates

As of June 30, 2014, $73.7 million was expected to be collected from affiliates, including balances from the Managed REITs lines of credits, as well as balances for services provided by the Company and expenses subject to reimbursement by the Managed REITs in accordance with their respective advisory and property management agreements and was included in due from affiliates on the accompanying consolidated balance sheet. In connection with the Cole Merger, the Company acquired a revolving line of credit agreement that provides for $10.0 million of available borrowings to CCIT II. During the six months ended June 30, 2014, the Company entered into a revolving line of credit agreement that provides for $10.0 million of available borrowings to CCPT V. The CCIT II and CCPT V line of credit agreements each bear an interest rate equal to the one-month LIBOR plus 2.20% and mature in January 2015 and March 2015, respectively. In addition, during the six months ended June 30, 2014, the Company increased the available borrowings under the revolving line of credit to CCIT II to $60.0 million. During the six months ended June 30, 2014, CCIT II and CCPT V borrowed $55.0 million and $9.7 million, respectively, on their lines of credit. These amounts remained outstanding as of June 30, 2014 and are included in due from affiliates in the accompanying consolidated balance sheets.

Note 21 — Economic Dependency

Prior to transitioning to self-management on January 8, 2014, the Company engaged, under various agreements, the Former Manager and entities affiliated with the Former Manager, to provide certain services that are essential to the Company, including asset management services and supervision of the management and leasing of properties owned by the Company, the sale of shares of the Company’s common stock, as well as other administrative responsibilities for the Company including information technology, legal services and investor relations.

As a result of these relationships, the Company was dependent upon the Former Manager and entities affiliated with the Former Manager. In the event that these companies were unable to provide the Company with the respective services, the Company would have been required to find alternative providers of these services. As a result of the ARCT III Merger, the Company internalized certain accounting and property acquisition services previously performed by the Former Manager and its affiliates. The Company may from time to time engage entities under common control with the Former Manager for legal, information technology or other support services for which it will pay a fee, subject to approval by the Company’s independent directors. No such engagements are in place between the Company and the Former Manager and its affiliates.

Note 22 — Net Loss Per Share (As Restated)

The Company’s unvested restricted stock contains non-forfeitable rights to dividends and are considered to be participating securities in accordance with GAAP and, therefore, are included in the computation of earnings per share under the two-class method. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The unvested restricted stock are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company. The two-class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

The following is a summary of the basic and diluted net loss per share computation for the three and six months ended June 30, 2014 and 2013 (dollar amounts in thousands, except for share and per share data):


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net loss attributable to the Company	$	(54,720	)	$	(69,603	)	$	(346,164	)	$	(213,483	)
Less: dividends declared on preferred shares and participating securities		23,291			233			46,723			426

Net loss attributable to common stockholders	$	(78,011	)	$	(69,836	)	$	(392,887	)	$	(213,909	)


Weighted average number of shares of common shares outstanding:
Basic		815,406,408			198,956,355			682,178,587			183,316,963

Net loss per common share:
Basic and diluted net loss per share attributable to common stockholders	$	(0.10	)	$	(0.35	)	$	(0.58	)	$	(1.17	)

As of June 30, 2014, the Company excluded 24,771,215 OP Units outstanding, which are convertible to an equal number of shares of the Company’s common stock, 5,649,968 shares of unvested restricted stock outstanding, 21,735,008 shares of the Company’s Series D Preferred Stock outstanding from the calculation of diluted net loss per share as the effect would have been antidilutive.

Note 23 — Property Dispositions (As Restated)

During the six months ended June 30, 2014, the Company disposed of 24 single-tenant properties and one multi-tenant property for an aggregate gross sales price of $96.4 million (the “2014 Property Dispositions”). There were no properties disposed of during the six months ended June 30, 2013. No disposition fees were paid in connection with the sale of the 2014 Property Dispositions and the Company has no continuing involvement with these properties.

As of June 30, 2014, there was one property classified as held for sale. As of December 31, 2013, the Company classified one property as held for sale, which has been presented as discontinued operations on the Company’s consolidated statements of operations.

Note 24 — Income Taxes (As Restated)

As a REIT, the Company generally is not subject to federal income tax, with the exception of its TRS. However, the Company, including its TRS, is still subject to certain state and local income taxes in the various jurisdictions in which it operates.

Based on the above, Cole Capital, substantially all of which is conducted through a TRS, recognized a benefit from federal and state income taxes of $7.5 million and $13.7 million for the three and six months ended June 30, 2014, respectively, which is included in other income, net in the accompanying consolidated statement of operations. No provision or benefit for income taxes was recognized for the three and six months ended June 30, 2013 as the Company did not commence operations for Cole Capital until the Cole Acquisition Date. The difference in the benefit from income taxes reflected in the consolidated statements of operations as compared to the benefit calculated at the statutory federal income tax rate is primarily attributable to various permanent differences and state and local income taxes.

The REI segment recognized state income and franchise taxes of $2.8 million and $3.9 million during the three and six months ended June 30, 2014, respectively, and $0.1 million and $0.3 million during the three and six months ended June 30, 2013, respectively, which are included in other income, net in the accompanying consolidated statements of operations.

AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 (Unaudited) – (Continued)

The Company had no unrecognized tax benefits as of or during the six months ended June 30, 2014 and 2013. Any interest and penalties related to unrecognized tax benefits would be recognized within the provision for income taxes in the accompanying consolidated statements of operations. The Company files income tax returns in the U.S. federal jurisdiction, as well as various state jurisdictions, and is subject to routine examinations by the respective tax authorities. With few exceptions, the Company is no longer subject to federal or state examinations by tax authorities for years before 2010.

Note 25 — Subsequent Events

Significant events that occurred subsequent to June 30, 2014 are detailed within the Amended 10-K. Please refer to Note 24 — Subsequent Events (As Restated) in the Amended 10-K.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Certain Sections Restated and Corrected)

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of American Realty Capital Properties, Inc. (the “Company”) and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to American Realty Capital Properties, Inc., a Maryland corporation, and, as required by context, include ARC Properties Operating Partnership, L.P., a Delaware limited partnership (the “OP”) and its subsidiaries. Prior to becoming self-managed as of January 8, 2014, the Company was externally managed by ARC Properties Advisors, LLC (the “Former Manager”), a Delaware limited liability company and wholly owned subsidiary of AR Capital, LLC (“ARC”). Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I - Financial Information,” including the Notes to the Consolidated Financial Statements contained therein.

Restatement

As discussed in the explanatory note to this Amended Quarterly Report on Form 10-Q/A (this “Form 10-Q/A”) and Note 2 — Restatement of Previously Issued Financial Statements to the consolidated financial statements, we are restating our consolidated financial statements and related disclosures for the three and six months ended June 30, 2013 and 2014.

Forward-Looking Statements (As Restated)

This Form 10-Q/A includes forward-looking statements that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by using words such as “may,” “will,” “expects,” “anticipates,” “believes,” “intends,” “should,” “estimates,” “could” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. We do not undertake publicly to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law.

The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

•

We have a limited operating history and limited experience operating a public company. This inexperience makes our future performance difficult to predict.

•

The competition for the type of properties we desire to acquire may cause our dividends and the long-term returns of our investors to be lower than they otherwise would be.

•

We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all, which could have a material adverse effect on our financial condition, results of operations, cash flow, cash available for dividends to our stockholders, per share trading price of our common stock and our ability to satisfy our debt service obligations.

•

We depend on tenants for our revenue, and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.

•

Failure by any major tenant with leases in multiple locations to make rental payments to us, because of a deterioration of its financial condition or otherwise, or the termination or non-renewal of a lease by a major tenant, would have a material adverse effect on us.

•

We are subject to tenant industry concentrations that make us more susceptible to adverse events with respect to certain industries.

•

Increases in interest rates could increase the amount of our debt payments and limit our ability to pay dividends to our stockholders.

•

We may be unable to make scheduled payments on our debt obligations.

•

We may not generate cash flows sufficient to pay our dividends to stockholders, and as such we may be forced to borrow at higher rates to fund our operations.

•

We may be unable to pay or maintain cash dividends or increase dividends over time.

•

We may be affected by the incurrence of additional secured or unsecured debt.

•

We may be adversely affected by increases in interest rates or a failure to maintain our OP’s credit rating.

•

We may not be able to integrate the assets and businesses acquired in Recent Acquisitions (defined below) into our existing portfolio or with our business successfully, or may not realize the anticipated benefits within the expected timeframe or at all.

•

We may not be able to effectively manage or dispose of assets acquired in connection with our Recent Acquisitions that do not fit within our target assets.

•

We may not be able to effectively manage our expanded portfolio and operations following our Recent Acquisitions.

•

We may be affected by risks associated with current and future litigation, including pending and filed securities litigation and governmental inquiries.

•

We may not be able to successfully acquire future properties on advantageous terms.

•

We may not be able to achieve and maintain profitability.

•

We are subject to risks associated with lease terminations, tenant defaults, bankruptcies and insolvencies and tenant credit, geographic and industry concentrations.

•

We could be subject to unexpected costs or unexpected liabilities that may arise from our Recent Acquisitions.

•

We may fail to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes (“REIT”).

•

We may be deemed to be an investment company under the Investment Company Act of 1940, as amended, (the “Investment Company Act”) and thus subject to regulation under the Investment Company Act.

•

Once we resume paying a dividend in respect of our common stock, there is no guarantee that such dividend will be paid at a rate equal to or at the same frequency as our previously declared monthly dividend.

•

Our financial condition may be affected by our recent credit rating downgrade which could impact our access to capital and the terms of potential financing.

•

We have material weaknesses in our disclosure controls and procedures and our internal control over financial reporting we have reported for prior periods and we may not be able to remediate such material weaknesses in a timely enough manner to eliminate the risks posed by such material weaknesses in future periods.

•

Failure to timely deliver on or before March 31, 2015 our and the OP’s annual report on Form 10-K for the year ended December 31, 2014 in light of our obligations pursuant to an agreement with the lenders under the Credit Facility and pursuant to the terms of our indentures governing our senior unsecured and convertible notes could result in an event of default.

•

We may not satisfy NASDAQ’s requirements for regaining compliance with its listing rules and, if so, NASDAQ could delist our common stock and Series F Preferred Stock.

All forward-looking statements should be read in light of the risks identified in Part II, Item 1A of this Form 10-Q/A.

Overview

We were incorporated on December 2, 2010 as a Maryland corporation that qualified as a real estate investment trust for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. On September 6, 2011, we completed our IPO and our shares of common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ARCP.”

Our business operates in two business segments, Real Estate Investment (“REI”) and our private capital management business, Cole Capital (“Cole Capital”). Through our REI segment, we acquire, own and operate single-tenant, freestanding commercial real estate properties, primarily subject to net leases with high credit quality tenants. We focus on investing in properties that are net leased to credit tenants, which are generally large public companies with investment-grade ratings and other creditworthy tenants. Our long-term business strategy is to continue to acquire a diverse portfolio consisting of approximately 70% long-term leases and 30% medium-term leases, with an average remaining lease term of 10 to 12 years. We seek to acquire granular, self -originated single-tenant net lease assets, which may be purchased through sale-leaseback transactions, small portfolios and built-to-suit opportunities, to the extent they are appropriate in terms of capitalization rate and scale.We expect this investment strategy to provide for stable income from credit tenants and to provide for growth opportunities from re-leasing of current below market leases. We have advanced our investment objectives by growing our net lease portfolio through strategic mergers and acquisitions.

As a result of the Cole Merger, in addition to operating a diverse portfolio of core commercial real estate investments, we are responsible for managing the Managed REITs’ affairs on a day-to-day basis, identifying and making acquisitions and investments on the Managed REITs’ behalf, and recommending to each of the Managed REIT’s respective board of directors an approach for providing investors with liquidity. We receive compensation and reimbursement for services relating to the Managed REITs’ offerings and the investment, management, financing and disposition of their respective assets, as applicable. Furthermore, in order to avoid a potential adverse impact on our status as a REIT, we conduct substantially all of our investment management business through a wholly owned subsidiary of the OP, Cole Capital Advisors, Inc. (“CCA”), which we and CCA jointly elected to treat as a TRS for federal income tax purposes.

Prior to January 8, 2014, we retained the Former Manager to manage our affairs on a day-to-day basis with the exception of certain acquisition, accounting and portfolio management services performed by our employees. In August 2013, our board of directors determined that it was in the best interests of us and our stockholders to become self-managed and we completed our transition to self-management on January 8, 2014. In connection with becoming self-managed, we terminated the existing management agreement with our Former Manager, entered into employment and incentive compensation arrangements with our executives and acquired from our Former Manager certain assets necessary for our operations.

