New York REIT Liquidating LLC - FORM 10-Q - August 9, 2016

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EX-32 - WRITTEN STATEMENTS OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS OF THE COMPANY - New York REIT Liquidating LLCnyrt6302016ex3210-q.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER OF THE COMPANY - New York REIT Liquidating LLCnyrt6302016ex31210-q.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF THE COMPANY - New York REIT Liquidating LLCnyrt6302016ex31110-q.htm
EX-10.1 - AMENDMENT NO 1 TO SEVENTH A&R ADVISORY AGREEMENT - New York REIT Liquidating LLCnyrt6302016ex10110-q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(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, 2016

OR
o
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: 001-36416


NEW YORK REIT, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
27-1065431
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
405 Park Ave., 14th Floor, New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
(212) 415-6500
(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. x Yes ¨ No

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). x Yes ¨ No

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.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o

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

As of July 29, 2016, the registrant had 165,846,056 shares of common stock, $0.01 par value per share, outstanding.



NEW YORK REIT, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
NEW YORK REIT, INC.

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


 
 
June 30, 2016
 
December 31, 2015
ASSETS
 
(Unaudited)
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
477,171

 
$
477,171

Buildings, fixtures and improvements
 
1,213,767

 
1,208,138

Acquired intangible assets
 
133,334

 
137,594

Total real estate investments, at cost
 
1,824,272

 
1,822,903

Less accumulated depreciation and amortization
 
(198,778
)
 
(172,668
)
Total real estate investments, net
 
1,625,494

 
1,650,235

Cash and cash equivalents
 
88,130

 
98,604

Restricted cash
 
1,743

 
2,019

Investment in unconsolidated joint venture
 
201,114

 
215,370

Assets held for sale
 
—

 
29,268

Derivatives, at fair value
 
59

 
431

Tenant and other receivables

4,459


3,537

Unbilled rent receivables

46,840


42,905

Prepaid expenses and other assets (including amounts prepaid to related parties of $7 as of December 31, 2015)
 
9,192

 
10,074

Deferred costs, net
 
9,414

 
12,319

Total assets
 
$
1,986,445

 
$
2,064,762

LIABILITIES AND EQUITY
 
 

 
 

Mortgage notes payable, net of deferred financing costs
 
$
363,468

 
$
381,443

Credit facility
 
485,000

 
485,000

Market lease intangibles, net
 
69,024

 
73,083

Liabilities related to assets held for sale
 
—

 
321

Derivatives, at fair value
 
2,228

 
1,266

Accounts payable, accrued expenses and other liabilities (including amounts due to related parties of $87 and $99 as of June 30, 2016 and December 31, 2015, respectively)
 
30,771

 
27,736

Deferred revenue
 
3,913

 
3,617

Dividends payable
 
17

 
27

Total liabilities
 
954,421

 
972,493

Preferred stock, $0.01 par value; 40,866,376 shares authorized, none issued and outstanding
 
—

 
—

Convertible preferred stock, $0.01 par value; 9,133,624 shares authorized, none issued and outstanding
 
—

 
—

Common stock, $0.01 par value; 300,000,000 shares authorized, 165,128,053 and 162,529,811 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
 
1,652

 
1,626

Additional paid-in capital
 
1,427,708

 
1,403,624

Accumulated other comprehensive loss
 
(2,215
)
 
(1,237
)
Accumulated deficit
 
(418,197
)
 
(369,273
)
Total stockholders' equity
 
1,008,948

 
1,034,740

Non-controlling interests
 
23,076

 
57,529

Total equity
 
1,032,024

 
1,092,269

Total liabilities and equity
 
$
1,986,445

 
$
2,064,762

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2
NEW YORK REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
29,769

 
$
32,130

 
$
58,778

 
$
65,608

Hotel revenue
 
7,060

 
7,363

 
11,389

 
11,572

Operating expense reimbursements and other revenue
 
3,094

 
4,184

 
6,465

 
8,346

Total revenues
 
39,923

 
43,677

 
76,632

 
85,526

Operating expenses:
 
 

 
 

 
 

 
 
Property operating
 
10,089

 
10,098

 
20,455

 
21,067

Hotel operating

6,600


6,495


12,854


12,165

Operating fees incurred from the Advisor
 
3,050

 
3,101

 
6,124

 
6,245

Transaction related
 
6,261

 
96

 
6,610

 
221

General and administrative
 
609

 
5,203

 
(2,735
)
 
9,153

Depreciation and amortization
 
16,587

 
22,154

 
33,812

 
43,834

Total operating expenses
 
43,196

 
47,147

 
77,120

 
92,685

Operating loss
 
(3,273
)
 
(3,470
)
 
(488
)
 
(7,159
)
Other income (expenses):
 
 

 
 

 
 

 
 
Interest expense
 
(9,312
)
 
(6,347
)
 
(19,038
)
 
(12,596
)
Income from unconsolidated joint venture
 
757

 
570

 
1,845

 
805

Income from preferred equity investment, investment securities and interest
 
3

 
8

 
21

 
938

Gain on sale of real estate investments, net
 
125

 
—

 
6,630

 
—

Gain (loss) on derivative instruments
 
(107
)
 
—

 
(358
)
 
(4
)
Total other expenses
 
(8,534
)
 
(5,769
)
 
(10,900
)
 
(10,857
)
Net loss
 
(11,807
)
 
(9,239
)
 
(11,388
)
 
(18,016
)
Net loss attributable to non-controlling interests
 
267

 
257

 
335

 
518

Net loss attributable to stockholders
 
$
(11,540
)
 
$
(8,982
)
 
$
(11,053
)
 
$
(17,498
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives
 
$
(99
)
 
$
427

 
$
(978
)
 
$
(666
)
Unrealized loss on investment securities
 
—

 
(192
)
 
—

 
(88
)
Total other comprehensive income (loss)
 
(99
)
 
235

 
(978
)
 
(754
)
Comprehensive loss attributable to stockholders
 
$
(11,639
)
 
$
(8,747
)
 
$
(12,031
)
 
$
(18,252
)
 
 
 
 
 
 
 
 
 
Basic and diluted weighted average common shares outstanding
 
164,835,872

 
162,156,470

 
164,354,242

 
162,124,624

Basic and diluted net loss per share attributable to stockholders
 
$
(0.07
)
 
$
(0.06
)
 
$
(0.07
)
 
$
(0.11
)
Dividends declared per common share
 
$
0.12

 
$
0.12

 
$
0.23

 
$
0.23

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3
NEW YORK REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six Months Ended June 30, 2016
(In thousands, except share data)
(Unaudited)


 
 
Common Stock
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
Number
of
Shares
 
Par
Value
 
Additional
Paid-In
Capital
 
 
Accumulated
Deficit
 
Total Stockholders'
Equity
 
Non-
controlling
Interests
 
Total
Equity
Balance, December 31, 2015
 
162,529,811

 
$
1,626

 
$
1,403,624

 
$
(1,237
)
 
$
(369,273
)
 
$
1,034,740

 
$
57,529

 
$
1,092,269

OP units converted to common stock
 
2,610,065

 
26

 
23,975

 
—

 
—

 
24,001

 
(24,001
)
 
—

Equity-based compensation and redemption of vested shares
 
(11,823
)
 
—

 
109

 
—

 
—

 
109

 
(8,642
)
 
(8,533
)
Dividends declared on common stock and distributions to non-controlling interest holders
 
—

 
—

 
—

 
—

 
(37,871
)
 
(37,871
)
 
(1,475
)
 
(39,346
)
Net loss
 
—

 
—

 
—

 
—

 
(11,053
)
 
(11,053
)
 
(335
)
 
(11,388
)
Unrealized loss on derivatives
 
—

 
—

 
—

 
(978
)
 
—

 
(978
)
 
—

 
(978
)
Balance, June 30, 2016
 
165,128,053

 
$
1,652

 
$
1,427,708

 
$
(2,215
)
 
$
(418,197
)
 
$
1,008,948

 
$
23,076

 
$
1,032,024

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4
NEW YORK REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Six Months Ended June 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(11,388
)
 
$
(18,016
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
33,812

 
43,834

Amortization of deferred financing costs
 
5,012

 
2,300

 Accretion of below- and amortization of above-market lease liabilities and assets, net
 
(3,341
)
 
(4,913
)
Equity-based compensation
 
(8,363
)
 
2,437

Loss on derivative instruments
 
358

 
4

   Income from unconsolidated joint venture
 
(1,845
)
 
(805
)
Gain on sale of real estate investment, net
 
(6,630
)
 
—

Gain on sale of investment securities
 
—

 
(48
)
Bad debt expense
 
247

 
556

Changes in assets and liabilities:
 
 

 
 

Tenant and other receivables
 
(992
)
 
89

Unbilled rent receivables
 
(4,149
)
 
(8,726
)
Prepaid expenses, other assets and deferred costs
 
(498
)
 
(3,274
)
Accrued unbilled ground rent
 
1,372

 
1,774

Accounts payable and accrued expenses
 
2,204

 
1,189

Deferred revenue
 
296

 
(69
)
Net cash provided by operating activities
 
6,095

 
16,332

Cash flows from investing activities:
 
 

 
 

Proceeds from sale of real estate investments and redemption of preferred equity investment
 
35,429

 
35,100

Acquisition funds released from escrow
 
—

 
4,551

Capital expenditures
 
(9,722
)
 
(12,940
)
Distributions from unconsolidated joint venture
 
16,101

 
—

Proceeds from sale of investment securities
 
—

 
1,098

Purchase of investment securities
 
—

 
(42
)
Net cash provided by investing activities
 
41,808

 
27,767

Cash flows from financing activities:
 
 

 
 

Payments on mortgage notes payable
 
(19,144
)
 
(244
)
Refund (payments) of financing costs
 
19

 
(157
)
Dividends paid
 
(37,881
)
 
(37,305
)
Distributions to non-controlling interest holders
 
(1,475
)
 
(1,361
)
Redemptions of restricted shares
 
(172
)
 
—

Restricted cash
 
276

 
(58
)
Net cash used in financing activities
 
(58,377
)
 
(39,125
)
Net increase (decrease) in cash and cash equivalents
 
(10,474
)
 
4,974

Cash and cash equivalents, beginning of period
 
98,604

 
22,512

Cash and cash equivalents, end of period
 
$
88,130

 
$
27,486

 
 
 
 
 
Supplemental disclosures:
 
 
 
 
Cash paid for interest
 
$
14,214

 
$
9,761

Non-cash investing and financing activities:
 
 

 
 

Dividends payable
 
17

 
48

Accrued capital expenditures
 
17

 
2,546

Conversion of OP units to common stock
 
24,001

 
974

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)