On June 11, 2014, the OP, through indirect subsidiaries of the OP (the “Sellers”), entered into an agreement of purchase and sale (the “Agreement”) with BRE DDR Retail Holdings III LLC (the “Purchaser”), an entity indirectly jointly owned by affiliates of Blackstone Real Estate Partners VII L.P. and DDR Corp., by which the Sellers have agreed to sell to the Purchaser and the Purchaser has agreed to purchase from the Sellers 67 multi-tenant properties and nine single-tenant properties and the adjacent land and related property (the “Multi-Tenant Portfolio”).

As of June 30, 2014, we owned 3,966 properties consisting of 106.8 million square feet, which were 98.8% leased with a weighted average remaining lease term of 9.9 years. In constructing our portfolio, we are committed to diversification by industry, tenant and geography. As of June 30, 2014, rental revenues derived from investment-grade tenants and tenants affiliated with investment-grade entities as determined by a major rating agency approximated 49% (we have attributed the rating of each parent company to its wholly owned subsidiary for purposes of this disclosure). Our strategy encompasses receiving the majority of our REI revenue from investment grade tenants as we further acquire properties and enter into, or assume, lease arrangements.

Completed Mergers and Major Acquisitions

American Realty Capital Trust III, Inc. Merger

On December 14, 2012, we entered into an Agreement and Plan of Merger (the “ARCT III Merger Agreement”) with American Realty Capital Trust III, Inc. (“ARCT III”) and certain subsidiaries of each company. The ARCT III Merger Agreement provided for the merger of ARCT III with and into a subsidiary of ours (the “ARCT III Merger”). The ARCT III Merger was consummated on February 28, 2013.

Also in connection with the ARCT III Merger, we entered into an agreement with ARC and its affiliates to internalize certain functions performed by them prior to the ARCT III Merger, reduce certain fees paid to affiliates and pay certain merger related fees. See Note 20 — Related Party Transactions and Arrangements (As Restated) to our consolidated financial statements in this Form 10-Q/A for further discussion.

CapLease, Inc. Merger

On May 28, 2013, we entered into an Agreement and Plan of Merger (the “CapLease Merger Agreement”) with CapLease, Inc., a Maryland corporation (“CapLease”) and certain subsidiaries of each company. The CapLease Merger Agreement provided for the merger of CapLease with and into a subsidiary of ours (the “CapLease Merger”).

American Realty Capital Trust IV, Inc. Merger

On July 1, 2013, we entered into an Agreement and Plan of Merger, as amended on October 6, 2013 and October 11, 2013, (the “ARCT IV Merger Agreement”) with ARCT IV and certain subsidiaries of each company. The ARCT IV Merger Agreement provided for the merger of ARCT IV with and into a subsidiary of the OP (the “ARCT IV Merger”). We consummated the ARCT IV Merger on January 3, 2014 (the “ARCT IV Merger Date”).

Fortress Portfolio Acquisition

On July 24, 2013, ARC and another related entity, on behalf of us and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with affiliates of funds managed by Fortress for the purchase of 196 properties owned by Fortress Investment Group LLC (“Fortress”), for an aggregate contract purchase price of $972.5 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which were allocated to us based on the pro rata fair value of the properties acquired by us relative to the fair value of all 196 properties to be acquired from Fortress. Of the 196 properties, 120 properties (the “Fortress Portfolio”) were allocated to and assigned by us. On October 1, 2013, we closed on 41 of the 120 properties with a total purchase price of $200.3 million, exclusive of closing costs. During the six months ended June 30, 2014, we closed the acquisition of the remaining 79 properties in the Fortress Portfolio for an aggregate contract purchase price of $400.9 million, exclusive of closing costs. The total purchase price of the Fortress Portfolio was $601.2 million, exclusive of closing costs.

Inland Portfolio Acquisition

On August 8, 2013, ARC and another related entity, on behalf of us and certain other entities sponsored directly or indirectly by ARC, entered into a purchase and sale agreement with Inland for the purchase of the equity interests of 67 companies owned by Inland American Real Estate Trust, Inc. (“Inland”) for an aggregate contract purchase price of approximately $2.3 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. Of the 67 companies, the equity interests of 10 companies were acquired (the “Inland Portfolio”), in total, by us from Inland for a purchase price of approximately $501.0 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to us based on the pro rata fair value of the Inland Portfolio relative to the fair value of all 67 companies to be acquired from Inland by us and the other entities sponsored directly or indirectly by ARC. The Inland Portfolio is comprised of 33 properties. As of June 30, 2014, we had closed on 32 of the 33 properties for a total purchase price of $288.2 million, exclusive of closing costs. The Company will not close on the remaining one property.

Cole Real Estate Investments, Inc. Merger

On October 22, 2013, we entered into an agreement and plan of merger (the “Cole Merger Agreement”) with Cole Real Estate Investments, Inc. (“Cole”), a Maryland corporation, and a wholly owned subsidiary of ours. The Cole Merger Agreement provided for the merger of Cole with and into a wholly owned subsidiary of ours (the “Cole Merger”). We consummated the Cole Merger on February 7, 2014 (the “Cole Acquisition Date”).

Cole Credit Property Trust, Inc. Merger

On March 17, 2014, we and a wholly owned subsidiary entered into an Agreement and Plan of Merger (the “CCPT Merger Agreement”) with Cole Credit Property Trust, Inc., a Maryland corporation (“CCPT”). The CCPT Merger Agreement provided for the merger of CCPT with and into a subsidiary of ours (the “CCPT Merger”). We consummated the CCPT Merger on May 19, 2014 (the “CCPT Acquisition Date”).

Purchase Agreement for Red Lobster Portfolio

On May 15, 2014, we entered into a master purchase agreement to acquire over 500 properties, substantially all of which are operating as Red Lobster^® restaurants from a third party. The transaction is structured as a sale-leaseback in which we will purchase and immediately lease the portfolio back to the third party pursuant to the terms of multiple master leases. The purchase price is $1.7 billion, exclusive of closing costs and related expenses. On July 28, 2014, we closed on 492 of the properties and expect to close on the remaining 50 properties early in the third quarter of 2014.

Abandoned Spin-off of Multi-Tenant Shopping Center Portfolio

On March 13, 2014, the Company announced its intention to spin off its multi-tenant shopping center business (“MT Spin-off”) into a publicly traded REIT, American Realty Capital Centers, Inc., which was expected to operate under the name “ARCenters” and to trade on the NASDAQ Global Market under the symbol “ARCM.” The OP was expected to retain 25% ownership of ARCM. The spin-off was expected to be effectuated through a pro rata taxable special distribution of one share of ARCM common stock for every 10 shares of the Company’s common stock and every 10 OP Units held by third parties in the OP. On April 4, 2014, ARCM filed a Registration Statement on Form 10 to register ARCM’s common stock, par value $0.01 per share, pursuant to Section 12(b) of the Exchange Act so that, upon consummation of the spin-off, shares of ARCM received by holders of the Company’s common stock, or OP Units, as applicable, could freely trade their newly received ARCM common stock. ARCM was expected to be externally managed by the Company. On May 21, 2014, the Company announced that it had reassessed its plans for the multi-tenant shopping center portfolio and entered into a letter of intent to sell such portfolio to Blackstone, expecting to finalize pertinent documentation related thereto within 30 days of such date. The properties included in such sale were the same properties that would have been spun off into ARCM and, consequently, the Company abandoned its proposed spin-off at such time. On June 11, 2014, indirect subsidiaries of the Company entered into an Agreement of Purchase and Sale with BRE DDR Retail Holdings III LLC, an entity indirectly jointly owned by affiliates of Blackstone Real Estate Partners VII L.P. and DDR Corp., pursuant to which the parties definitively documented the sale of the Company’s multi-tenant shopping center portfolio. The properties to be sold pursuant to such agreement were the same properties that the Company had previously intended to spin off into an externally managed, NASDAQ traded REIT, American Realty Capital Centers, Inc. In light of the Company’s entry into such agreement, it abandoned its previously contemplated spin-off.

Results of Operations (As Restated)

As a result of the Cole Merger, we evaluate our operating results by our two business segments, REI and Cole Capital.

REI Segment

Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate investments. The following table shows the property statistics of our real estate assets, including consolidated joint ventures, as of June 30, 2014 and 2013:


	June 30,
	2014			2013
Number of commercial properties ⁽¹⁾		3,966			1,766
Approximate rentable square feet (in millions) ⁽²⁾		106.8			25.3
Percentage of rentable square feet leased		98.8	%		100	%

(1)	Excludes properties owned through the Unconsolidated Joint Ventures.

(2)	Includes square feet of the buildings on land that are subject to ground leases.

Comparison of the Three Months Ended June 30, 2014 to the Three Months Ended June 30, 2013

Total Real Estate Investment Revenue

REI revenue increased $290.1 million to $345.0 million for the three months ended June 30, 2014, compared to $54.9 million for the three months ended June 30, 2013. Our REI revenue consisted primarily of rental income from net leased commercial properties, which accounted for 91% and 96% of total REI revenue during the three months ended June 30, 2014 and 2013, respectively.

Rental Income

Rental income increased $261.8 million to $314.5 million for the three months ended June 30, 2014, compared to $52.7 million for the three months ended June 30, 2013. The increase was primarily due to our net acquisition of 2,178 properties (which excludes 47 properties that are accounted for as direct financing leases) primarily through various mergers and portfolio acquisitions subsequent to June 30, 2013.

Direct Financing Lease Income

Direct financing lease income of $1.2 million was recognized for the three months ended June 30, 2014. Direct financing lease income was primarily driven by our net acquisition of 47 properties comprised of $62.1 million of net investments subject to direct financing leases acquired at the end of or subsequent to the second quarter of 2013. As such, we had no direct financing lease income during the three months ended June 30, 2013.

Operating Expense Reimbursements

Operating expense reimbursements increased by $27.0 million to $29.3 million for the three months ended June 30, 2014 compared to $2.3 million for the three months ended June 30, 2013. Operating expense reimbursements represent reimbursements for taxes, property maintenance and other charges contractually due from the tenant per the respective lease. Operating expense reimbursements increase was driven by our net acquisition of 2,178 properties subsequent to June 30, 2013.

We also review our stabilized operating results from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store.” Cash same store rents on the 815 properties held for the full period in each of the three months ended June 30, 2014 and 2013 increased $0.2 million, or 0.5%, to $44.5 million compared to $44.3 million for the three months ended June 30, 2013, respectively. Same store annualized average rental income per square foot was $9.67 at June 30, 2014 compared to $9.62 at June 30, 2013.

Acquisition Related Expenses

Acquisition related expenses decreased $30.1 million to $7.2 million for the three months ended June 30, 2014, compared to $37.3 million for the three months ended June 30, 2013. During the three months ended June 30, 2014, acquisition costs consisted of legal costs, deed transfer costs and other costs related to real estate purchase transactions. In addition to the costs above, during the three months ended June 30, 2013, we paid acquisition fees to the Former Manager for acquisitions by ARCT IV. In conjunction with the ARCT IV Merger, it was agreed that the Former Manager would no longer charge acquisition fees.

Merger and Other Non-routine Transaction Related Expenses

Costs related to various mergers, as well as other transaction costs increased $0.1 million to $6.0 million for the three months ended June 30, 2014, compared to $5.9 million for the three months ended June 30, 2013. The increase in merger and other non-routine transactions was primarily associated with costs incurred for the CCPT Merger and the pending disposition of the 67 multi-tenant properties and nine single-tenant properties and the adjacent land and related property (the “Multi-Tenant Portfolio”).

The Audit Committee’s investigation identified certain payments made by us to the Former Manager and its affiliates that were not sufficiently documented or that otherwise warrant scrutiny. The Company is considering whether it has a right to seek recovery for any other such payments and, if so, its alternatives for seeking recovery. No asset has been recognized in the financial statements related to any potential recovery. See Note 20 — Related Party Transactions and Arrangements (As Restated) for further discussion.

Property Operating Expenses

Property operating expenses increased $36.2 million to $39.3 million for the three months ended June 30, 2014, compared to $3.1 million for the three months ended June 30, 2013. The increase was primarily due to increased property taxes, utilities, repairs and maintenance and insurance expenses relating to the net acquisition of 2,178 rental income-producing properties subsequent to June 30, 2013. The primary property operating expense items are property taxes and repairs and maintenance.