Note 1 — Organization
New York REIT, Inc. (the "Company") was incorporated on October 6, 2009 as a Maryland corporation that qualified as a real estate investment trust for U.S. federal income tax purposes ("REIT") beginning with its taxable year ended December 31, 2010. On April 15, 2014, the Company listed its common stock on the New York Stock Exchange ("NYSE") under the symbol "NYRT" (the "Listing").
The Company purchased its first property and commenced active operations in June 2010. As of June 30, 2016, the Company owned 19 properties. As of June 30, 2016, the Company's properties aggregated 3.3 million rentable square feet, had an occupancy of 93% and a weighted-average remaining lease term of 9.3 years. The Company's portfolio primarily consisted of office and retail properties, representing 83% and 9%, respectively, of rentable square feet as of June 30, 2016. The Company has acquired hotel and other types of real properties to add diversity to its portfolio. Properties other than office and retail spaces represented 8% of rentable square feet.
Substantially all of the Company's business is conducted through New York Recovery Operating Partnership, L.P. (the "OP"), a Delaware limited partnership. The Company's only significant asset is the general partnership interests it owns in the OP and assets held by the Company for the use and benefit of the OP. The Company has no employees. The Company has retained New York Recovery Advisors, LLC (the "Advisor") to manage its affairs on a day-to-day basis. New York Recovery Properties, LLC (the "Property Manager") serves as the Company's property manager, unless services are performed by a third party for specific properties. The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of the Company's sponsor, American Realty Capital III, LLC (the "Sponsor"), as a result of which, they are related parties and have received or will continue to receive compensation, fees and expense reimbursements for services related to the investment and management of the Company's assets.
Note 2 — Combination Agreement
On May 25, 2016, the Company and the OP entered into a Master Combination Agreement (the "Combination Agreement") with JBG Properties, Inc. and JBG/Operating Partners, L.P. (collectively "JBG Management Entities"), and certain pooled investment funds that are affiliates of the JBG Management Entities (collectively with the JBG Management Entities and certain affiliated entities "JBG"), providing for a series of transactions pursuant to which certain of JBG's real estate interests and management business interests would be contributed to the Company and the OP in exchange for an aggregate of up to approximately 319.9 million newly issued shares of common stock of the Company and newly issued units of limited partner interests in the OP, subject to certain adjustments (the “Combination Transactions”).
Concurrently and in connection with the entry into the Combination Agreement, the Company, the Advisor and certain of the Company’s directors and officers also entered into the following agreements generally effective upon the completion of the Combination Transactions and subject to automatic termination upon termination of the Combination Agreement:
•
a transition services agreement (the "Transition Services Agreement") whereby the Advisor agreed to provide the Company with certain transition services through the date on which the Company's Annual Report on Form 10-K for the year ended December 31, 2016 is filed with the SEC for an aggregate fee in the amount of $7.0 million;
•
a termination agreement (the "OPP Termination Agreement") terminating the Company's 2014 Advisor Multi-Year Outperformance Agreement with the Advisor (as amended and restated effective August 5, 2015, the "OPP") upon the occurrence of the closing of the Combination Transactions in exchange for an aggregate of 1,172,738 limited partnership units of the OP entitled "LTIP Units" ("LTIP units") that have been earned under the OPP through April 16, 2016 and an additional 2,865,916 LTIP units that would be deemed to be earned for the year ending April 16, 2017 converting into limited partnership units of the OP entitled "OP Units" ("OP units"), which would be exchanged for 4,038,654 shares of common stock;
•
a termination agreement (the "Omnibus Termination Agreement") pursuant to which, subject to and effective as of the closing of the Combination Transactions, the property management agreement with the Property Manager and other agreements with the Advisor or its affiliates, would be terminated;
•
a support agreement (the “Support Agreement”) whereby Michael A. Happel, the Company’s chief executive officer and president, and William M. Kahane, a member of the Company’s board of directors and a control person of the Advisor, agreed to vote in favor of the matters requiring stockholder approval with respect to the Combination Transactions; and

6
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

•
a term sheet (the “Happel Term Sheet”) for a consulting agreement between Mr. Happel and the Company which by it terms would not become effective until the closing of the Combination Transactions.
On August 2, 2016, the Company and the OP entered into a termination and release agreement (the “Termination Agreement”) with JBG providing for termination of the Combination Agreement and the Confidentiality Agreement by and among the Company and the OP and JBG Properties, Inc., dated January 29, 2016. Effective upon the termination of the Combination Agreement, the Transition Services Agreement, the OPP Termination Agreement, the Omnibus Termination Agreement, the Support Agreement and the Happel Term Sheet also terminated automatically in accordance with their terms. See Note 17 — Subsequent Events.
Note 3 — Summary of Significant Accounting Policies
The accompanying consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by 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. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results of operations for the entire year or any subsequent interim period.
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, 2015, which are included in the Company's Annual Report on Form 10-K filed with the SEC on February 26, 2016. There have been no significant changes to the Company's significant accounting policies during the three and six months ended June 30, 2016, other than the updates described below and in the subsequent notes.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (the "FASB") issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In June 2016, the FASB issued guidance that changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance.
Recently Adopted Accounting Pronouncements
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIE") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for the Company's fiscal year ended December 31, 2016. The Company has evaluated the impact of the adoption of the new guidance on its consolidated financial statements and has determined the OP is considered to be a VIE and continues to consolidate the OP as required under previous GAAP. However, the Company meets the disclosure exemption criteria as the Company is the primary beneficiary of the VIE and the Company’s partnership interest is considered a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. Also as a result of the new guidance, the Company has also determined that WWP Holdings, LLC ("Worldwide Plaza") is a VIE, but the Company is not the primary beneficiary and therefore continues to not consolidate the entity. As such, the adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

7
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendment requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability and that the entity apply the new guidance on a retrospective basis. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for the Company's fiscal year ended December 31, 2016. As a result of adoption of the new guidance, the Company has reclassified deferred financing costs, net related to mortgage notes payable of $5.8 million and $7.0 million, respectively, as of June 30, 2016 and December 31, 2015 as a reduction of the carrying amount of mortgage notes payable. See Note 7 — Mortgage Notes Payable. As permitted, deferred financing costs related to the Company's credit facility with Capital One, National Association (the "Credit Facility") continue to be reflected within deferred costs, net on the consolidated balance sheets.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2016 and determined that there is no impact to the Company’s consolidated financial position, results of operations and cash flows. The Company's policy is to account for forfeitures as they occur.
Note 4 — Real Estate Investments
There were no real estate assets acquired or liabilities assumed during the three and six months ended June 30, 2016 or 2015.
The following table presents future minimum base cash rental payments due to the Company, excluding future minimum base cash rental payments related to the Company's unconsolidated joint venture, subsequent to June 30, 2016. These amounts exclude contingent rental 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 Base Cash Rental Payments
July 1, 2016 - December 31, 2016
 
$
51,360

2017
 
106,133

2018
 
103,983

2019
 
95,893

2020
 
96,417

Thereafter
 
553,811

Total
 
$
1,007,597

The following table lists the tenants whose annualized cash rent represented greater than 10% of total annualized cash rent as of June 30, 2016 and 2015, including annualized cash rent related to the Company's unconsolidated joint venture:
 
 
 
 
June 30,
Property Portfolio
 
Tenant
 
2016
 
2015
Worldwide Plaza
 
Cravath, Swaine & Moore, LLP
 
16%
 
16%
Worldwide Plaza
 
Nomura Holdings America, Inc.
 
11%
 
10%
The termination, delinquency or non-renewal of any of the above tenants may have a material adverse effect on the Company's operations.

8
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Intangible Assets and Liabilities
Acquired intangible assets and liabilities as of June 30, 2016 and December 31, 2015 consist of the following:
 
 
June 30, 2016
(In thousands)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
In-place leases
 
$
109,238

 
$
32,611

 
$
76,627

Other intangibles
 
3,804

 
589

 
3,215

Above-market leases
 
20,292

 
4,326

 
15,966

Total acquired intangible assets
 
$
133,334

 
$
37,526

 
$
95,808

Intangible lease liabilities:
 
 

 
 
 
 

Below-market leases
 
$
75,612

 
$
23,379

 
$
52,233

Above-market ground lease liability
 
17,968

 
1,177

 
16,791

Total market lease intangibles
 
$
93,580

 
$
24,556

 
$
69,024

 
 
December 31, 2015
(In thousands)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
In-place leases
 
$
113,392

 
$
31,120

 
$
82,272

Other intangibles
 
3,804

 
429

 
3,375

Above-market leases
 
20,398

 
3,713

 
16,685

Total acquired intangible assets
 
$
137,594

 
$
35,262

 
$
102,332

Intangible lease liabilities:
 
 

 
 
 
 

Below-market leases
 
$
77,177

 
$
21,110

 
$
56,067

Above-market ground lease liability
 
17,968

 
952

 
17,016

Total market lease intangibles
 
$
95,145

 
$
22,062

 
$
73,083

The following table discloses amounts recognized within the consolidated statements of operations and comprehensive loss related to amortization of in-place leases and other intangibles, amortization and accretion of above- and below-market lease assets and liabilities, net and the amortization of above-market ground lease, for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2016
 
2015
 
2016
 
2015
Amortization of in-place leases and other intangibles(1)
 
$
2,767

 
$
4,887

 
$
5,807

 
$
11,058

Amortization and (accretion) of above- and below market leases, net(2)
 
$
(1,504
)
 
$
(1,729
)
 
$
(3,116
)
 
$
(4,688
)
Amortization of above-market ground lease(3)
 
$
(113
)
 
$
(113
)
 
$
(225
)
 
$
(225
)
_______________
(1)
Reflected within depreciation and amortization expense.
(2)
Reflected within rental income.
(3)
Reflected within hotel expenses.