General and Administrative Expenses

General and administrative expenses increased $11.7 million to $18.0 million for the three months ended June 30, 2014, compared to $6.3 million for the three months ended June 30, 2013. The increase in general and administrative expenses was primarily driven by an increase in the REI segment’s allocation of compensation expense due to becoming self-managed on January 8, 2014. General and administrative expenses primarily included the REI segment’s share of employee compensation and benefits, including legal, accounting and professional fees and escrow and trustee fees.

In addition, included in general and administrative expenses is equity-based compensation that increased $0.1 million to $3.6 million for the three months ended June 30, 2014, compared to $3.5 million for the three months ended June 30, 2013. The increase was primarily due to equity-based compensation expenses related to the multi-year outperformance plan (the “New OPP”), which was entered into upon the Company’s transition to self-management on January 8, 2014, as well as an increase in the amortization of restricted stock for the awards granted subsequent to June 30, 2013.

Depreciation and Amortization Expense

Depreciation and amortization expenses increased $192.3 million to $226.0 million for the three months ended June 30, 2014, compared to $33.7 million for the three months ended June 30, 2013. The increase in depreciation and amortization was primarily driven by our net acquisition of 2,178 properties subsequent to June 30, 2013.

Impairment of Real Estate

During the three months ended June 30, 2014, we recorded an impairment on real estate of $1.6 million related to four properties, as discussed in Note 11 — Fair Value of Financial Instruments (As Restated) to our consolidated unaudited financial statements in this Quarterly Report on Form 10-Q. No impairments on real estate were recorded during the three months ended June 30, 2013.

Interest Expense, Net

Interest expense, net increased $92.5 million to $103.9 million for the three months ended June 30, 2014, compared to $11.4 million during the three months ended June 30, 2013. The increase in interest expense was due to an increase in the average debt balance of $10.0 billion for the three months ended June 30, 2014 compared to $888.6 million for the three months ended June 30, 2013. The increase in debt was primarily due to the assumption of mortgage notes in connection with the various mergers and portfolio acquisitions and the issuance of the corporate bonds. The average annualized interest rate on all debt, including the effect of derivative instruments used to hedge the effects of interest rate volatility but excluding amortization of deferred financing costs and non-usage fees, for the three months ended June 30, 2014 and 2013 was 3.72% and 3.48%, respectively.

Other Income (Expense), Net

Other income (expense) increased $2.8 million to income of $4.3 million for the three months ended June 30, 2014, compared to income of $1.5 million for the three months ended June 30, 2013. Other income primarily consisted of interest income from CMBS securities of $3.2 million for the three months ended June 30, 2014. During the three months ended June 30, 2013, we recorded $1.4 million in income from investments.

Gain (Loss) on Derivative Instruments, Net

Gain on derivative instruments for the three months ended June 30, 2014 was $14.2 million, which primarily related to marking the Series D Preferred Stock embedded derivative to fair value. The gain was partially offset by a loss on derivative instruments resulting from marking our derivative instruments to fair value. We recorded a loss on derivative instruments of $31.2 million during the three months ended June 30, 2013 that resulted from marking our derivate instruments to fair value.

Loss on Disposition of Properties, Net

During the three months ended June 30, 2014, we recorded a loss on the sale of eight properties of $1.3 million. We did not sell any properties during the three months ended June 30, 2013.

Gain on Sale of Investment Securities

No investment securities were sold during the three months ended June 30, 2013 or 2014.

Comparison of the Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013

Total Real Estate Investment Revenue

REI revenue increased $514.1 million to $611.9 million for the six months ended June 30, 2014, compared to $97.8 million for the six months ended June 30, 2013. Our REI revenue consisted primarily of rental income from net leased commercial properties, which accounted for 91% and 96% of total REI revenue during the six months ended June 30, 2014 and 2013, respectively.

Rental Income

Rental income increased $465.2 million to $558.9 million for the six months ended June 30, 2014, compared to $93.7 million for the six months ended June 30, 2013. The increase was primarily due to our net acquisition of 2,178 properties (which excludes 47 properties that are accounted for as direct financing leases) primarily through various mergers and portfolio acquisitions subsequent to June 30, 2013.

Direct Financing Lease Income

Direct financing lease income of $2.2 million was recognized for the six months ended June 30, 2014. Direct financing lease income was primarily driven by our net acquisition of 47 properties comprised of $62.1 million of net investments subject to direct financing leases acquired at the end of or subsequent to the second quarter of 2013. As such, we had no direct financing lease income during the six months ended June 30, 2013.

Operating Expense Reimbursements

Operating expense reimbursements increased by $46.5 million to $50.7 million for the six months ended June 30, 2014 compared to $4.2 million for the six months ended June 30, 2013. Operating expense reimbursements represent reimbursements for taxes, property maintenance and other charges contractually due from the tenant per their respective leases. Operating expense reimbursements increase was driven by our net acquisition of 2,178 properties subsequent to June 30, 2013.

We also review our stabilized operating results from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store.” Cash same store rents on the 701 properties held for the full period in each of the six months ended June 30, 2014 and 2013 increased $0.4 million, or 0.6%, to $73.3 million compared to $72.9 million for the six months ended June 30, 2013, respectively. Same store annualized average rental income per square foot was $9.29 at June 30, 2014 compared to $9.24 at June 30, 2013.

Acquisition Related Expenses

Acquisition related expenses decreased $27.0 million to $20.6 million for the six months ended June 30, 2014, compared to $47.6 million for the six months ended June 30, 2013. During the six months ended June 30, 2014, acquisition costs consisted of legal costs, deed transfer costs and other costs related to real estate purchase transactions. In addition to the costs above, during the six months ended June 30, 2013, we paid acquisition fees to the Former Manager. In conjunction with the ARCT III Merger and ARCT IV Merger, it was agreed that the Former Manager would no longer charge acquisition fees for our acquisitions.

Merger and Other Non-routine Transaction Related Expenses

Costs related to various mergers, as well as other transaction costs increased $36.4 million to $165.8 million for the six months ended June 30, 2014, compared to $129.4 million for the six months ended June 30, 2013. Upon the consummation of the ARCT IV Merger, an affiliate of ARCT IV received a subordinated incentive distribution upon the attainment of certain performance hurdles. For the six months ended June 30, 2014, $78.2 million was recorded for this fee. We issued 6.7 million OP Units to the affiliate as compensation for this fee. In addition, merger and other non-routine transactions consisted of expenses related to the corporate bond issuance and internalization as well as professional fees, printing fees, proxy services, debt assumption fees and other costs associated with entering into and completing the Cole Merger and CCPT Merger, as well as expenses related to the corporate bond issuance and becoming self-managed.

Property Operating Expenses

Property operating expenses increased $63.4 million to $69.0 million for the six months ended June 30, 2014, compared to $5.6 million for the six months ended June 30, 2013. The increase was primarily due to increased property taxes, utilities, repairs and maintenance and insurance expenses relating to the acquisition of 2,178 rental income-producing properties subsequent to June 30, 2013. The primary property operating expense items are property taxes and repairs and maintenance.

Management fees to affiliates

Management fees to affiliates increased $1.4 million to $13.9 million for the six months ended June 30, 2014, compared to $12.5 million for the six months ended June 30, 2013. Prior to the consummation of the ARCT III and ARCT IV Mergers, we incurred certain fees to our Former Manager related to asset and property management. See Note 20 – Related Party Transactions for further discussion of the fees.

General and Administrative Expenses

General and administrative expenses increased $39.6 million to $53.6 million for the six months ended June 30, 2014, compared to $14.1 million for the six months ended June 30, 2013. The increase in general and administrative expenses was primarily driven by an increase in the REI segment’s allocation of compensation expense due to becoming self-managed on January 8, 2014. General and administrative expenses primarily included the REI segment’s share of employee compensation and benefits, including legal, accounting and professional fees and escrow and trustee fees.

In addition, included in general and administrative expenses is equity-based compensation that increased $20.4 million to $27.2 million for the six months ended June 30, 2014, compared to $6.8 million for the six months ended June 30, 2013. The decrease was primarily due to equity-based compensation expenses related to the New OPP, which was entered into upon the Company’s transition to self-management on January 8, 2014, as well as an increase in the amortization of restricted stock for the awards granted subsequent to June 30, 2013.

Depreciation and Amortization Expense

Depreciation and amortization expenses increased $325.0 million to $385.4 million for the six months ended June 30, 2014, compared to $60.4 million for the six months ended June 30, 2013. The increase in depreciation and amortization was driven by our net acquisition of 2,178 properties subsequent to June 30, 2013.

Impairment of Real Estate

During the six months ended June 30, 2014, we recorded an impairment on real estate of $1.6 million related to four properties, as discussed in Note 11 — Fair Value of Financial Instruments (As Restated) to our consolidated unaudited financial statements in this Quarterly Report on Form 10-Q. No impairments on real estate were recorded during the six months ended June 30, 2013.

Interest Expense, Net

Interest expense increased $206.6 million to $224.8 million for the six months ended June 30, 2014, compared to $18.2 million during the six months ended June 30, 2013. The increase in interest expense was due to an increase in the average debt balance of $7.0 billion for the six months ended June 30, 2014 compared to $630.9 million for the six months ended June 30, 2013. The increase in debt was primarily due to the assumption of mortgage notes in connection with the various mergers and portfolio acquisitions and the issuance of the corporate bonds. Additionally, we recorded $32.6 million in interest expense as amortization of deferred financing costs associated with the termination of the Barclays Facility and recorded prepayment fees in connection with the defeasance of mortgage notes payable of $32.9 million during the six months ended June 30, 2014. The average annualized interest rate on all debt, including the effect of derivative instruments used to hedge the effects of interest rate volatility but excluding amortization of deferred financing costs and non-usage fees, for the six months ended June 30, 2014 and 2013 was 3.72% and 3.51%, respectively.

Other Income, Net

Other income increased $5.8 million to a loss of $8.3 million for the six months ended June 30, 2014, compared to income of $2.5 million for the six months ended June 30, 2013. Other income primarily consisted of interest income from CMBS securities of $5.9 million for the six months ended June 30, 2014. During the six months ended June 30, 2013, we recorded $2.3 million in income from investments.

Gain (Loss) on Derivative Instruments, Net

Gain on derivative instruments for the six months ended June 30, 2014 was $7.1 million, which primarily related to the defeasance of mortgage notes payable that were subject to interest rate swap agreements. See Note 12 — Mortgage Notes Payable to our consolidated financial statements in this Amended Quarterly Report on Form 10-Q/A for further discussion. The gain was partially offset by a loss on derivative instruments resulting from marking our derivative instruments to fair value. We recorded a loss on derivative instruments of $31.2 million during the six months ended June 30, 2013 that resulted from marking our derivate instruments to fair value.

Loss on Disposition of Properties, Net

During the six months ended June 30, 2014, we recorded a loss on the sale of 25 properties of $18.9 million. We did not sell any properties during the six months ended June 30, 2013.

Gain on Sale of Investment Securities

We recorded a gain on the sale of investment securities of $0.5 million for the six months ended June 30, 2013, which resulted from selling the preferred debt and equity securities that we held. We did not sell any investment securities during the six months ended June 30, 2014.

Cole Capital

Effective February 7, 2014, we consummated the Cole Merger and acquired Cole Capital. As we did not commence operations for Cole Capital until February 7, 2014, comparative financial data is not presented for the three and six months ended June 30, June 30, 2013.

Three Months Ended June 30, 2014

Cole Capital Revenue

Cole Capital revenue for the three months ended June 30, 2014 was $37.2 million. Cole Capital revenue primarily consisted of transaction services revenue of $14.4 million, which included acquisition fees related to the acquisition of properties on behalf of certain of the Managed REITs. In addition, we recorded management fees and reimbursements of $12.8 million, which consisted of advisory fees and asset and property management fees of $10.1 million from certain Managed REITs and other programs sponsored by us and reimbursements of $2.7 million for expenses incurred in providing advisory and asset and property management services to certain Managed REITs. We also recorded dealer manager and distribution fees, selling commissions and offering reimbursements of $10.0 million, of which $7.1 million was reallowed to participating broker-dealers as discussed below and $2.0 million related to organization and offering expense reimbursements from the Managed REITs.

Cole Capital Reallowed Fees and Commissions

Cole Capital reallowed fees and commissions totaling $7.1 million for the three months ended June 30, 2014. We reallowed $6.1 million, or 100%, of selling commissions earned by participating broker-dealers related to the sale of securities of the Managed REITs in offering for the three months ended June 30, 2014 and $1.0 million, or 50.2%, related to the payment of all or a portion of our dealer manager fees to 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.

General and Administrative Expenses

General and administrative expenses were $22.0 million for the three months ended June 30, 2014, which primarily consisted of employee compensation and benefits expense. Other general and administrative expenses included insurance, legal, accounting and professional fees and other operating costs (including rent, supplies and facility maintenance).

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $24.8 million for the three months ended June 30, 2014, which primarily consisted of amortization related to the intangible assets acquired in connection with the Cole Merger of $24.0 million. Depreciation and amortization expenses also includes depreciation and amortization related to leasehold improvements and property and equipment.

Other Income

Other income for the three months ended June 30, 2014 was $7.6 million, which primarily consisted of a benefit from income taxes recorded of $7.5 million related to our TRS. While most of the business activities of Cole Capital are conducted through the TRS, revenues and expenses recorded in the TRS for tax purposes are not the same as those included in Cole Capital in accordance with U.S. GAAP.

Six Months Ended June 30, 2014

Cole Capital Revenue

Cole Capital revenue for the six months ended June 30, 2014 was $91.5 million. Cole Capital revenue primarily consisted of dealer manager and distribution fees, selling commissions and offering reimbursements of $52.4 million, of which $41.5 million was reallowed to participating broker-dealers as discussed below and $5.9 million related to organization and offering expense reimbursements from the Managed REITs. In addition, we recorded transaction services revenue of $19.0 million, which included acquisition fees related to the acquisition of properties on behalf of certain of the Managed REITs. We also recorded management fees and reimbursements of $20.1 million, which consisted of advisory fees and asset and property management fees of $15.9 million from certain Managed REITs and other programs sponsored by us and reimbursements of $4.2 million for expenses incurred in providing advisory and asset and property management services to certain Managed REITs.

Cole Capital Reallowed Fees and Commissions

Cole Capital reallowed fees and commissions totaling $41.5 million for the six months ended June 30, 2014. We reallowed $35.6 million, or 100%, of selling commissions earned by participating broker-dealers related to the sale of securities of the Managed REITs in offering for the six months ended June 30, 2014 and $5.9 million, or 50.2%, related to the payment of all or a portion of our dealer manager fees to 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.

General and Administrative Expenses

General and administrative expenses were $42.9 million for the six months ended June 30, 2014, which primarily consisted of employee compensation and benefits expense. Other general and administrative expenses included insurance, legal, accounting and professional fees and other operating costs (including rent, supplies and facility maintenance).

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $39.1 million for the six months ended June 30, 2014, which primarily consisted of amortization related to the intangible assets acquired in connection with the Cole Merger of $38.0 million. Depreciation and amortization expenses also includes depreciation and amortization related to leasehold improvements and property and equipment.

Other Income

Other income for the six months ended June 30, 2014 was $13.9 million, which primarily consisted of a benefit from income taxes recorded of $13.7 million related to our TRS. While most of the business activities of Cole Capital are conducted through the TRS, revenues and expenses recorded in the TRS for tax purposes are not the same as those included in Cole Capital in accordance with U.S. GAAP.

Liquidity and Capital Resources

In the normal course of business, our principal demands for funds will continue to be for property acquisitions, either directly or through investment interests, for the payment of operating expenses, distributions to our investors, and for the payment of principal and interest on our outstanding indebtedness. We expect to meet our future short-term operating liquidity requirements through net cash provided by our current property operations. Management expects that our properties will generate sufficient cash flow to cover all operating expenses and the payment of a monthly distribution. A significant portion of our net leases contain contractual rent escalations during the primary term of the lease. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from offerings, including an “at the market” equity offering program (“ATM”), proceeds from the sale of properties and undistributed funds from operations. With the stabilization of the investment portfolio, we expect to significantly increase the amount of cash flow generated from operating activities in future periods. Such increased cash flow will positively impact the amount of funds available for dividends.

As of June 30, 2014, we had $195.5 million of cash and cash equivalents.

Sources of Funds

Funds from Operations and Adjusted Funds from Operations (As Corrected)

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“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 U.S. 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 U.S. GAAP, excluding gains or losses from sales of property, depreciation and amortization of real estate assets and impairment write-downs. These adjustments also include the Company’s pro rata share of unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line 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 and/or is 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. Historical accounting for real estate involves the use of U.S. 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 U.S. GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, 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 adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current U.S. 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 U.S. GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and AFFO measures and the adjustments to U.S. GAAP in calculating FFO and AFFO.

We consider FFO and AFFO useful indicators of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs in our peer group. Accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

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. While certain companies may experience significant acquisition activity, other companies may not have significant acquisition activity and management believes that excluding costs such as merger and transaction costs and acquisition related costs from property operating results provides useful information to investors and provides information that improves the comparability of operating results with other companies who do not have significant merger or acquisition activities. AFFO is not equivalent to our net income or loss as determined under GAAP, and AFFO may not be a useful measure of the impact of long-term operating performance if we continue to have such activities in the future.

We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other non-cash income and expense items and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses, which may not ultimately be realized, such as gains or losses on derivative instruments, gains and losses on investments and early extinguishment of debt. In addition, by excluding non-cash income and expense items such as amortization of above and below market leases, amortization of deferred financing costs, straight-line rent, net direct financing lease adjustments and equity-based compensation from AFFO we believe we provide useful information regarding income and expense items which have no cash impact and do not provide us liquidity or require our capital resources. By providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our ongoing operating performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies that are not as involved in activities which are excluded from our calculation. Investors are cautioned that AFFO should only be used to assess the sustainability of our operating performance excluding these activities, as it excludes certain costs that have a negative effect on our operating performance during the periods in which these costs are incurred.

In addition, we exclude certain interest expenses related to securities that are convertible to common stock as the shares are assumed to have converted to common stock in our calculation of weighted-average common shares-fully diluted.

In calculating AFFO, we exclude expenses, which under GAAP are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued merger and acquisition fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired and 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 other properties are generated to cover the purchase price of the property and certain other expenses. Therefore, AFFO may not be an accurate indicator of our operating performance, especially during periods in which mergers are being consummated or properties are being acquired or certain other expenses are being incurred. AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. 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 as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding income and expense items detailed above from our calculation of AFFO 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 AFFO provides useful supplemental information.

As a result, we believe that the use of FFO and AFFO, together with the required U.S. GAAP presentations, provide a more complete understanding of our performance relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

FFO and AFFO are non-GAAP financial measures and do not represent net income as defined by U.S. GAAP. FFO and AFFO do not represent cash flows from operations as defined by U.S. GAAP, are not indicative of cash available to fund all cash flow needs and liquidity, including our ability to pay distributions and should not be considered as alternatives to net income, as determined in accordance with U.S. GAAP, for purposes of evaluating our operating performance. Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we do and/or calculate AFFO differently than we do. Consequently, our presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.

As discussed in the Explanatory Note to this Form 10-Q/A, the investigation conducted by the Audit Committee concluded that the Company erroneously calculated AFFO and/or AFFO per share for the three and six months ended June 30, 2014 and 2013 due to errors in reflecting non-controlling interests. We are now presenting the restated FFO and AFFO using two methods: 1) we calculate FFO and AFFO on a gross basis, whereby we start with net income attributable to both the stockholders and the non-controlling interest holders, and then adjust net income by the gross reported amounts of the items being adjusted (“Gross Method”); and 2) we calculate FFO and AFFO on a net basis, whereby we start with net income attributable only to the stockholders, and adjust net income by only the stockholders’ portion of the applicable items (“Net Method”). For presentation of the Net Method, the company has included the gross amounts of each adjustment on their respective line items and adjusted for the proportionate share which is attributable to non-controlling interest on a separate line item within FFO and AFFO.

The calculation of AFFO per share follows the same logic. Under the Gross Method, AFFO is divided by a share number that takes into account the dilutive effect of units held by the non-controlling interest holders; under the Net Method, AFFO is divided by a share number that reflects only the dilutive effects of common shares. While the two methods generally result in the same per share value, the treatment of certain dilutive securities may result in different per share values under the respective methods.

The tables below reflect the two methods of calculating for the three and six months ended June 30, 2014 and 2013 (in thousands except for share and per share data).

Net Method


	Three Months Ended June 30,						Six Months Ended June 30,
	2014 (As Corrected)			2013 (As Corrected)			2014 (As Corrected)			2013 (As Corrected)
Net loss attributable to the Company	$	(54,720	)	$	(69,603	)	$	(346,164	)	$	(213,483	)
Dividends on non-convertible preferred stock		(17,773	)		—			(35,147	)		—

Adjusted net loss		(72,493	)		(69,603	)		(381,311	)		(213,483	)
Loss on disposition of property ^a		1,269			—			18,874			—
Depreciation and amortization of real estate assets ^a		225,940			33,789			385,401			60,520
Impairment of real estate ^a		1,556			—			1,556			—
Proportionate share of adjustments for unconsolidated entities ^a		2,573			—			3,917			—
Proportionate share of adjustments for non-controlling interests ⁽¹⁾		(6,931	)		(1,555	)		(14,483	)		(2,278	)

FFO attributable to the Company		151,914			(37,369	)		13,954			(155,241	)


Acquisition related ^b		7,201			37,266			20,618			47,593
Merger and other non-routine transactions ^b		7,422			5,865			167,720			129,433
Gain on sale of investment securities ^b		—			—			—			(451	)
(Gain) loss on derivative instruments, net ^b		(14,207	)		31,174			(7,086	)		31,179
Interest on convertible obligation to preferred investors ^b		—			1,630			—			1,630
Amortization of premiums and discounts on debt and investments ^b		(4,606	)		—			(9,804	)		—
Amortization of above- and below-market lease assets and liabilities, net ^b		2,103			68			2,491			136
Net direct financing lease adjustments ^b		137			—			527			—
Amortization and write off of deferred financing costs ^b		10,985			2,271			55,961			4,098
Amortization of intangible assets ^{b (2)}		24,024			—			38,016			—
Extinguishment of debt, net ^b		6,469			—			15,868			—
Straight-line rent ^b		(17,413	)		(3,066	)		(24,933	)		(4,576	)
Non-cash equity compensation expense ^{b (2)}		5,690			3,458			27,264			6,791
Other amortization and non-cash charges ^{b (2)}		698			(10	)		1,119			23
Proportionate share of adjustments for unconsolidated entities ^b		464			—			782			—
Proportionate share of adjustments for non-controlling interests ⁽³⁾		(852	)		(2,912	)		(13,576	)		(4,839	)

AFFO attributable to the Company	$	180,029		$	38,375		$	288,921		$	55,776


Weighted-average shares outstanding - basic		815,406,408			198,956,355			682,178,587			183,316,963
Effect of dilutive securities		27,834,862			8,662,910			27,004,642			4,902,591

Weighted-average shares outstanding - diluted ⁽⁴⁾		843,241,270			207,619,265			709,183,229			188,219,554

AFFO attributable to the Company per share	$	0.21		$	0.18		$	0.41		$	0.30

(1)	Includes proportionate share attributable to non-controlling interests of the adjustments denoted with “a”.

(2)	Equity compensation expenses, amortization of intangible assets and other amortization and non-cash charges are expenses generally incurred by Cole Capital. The AFFO adjustments do not include tax impacts. The Company’s effective tax rate is 38%.

(3)	Includes proportionate share attributable to non-controlling interests of the adjustments denoted with “b”.

(4)	Weighted-average shares for the three and six months ended June 30, 2014 excludes the effect of the convertible debt as the effect would be antidilutive.