9
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The following table provides the projected amortization expense and adjustments to revenues for the next five years as of June 30, 2016:
 
 
July 1, 2016 - December 31, 2016
 
2017
 
2018
 
2019
 
2020
In-place leases
 
$
5,019

 
$
9,612

 
$
8,655

 
$
8,271

 
$
8,033

Other intangibles
 
161

 
321

 
321

 
321

 
321

Total to be included in depreciation and amortization expense
 
$
5,180

 
$
9,933

 
$
8,976

 
$
8,592

 
$
8,354

 
 
 
 
 
 
 
 
 
 
 
Above-market lease assets
 
$
(710
)
 
$
(1,420
)
 
$
(1,420
)
 
$
(1,420
)
 
$
(1,407
)
Below-market lease liabilities
 
3,613

 
6,660

 
5,875

 
5,490

 
5,250

Total to be included in rental income
 
$
2,903

 
$
5,240

 
$
4,455

 
$
4,070

 
$
3,843

 
 
 
 
 
 
 
 
 
 
 
Above-market ground lease liability to be deducted from hotel expenses
 
$
(225
)
 
$
(449
)
 
$
(449
)
 
$
(449
)
 
$
(449
)
Real Estate Sales
During the six months ended June 30, 2016, the Company sold its properties located at 163-30 Cross Bay Boulevard in Queens, New York ("Duane Reade"), 1623 Kings Highway in Brooklyn, New York ("1623 Kings Highway") and 2061-2063 86th Street in Brooklyn, New York ("Foot Locker"). The following table summarizes the properties sold during the six months ended June 30, 2016. The Company did not sell any real estate assets during the three months ended June 30, 2016 or during the three and six months ended June 30, 2015.
Property
 
Borough
 
Disposition Date
 
Contract Sales Price
 
Gain on Sale(1)(2)
 
 
 
 
 
 
(in thousands)
 
(in thousands)
Duane Reade(3)
 
Queens
 
February 2, 2016
 
$
12,600

 
$
126

1623 Kings Highway
 
Brooklyn
 
February 17, 2016
 
17,000

 
4,293

Foot Locker
 
Brooklyn
 
March 30, 2016
 
8,400

 
2,211

 
 
 
 
 
 
$
38,000

 
$
6,630

______________________
(1)
Reflected within gain on sale of real estate investments, net in the consolidated statements of operations and comprehensive loss for the six months ended June 30, 2016.
(2)
During the six months ended June 30, 2016, the Company repaid three mortgage notes payable totaling $18.9 million with the proceeds from the sales of Duane Reade, 1623 Kings Highway and Foot Locker.
(3)
Impairment charge of $0.9 million was recognized during the year ended December 31, 2015 in connection with the classification of Duane Reade as held for sale.
The sale of Duane Reade, 1623 Kings Highway and Foot Locker did not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the results of operations of Duane Reade, 1623 Kings Highway and Foot Locker remain classified within continuing operations for all periods presented until the respective dates of their sale.

10
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 5 — Investment in Unconsolidated Joint Venture
On October 30, 2013, the Company purchased a 48.9% equity interest in Worldwide Plaza for a contract purchase price of $220.1 million, based on the property value for Worldwide Plaza of $1.3 billion less $875.0 million of debt on the property. As of June 30, 2016, the Company's pro rata portion of debt secured by Worldwide Plaza was $427.9 million. The debt on the property has a weighted average interest rate of 4.6% and matures in March 2023. As a result of new accounting guidance, the Company has determined that Worldwide Plaza is a VIE, but is not required to consolidate the activities of Worldwide Plaza. The Company accounts for the investment in Worldwide Plaza using the equity method of accounting because the Company exercises significant influence over, but does not control, the entity. See Note 3 — Summary of Significant Accounting Policies.
Pursuant to the terms of the membership agreement governing the Company’s purchase of the 48.9% equity interest in Worldwide Plaza, the Company retains an option (the "WWP Option") to purchase the balance of the equity interest in Worldwide Plaza beginning on the first day of the 39th month following the closing of the acquisition, or January 1, 2017, at an agreed-upon property value of $1.4 billion, subject to certain adjustments, including, but not limited to, adjustments for certain loans that are outstanding at the time of exercise, adjustments for the percentage equity interest being acquired and any of the Company's preferred return in arrears. If the Company does not exercise the WWP Option, the Company will be subject to a fee in the amount of $25.0 million. See Note 17 — Subsequent Events for additional disclosure regarding the WWP Option.
At acquisition, the Company's investment in Worldwide Plaza exceeded the Company's share of the book value of the net assets of Worldwide Plaza by $260.6 million. This basis difference resulted from the excess of the Company's purchase price for its equity interest in Worldwide Plaza over the book value of Worldwide Plaza's net assets. Substantially all of this basis difference was allocated to the fair values of Worldwide Plaza's assets and liabilities. The Company amortizes the basis difference over the anticipated useful lives of the underlying tangible and intangible assets acquired and liabilities assumed. The basis difference related to the land will be recognized upon disposition of the Company's investment. As of June 30, 2016 and December 31, 2015, the carrying value of the Company's investment in Worldwide Plaza was $201.1 million and $215.4 million, respectively.
The Company is party to litigation related to Worldwide Plaza. See Note 11 — Commitments and Contingencies.
The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the financial information of Worldwide Plaza. The Company does not record losses of the joint venture in excess of its investment balance because the Company is not liable for the obligations of the joint venture or is otherwise committed to provide financial support to the joint venture.
The condensed balance sheets as of June 30, 2016 and December 31, 2015 for Worldwide Plaza are as follows:
(In thousands)
 
June 30, 2016
 
December 31, 2015
 
 
(Unaudited)
 
 
Real estate assets, at cost
 
$
715,266

 
$
714,642

Less accumulated depreciation and amortization
 
(127,218
)
 
(117,092
)
Total real estate assets, net
 
588,048

 
597,550

Cash and cash equivalents
 
3,935

 
9,036

Other assets
 
267,127

 
259,894

Total assets
 
$
859,110

 
$
866,480

 
 
 
 
 
Debt
 
$
875,000

 
$
875,000

Other liabilities
 
16,914

 
15,515

Total liabilities
 
891,914

 
890,515

Deficit
 
(32,804
)
 
(24,035
)
Total liabilities and deficit
 
$
859,110

 
$
866,480

 
 
 
 
 
Company's basis
 
$
201,114

 
$
215,370


11
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The condensed statements of operations for the three and six months ended June 30, 2016 and 2015 for Worldwide Plaza are as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2016
 
2015
 
2016
 
2015
Rental income
 
$
31,120

 
$
30,751

 
$
62,609

 
$
61,265

Other revenue
 
1,230

 
1,232

 
2,460

 
2,449

Total revenue
 
32,350

 
31,983

 
65,069

 
63,714

Operating expenses:
 
 
 
 
 
 
 
 
Operating expenses
 
11,624

 
11,727

 
23,610

 
23,967

Depreciation and amortization
 
6,847

 
6,864

 
13,619

 
13,714

Total operating expenses
 
18,471

 
18,591

 
37,229

 
37,681

Operating income
 
13,879

 
13,392

 
27,840

 
26,033

Interest expense
 
(10,255
)
 
(9,992
)
 
(20,509
)
 
(19,874
)
Net income
 
3,624

 
3,400

 
7,331

 
6,159

Company's preferred return
 
(3,987
)
 
(3,894
)
 
(8,054
)
 
(7,745
)
Net loss to members
 
$
(363
)
 
$
(494
)
 
$
(723
)
 
$
(1,586
)
Net income (loss) related to Worldwide Plaza includes the Company's preferred return, the Company's pro rata share of Worldwide Plaza net income (loss) to members and amortization of the basis difference. The following table presents the components of the income related to the Company's investment in Worldwide Plaza for the periods presented, which is included in income from unconsolidated joint venture on the consolidated statements of operations and comprehensive loss.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2016
 
2015
 
2016
 
2015
Company's preferred return
 
$
3,987

 
$
3,894

 
$
8,054

 
$
7,745

Company's share of net loss from Worldwide Plaza
 
(177
)
 
(242
)
 
(353
)
 
(776
)
Amortization of basis difference
 
(3,053
)
 
(3,082
)
 
(5,856
)
 
(6,164
)
Company's income from Worldwide Plaza
 
$
757

 
$
570

 
$
1,845

 
$
805

Note 6 — Credit Facility
The Company is party to the Credit Facility, which allows for total borrowings of up to $705.0 million with a $305.0 million term loan and a $400.0 million revolving loan. The term loan component of the Credit Facility matures in August 2018 and the revolving loan component matures in August 2016. The Company has two options to extend the maturity date of the revolving loan component of the Credit Facility through August 2018. In June 2016, the Company notified Capital One, National Association of its intention to exercise the first option, which will extend the maturity date of the revolving portion of the Credit Facility through August 2017, effective as of the original maturity date. The Credit Facility contains an "accordion feature" to allow the Company, under certain circumstances and with the consent of its lenders, to increase the aggregate loan borrowings to up to $1.0 billion of total borrowings.
The Company has the option, based upon its corporate leverage, to have the Credit Facility priced at either: (a) LIBOR, plus an applicable margin that ranges from 1.50% to 2.25%; or (b) the Base Rate plus an applicable margin that ranges from 0.50% to 1.25%. Base Rate is defined in the Credit Facility as the greater of (i) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate,” (ii) 0.50% above the federal funds effective rate and (iii) 1.00% above the applicable one-month LIBOR. The Company has historically paid interest calculated based on LIBOR, plus an applicable margin.

12
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The outstanding balance of the term and revolving portions of the Credit Facility was $305.0 million and $180.0 million, respectively, as of June 30, 2016, and $305.0 million and $180.0 million, respectively, as of December 31, 2015. The Credit Facility had a combined weighted average interest rate of 2.59% and 2.39% as of June 30, 2016 and December 31, 2015, respectively, a portion of which is fixed with an interest rate swap. The Credit Facility includes an unused commitment fee per annum of (a) 0.15% if the unused balance of the facility is equal to or less than 50% of the available facility and (b) 0.25% if the unused balance of the facility exceeds 50% of the available facility. The actual availability of borrowings under the Credit Facility for any period is based on requirements outlined in the Credit Facility with respect to the pool of eligible unencumbered assets that comprise the borrowing base properties. The unused borrowing capacity, based on the debt service coverage ratio of the borrowing base properties as of June 30, 2016, was $56.8 million.
The Credit Facility provides for monthly interest payments for each Base Rate loan and periodic payments for each LIBOR loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
During the fourth quarter of 2015, the Company identified certain immaterial errors impacting interest expense in its previously issued quarterly financial statements. Interest expense and net loss were understated by $0.3 million and $0.6 million, respectively, for the three and six months ended June 30, 2015, which has been corrected in the accompanying consolidated statements of operations and comprehensive loss for the prior period.
The Credit Facility requires the Company to meet certain financial covenants, including 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. As of June 30, 2016, the Company was in compliance with the debt covenants under the Credit Facility.
See Note 17 — Subsequent Events for additional disclosure regarding the Credit Facility.
Note 7 — Mortgage Notes Payable
The Company's mortgage notes payable as of June 30, 2016 and December 31, 2015 consist of the following:
 
 
 
 
Outstanding Loan Amount
 
 
 
 
 
 
Portfolio
 
Encumbered Properties
 
June 30, 2016
 
December 31, 2015
 
Effective Interest Rate
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
Design Center
 
1
 
$
19,591

 
$
19,798

 
4.4
%
 
Fixed
 
Dec. 2021
1100 Kings Highway
 
1
 
20,200

 
20,200

 
3.4
%
 
Fixed
(1) 
Aug. 2017
256 West 38th Street
 
1
 
24,500

 
24,500

 
3.1
%
 
Fixed
(1) 
Dec. 2017
1440 Broadway(2)
 
1
 
305,000

 
305,000

 
4.1
%
 
Variable
(3) 
Oct. 2019
Foot Locker(4)
 

 
—

 
3,250

 


 

 

Duane Reade(4)
 

 
—

 
8,400

 


 

 

1623 Kings Highway(4)
 

 
—

 
7,288

 


 

 

Mortgage notes payable, gross principal amount
 
 
 
369,291

 
388,436

 
 
 
 
 
 
Less: deferred financing costs, net
 
 
 
(5,823
)
 
(6,993
)
 
 
 
 
 
 
Mortgage notes payable, net of deferred financing costs
 
4
 
$
363,468

 
$
381,443

 
4.0
%
 
(5) 
 
 
______________________ 
(1)
Fixed through an interest rate swap agreement.
(2)
Total commitments of $325.0 million; additional $20.0 million available, subject to lender approval, to fund certain tenant allowances, capital expenditures and leasing costs.
(3)
LIBOR portion is capped through an interest rate cap agreement.
(4)
During the six months ended June 30, 2016, the Company repaid three mortgage notes payable with the proceeds from the sales of Duane Reade, 1623 Kings Highway and Foot Locker.
(5)
Calculated on a weighted average basis for all mortgages outstanding as of June 30, 2016.

13
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The Company's remaining properties, with the exception of 367-369 Bleecker Street and 387 Bleecker Street (which excludes 382-384 Bleecker Street), that are not subject to mortgage notes payable collateralize the borrowing base of the Credit Facility and are subject to mortgages under the Credit Facility for that purpose.
On September 30, 2015, in connection with the mortgage notes payable secured by its property located at 1440 Broadway, the Company executed guarantees in favor of the lenders with respect to the costs of certain unfunded obligations of the Company related to tenant allowances, capital expenditures and leasing costs, which guarantees are capped at $5.3 million in the aggregate. The guarantees expire in October 2019, the maturity date of the 1440 Broadway mortgage. As of June 30, 2016, the Company has not been required to perform under the guarantees and has not recognized any assets or liabilities related to the guarantees.
Real estate investments of $629.3 million, at cost and net of below-market lease liabilities, at June 30, 2016 have been pledged as collateral to their respective mortgages and are not available to satisfy the Company's corporate debts and obligations unless first satisfying the mortgage notes payable on the properties.
The following table summarizes the scheduled aggregate principal repayments subsequent to June 30, 2016:
(In thousands)
 
Future Minimum Principal Payments
July 1, 2016 - December 31, 2016
 
$
211

2017
 
48,245

2018
 
3,703

2019
 
308,869

2020
 
4,041

Thereafter
 
4,222

Total
 
$
369,291

Some of the Company's mortgage note agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of June 30, 2016, the Company was in compliance with the financial covenants under its mortgage note agreements.
Note 8 — Fair Value of Financial Instruments
The Company determines fair value of its financial instruments 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 instrument. This alternative approach also reflects the contractual terms of the instruments, as applicable, including the period to maturity, and may use observable market-based inputs, including interest rate curves and implied volatilities, and unobservable inputs, such as expected volatility. 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 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.
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.

14
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Although the Company has determined that the majority of the inputs used to value its derivatives, such as interest rate swaps and caps, 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, 2016 and December 31, 2015, 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. See Note 9 — Interest Rate Derivatives and Hedging Activities.
The valuation of derivatives is determined using a discounted cash flow analysis on the expected cash flows. 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.
The following table presents information about the Company's derivatives that are presented net, measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, 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
 
Total
June 30, 2016
 
 
 
 
 
 
 
 
Derivatives, net
 
$
—

 
$
(2,169
)
 
$
—

 
$
(2,169
)
December 31, 2015
 
 
 
 
 
 
 
 
Derivatives, net
 
$
—

 
$
(835
)
 
$
—

 
$
(835
)
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 levels of the fair value hierarchy during the three and six months ended June 30, 2016.
Financial instruments not carried at fair value
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate the value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other assets, accounts payable and dividends payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's financial instruments that are not reported at fair value on the consolidated balance sheet are reported below.
 
 
 
 
June 30, 2016
 
December 31, 2015
(In thousands)
 
Level
 
Gross Principal Balance
 
Fair Value
 
Gross Principal Balance
 
Fair Value
Mortgage notes payable
 
3
 
$
369,291

 
$
380,648

 
$
388,436

 
$
401,503

Credit Facility
 
3
 
$
485,000

 
$
496,582

 
$
485,000

 
$
487,579

The fair value of mortgage notes payable and the fixed-rate portions of term loans on the Credit Facility are estimated using a discounted cash flow analysis based on similar types of arrangements. Advances under the Credit Facility with variable interest rates and advances under the revolving portion of the Credit Facility are considered to be reported at fair value.

15
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 9 — Interest Rate Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company uses derivative financial instruments, including interest rate swaps, caps, collars, 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 costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not utilize derivatives for speculative or 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 will not perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties that the Company believes to have high credit ratings and with major financial institutions with which the Company and the Advisor 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 caps 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 caps designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap 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 loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses such derivatives 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.
During the six months ended June 30, 2016, the Company terminated one of its interest rate swaps as the related hedged debts were repaid, which made it probable that the forecasted transactions would not occur and, as a result, accelerated the reclassification of immaterial amounts in accumulated other comprehensive loss to earnings. The accelerated amounts resulted in a loss of approximately $24,000 for the six months ended June 30, 2016.
Amounts reported in accumulated other comprehensive loss related to derivatives are 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 $1.2 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense.
As of June 30, 2016 and December 31, 2015, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.
 
 
June 30, 2016
 
December 31, 2015
Interest Rate Derivative
 
Number of Instruments
 
Notional Amount
 
Number of Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest rate swaps
 
3
 
$
124,700

 
4
 
$
131,988


16
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Derivatives Not Designated as Hedges
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 strict hedge accounting requirements under GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings, which resulted in an expense of $0.1 million and $0.4 million during the three and six months ended June 30, 2016, respectively, and included in loss on derivative instruments on the consolidated statements of operations and comprehensive loss.
As of June 30, 2016, the Company had the following outstanding interest rate derivatives that were not designated as hedges in qualified hedging relationships.
 
 
June 30, 2016
 
December 31, 2015
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
 
Number of
Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest rate caps
 
2
 
$
305,000

 
2
 
$
305,000

Balance Sheet Classification
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, 2016 and December 31, 2015:
(In thousands)
 
Balance Sheet Location
 
June 30, 2016
 
December 31, 2015
Derivatives designated as hedging instruments:
 
 
 
 
Interest rate swaps
 
Derivative assets, at fair value
 
$
—

 
$
15

Interest rate swaps
 
Derivative liabilities, at fair value
 
$
(2,228
)
 
$
(1,266
)
Derivatives not designated as hedging instruments:
 
 
 
 
Interest rate caps
 
Derivative assets, at fair value
 
$
59

 
$
416

Derivatives in Cash Flow Hedging Relationships
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, 2016 and 2015, respectively:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2016
 
2015
 
2016
 
2015
Amount of loss recognized in accumulated other comprehensive loss from interest rate derivatives (effective portion)
 
$
(423
)
 
$
(100
)
 
$
(1,658
)
 
$
(1,719
)
Amount of loss reclassified from accumulated other comprehensive loss into income as interest expense (effective portion)
 
$
(324
)
 
$
(527
)
 
$
(680
)
 
$
(1,053
)
Amount of loss recognized in loss on derivative instruments (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)
 
$
—

 
$
—

 
$
(1
)
 
$
(4
)

17
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Offsetting Derivatives
The Company does not offset it's derivatives on the accompanying consolidated balance sheets. The table below presents a gross presentation, the potential effects of offsetting, and a potential net presentation of the Company's derivatives as of June 30, 2016 and December 31, 2015. 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 accompanying consolidated balance sheets.
 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
Derivatives (In thousands)
 
Gross Amounts of Recognized Assets
 
Gross Amounts of Recognized Liabilities
 
Potential Net Amounts of Assets (Liabilities) presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Posted
 
Net Amount
June 30, 2016
 
$
59

 
$
(2,228
)
 
$
(2,169
)
 
$
—

 
$
—

 
$
(2,169
)
December 31, 2015
 
$
431

 
$
(1,266
)
 
$
(835
)
 
$
—

 
$
—

 
$
(835
)
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision whereby 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, 2016, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $2.3 million. As of June 30, 2016, 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 $2.3 million at June 30, 2016.
Note 10 — Common Stock
As of June 30, 2016 and December 31, 2015, the Company had 165.1 million and 162.5 million shares of common stock outstanding, respectively, including shares of unvested restricted common stock ("restricted shares"), but not including OP units or LTIP units which may in the future be converted into shares of common stock. During the three and six months ended June 30, 2016, the Company issued 94,659 and 2,610,065 shares, respectively, of its common stock upon redemption of 94,659 and 2,610,065 OP units, respectively, held by certain individuals who are members, employees or former employees of the Advisor. See Note 16 — Non-Controlling Interests.
Since April 2014, the Company's board of directors has authorized, and the Company has declared, a monthly dividend at an annualized rate equal to $0.46 per share per annum. Dividends are paid to stockholders of record on the close of business on the 8th day of each month, payable on the 15th day of such month. The Company's board of directors may reduce the amount of dividends paid or suspend dividend payments at any time and therefore dividend payments are not assured.

18
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 11 — Commitments and Contingencies
Future Minimum Lease Payments
The Company entered into operating and capital lease agreements primarily related to certain acquisitions under leasehold interest arrangements. The following table reflects the minimum base cash payments due from the Company over the next five years and thereafter under these arrangements, including the present value of the net minimum payments due under capital leases. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items.
 