Gross Method


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(As Corrected)			(As Corrected)			(As Corrected)			(As Corrected)
Net loss	$	(56,598	)	$	(72,275	)	$	(362,438	)	$	(218,212	)
Dividends on non-convertible preferred stock		(17,773	)		—			(35,147	)		—

Adjusted net loss		(74,371	)		(72,275	)		(397,585	)		(218,212	)
(Gain) loss on disposition of property		1,269			—			18,874			—
Depreciation and amortization of real estate assets		225,940			33,789			385,401			60,520
Impairment of real estate		1,556			—			1,556			—
Proportionate share of adjustments for unconsolidated entities		2,573			—			3,917			—

FFO		156,967			(38,486	)		12,163			(157,692	)


Acquisition related		7,201			37,266			20,618			47,593
Merger and other non-routine transactions		7,422			5,865			167,720			129,433
Gain on sale of investment securities		—			—			—			(451	)
(Gain) loss on derivative instruments, net		(14,207	)		31,174			(7,086	)		31,179
Interest on convertible obligation to preferred investors		—			1,630			—			1,630
Amortization of premiums and discounts on debt and investments		(4,606	)		—			(9,804	)		—
Amortization of above- and below-market lease assets and liabilities, net		2,103			68			2,491			136
Net direct financing lease adjustments		137			—			527			—
Amortization and write off of deferred financing costs		10,985			2,271			55,961			4,098
Amortization of intangible assets ⁽¹⁾		24,024			—			38,016			—
Loss on early extinguishment of debt		6,469			—			15,868			—
Straight-line rent		(17,413	)		(3,066	)		(24,933	)		(4,576	)
Non-cash equity compensation expense ⁽¹⁾		5,690			3,458			27,264			6,791
Other amortization and non-cash charges ⁽¹⁾		698			(10	)		1,119			23
Proportionate share of adjustments for unconsolidated entities		464			—			782			—

AFFO	$	185,934		$	40,170		$	300,706		$	58,164


Weighted-average shares outstanding - basic		815,406,408			198,956,355			682,178,587			183,316,963
Effect of dilutive securities		52,613,117			18,204,198			51,886,559			11,995,695

Weighted-average shares outstanding - diluted ⁽²⁾		868,019,525			217,160,553			734,065,146			195,312,658

AFFO per share	$	0.21		$	0.18		$	0.41		$	0.30

(1)	Equity compensation expenses, amortization of intangible assets and other amortization and non-cash charges are expenses generally incurred by Cole Capital. The AFFO adjustments do not include tax impacts. The Company’s effective tax rate is 38%.

(2)	Weighted-average shares excludes the effect of the convertible debt as the effect would be antidilutive.

100

The following tables present the combined impact of all changes, as described above, to the applicable line items in the FFO and AFFO presentations to the Company’s previously reported FFO and AFFO figures, presented using the Gross Method, for the three and six months ended June 30, 2014 (amounts in thousands except share and per share):


	Three Months Ended June 30, 2014
	As Previously Reported			Methodology Adjustments			Error Corrections ⁽¹⁾			As Corrected
Net loss	$	(43,265	)	$	—		$	(13,333	)	$	(56,598	)
Dividends on non-convertible preferred stock		(17,773	)		—			—			(17,773	)

Adjusted net loss		(61,038	)		—			(13,333	)		(74,371	)
(Gain) loss on disposition of property		(1,510	)		—			2,779			1,269
Depreciation and amortization of real estate assets		234,089			—			(8,149	)		225,940
Impairment of real estate		—			—			1,556			1,556
Proportionate share of adjustments for unconsolidated entities		3,120			—			(547	)		2,573

FFO		174,661			—			(17,694	)		156,967

Acquisition related		8,453			—			(1,252	)		7,201
Merger and other non-routine transactions		13,286			—			(5,864	)		7,422
(Gain) loss on derivative instruments, net		(21,926	)		—			7,719			(14,207	)
Amortization of premiums and discounts on debt and investments		(3,487	)		—			(1,119	)		(4,606	)
Amortization of above- and below-market lease assets and liabilities		2,133			—			(30	)		2,103
Net direct financing lease adjustments		136			—			1			137
Amortization and write off of deferred financing costs		11,342			—			(357	)⁽⁴⁾		10,985
Amortization of intangible assets ⁽²⁾		—			24,024	⁽³⁾		—			24,024
Extinguishment of debt, net		3,985			—			2,484			6,469
Straight-line rent		(17,413	)		—			—			(17,413	)
Non-cash equity compensation expense ⁽²⁾		9,338			—			(3,648	)		5,690
Other amortization and non-cash charges ⁽²⁾		24,750			(24,024	)⁽³⁾		(28	)		698
Proportionate share of adjustments for unconsolidated entities		20			—			444			464

AFFO	$	205,278		$	—		$	(19,344	)	$	185,934


Weighted-average shares outstanding - diluted ⁽⁵⁾		869,094,216	⁽⁶⁾		—			(1,074,691	)		868,019,525

AFFO per share	$	0.24			—		$	(0.03	)	$	0.21

(1)	The adjustments in this column reflect the restatement. See Note 2 — Restatement of Previously Issued Financial Statements to the consolidated financial statements for further explanation on adjustments.

(2)	Equity compensation expenses, amortization of intangible assets and other amortization and non-cash charges are expenses generally incurred by Cole Capital. The AFFO adjustments do not include tax impacts. The Company’s effective tax rate is 38%.

(3)	Reports amortization of intangible assets on its own line item.

(4)	Includes reversal of inappropriate adjustment of $1,627 made by former management.

(5)	Weighted-average shares excludes the effect of the convertible debt as the effect would be antidilutive.

(6)	As disclosed in the Company’s quarterly supplemental filed on Form 8-K on July 29, 2014.

101


	Six Months Ended June 30, 2014
	As Previously Reported			Methodology Adjustments			Error Corrections ⁽¹⁾			As Corrected
Net loss	$	(363,920	)	$	—		$	1,482		$	(362,438	)
Dividends on non-convertible preferred stock		(35,416	)		—			269			(35,147	)

Adjusted net loss		(399,336	)		—			1,751			(397,585	)
(Gain) loss on disposition of property		(4,489	)		—			23,363			18,874
Depreciation and amortization of real estate assets		384,988			—			413			385,401
Impairment of real estate		—			—			1,556			1,556
Proportionate share of adjustments for unconsolidated entities		3,722			—			195			3,917

FFO		(15,115	)		—			27,278			12,163

Acquisition related		20,337			—			281			20,618
Merger and other non-routine transactions		235,478			—			(67,758	)		167,720
Gain on derivative instruments, net		(1,729	)		—			(5,357	)		(7,086	)
Amortization of premiums and discounts on debt and investments		(21,812	)		—			12,008			(9,804	)
Amortization of above- and below-market lease assets and liabilities		2,491			—			—			2,491
Net direct financing lease adjustments		527			—			—			527
Amortization and write off of deferred financing costs		61,256			—			(5,295	)⁽⁴⁾		55,961
Amortization of intangible assets ⁽²⁾		—			38,016	⁽³⁾		—			38,016
Extinguishment of debt, net		24,804			—			(8,936	)		15,868
Straight-line rent		(24,933	)		—			—			(24,933	)
Non-cash equity compensation expense ⁽²⁾		31,848			—			(4,584	)		27,264
Other amortization and non-cash charges ⁽²⁾		39,124			(38,016	)⁽³⁾		11			1,119
Proportionate share of adjustments for unconsolidated entities		782			—			—			782

AFFO	$	353,058		$	—		$	(52,352	)	$	300,706


Weighted-average shares outstanding - diluted ⁽⁵⁾		722,118,301	⁽⁶⁾		—			11,946,845			734,065,146

AFFO per share	$	0.49			—		$	(0.08	)	$	0.41

(1)	The adjustments in this column reflect the restatement. See Note 2 — Restatement of Previously Issued Financial Statements to the consolidated financial statements for further explanation on adjustments.

(2)	Equity compensation expenses, amortization of intangible assets and other amortization and non-cash charges are expenses generally incurred by Cole Capital. The AFFO adjustments do not include tax impacts. The Company’s effective tax rate is 38%.

(3)	Reports amortization of intangible assets on its own line item.

(4)	Includes reversal of inappropriate adjustment of $13,601 made by former management.

(5)	Weighted-average shares excludes the effect of the convertible debt as the effect would be antidilutive.

(6)	As disclosed in the Company’s quarterly supplemental filed on Form 8-K on July 29, 2014.

102


	Three Months Ended June 30, 2013
	As Previously Reported			Methodology Adjustments			Error Corrections ⁽¹⁾			As Corrected
Net loss	$	(72,433	)	$	—		$	158		$	(72,275	)
Dividends on non-convertible preferred stock		—			—			—			—

Adjusted net loss		(72,433	)		—			158			(72,275	)
Depreciation and amortization of real estate assets		33,811			—			(22	)		33,789

FFO		(38,622	)		—			136			(38,486	)
Acquisition related		37,119			—			147			37,266
Merger and other non-routine transactions		6,393			—			(528	)		5,865
Loss on derivative instruments, net		31,174			—			—			31,174
Interest on convertible obligation to preferred investors		—			1,630	⁽²⁾		—			1,630
Amortization of above- and below-market lease assets and liabilities		68			—			—			68
Amortization and write off of deferred financing costs		2,271			—			—			2,271
Straight-line rent		(3,059	)		(7	)⁽³⁾		—			(3,066	)
Non-cash equity compensation expense		3,458			—			—			3,458
Other amortization and non-cash charges		—			—			(10	)		(10	)

AFFO	$	38,802		$	1,623		$	(255	)	$	40,170

		—			—			—			—
Weighted-average shares outstanding - diluted		208,408,000	⁽⁴⁾		—			8,752,553			217,160,553

AFFO per share	$	0.19		$	0.01		$	(0.02	)	$	0.18

(1)	See Note 2 — Restatement of Previously Issued Financial Statements to the consolidated financial statements for further explanation on adjustments.

(2)	Inclusion of adjustment erroneously excluded in the previously reported AFFO calculation.

(3)

The previously reported AFFO calculation presented this line item net of the proportionate share for non-controlling interest. A “gross up” adjustment has been made to include the amount attributable to non-controlling interest in order to show all proportionate adjustments for non-controlling interests on one line item called “Proportionate share of adjustments for non-controlling interest.”

(4)	As disclosed in the Company’s quarterly supplemental filed on Form 8-K on July 29, 2014.

103


	Six Months Ended June 30, 2013
	As Previously Reported			Methodology Adjustments			Error Corrections ⁽¹⁾			As Corrected
Net loss	$	(214,028	)	$	—		$	(4,184	)	$	(218,212	)
Dividends on non-convertible preferred stock		—			—			—			—

Adjusted net loss		(214,028	)		—			(4,184	)		(218,212	)
(Gain) loss on disposition of property		(14	)		—			14			—
Depreciation and amortization of real estate assets		60,564			—			(44	)		60,520

FFO		(153,478	)		—			(4,214	)		(157,692	)
Acquisition related		47,446			—			147			47,593
Merger and other non-routine transactions		144,162			—			(14,729	)		129,433
(Gain) loss on sale of investment securities		(451	)		—			—			(451	)
(Gain) loss on derivative instruments, net		45			31,134	⁽²⁾		—			31,179
(Gain) loss on contingent value rights obligation		31,134			(31,134	)⁽²⁾		—			—
Interest on convertible obligation to preferred investors		—			1,630	⁽³⁾		—			1,630
Amortization of above- and below-market lease assets and liabilities		136			—			—			136
Net direct financing lease adjustments		—			—			—			—
Amortization and write off of deferred financing costs		3,514			—			584			4,098
Straight-line rent		(4,568	)		(8	)⁽⁴⁾		—			(4,576	)
Non-cash equity compensation expense		4,339			—			2,452			6,791
Other adjustments		—			—			23			23

AFFO	$	72,279		$	1,622		$	(15,737	)	$	58,164


Weighted-average shares outstanding - diluted		188,620,000	⁽⁵⁾		—			6,692,658			195,312,658

AFFO per share	$	0.38		$	0.01		$	(0.09	)	$	0.30

(1)	See Note 2 — Restatement of Previously Issued Financial Statements to the consolidated financial statements for further explanation on adjustments.

(2)	Reports loss on contingent value rights with loss on derivatives to align presentation with the income statement.

(3)	Inclusion of adjustment erroneously excluded in the previously reported AFFO calculation.

(4)

The original Filing presented this line item net of the proportionate share for non-controlling interest. A “gross up” adjustment has been made to include the amount attributable to non-controlling interest in order to show all proportionate adjustments for non-controlling interests on one line item called “Proportionate share of adjustments for non-controlling interest.”

(5)	As disclosed in the Company’s quarterly supplemental filed on Form 8-K on July 29, 2014.

Capital Markets

On August 1, 2012, we filed a $500.0 million universal shelf registration statement and a resale registration statement with the SEC. Each registration statement became effective on August 17, 2012. As of June 30, 2014, we had issued 2.1 million shares of common stock through a registered follow-on offering and the ATM offering under the $500.0 million universal shelf registration statement. No preferred stock, debt or equity-linked security had been issued under the universal shelf registration statement. The resale registration statement, as amended, registers the resale of up to 1,882,248 shares of common stock issued in connection with any future conversion of certain currently outstanding restricted shares, convertible preferred stock or limited partnership interests in the OP. As of June 30, 2014, no common stock had been issued under the resale registration statement.

On March 14, 2013, we filed a universal automatic shelf registration statement and achieved well-known seasoned issuer (“WKSI”) status. As a result of the delayed filing of certain of our periodic reports with the SEC, we are not currently eligible to use a shelf registration statement for the offer and sale of our securities.

104

In January 2013, we commenced the ATM in which we may from time to time offer and sell shares of our common stock having an aggregate offering proceeds of up to $60.0 million. The shares will be issued pursuant to our $500.0 million universal shelf registration statement.

On May 28, 2014, we closed on an underwriting agreement relating to a public offering of 138.0 million shares of common stock, par value $0.01 per share. The offering price to public was $12.00 per share. The net proceeds were approximately $1.59 billion after deducting underwriting discounts and commissions, but excluding expenses which include a $2.0 million structuring fee paid to RCS.

In addition to our common stock offerings, on June 7, 2013, we issued 28.4 million shares convertible preferred stock (the “Series C Shares”) for gross proceeds of $445.0 million. On November 12, 2013, we converted all outstanding Series C Shares into our common stock. Pursuant to the Series C Shares’ Articles Supplementary, the number of shares of common stock that could be issued upon conversion of Series C Shares was limited to an exchange cap. Therefore, we converted 1.1 million Series C Shares into 1.4 million shares of our common stock. With respect to the 27.3 million Series C Shares for which we could not issue shares of our common stock upon conversion due to the exchange cap, we paid holders of Series C Shares an aggregate cash amount equal to approximately $441.4 million in exchange for such Series C Shares. Based on our share price on the conversion date, the total settlement value was $458.8 million.

On September 15, 2013, we entered into definitive purchase agreements pursuant to which we agreed to issue Series D Preferred Stock (“Series D Preferred Stock”), par value $0.01 per share, and common stock, par value $0.01 per share, to certain institutional holders promptly following the close of our merger with CapLease. Pursuant to the definitive purchase agreements, we issued approximately 21.7 million shares of Series D Preferred Stock and 15.1 million shares of common stock, for gross proceeds of $288.0 million and $186.0 million, respectively, on November 12, 2013.

Upon consummation of the ARCT IV merger on January 3, 2014, 42.2 million shares of Series F Preferred Stock were issued to ARCT IV stockholders. As of June 30, 2014, there were 42,654,919 shares issued and outstanding of Series F Preferred Stock. See Note 18 — Preferred and Common Stock to our consolidated financial statements in this Form 10-Q/A for a description of the Series D Preferred Stock and Series F Preferred Stock.

Availability of Funds from Credit Facilities

We, as guarantor, and our OP, as borrower, are parties to a credit facility with Wells Fargo, National Association, as administrative agent and other lenders party thereto (the “Credit Facility”).

On June 30, 2014, the Company and OP entered into an amended and restated credit agreement (the “Agreement”), which increased the available borrowings, extended the term and decreased the interest rates associated with the prior credit facility. At June 30, 2014, the Credit Facility contained a $1.2 billion term loan facility and a $3.2 billion revolving credit facility, of which $1.0 billion and $896.0 million were outstanding, respectively. The revolving credit facility generally bears interest at an annual rate of LIBOR plus from 1.00% to 1.80% or Base Rate plus 0.00% to 0.80% (based upon the Company’s then current credit rating). “Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR, determined on a daily basis. The term loan facility generally bears interest at an annual rate of LIBOR plus 1.15% to 2.05%, or Base Rate plus 0.15% to 1.05% (based upon the Company’s then current credit rating). The Credit Facility includes an accordion feature, which, if exercised in full, allows the Company to increase the aggregate commitments under the Credit Facility to $6.0 billion, subject to the receipt of such additional commitments and the satisfaction of certain customary conditions. At June 30, 2014, the Company had undrawn commitments of $2.7 billion under the Credit Facility.

105

The Agreement provides for monthly interest payments under the Credit Facility. In the event of default, at the election of the majority of the lenders (or automatically upon a bankruptcy event of default with respect to the Company or the Company), the commitments of the lenders under the Credit Facility terminate, and payment of any unpaid amounts in respect of the Credit Facility is accelerated. The revolving credit facility and the term loan facility both terminate on June 30, 2018, in each case, unless extended in accordance with the terms of the Agreement. The Agreement provides for a one-year extension option with respect to each of the revolving credit facility and the term loan facility, exercisable at the Company’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. At any time, upon timely notice by the Company and subject to any breakage fees, the Company may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The Company incurs a fee equal to 0.15% to 0.25% per annum (based upon the Company’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the dollar revolving credit facility and the multi-currency credit facility. The Company incurs an unused fee of 0.25% per annum on the unused amount of the delayed draw term loan commitments. In addition, the Company incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

Significant events pertaining to the Credit Facility that occurred subsequent to June 30, 2014 are detailed within the Amended 10-K. Please refer to Note 24 — Subsequent Events (As Restated) in Amendment No. 2 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the SEC (the “Amended 10-K”).

Principal Use of Funds

Acquisitions

Cash needs for property acquisitions will generally be met through proceeds from the public or private offerings of debt and equity, availability on our credit facility and other financings. We may also from time to time enter into other agreements with third parties whereby third parties will make equity investments in specific properties or groups of properties that we acquire.

We evaluate potential acquisitions of real estate and real estate-related assets and engage in negotiations with sellers and borrowers. Investors and stockholders should be aware that after a purchase contract is executed that contains specific terms the property will not be purchased until the successful completion of due diligence and negotiation of final binding agreements. During this period, we may decide to temporarily invest any unused proceeds from equity offerings in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.

We financed the aggregate purchase prices of the recent mergers and acquisitions discussed in Note 3 — Mergers and Acquisitions (As Restated) to our consolidated financial statements in this Form 10-Q/A in part through the assumption of outstanding indebtedness, and through a combination of available cash on hand from: (a) a portion of the $896.0 million in net proceeds from the sale of shares of our common stock and convertible preferred stock in separate previously disclosed private placement transactions, which transactions were completed on June 7, 2013; (b) a portion of the $967.8 million in net proceeds from the sale of the Notes; (c) funds available from the issuance of common stock through our current ATM or any successor program thereto; (d) a portion of the $2.5 billion in net proceeds from the Notes (as defined below); (e) financing available under our credit facility; (f) a portion of the $1.59 billion in net proceeds from the sale of ARCP’s common stock on May 28, 2014; and (g) additional alternative financing arrangements, as needed, from the issuance of additional common stock, preferred securities or other debt, equity or equity-linked financings.

Dividends

The amount of dividends payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for dividends, financial condition, capital expenditure requirements, as applicable, and annual dividend requirements needed to qualify and maintain our status as a REIT under the Internal Revenue Code. Operating cash flows are expected to increase as additional properties are acquired in our investment portfolio.

106

We and our board of directors share a similar philosophy with respect to paying our dividends. The dividends should principally be derived from cash flows generated from operations. Effective January 8, 2014, we completed our transition to self-management and therefore are now focused on generating cash flows by expanding our real estate portfolio consistent with our investment strategy, while keeping the internal costs of running our business low. Prior to January 8, 2014, when we had retained the Former Manager to manage our portfolio and provide other services, the Former Manager had waived certain fees in order to improve our cash flow, lowering our external costs. See Note 20 — Related Party Transactions and Arrangements (As Restated) to our consolidated financial statements in this Form 10-Q/A for a further discussion of our relationship with the Former Manager.

As our real estate portfolio matures, we expect cash flows from operations to fully cover our dividends.

Significant events pertaining to our dividends that occurred subsequent to June 30, 2014 are detailed within the Amended 10-K. Please refer to Note 24 — Subsequent Events (As Restated) in the Amended 10-K.

Loan Obligations

At June 30, 2014, our leverage ratio (net debt, excluding debt convertible to common stock, divided by enterprise value) was 41.7%.

The payment terms of our loan obligations vary. In general, only interest amounts are payable monthly with all unpaid principal and interest due at maturity. Some of our loan agreements stipulate that we comply with specific reporting and financial covenants mainly related to debt coverage ratios and loan to value ratios. Each loan that has these requirements has specific ratio thresholds that must be met. As of June 30, 2014, we were in compliance with the debt covenants under our loan agreements.

As of June 30, 2014, we had non-recourse mortgage indebtedness of $4.1 billion, which was collateralized by 757 properties. Our mortgage indebtedness bore interest at the weighted average rate of 4.90% per annum and had a weighted average maturity of 6.00 years. We may in the future incur additional mortgage debt on the properties we currently own or use long-term non-recourse financing to acquire additional properties in the future.

As of June 30, 2014, there was $1.9 billion outstanding on the Credit Facility, of which $881.0 million bore a floating interest rate of 1.50%. There is $1.0 billion outstanding on the Credit Facility which is fixed through the use of derivative instruments used to hedge interest rate volatility. Including the spread, which can vary based on the Company’s credit rating, interest on this portion was 2.84% at June 30, 2014. At June 30, 2014, there was up to $2.7 billion available to the Company for future borrowings, subject to borrowing availability.

Our loan obligations require the maintenance of financial covenants, as well as restrictions on corporate guarantees, the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios), as well as the maintenance of a minimum net worth. At June 30, 2014, the Company was in compliance with the debt covenants under all of our loan obligations.

Significant events pertaining to our loan obligations that occurred subsequent to June 30, 2014 are detailed within the Amended 10-K. Please refer to Note 24 — Subsequent Events (As Restated) in the Amended 10-K.

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Convertible Senior Notes Offering

On July 29, 2013, we issued $300.0 million of 3.00% convertible senior notes due in 2018 (the “2018 Notes”) in an underwritten public offering. The 2018 Notes will mature on August 1, 2018. The 2018 Notes may be converted into cash, common stock or a combination thereof in limited circumstances prior to February 1, 2018 and may be converted at any time into such consideration on or after February 1, 2018. $10.0 million of the $30.0 million over-allotment option available for such offering was exercised thereafter. We used the net proceeds of the offering (a) to repay outstanding indebtedness under our existing senior secured revolving credit facility (which will increase the availability of funds under such credit facility) and (b) for other general corporate purposes which includes investing in properties in accordance with its investment objectives.

On December 10, 2013, we issued $402.5 million of 3.75% convertible senior notes due in 2020 (the “2020 Notes”). The 2020 Notes mature on December 15, 2020. The fair value of the 2020 Notes was determined at issuance to be $389.7 million, resulting in a debt discount of $12.8 million with an offset recorded to additional paid-in capital representing the equity component of the notes for the conversion options. The discount is being amortized to interest expense over the expected life of the 2020 Notes. As of June 30, 2014, the carrying value of the 2020 Notes was $390.7 million. The holders may elect to convert the 2020 Notes into cash, common stock of the Company or a combination thereof, at our option, in limited circumstances prior to June 15, 2020 and may convert the 2020 Notes at any time into such consideration on or after June 15, 2020. The initial conversion rate is 66.0262 shares of our common stock per $1,000 principal amount of 2020 Notes.

The Company funds interest payments on the 2018 Notes and 2020 Notes from the OP in accordance with the terms of intercompany notes that have substantially the same terms as the 2018 Notes and the 2020 Notes. The remaining unamortized discount of the 2018 Notes and 2020 Notes totaled $25.0 million as of June 30, 2014.

Significant events pertaining to the 2018 Notes and 2020 Notes that occurred subsequent to June 30, 2014 are detailed within the Amended 10-K. Please refer to Note 24 — Subsequent Events (As Restated) in the Amended 10-K.

Bond Offering

Significant events pertaining to the Notes that occurred subsequent to June 30, 2014 are detailed within the Amended 10-K. Please refer to Note 24 — Subsequent Events (As Restated) in the Amended 10-K.