 
Future Minimum Base Rent Payments
(In thousands)
 
Operating Leases
 
Capital Leases
July 1, 2016 - December 31, 2016
 
$
2,474

 
$
43

2017
 
4,905

 
86

2018
 
5,089

 
86

2019
 
5,346

 
86

2020
 
5,346

 
86

Thereafter
 
246,281

 
3,404

Total minimum lease payments
 
$
269,441

 
$
3,791

Less: amounts representing interest
 
 
 
(1,690
)
Total present value of minimum lease payments
 
 
 
$
2,101

Total rental expense related to operating leases was $1.9 million and $3.9 million, respectively, for the three and six months ended June 30, 2016 and 2015. During the three and six months ended June 30, 2016 and 2015, interest expense related to capital leases was approximately $16,000 and $32,000, respectively. The following table discloses assets recorded under capital leases and the accumulated amortization thereon as of June 30, 2016 and December 31, 2015.
(In thousands)
 
June 30, 2016
 
December 31, 2015
Buildings, fixtures and improvements
 
$
11,783

 
$
11,783

Less accumulated depreciation and amortization
 
(1,989
)
 
(1,705
)
Total real estate investments, net
 
$
9,794

 
$
10,078

Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no legal or regulatory proceedings pending or known to be contemplated against the Company from which the Company expects to incur a material loss.
RXR Litigation
RXR Realty (“RXR”) initiated a suit against the Company alleging that it suffered “lost profits” in connection with the Company’s purchase of its 48.9% interest in Worldwide Plaza in October 2013. On August 12, 2014, the Supreme Court of the State of New York dismissed all of RXR’s claims against the seller of Worldwide Plaza and dismissed RXR’s disgorgement claims against the Company, permitting only a limited, immaterial claim against the Company for RXR’s cost of producing due diligence-related material to proceed. RXR appealed the ruling and, on October 13, 2015, the appellate court upheld the previous decisions; however, the appellate court held that the trial court's exclusion of lost profit damages was premature and would have to be considered through a motion for summary judgment. The Company moved for partial summary judgment to reinstate the damages limitation, and the trial court granted the motion at oral argument on March 24, 2016. On June 16, 2016, RXR appealed and the appeal is expected to be heard later this year. The Company has not recognized a liability with respect to RXR's claim because the Company does not believe that it is probable that it will incur a related material loss.

19
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Combination Transactions Litigation
During June 2016, Irene Jacobs and Marvin Jacobs (the "Plaintiffs") filed a class action complaint (the “Complaint”) on behalf of public stockholders of the Company against the Company, the OP, Michael Happel, the Company's chief executive officer, and its board of directors. The Complaint was originally filed in New York Supreme Court, New York County on June 17, 2016, but the New York action was discontinued and re-filed in Maryland Circuit Court on July 12, 2016. The Complaint seeks to enjoin the Combination Transactions pursuant to the Combination Agreement. The Complaint alleges, among other things, that the individual defendants breached their fiduciary duties to the public stockholders of the Company by causing the Company to enter into the Combination Agreement, and that the Company, the OP and JBG knowingly assisted in those alleged breaches. On August 2, 2016, the Company and the OP entered into the Termination Agreement with JBG providing for termination of the Combination Agreement. See Note 17 — Subsequent Events. The Company has not recognized a liability with respect to this claim because the Company does not believe that it is probable that it will incur a related material loss.
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 maintains environmental insurance for its properties that provides coverage for potential environmental liabilities, subject to the policy's coverage conditions and limitations. 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 that it believes will have a material adverse effect on the consolidated results of operations.
Note 12 — Related Party Transactions and Arrangements
Individual members of the Advisor and employees of the Advisor hold interests in the OP. See Note 16 — Non-Controlling Interests.
Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO, which was ongoing from September 2010 to December 2013, and, together with its affiliates, continued to provide the Company with various services through December 31, 2015. RCS Capital Corporation ("RCAP"), the parent company of the Former Dealer Manager and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of the Sponsor. In May 2016, RCAP and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.
Viceroy Hotel
The following table details revenues from related parties at the Viceroy Hotel. The Company did not have any receivables from related parties as of June 30, 2016 or December 31, 2015.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2016
 
2015
 
2016
 
2015
Hotel revenues
 
$
16

 
$
12

 
$
29

 
$
45

Advisor and its Affiliates
The Company pays to the Advisor an asset management fee equal to 0.50% per annum of the cost of assets up to $3.0 billion and 0.40% per annum of the cost of assets above $3.0 billion. The asset management fee is payable in the form of cash, OP units, and shares of restricted common stock of the Company, or a combination thereof, at the Advisor’s election. The Company has paid this fee in cash since the Listing.
Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee equal to: (i) for non-hotel properties, 4.0% of gross revenues from properties managed, plus market-based leasing commissions; and (ii) for hotel properties, a market-based fee equal to a percentage of gross revenues. The Company also reimburses the Property Manager for property-level expenses. The Property Manager may subcontract the performance of its property management and leasing services duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracts for these services. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and pay the Property Manager an oversight fee equal to 1.0% of the gross revenues of the applicable property.

20
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The Company reimburses the Advisor for costs and expenses paid or incurred by the Advisor and its affiliates in connection with providing services to the Company (including reasonable salaries and wages, benefits and overhead of all employees directly involved with the performance of such services), although the Company does not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives a separate fee. Prior to June 2015, reimbursement of costs and expenses was subject to the limitation that the Company would not reimburse the Advisor for any amount by which the Company's total operating expenses (as defined in the Advisory Agreement (defined below) during the applicable time) for the four preceding fiscal quarters exceeded the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non cash reserves and excluding any gain from the sale of assets for that period (the "2%/25% Limitation"). The Company amended and restated its advisory agreement on June 26, 2015 which, among other things, removed the 2%/25% Limitation (as amended from time to time, the "Advisory Agreement"). Total reimbursement of costs and expenses for the three and six months ended June 30, 2016 was $0.7 million and $1.4 million, respectively. The Company did not reimburse the Advisor for costs and expenses incurred during the three and six months ended June 30, 2015. On April 25, 2016, the Advisory Agreement was amended to provide for automatic renewal for successive six-month periods beginning on June 26, 2016, unless terminated automatically upon the consummation of a change in control or upon 60-days' written notice without cause and without penalty prior to the expiration of the original term or any subsequent renewal period.
If the Company acquires additional properties, the Company will reimburse the Advisor for expenses incurred by the Advisor or its affiliates for services provided by third parties and acquisition expenses incurred by the Advisor or its affiliates on their own behalf or directly from third parties, but is not obligated to pay to the Advisor or any of its affiliates additional fees.
The predecessor to the parent of the Sponsor was party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager ("RCS Advisory"), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by the Sponsor with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to the parent of the Sponsor instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.
The Company was also party to a transfer agency agreement with American National Stock Transfer, LLC ("ANST"); a subsidiary of the parent company of the Former Dealer Manager, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc. ("DST"), a third-party transfer agent. The Sponsor received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. Subsequently, the Company entered into an agreement with Computershare, Inc ("Computershare"), a third-party transfer agent to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services). For the three and six months ended June 30, 2016, the fees for services provided by DST and Computershare are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss during the period in which the service was provided.

21
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The following table details amounts incurred, waived and contractually owed to related parties in connection with the operations related services to related parties described above as of and for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable (Receivable) as of
 
 
2016
 
2015
 
2016
 
2015
 
June 30,
 
December 31,
(In thousands)
 
Incurred
 
Waived
 
Incurred
 
Waived
 
Incurred
 
Waived
 
Incurred
 
Waived
 
2016
 
2015
Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Asset management fees
 
$
3,050

 
$
—

 
$
3,101

 
$
—

 
$
6,124

 
$
—

 
$
6,245

 
$
—

 
$
—

 
$
(7
)
Transfer agent and other professional fees
 
658

 
—

 
270

 
—

 
1,350

 
—

 
454

 
—

 
87

 
99

Property management fees
 
—

 
508

 
—

 
683

 
—

 
994

 
—

 
1,219

 
—

 
—

Total related party operational fees and reimbursements
 
$
3,708

 
$
508

 
$
3,371

 
$
683

 
$
7,474

 
$
994

 
$
6,699

 
$
1,219

 
$
87

 
$
92

In order to improve operating cash flows and the ability to pay dividends from operating cash flows, the Advisor agreed to waive certain fees, including property management fees, during the three and six months ended June 30, 2016 and 2015. The fees that were waived were not deferrals and accordingly, will not be paid to the Advisor in any subsequent periods.
For substantial assistance in connection with the sale of properties, the Company may pay the Advisor a property disposition fee not to exceed the lesser of 2.0% of the contract sale price of the property and 50% of the competitive real estate commission paid if a third party broker is also involved; provided, however that in no event may the property disposition fee paid to the Advisor when added to real estate commissions paid to unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a competitive real estate commission. For purposes of the foregoing, "competitive real estate commission" means a real estate brokerage commission for the purchase or sale of a property which is reasonable, customary and competitive in light of the size, type and location of the property. The Company incurred and paid $0.2 million in property disposition fees during the six months ended June 30, 2016. No such fees were incurred or paid during the three months ended June 30, 2016 or the three and six months ended June 30, 2015.
Note 13 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services, transaction management and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 14 — Share-Based Compensation
Stock Option Plan
The Company has a stock option plan (the "Plan") which authorizes the grant of nonqualified stock options to the Company's independent directors, officers, advisors, consultants and other personnel, subject to the absolute discretion of the board of directors and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan will be equal to the fair market value of a share on the date of grant. Upon a change in control, unvested options will become fully vested and any performance conditions imposed with respect to the options will be deemed to be fully achieved. A total of 0.5 million shares have been authorized and reserved for issuance under the Plan. As of June 30, 2016 and December 31, 2015, no stock options were issued under the Plan.

22
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Restricted Share Plan
The Company's employee and director incentive restricted share plan ("RSP") provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company.
Under the RSP, the annual amount granted to the independent directors is determined by the board of directors. The maximum number of shares of stock granted under the RSP cannot exceed 10% of the Company’s outstanding shares of common stock on a fully diluted basis at any time. Restricted shares issued to independent directors generally vest over a three-year period in increments of 33.3% per annum. Generally, such awards provide for accelerated vesting of (i) all unvested restricted shares upon a "change in control" or a termination "without cause" and (ii) the portion of the unvested restricted shares scheduled to vest in the year of voluntary termination or the failure to be re-elected to the board.
Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares receive cash dividends prior to the time that the restrictions on the restricted shares have lapsed. Any dividends payable in shares of common stock are subject to the same restrictions as the underlying restricted shares.
In February 2015, the board of directors approved, and the Company awarded, 279,365 restricted shares to employees of the Advisor, of which 79,805 restricted shares were subsequently forfeited. The remaining awards vest over a four-year period in increments of 25% per annum.
The following table displays restricted share award activity during the six months ended June 30, 2016:
 
Number of Restricted Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2015
316,570

 
$
10.59

Granted
5,107

 
10.28

Vested
(71,342
)
 
10.45

Unvested, June 30, 2016
250,335

 
$
10.62

Compensation expense related to restricted shares was $0.2 million and $0.3 million for the three and six months ended June 30, 2016, respectively, and is included in general and administrative expenses on the consolidated statement of operations and other comprehensive loss. For the three and six months ended June 30, 2015, compensation expense related to restricted shares was $0.2 million, and is included in general and administrative expenses on the consolidated statement of operations and other comprehensive loss.
As of June 30, 2016, the Company had approximately $1.3 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company’s RSP, which is expected to vest over a period of 2.8 years.
2014 Advisor Multi-Year Outperformance Agreement
On April 15, 2014 (the "Effective Date") in connection with the Listing, the Company entered into the OPP. Under the OPP, the Advisor was issued 8,880,579 LTIP units in the OP with a maximum award value on the issuance date equal to 5.0% of the Company’s market capitalization (the “OPP Cap”). The LTIP units are structured as profits interests in the OP.