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Contractual Obligations

The following is a summary of our contractual obligations as of June 30, 2014 (in thousands):


	Total		July 1, - December 31, 2014		2015-2016		2017-2018		Thereafter
Principal payments due on mortgage notes payable	$	4,125,621	$	104,043	$	521,724	$	774,947	$	2,724,907
Interest payments due on mortgage notes payable		1,174,482		102,150		368,120		284,221		419,991
Principal payments due on credit facility		1,896,000		—		—		1,896,000		—
Interest payments due on credit facility		213,190		20,984		95,698		96,508		—
Principal payments due on corporate bonds		2,550,000		—		—		1,300,000		1,250,000
Interest payments due on corporate bonds		391,702		35,750		143,000		93,528		119,424
Principal payments due on convertible debt		1,000,000		—		—		597,500		402,500
Interest payments due on convertible debt		170,633		16,509		66,038		58,569		29,517
Principal payments due on other debt		149,804		54,339		24,378		20,947		50,140
Interest payments due on other debt		78,154		3,438		11,621		8,721		54,374
Payments due on lease obligations		133,242		6,845		24,497		18,166		83,734

Total	$	11,882,828	$	344,058	$	1,255,076	$	5,149,107	$	5,134,587

Cash Flows for the Six Months Ended June 30, 2014 (As Restated)

During the six months ended June 30, 2014, net cash provided by operating activities was $31.2 million. The level of cash flows used in or provided by operating activities is affected by acquisition and transaction costs, the timing of interest payments, as well as the receipt of scheduled rent payments. Cash flows provided by operating activities during the six months ended June 30, 2014 was mainly due to adjusted net income of $231.7 million (net loss of $362.4 million adjusted for non-cash items including the issuance of operating partnership units, depreciation and amortization, gain on sale of properties, equity-based compensation, gain on derivative instruments and gain on the early extinguishment of debt totaling $594.1 million, in the aggregate), offset by a decrease in accounts payable and accrued expenses of $51.8 million, a decrease in prepaid and other assets of $93.6 million and a decrease in deferred rent, derivative and other liabilities of $8.7 million.

Net cash used in investing activities for the six months ended June 30, 2014 was $2.0 billion, primarily related to the cash considerations of $756.2 million for the ARCT IV Merger, Cole Merger and CCPT Merger and acquisition of 337 properties for total cash considerations of $1.2 billion. The net cash used in investing activities was partially offset by the proceeds from the sale of properties of $94.8 million.

Net cash provided by financing activities was $2.1 billion during the six months ended June 30, 2014 related to proceeds from the issuance of corporate bonds of $2.5 billion, proceeds from mortgage notes payable of $718.3 million and proceeds from the issuance of common stock of $1.6 billion. These inflows were partially offset by repayments net of borrowings from our credit facilities of $1.4 billion, payments on mortgage notes payable of $876.9 million, total distributions paid of $427.6 million and $84.2 million of deferred financing cost payments.

Cash Flows for the Six Months Ended June 30, 2013 (As Restated)

During the six months ended June 30, 2013, net cash used in operating activities was $10.2 million. The level of cash flows used in or provided by operating activities is affected by acquisition and transaction costs, the timing of interest payments, as well as the receipt of scheduled rent payments. Cash flows used in operating activities during the six months ended June 30, 2013 was mainly due to an adjusted net loss of $8.1 million (net loss of $218.2 million adjusted for non-cash items, including the issuance of units of limited partner interests in the OP, depreciation and amortization, amortization of deferred financing costs, equity-based compensation, loss on held for sale properties, loss on derivative instruments and gain on sale on investments of $210.1 million, in the aggregate), and a decrease in deferred costs and other assets of $10.3 million, partially offset by an increase in accounts payable and accrued expenses of $4.2 million.

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Net cash used in investing activities for the six months ended June 30, 2013 was $2.3 billion, primarily related to the acquisition of 1,011 properties with an aggregate purchase price of $2.1 billion, the purchase of investment securities of $81.5 million, and the investment in direct financing leases of $76.4 million, partially offset by the proceeds from the sales of investment securities of $44.2 million.

Net cash provided by financing activities of $2.3 billion during the six months ended June 30, 2013 related to proceeds net of offering-related costs from the issuance of common stock of $1.8 billion, proceeds from the issuance of preferred stock of $445.0 million, proceeds net of repayments from our credit facilities of $475.4 million and $29.8 million of contributions from our affiliate. These inflows were partially offset by common stock repurchases of $350.4 million, $41.5 million of deferred financing cost payments, total distributions paid of $90.7 million, and distributions to non-controlling interest holders of $3.1 million.

Election as a REIT

We elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with the taxable year ended December 31, 2011. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax to the extent we distribute our REIT taxable income to our stockholders, and so long as we distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gain. REITs are subject to a number of other 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. We believe we are organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ending December 31, 2014.

Significant Accounting Estimates and Critical Accounting Policies (As Restated)

Our accounting policies have been established to conform to GAAP. The preparation of financial statements in conformity with GAAP requires us 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 our judgment or interpretation of the facts and circumstances relating to the 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.

Except as set forth below, a complete description of such policies and our considerations is contained in the Amended 10-K. Cole Capital revenue recognition was not considered a critical accounting policy for the year ended December 31, 2013 because such transactions had not occurred at the time. The information included in this Form 10-Q/A should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2013, and related notes thereto.

Revenue Recognition - Cole Capital

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are described in Note 4 — Summary of Significant Accounting Policies (As Restated) to our consolidated financial statements in this Form 10-Q/A.

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Inflation

We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. In addition, our net leases may require the tenant to pay its allocable share of operating expenses, including common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.

Related Party Transactions and Agreements (As Restated)

We have entered into agreements with affiliates, whereby we pay or have paid in the past certain fees or reimbursements to ARC, the Former Manager or their respective affiliates for acquisition fees and expenses, organization and offering costs, asset management fees and reimbursement of operating costs and have in the past paid sales commissions and dealer manager fees. See Note 20 — Related Party Transactions and Arrangements (As Restated) to our consolidated financial statements in this Form 10-Q/A for a discussion of the various related-party transactions, agreements and fees. In August 2013, our board of directors determined that it was in the best interests of us and our stockholders to become self-managed, and we completed our transition to self-management on January 8, 2014.

We are contractually responsible for managing the Managed REITs’ affairs on a day-to-day basis, identifying and making acquisitions and investments on the Managed REITs’ behalf, and recommending to each of the Managed REIT’s respective board of directors an approach for providing investors with liquidity. In addition, we distribute the shares of common stock for certain of the Managed REITs and advise them regarding offerings, manage relationships with participating broker-dealers and financial advisors, and provide assistance in connection with compliance matters relating to the offerings. We receive compensation and reimbursement for services relating to the Managed REITs’ offerings and the investment, management and disposition of their respective assets, as applicable. See Note 20 — Related Party Transactions and Arrangements (As Restated) to our consolidated financial statements in this Form 10-Q/A for a further explanation of the various related-party transactions, agreements and fees.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to variable-rate borrowings. To meet our short-term and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

As of June 30, 2014, our debt included fixed-rate debt, including debt that has interest rates that are fixed with the use of derivative instruments, with a carrying and fair value of $8.7 billion and $9.0 billion, respectively. Changes in market interest rates on our fixed rate debt impact fair value of the debt, but they have no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our debt to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their June 30, 2014 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed rate debt by approximately $233.7 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $241.6 million.

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As of June 30, 2014, our debt included variable-rate debt with an aggregate face value and a carrying value of $1.0 billion. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their June 30, 2014 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate notes payable would increase or decrease our interest expense by approximately $9.8 million annually.

As the information presented above includes only those exposures that existed as of June 30, 2014, it does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and, assume no other changes in our capital structure.

Item 4. Controls and Procedures. (As Restated)

The Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014 filed with the SEC on July 29, 2014 disclosed that, in accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s former management, under the supervision and with the participation of its former Chief Executive Officer and former Chief Financial Officer, had 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) and, based on that evaluation, had concluded that the Company’s disclosure controls and procedures were effective at June 30, 2014. In light of the findings of the Audit Committee investigation and a review made by the Company in connection with the preparation of the restatement presented in this Form 10-Q/A, current management, under the supervision of our current Interim Chief Executive Officer and our current Chief Financial Officer, re-evaluated the Company’s disclosure controls and procedures and, based on that evaluation, concluded that the Company’s disclosure controls and procedures were not effective at June 30, 2014.

The Company’s current management based its conclusion on the following: The material weaknesses in disclosure controls and procedures and internal control over financial reporting that had existed at December 31, 2013, as disclosed in the Amended 10-K, had not been remediated at June 30, 2014. Moreover, current management identified additional weaknesses in internal control over financial reporting at June 30, 2014. The material weaknesses and remedial steps being taken by the Company are discussed below.

Material Weaknesses in Disclosure Controls and Procedures

As disclosed in the Amended 10-K, the Company’s disclosure controls and procedures were not properly designed or implemented to ensure that the information contained in the Company’s periodic reports and other SEC filings correctly reflected the information contained in the Company’s accounting records and other supporting information and, in the case of AFFO per share (a non-GAAP measure that is an important industry metric), was correctly calculated. In addition, the Company did not have appropriate controls to ensure that its SEC filings were reviewed on a timely basis by senior management or that significant changes to amounts or other disclosures contained in a document that had previously been reviewed and approved by the Audit Committee were brought to the attention of the Audit Committee or its Chair for review and approval before the document was filed with the SEC. Finally, the Company did not have appropriate controls over the formulation of AFFO per share guidance or the periodic re-assessment of the Company’s ability to meet its guidance.

Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In its Amended 10-K, the Company disclosed that, during 2013, due in part to a number of large portfolio acquisitions, the Company experienced significant growth and increases in the complexity of its financial reporting and number of non-routine transactions. In late 2013 and early in the first quarter 2014, as a result of the anticipation and then completion of the Company’s transition to self-management and acquisitions of ARCT IV and Cole Capital, the complexity of the Company’s transactions and the need for accounting judgments and estimates became more prevalent and had a severe impact on the Company’s control environment.

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Control Environment - The Company failed to implement and maintain an effective internal control environment that had appropriate processes to manage the changes in business conditions resulting from the volume and complexity of its 2013 and first quarter 2014 transactions, combined with the pressure of market expectations inherent in announcing AFFO per share guidance for 2014.

The control environment, as part of the internal control framework, sets the tone of an organization, influencing the control consciousness of its people and providing discipline and structure. Among the deficiencies in the control environment were failures to:

•

Emphasize the importance of adherence to the Company’s Code of Business Conduct and Ethics;

•

Establish appropriate policies and procedures surrounding the accounting treatment and classification of merger-related expenses, goodwill, impairments and purchase accounting;

•

Establish controls designed to prevent changes to the financial statements and supporting financial information by senior management without the proper levels of review, support and approval; and

•

Establish controls designed to ensure that accounting employees would not be subject to pressure to make inappropriate decisions affecting the financial statements and/or the financial statement components of the calculation of AFFO, and that accounting concerns raised by employees would be timely and appropriately addressed by senior management.

Related Party Transactions and Conflicts of Interest - As disclosed in the Amended 10-K, the Company did not maintain the appropriate controls to assess, authorize and monitor related party transactions, validate the appropriateness of such transactions or, manage the risks arising from contractual relationships with affiliates. Without the appropriate controls, the Company made certain payments to the Former Manager and its affiliates that were not sufficiently documented or that otherwise warrant scrutiny.

Equity-Based Compensation - As disclosed in the Amended 10-K, the Company did not maintain appropriate controls over various grants of equity-based compensation. In the fourth quarter of 2013, in anticipation of the Company’s transition to self-management, the Company entered into employment agreements with the Company’s former Executive Chairman and Chief Executive Officer and its former Chief Financial Officer (which took effect on January 8, 2014), and also approved the 2014 Multi-Year Outperformance Plan pursuant to which awards were made to them on January 8, 2014. Without the appropriate controls, these documents contained terms that were inconsistent with the terms authorized by the Compensation Committee. Additionally, the Company did not obtain copies of or administer the equity awards made by means of block grants allocated by the Former Manager and its affiliates, nor did it review the awards for consistency with the Compensation Committee’s authorization.

Accounting Close Process - In the first quarter of 2014, a significant deficiency at December 31, 2013 disclosed in the Amended 10-K relating to the accounting close process escalated into a material weakness. The Company did not have consistent policies and procedures throughout its offices relating to purchase accounting, accounting for gain or loss on disposition and testing for impairment. In addition, senior management did not establish clear reporting lines and job responsibilities, or promote accountability over business process control activities.

Critical Accounting Estimates and Non-Routine Transactions - In the first quarter of 2014, a significant deficiency at December 31, 2013 disclosed in the Amended 10-K relating to critical accounting estimates and non-routine transactions escalated into a material weakness. The Company did not maintain effective controls or develop standardized policies and procedures for critical accounting estimates and non-routine transactions, including management review and approval of the accounting treatment of all critical and significant estimates on a periodic basis.

Cash Reconciliations and Monitoring - The Company did not implement appropriate controls to record payments received and to reconcile its cash receipts and bank accounts on a timely basis.