23
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The Advisor is eligible to earn a number of LTIP units with a value equal to a portion of the OPP Cap upon the first, second and third anniversaries of the Effective Date based on the Company’s achievement of certain levels of total return to its stockholders (“Total Return”), including both share price appreciation and common stock dividends, as measured against a peer group of companies, as set forth below, for the three-year performance period commencing on the Effective Date (the “Three-year Period”); each 12-month period during the Three-Year Period (the “One-Year Periods”); and the initial 24-month period of the Three-Year Period (the “Two-Year Period”), as follows:
 
 
 
 
Performance Period
 
Annual Period
 
Interim Period
Absolute Component: 4% of any excess Total Return if total stockholder 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 Total Return for the performance period of the Peer Group*, 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 total stockholder return achieved is at least:
 
18%
 
6%
 
12%
 
•
50% will be earned if total stockholder return achieved is:
 
0%
 
0%
 
0%
 
•
0% will be earned if total stockholder return achieved is less than:
 
0%
 
0%
 
0%
 
•
a percentage from 50% to 100% calculated by linear interpolation will be earned if the cumulative Total Return achieved is between:
 
0% - 18%
 
0% - 6%
 
0% - 12%
______________________ 
*The “Peer Group” is comprised of certain companies in the SNL US REIT Office Index.
The potential outperformance award is calculated at the end of each One-Year Period, the Two-Year Period and the Three-Year Period. The award earned for the Three-Year Period is based on the formula in the table above less any awards earned for the Two-Year Period and One-Year Periods, but not less than zero; the award earned for the Two-Year Period is based on the formula in the table above less any award earned for the first and second One-Year Period, but not less than zero. Any LTIP units that are unearned at the end of the Performance Period will be forfeited. On April 15, 2015, 367,059 LTIP units were earned by the Advisor under the terms of the OPP. On April 15, 2016, 805,679 additional LTIP units were earned by the Advisor under the terms of the OPP.
Moreover, the OPP provides for early calculation of earned LTIP units and for the accelerated vesting of any earned LTIP units in the event the Advisor is terminated or in the event of a "change in control" of the Company, which could motivate the Advisor to recommend a transaction that would result in a "change in control" under the OPP when such a transaction would not otherwise be in the best interests of the Company's stockholders.
Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP units will vest on each of the third, fourth and fifth anniversaries of the Effective Date. Until such time as an LTIP unit is earned in accordance with the provisions of the OPP, the holder of such LTIP unit is entitled to distributions on such LTIP unit equal to 10% of the distributions made per OP unit. The Company paid $0.9 million and $1.0 million in distributions related to LTIP units during the three and six months ended June 30, 2016, respectively, which is included in non-controlling interest in the consolidated balance sheets. For the three and six months ended June 30, 2015, the Company paid $0.3 million and $0.4 million, respectively, in distributions related to LTIP units that had been earned. After an LTIP unit is earned, the holder of such LTIP unit is entitled to a catch-up distribution and then the same distribution as the holder of an OP unit. At the time the Advisor’s average capital account balance with respect to an LTIP unit is economically equivalent to the average capital account balance of an OP unit, the LTIP unit has been earned and it has been vested for 30 days, the Advisor, in its sole discretion, will be entitled to convert such LTIP unit into an OP unit in accordance with the provisions of the limited partnership agreement of the OP.

24
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The Company records equity-based compensation expense associated with the OPP over the requisite service period of five years. Equity-based compensation expense is adjusted each reporting period for changes in the estimated value. The amortization of the fair value of the OPP awards recorded as equity-based compensation resulted in income of $2.1 million and $8.6 million for the three and six months ended June 30, 2016, respectively, and is included in general and administrative expenses. For the three and six months ended June 30, 2015, amortization of the fair value of the OPP awards recorded as equity-based compensation was included as an expense of $2.0 million and $2.2 million, respectively, and is included in general and administrative expenses.
The valuation of the OPP is determined using a Monte Carlo simulation. This analysis reflects the contractual terms of the OPP, including the performance periods and total return hurdles, as well as observable market-based inputs, including interest rate curves, and unobservable inputs, such as expected volatility. As a result, the Company has determined that its OPP valuation in its entirety is classified in Level 3 of the fair value hierarchy. See Note 8 — Fair Value of Financial Instruments.
The following table presents information about the Company's OPP, which is measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which the instrument falls:
(In thousands)
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
Total
June 30, 2016
 
 
 
 
 
 
 
 
OPP
 
$
—

 
$
—

 
$
18,700

 
$
18,700

December 31, 2015
 
 
 
 
 
 
 
 
OPP
 
$
—

 
$
—

 
$
43,500

 
$
43,500

Level 3 valuations
The following is a reconciliation of the beginning and ending balance for the changes in instruments with Level 3 inputs in the fair value hierarchy for the six months ended June 30, 2016:
(In thousands)
 
OPP
Beginning balance as of December 31, 2015
 
$
43,500

   Fair value adjustment
 
(24,800
)
Ending balance as of June 30, 2016
 
$
18,700

The following table provides quantitative information about significant Level 3 input used:
Financial Instrument
 
Fair Value
 
Principal Valuation Technique
 
Unobservable Inputs
 
Input Value
 
 
(In thousands)
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
 
 
OPP
 
$
18,700

 
Monte Carlo Simulation
 
Expected volatility
 
30.0%
December 31, 2015
 
 
 
 
 
 
 
 
OPP
 
$
43,500

 
Monte Carlo Simulation
 
Expected volatility
 
27.0%
Expected volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Generally, the higher the expected volatility of the underlying instrument, the wider the range of potential future returns. An increase in expected volatility, in isolation, would generally result in an increase in the fair value measurement of an instrument. For the relationship described above, the inverse relationship would also generally apply.

25
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 15 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computations for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 (In thousands, except share and per share data)
 
2016
 
2015
 
2016
 
2015
Basic and diluted net loss attributable to stockholders
 
$
(11,540
)
 
$
(8,982
)
 
$
(11,053
)
 
$
(17,498
)
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic and diluted
 
164,835,872

 
162,156,470

 
164,354,242

 
162,124,624

Net loss per share attributable to stockholders, basic and diluted
 
$
(0.07
)
 
$
(0.06
)
 
$
(0.07
)
 
$
(0.11
)
Diluted net loss per share assumes the conversion of all common share equivalents into an equivalent number of common shares, unless the effect is anti-dilutive. The Company considers unvested restricted shares, OP units and LTIP units to be common share equivalents. The Company had the following common share equivalents for the period presented, which were excluded from the calculation of diluted loss per share attributable to stockholders as the effect would have been anti-dilutive:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Unvested restricted shares
 
250,335

 
353,440

 
250,335

 
353,440

OP units
 
1,568,025

 
4,178,090

 
1,568,025

 
4,178,090

LTIP units
 
8,880,579

 
8,880,579

 
8,880,579

 
8,880,579

Total anti-dilutive common share equivalents
 
10,698,939

 
13,412,109

 
10,698,939

 
13,412,109

Note 16 — Non-Controlling Interests
The Company is the sole general partner of the OP and holds the majority of the OP units. As of June 30, 2016 and December 31, 2015, the Advisor or members, employees or former employees of the Advisor held 1,568,025 and 4,178,090 OP units, respectively, and 8,880,579 unvested LTIP units. There were $1.0 million and $1.5 million of distributions paid to OP unit and LTIP unit holders during the three and six months ended June 30, 2016, respectively. There were $0.8 million and $1.4 million of distributions paid to OP unit and LTIP unit holders during the three and six months ended June 30, 2015, respectively.
A holder of OP units has the right to distributions and has the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or a corresponding number of shares of the Company's common stock, at the election of the OP, in accordance with the limited partnership agreement of the OP. 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.
During the three and six months ended June 30, 2016, respectively, 94,659 and 2,610,065 OP units were redeemed for shares of the Company's common stock. During the three and six months ended June 30, 2016, respectively, $0.8 million and $24.0 million was reclassified from non-controlling interest to stockholders' equity. See Note 10 — Common Stock.
Note 17 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements, except for the following events:
OP Unit Redemption
On August 1, 2016, the Company issued 726,365 shares of our common stock upon redemption of 726,365 OP units held by certain individuals who are members of the Advisor and Sponsor.
Termination of Combination Agreement

26
NEW YORK REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)


As described in Note 2 — Combination Agreement, on May 25, 2016, the Company and the OP entered into the Combination Agreement with JBG, providing for a series of transactions pursuant to which certain of JBG's real estate interests and management business interests would be contributed to the Company and the OP in exchange for an aggregate of up to approximately 319.9 million newly issued shares of common stock of the Company and newly issued units of limited partner interests in the OP, subject to certain adjustments.
On August 2, 2016, the Company and the OP entered into the Termination Agreement with JBG providing for termination of the Combination Agreement and the Confidentiality Agreement by and among the Company and the OP and JBG Properties, Inc., dated January 29, 2016.
Pursuant to the Termination Agreement, the parties agreed to release each other from claims and liabilities arising out of, or relating to, directly or indirectly, the Combination Agreement or the events leading to the termination of the Combination Agreement and various other related matters.
Pursuant to the Termination Agreement, the Company paid JBG $9.5 million in cash as reimbursement for certain expenses incurred by JBG. As of June 30, 2016, the Company had incurred $6.5 million in costs related to the Combination Agreement, which are reflected within transaction-related expenses on the consolidated statements of operations and comprehensive loss.
Termination of Ancillary Agreements
Effective upon the termination of the Combination Agreement, the Transition Services Agreement, the OPP Termination Agreement, the Omnibus Termination Agreement, the Support Agreement and the Happel Term Sheet also terminated automatically in accordance with their terms.
Asset Sale Plan and Refinancing Plan
On August 2, 2016, the Company announced that its board of directors had approved beginning the process of selling assets of the Company (the “Asset Sale Plan”) subject to, among other things, the limitations set forth in the Credit Facility and any requirements of applicable law. The Company would only sell assets under the Asset Sale Plan to the extent permitted under the Credit Facility and Maryland law, and the proceeds would be distributed to the Company’s stockholders after repaying any applicable debt obligations and funding any reserves or other needs and complying with any provisions of applicable law. Sales of assets could be made on an individual or portfolio basis and the Asset Sale Plan does not preclude a sale of the Company if an offer is made that the Company's board of directors considers to be more attractive than sales of assets.
The Company also announced that its board of directors had instructed management of the company to seek to either amend the Credit Facility or obtain new financing to prepay the Credit Facility in full, provide additional capital for the Company to exercise the WWP Option, and to provide the Company increased flexibility to sell assets and distribute the permitted proceeds to stockholders.