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Information Technology General Controls - Access, Authentication and Information Technology Environment - The Company did not maintain effective information technology environmental and governance controls, including controls over information systems security administration and management functions in the following areas: (a) granting and revoking user access rights; (b) timely notification of user departures; (c) periodic review of appropriateness of access rights; (d) physical access restrictions; and (e) segregation of duties.

Information Technology General Controls Over Management of Third Party Service Providers - When the transition services agreement between the Company and the Former Manager was terminated on January 8, 2014, the Company did not enter into a follow-on formal agreement with the affiliate of the Former Manager that managed technology infrastructure and systems significant to the Company’s financial reporting process. Without a formal agreement governing the delivery of services, the Company’s management cannot make any assertions about the operating effectiveness of the third party service provider’s controls over information systems, programs, data and processes financially significant to the Company or the security of the Company’s data under the control of the related third party service provider.

Remediation

As discussed below, the Company is actively engaged in improving its disclosure controls and procedures and internal control over financial reporting. The Company’s new senior management will report on a quarterly basis to the Audit Committee and, where applicable, to the other Committees of the Board of Directors as to the progress made in remediating the material weaknesses identified above.

Control Environment - During the fourth quarter of 2014, the Company underwent a change in senior leadership as a result of the resignations of the Company’s Executive Chairman of the Board, Chief Executive Officer and director, President and Chief Operating Officer, Chief Financial Officer and Chief Accounting Officer. The Audit Committee, the Board of Directors and new senior leadership are committed to establishing a culture of compliance, integrity and transparency and have begun communicating their commitment and expectations to all employees of Company. This commitment will also be an important consideration in the Board of Directors’ selection of a new independent Chairman of the Board of Directors and a permanent Chief Executive Officer pursuant to its previously-announced search process.

The Board of Directors, with the assistance of outside counsel, has commenced a comprehensive review of its key practices and procedures. This review will include, among other things, the nature, transparency and timeliness of information provided to the Board of Directors by management, the agenda-setting process, the process by which the Board of Directors oversees the Company’s risk management functions and the roles and responsibilities, charters, key practices and procedures of the committees of the Board of Directors. As an outgrowth of this review, the Board of Directors has adopted a new related person transactions policy and assigned the administration of this policy to the Nominating and Corporate Governance Committee.

Under the Audit Committee’s oversight, management has commenced a comprehensive review of corporate compliance policies and programs and is initiating periodic Company-wide training on ethics, reporting procedures and other key topics as well as a review of the Company’s whistleblower hotline policies and procedures.

The Company is also in the process of strengthening its controls in a number of areas highlighted by the Audit Committee investigation, as follows:

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Adding additional layers of review of the Company’s significant accounting policies and estimates, including the bonus accrual process;

•

Improving the controls around decisions on whether or not to reflect certain accounting adjustments in the Company’s books and records and/or to report such adjustments within financial statements, by revising its policies, implementing additional review and training all accounting personnel on the revised policies;

•

Adopting new accounting policies that incorporate technical accounting guidance as to when expenses may be appropriately classified as merger-related expenses, and conducting training on the implementation of this policy with relevant members of its accounting staff; and

•

Adopting new practices surrounding the calculation and presentation of AFFO and the formulation and review of AFFO guidance.

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Financial Reporting Disclosure Controls - Under the oversight of the Audit Committee, the Company is in the process of creating a chartered Disclosure Committee to be comprised of senior attorneys, accounting personnel and executives and heads of other pertinent firm-wide disciplines. The Chair of the Disclosure Committee will have ongoing dialogue with the Audit Committee and the Board of Directors on how the Disclosure Committee is fulfilling its mandate to ensure the timeliness, accuracy, completeness and quality of the Company’s SEC filings and other public disclosures. The Disclosure Committee will be responsible for establishing and administering a process by which certain personnel in relevant functions and areas will be required to provide sub-certifications in support of the certifications that the Company’s principal executive and principal financial officers are required to provide in connection with each periodic SEC report. Processes will be implemented to help plan appropriately for quarterly financial reporting as well as securities offerings.

Additionally, at the direction of the Audit Committee, the Company is enhancing and formalizing the procedures for the review and approval of annual and quarterly SEC reports (some of which were previously less formal) as follows:

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Drafts of reports will be circulated sufficiently in advance of Audit Committee meetings to permit adequate review;

•

Audit Committee meetings will be attended in person to the extent practicable and, in addition to Audit Committee members, required attendees will include the Chief Financial Officer, Chief Accounting Officer, General Counsel, Chair of the Disclosure Committee, head of Internal Audit, independent auditors and outside legal counsel as necessary;

•

At Audit Committee meetings, in addition to required communications from the independent auditors, reports will be made by the Chief Accounting Officer and the Chair of the Disclosure Committee on significant changes from prior filings, significant judgments reflected in the report and receipt of sub-certifications;

•

At Audit Committee meetings, separate executive sessions will be held with the independent auditor, head of Internal Audit, General Counsel and others as necessary; and

•

Any changes to a draft of a periodic report that has been approved by the Audit Committee must be submitted to and reviewed and approved by the Chair of the Audit Committee prior to filing.

Related Party Transactions and Conflicts of Interest - The resignation of the members of senior management affiliated with the Former Manager has eliminated certain conflicts of interest that existed prior to such resignations.

The Audit Committee’s investigation identified certain payments made by the Company to the Former Manager or its affiliates that were not sufficiently documented or otherwise require scrutiny. In November 2014, as a result of the Audit Committee investigation, the Company terminated a lease agreement with an affiliate of its Former Manager for space in a building in Newport, Rhode Island. The Company, which never occupied the building, was reimbursed for certain leasehold improvements and other costs by delivery of 916,423 OP Units valued at approximately $8.5 million, which were retired. The Company is considering whether it has a right to seek recovery for any other such payments and, if so, its alternatives for seeking recovery. No asset has been recognized in the financial statements related to any potential recovery.

The Company is working closely with outside counsel to terminate its remaining relationships with affiliates of its Former Manager, including ARC Capital, LLC (“ARC”) and RCS Capital Corporation, and to disentangle its internal control framework from the affiliated entities. The Company is seeking to obtain copies of all of its books and records held by ARC and to eliminate all human resource, information technology and other overlapping departmental services.

The Company has also enhanced the procedures for review and approval of potential related party transactions with directors, director nominees, executive officers, 5% shareholders and their immediate family members through the adoption of a new related party transactions policy administered by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will annually assess the use and effectiveness of the policy.

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Equity-Based Compensation - The Company has recently obtained copies from ARC of all equity awards made by means of block grants allocated by the Former Manager or its affiliates and will seek to assume administration of those awards. In addition, the Company will review these equity awards for consistency with Compensation Committee authorization.

Under the Compensation Committee’s oversight, the Company is implementing new governance processes for the authorization, documentation, issuance, administration and accounting for equity-based compensation. The Compensation Committee will approve each award, rather than delegating authority to management to allocate large tranches of awards. In-house counsel, accounting, tax, and human resources personnel will work together to oversee the issuance of equity compensation to directors, officers and employees. Equity compensation tracking and recordkeeping will be improved through the use of equity tracking software. All compensation matters within the Compensation Committee’s purview will be reviewed by the Compensation Committee Chair and in-house counsel against the Compensation Committee’s authorization to ensure consistency and appropriate documentation. In respect of all other employment matters, the human resources department will consult in-house counsel before making any offer of employment or any compensation adjustment that includes any equity award or otherwise raises equity compensation issues.

Accounting Close Process - The Company has begun to standardize its internal accounting close process and intends to complete the integration of its accounting and financial reporting processes among its various offices. Toward this end, the Company has documented, and intends to continue to document, its key and significant operational activities and accounting policies and procedures. In addition, the Company has designed and implemented internal controls within its accounting close process to ensure that closing activities, such as reconciliations, timely reviews, journal entry reviews and comprehensive financial analysis, are performed and reviewed. The Company intends to create a financial reporting sub-certification process and is defining key roles and responsibilities within the organizational structure. Lastly, the Company has conducted trainings, and will conduct additional trainings, for its accounting and other professionals to ensure the accounting close processes and entity level and company level controls and procedures are well defined, documented and implemented to support operational effectiveness.

Critical Accounting Estimates and Non-Routine Transactions - The Company has documented various critical accounting policies, and intends to continue to document new accounting policies and to update its existing documentation for any noted changes on a timely basis. New policies have been communicated to the relevant Company employees. The Company has also established a process under which senior management approves all critical accounting estimates and non-routine transactions on a periodic basis as part of the financial close and reporting processes.

Cash Reconciliations and Monitoring - The Company has documented treasury and accounting policies and procedures, implemented controls over the monitoring and reconciliation of cash accounts and plans to review all bank accounts associated with the Company. In addition, the Company has established roles and responsibilities to monitor and account for its various bank accounts.

Information Technology General Controls - Access, Authentication and IT Environment - The Company has implemented an access management system to govern the granting and revocation of user access rights and standardized the administration of access to financially significant systems within the information technology organization. The system maintains a database of access grants and a record of business approvals. The controls governing access to programs and data have been updated to reflect the use of the access management system. The Company has trained business approvers, managers, information technology staff, and human resources staff on the revised controls and their respective roles and responsibilities within each control. The process for managing and conducting the periodic system access reviews has been standardized across all systems. Periodic access reviews will be managed by the Information Technology department to ensure adherence to the control standard.

Information Technology General Controls Over Management of Third Party Service Providers - Executive management responsible for this directive is no longer with the Company. The Company is working to complete the integration of systems, offices and business processes so as to remove the dependencies on the formerly affiliated party service provider as soon as possible. The Company is also establishing a control framework to ensure all service providers have the appropriate contracts and service level agreements in place prior to initiation of any services.

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Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2014, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting other than ongoing integration activities relating to the Company’s acquisitions of large portfolios in 2013, ARCT IV and Cole Real Estate Investments, Inc.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

The information contained in Note 17 — Commitments and Contingencies to our consolidated financial statements in this Form 10-Q/A is incorporated by reference into this Item 1. Also, please refer to Note 24 — Subsequent Events (As Restated) in Amendment No. 2 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the U.S. Securities and Exchange Commission (“SEC”) (the “Amended 10-K”).

Item 1A. Risk Factors. (As Restated)

Based on the events surrounding the investigation conducted by the Audit Committee, the Company has identified changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2013 as originally filed. Refer to the Amended 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included in, or incorporated by reference into, this Form 10-Q/A.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Amendment No. 1 to its Quarterly Report on Form 10-Q/A to be signed on its behalf by the undersigned thereunto duly authorized on this 2nd day of March, 2015.


AMERICAN REALTY CAPITAL PROPERTIES, INC.

By:		/s/ Michael Sodo

Michael Sodo Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

Date: March 2, 2015

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EXHIBITS

The following exhibits are included in, or incorporated by reference into, this Amended Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2014 (and are numbered in accordance with Item 601 of Regulation S-K):


Exhibit No.		Description

10.48 ⁽¹⁾		Employment Offer Letter, dated as of October 21, 2013, by and between American Realty Capital Properties, Inc. and Lisa Pavelka McAlister

10.49 ⁽¹⁾		Employment Agreement, dated as of February 24, 2014, by and between American Realty Capital Properties, Inc. and Richard A. Silfen

10.50 ⁽¹⁾		Agreement of Purchase and Sale, dated as of June 11, 2014, among certain subsidiaries of American Realty Capital Properties, Inc. party thereto and BRE DDR Retail Holdings III LLC

10.51 ⁽¹⁾		Amended and Restated Credit Agreement, dated as of June 30, 2014, among ARC Properties Operating Partnership, L.P., American Realty Capital Properties, Inc., lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent

10.52 ⁽¹⁾		First Amendment to Agreement of Purchase and Sale, dated as of July 18, 2014, among certain subsidiaries of American Realty Capital Properties, Inc. party thereto and BRE DDR Retail Holdings III LLC.

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

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

32.1*		Written statements of the Chief Executive 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

32.2*		Written statements of the 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

101†		XBRL (eXtensible Business Reporting Language). The following materials from American Realty Capital Properties, Inc.’s Amended Quarterly Report on Form 10-Q/A for the three months ended June 30, 2014, formatted in XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the Consolidated Statement of Changes in Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 19 of the Securities Exchange Act of 1934, as amended

*	Filed herewith

†	To be filed by amendment.

(1)	Previously filed with the Registrant’s Quarterly Report on Form 10-Q for the three months ended June 30, 2014 filed with the SEC on July 29, 2014.

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