27

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of New York REIT, Inc. and the notes thereto. As used herein, the terms "we," "our" and "us" refer to New York REIT, Inc., a Maryland corporation, and, as required by context, to New York Recovery Operating Partnership, L.P., a Delaware limited partnership (the "OP"), and to their subsidiaries. We are externally managed by New York Recovery Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein but not otherwise defined have the meaning ascribed to those terms in "Part I - Financial Information" included in the notes to consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by 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:
•
The outcome of pursuing the Asset Sale Plan (as defined below) and the Refinancing Plan (as defined below) is uncertain and exposes us to certain risks, and there can be no assurance that we will be able to implement the Asset Sale Plan or the Refinancing Plan on favorable terms, or at all;
•
To the extent any asset sales occur pursuant to the Asset Sale Plan or otherwise, there can be no assurance as to timing of and the amount of proceeds of such sales to be distributed to our stockholders;
•
Our ability to exercise our option (the “WWP Option”) to purchase the balance of the equity interest in WWP Holdings, LLC (“Worldwide Plaza”) that we do not own in the future depends on our ability to raise additional capital, and we may not be able to raise additional capital, through the Refinancing Plan or otherwise, on favorable terms or at all; in addition the existing mortgage loans encumbering Worldwide Plaza includes provisions which could restrict our ability to assume those loans upon exercise of the WWP Option;
•
Our credit facility with Capital One, National Association and the other lenders thereto (the “Credit Facility”) contains certain financial and operating covenants and other terms that could adversely affect our ability to engage in the type of actions contemplated by the Asset Sale Plan and other asset sales unless we are able to successfully implement the Refinancing Plan;
•
All of our executive officers are also officers, managers or holders of a direct or indirect interest in our Advisor and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"); as a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor’s compensation arrangements with us and other investor entities advised by AR Global affiliates, and conflicts in allocating time among these entities and us, which could negatively impact our operating results;
•
We depend on tenants for revenue, and, accordingly, our revenue is dependent upon the success and economic viability of our tenants;
•
We may not be able to achieve our rental rate objectives on new and renewal leases and our expenses could be greater, which may impact our results of operations;
•
Our properties may be adversely affected by economic cycles and risks inherent to the New York metropolitan statistical area, especially New York City;
•
We may be unable to pay or maintain cash dividends or increase dividends over time. Amounts paid to our stockholders may be a return of capital and not a return on a stockholder's investment;
•
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates, including fees payable upon the sale of properties;
•
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes (“REIT”);

28

•
We may be adversely affected by changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United States or international lending, capital and financing markets.
Overview
We were incorporated on October 6, 2009 as a Maryland corporation that qualified as a REIT beginning with our taxable year ended December 31, 2010. On April 15, 2014, we listed our common stock on the New York Stock Exchange ("NYSE") under the symbol "NYRT."
We purchased our first property and commenced active operations in June 2010. As of June 30, 2016, we owned 19 properties located in New York City. As of June 30, 2016, our properties aggregated 3.3 million rentable square feet, had an occupancy of 93% and a weighted-average remaining lease term of 9.3 years. Our portfolio primarily consisted of office and retail properties, representing 83% and 9%, respectively, of rentable square feet as of June 30, 2016. We have acquired hotel and other types of real properties to add diversity to our portfolio. Properties other than office and retail spaces represented 8% of rentable square feet.
Substantially all of our business is conducted through the OP. Our only significant asset is the general partnership interests we own in the OP and assets held by us for the use and benefit of the OP. We have no employees. We have retained the Advisor to manage our affairs on a day-to-day basis. New York Recovery Properties, LLC (the "Property Manager") serves as our property manager, unless services are performed by a third party for specific properties. The Advisor and Property Manager are under common control with AR Global, the parent of American Realty Capital III, LLC (our "Sponsor"), as a result of which they are related parties and have received or will continue to receive compensation, fees and expense reimbursements for services related to the investment and management of our assets.
Termination of Combination Agreement
On May 25, 2016, we entered into a Master Combination Agreement (the "Combination Agreement") with JBG Properties, Inc. and JBG/Operating Partners, L.P. (collectively the "JBG Management Entities"), and certain pooled investment funds that are affiliates of the JBG Management Entities (collectively with the JBG Management Entities and certain affiliated entities, "JBG"), providing for a series of transactions pursuant to which certain of JBG's real estate interests and management business interests would be contributed to us in exchange for an aggregate of up to approximately 319.9 million newly issued shares of common stock and newly issued units of limited partner interests in the OP, subject to certain adjustments (the "Combination Transactions").
On August 2, 2016, we entered into a termination and release agreement (the “Termination Agreement”) with JBG providing for termination of the Combination Agreement and the related Confidentiality Agreement. Pursuant to the Termination Agreement, the parties agreed to release each other from claims and liabilities arising out of, or relating to, directly or indirectly, the Combination Agreement or the events leading to the termination of the Combination Agreement and various other related matters.
The Termination Agreement also includes (i) certain representations and warranties made by each of the parties, (ii) agreements among the parties not to sue each other and to cooperate in connection with any litigation related to the Combination Agreement in which the parties are co-defendants, and (iii) standstill and non-solicitation provisions that will remain in effect for 12 months from the date of the Termination Agreement prohibiting, among other things, JBG from acquiring any interest in us without our consent.
Pursuant to the Termination Agreement, we paid JBG $9.5 million in cash as reimbursement for certain expenses incurred by JBG. As of June 30, 2016, we had incurred $6.5 million in costs related to the Combination Agreement, which are reflected within transaction-related expenses on the consolidated statements of operations and comprehensive loss.
Termination of Ancillary Agreements
Concurrently and in connection with the entry into the Combination Agreement, we, our Advisor and certain of our directors and officers also entered into the following agreements which were generally effective upon the completion of the Combination Transactions and automatically terminated upon the termination of the Combination Agreement in accordance with their terms:
•
a transition services agreement whereby the Advisor had agreed to provide us with certain transition services through the date on which our Annual Report on Form 10-K for the year ended December 31, 2016 is filed with the SEC for an aggregate fee in the amount of $7.0 million;

29

•
a termination agreement terminating our 2014 Advisor Multi-Year Outperformance Agreement with the Advisor (as amended and restated effective August 5, 2015, the "OPP") upon the occurrence of the closing of the Combination Transactions in exchange for an aggregate of 1,172,738 of limited partnership units of the OP entitled “LTIP Units” (“LTIP units”) that have been earned under the OPP through April 16, 2016, and an additional 2,865,916 LTIP units that would have been deemed to be earned for the year ending April 16, 2017 converting into limited partnership units of the OP entitled “OP Units” (“OP units”), which would have been exchanged for 4,038,654 shares of common stock;
•
a termination agreement pursuant to which, subject to, and effective as of the closing of the Combination Transactions, the property management agreement with our Property Manager and other agreements with our Advisor or its affiliates, would have been terminated;
•
a support agreement whereby Michael A. Happel, our chief executive officer and president, and William M. Kahane, a member of our board of directors and a control person of the Advisor, agreed to vote in favor of the matters requiring stockholder approval with respect to the Combination Transactions; and
•
a term sheet for a consulting agreement between Mr. Happel and us which by it terms would not have become effective until the closing of the Combination Transactions.
Asset Sale Plan and Refinancing Plan
On August 2, 2016, we announced that our board of directors had approved beginning the process of selling our assets (the “Asset Sale Plan”) subject to, among other things, the limitations set forth in the Credit Facility and any requirements of applicable law. We would only sell assets under the Asset Sale Plan to the extent permitted under the Credit Facility and Maryland law, and the proceeds would be distributed to our stockholders after repaying any applicable debt obligations and funding any reserves or other needs and complying with any provisions of applicable law. Sales of assets could be made on an individual or portfolio basis and the Asset Sale Plan does not preclude a sale of us if an offer is made that our board of directors considers to be more attractive than sales of assets.
Throughout the strategic process conducted by our board of directors that resulted in the entry into the Combination Agreement, we engaged with a significant number of potential buyers who were interested in acquiring individual properties from us. We intend to contact parties that had previously indicated interest in our individual assets during the strategic process. We will also seek other qualified buyers.
We also announced that our board of directors had instructed our management to seek to either amend the Credit Facility or obtain new financing to prepay the Credit Facility in full, provide additional capital for the Company to exercise the WWP Option, and to provide the Company increased flexibility to sell assets and distribute the permitted proceeds to stockholders (the “Refinancing Plan”). As of August 1, 2016, our Credit Facility had an outstanding loan balance of $485 million.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Revenue Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Because many of our leases provide for rental increases at specified intervals, generally accepted accounting principles ("GAAP") require us to record a receivable, and include in revenues on a straight-line basis, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. We defer the revenue related to lease payments received from tenants in advance of their due dates. When we acquire a property, the acquisition date is considered to be the commencement date for purposes of this calculation.
Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. For the tenant to take possession, the leased space must be substantially ready for its intended use. To determine whether the leased space is substantially ready for its intended use, we evaluate whether we own or the tenant owns the tenant improvements. When we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such improvements are substantially complete. When we conclude that the tenant is the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space.

30

When we conclude that we are the owner of tenant improvements, we capitalize the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants. When we conclude that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred leasing costs, net on the consolidated balance sheets and amortized as a reduction to rental income on a straight-line basis over the term of the lease.
We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, we will record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations.
We own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant's sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, we defer the recognition of contingent rental income until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. If we own certain properties with leases that include these provisions, contingent rental income will be included in rental income on the consolidated statements of operations and comprehensive loss.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Our hotel revenues are recognized as earned and are derived from room rentals and other sources such as charges to guests for telephone service, movie and vending commissions, meeting and banquet room revenue and laundry services.
Investments in Real Estate
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statement of operations. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-controlling interests based on their respective estimated fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets or liabilities may include the value of in-place leases, above- and below-market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics.
The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the comparable fair market lease rate, measured over the remaining term of the lease. The fair value of other intangible assets, such as real estate tax abatements, are recorded based on the present value of the expected benefit and amortized over the expected useful life including any below-market fixed rate renewal options for below-market leases.
Fair values of assumed mortgages, if applicable, are recorded as debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates.
Non-controlling interests in property owning entities are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
We utilize a number of sources in making our estimates of fair values for purposes of allocating purchase price including real estate valuations prepared by independent valuation firms. We also consider information and other factors including: market conditions, the industry in which the tenant operates, characteristics of the real estate such as location, size, demographics, value and comparative rental rates, tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business.

31

Disposals of real estate investments that represent a strategic shift in operations that will have a major effect on our operations and financial results are presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all periods presented; otherwise, we continue to report the results of these properties' operations within continuing operations. Properties that are intended to be sold will be designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs for all periods presented when they meet specific criteria to be presented as held for sale. Properties are no longer depreciated when they are classified as held for sale.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five to seven years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Acquired above-market leases are amortized as a reduction of rental income over the remaining terms of the respective leases. Acquired below-market leases are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Acquired above-market ground leases are amortized as a reduction of property operating expense over the remaining term of the respective leases. Acquired below-market ground leases are amortized as an increase to property operating expense over the remaining term of the respective leases and expected below-market renewal option period.
The value of in-place leases, exclusive of the value of above- and below-market in-place leases, is amortized to depreciation and amortization expense over the remaining periods of the respective leases.
Assumed mortgage premiums or discounts, if applicable, are amortized as a reduction or increase to interest expense over the remaining term of the respective mortgages.
Impairment of Long Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If such estimated cash flows are less than the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is based on the adjustment to estimated fair value less estimated cost to dispose of the asset. Generally, we determine estimated fair value for properties held for sale based on the agreed-upon selling price of an asset. These assessments may result in the immediate recognition of an impairment loss, resulting in an increase in net loss.
Derivative Instruments
We use derivative financial instruments to hedge the interest rate risk associated with a portion of our borrowings. The principal objective of such agreements is to minimize the risks and costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.
We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. 
We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting. If we designate a qualifying derivative as a hedge, changes in the value of the derivative are reflected in accumulated other comprehensive loss on the accompanying consolidated balance sheets. If a derivative does not qualify as a hedge, or if we elect not to apply hedge accounting, changes in the value of the derivative are reflected in other income (loss) on the accompanying consolidated statements of operations and comprehensive loss.

32

Recent Accounting Pronouncement
In March 2016, the Financial Accounting Standards Board (the "FASB") issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In June 2016, the FASB issued guidance that changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. We are currently evaluating the impact of this new guidance.
Recently Adopted Accounting Pronouncements
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIE") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for the fiscal year ending December 31, 2016. We have evaluated the impact of the adoption of the new guidance on our consolidated financial statements and have determined the OP is considered to be a VIE and continues to consolidate the OP as required under previous GAAP. However, we meet the disclosure exemption criteria as we are the primary beneficiary of the VIE and our partnership interest is considered a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. Also as a result of the new guidance, we have also determined that Worldwide Plaza is a VIE, but we are not the primary beneficiary of Worldwide Plaza and therefore we continue to not consolidate the entity. As such, the adoption of the new guidance did not have a material impact on our consolidated financial statements.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendment requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability and that the entity apply the new guidance on a retrospective basis. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for the fiscal year ending December 31, 2016. As a result of adoption of the new guidance, we reclassified deferred financing costs, net related to mortgage notes payable as a reduction of the carrying amount of mortgage notes payable. As permitted, deferred financing costs related to our Credit Facility continue to be reflected within deferred costs, net on the consolidated balance sheets.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We have adopted the provisions of this guidance beginning January 1, 2016 and determined that there is no impact to our consolidated financial position, results of operations and cash flows. Our policy is to account for forfeitures as they occur.

33

Results of Operations
Occupancy and Leasing
As of June 30, 2016, our combined portfolio, including our 48.9% share of Worldwide Plaza, an unconsolidated joint venture, was 93.0% leased, compared to 95.2% as of December 31, 2015. Occupancy is inclusive of leases signed but not yet commenced, and therefore increases in occupancy may not result in changes in revenues and expenses immediately upon the signing of a new lease. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations — Significant Accounting Estimates and Critical Accounting Policies above for accounting policies relating to revenue recognition.
As of June 30, 2016, we had vacant space at 256 West 38th Street, 350 Bleecker Street, 416 Washington Street and 1440 Broadway. During the second quarter of 2016, we signed a new lease agreement for 12,612 square feet at 229 West 36th Street bringing that property to 100% occupancy. Offsetting this activity, and the primary driver for the decline in overall occupancy since December 31, 2015, was the expiration of a lease at1440 Broadway. We continue to market the remaining vacant space in our portfolio.
The following is a summary of our quarterly leasing activity for the periods indicated:
 
 
 
Three Months Ended
 
 
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
Leasing activity:
 
 
 
 
 
 
 
 
 
Leases executed
 
2

 
1

 
5

 
1

 
Total square feet leased
 
19,394

 
11,807

 
129,889

 
2,811

 
Company's share of square feet leased
 
19,394

 
11,807

 
125,727

 
2,811

 
     Initial rent
 
$
49.32

 
$
47.00

 
$
62.14

 
$
158.42

 
     Weighted average lease term (years)
 
5.0

 
11.0

 
4.2

 
10.0

 
 
 
 
 
 
 
 
 
 
 
     Replacement leases:(1)
 
 
 
 
 
 
 
 
 
          Replacement leases executed
 
1

 
1

 
4

 
—

 
          Square feet
 
6,782

 
11,807

 
123,002

 
—

 
 
 
 
 
 
 
 
 
 
 
          Cash basis:
 
 
 
 
 
 
 
 
 
               Initial rent
 
$
55.50

 
$
47.00

 
$
67.09

 
$
—

 
               Prior escalated rent (2)
 
$
43.05

 
$
31.33

 
$
54.62

 
$
—

 
               Percentage increase (decrease)
 
29
%
 
50
%
 
23
%
 
—
%
 
 
 
 
 
 
 
 
 
 
 
          GAAP basis:
 
 
 
 
 
 
 
 
 
               Initial rent
 
$
59.51

 
$
54.19

 
$
69.61

 
$
—

 
               Prior escalated rent (2)
 
$
40.40

 
$
30.55

 
$
54.66

 
$
—

 
               Percentage increase (decrease)
 
47
%
 
77
%
 
27
%
 
—
%
 
 
 
 
 
 
 
 
 
 
 
Tenant improvements on replacement leases per square foot
 
$
32.52

 
$
—

 
$
17.40

 
$
—

 
Leasing commissions on replacement leases per square foot
 
$
14.55

 
$
15.49

 
$
11.92

 
$
—

_______________
(1)
Replacement leases are for spaces that were leased during the period and also have been leased at some time during the prior twelve months.
(2)
Prior escalated rent is calculated as total annualized rental income on a cash or GAAP basis. It includes base rent, excluding recoveries.
(3)
Presented as if tenant improvements and leasing commissions were incurred in the period in which the lease was signed, which may be different than the period in which these amounts were actually paid.

34


Lease Expirations
The following is a summary of lease expirations for the periods indicated:
 
 
 
Total
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
Combined:(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leases expiring
 
133

 
5

 
16

 
17

 
6

 
8

 
81

 
Expiring annualized cash rent (in thousands)(2)(3)
 
$
211,864

 
$
1,555

 
$
7,461

 
$
9,517

 
$
1,239

 
$
5,630

 
$
186,462

 
Expiring square feet(3)
 
2,992,665

 
6,349

 
106,379

 
159,320

 
32,077

 
80,051

 
2,608,489

 
% of total square feet expiring
 
100.0
%
 
0.2
%
 
3.6
%
 
5.3
%
 
1.1
%
 
2.7
%
 
87.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized cash rent per square foot(2) (3)
 
$
70.79

 
$
244.97

 
$
70.13

 
$
59.74

 
$
38.64

 
$
70.33

 
$
71.84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leases expiring
 
98

 
2

 
15

 
13

 
6

 
6

 
56

 
Expiring annualized cash rent (in thousands)(2)(3)
 
$
138,950

 
$
1,503

 
$
6,435

 
$
9,173

 
$
1,239

 
$
5,266

 
$
115,334

 
Expiring square feet(3)(4)
 
1,990,839

 
6,202

 
89,959

 
157,487

 
32,077

 
78,906

 
1,626,208

 
% of total square feet expiring
 
100.0
%
 
0.3
%
 
4.5
%
 
7.9
%
 
1.6
%
 
4.0
%
 
81.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized cash rent per square foot(2) (3)(4)
 
$
69.79

 
$
242.43

 
$
71.53

 
$
58.24

 
$
38.64

 
$
66.74

 
$
70.92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated joint ventures:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leases expiring
 
35

 
3

 
1

 
4

 
—

 
2

 
25

 
Expiring annualized cash rent (in thousands)(2)(4)
 
$
72,914

 
$
52

 
$
1,026

 
$
344

 
$
—

 
$
364

 
$
71,128

 
Expiring square feet(5)
 
1,001,826

 
147

 
16,420

 
1,833

 
—

 
1,145

 
982,281

 
% of total square feet expiring
 
100.0
%
 
—
%
 
1.6
%
 
0.2
%
 
—
%
 
0.1
%
 
98.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized cash rent per square foot(2)(4)
 
$
72.78

 
$
352.28

 
$
62.49

 
$
187.83

 
$
—

 
$
318.00

 
$
72.41

_________________
(1)
Combined reflects 100% of consolidated properties plus our pro rata share of Worldwide Plaza.
(2)
Expiring annualized cash rent represents contractual cash base rents at the time of lease expiration and reimbursements from tenants, excluding electric reimbursements and free rent.
(3)
Excludes 122,896 square feet of the hotel (which excludes 5,716 square feet leased to the hotel restaurant tenant). Total vacant square footage at June 30, 2016 was 218,214 square feet.
(4)
Reflects our pro rata share of our unconsolidated joint venture.

35

Comparison of Three Months Ended June 30, 2016 to Three Months Ended June 30, 2015
For the three months ended June 30, 2016, net loss attributable to stockholders was $11.5 million compared to a net loss attributable to stockholders of $9.0 million for the three months ended June 30, 2015, primarily due to declines in rental income, an increase in transaction costs and an increase in interest expense. As of January 1, 2015, we owned 24 properties and real estate-related assets. Between January 1, 2015 and June 30, 2016, we sold five properties and real estate-related assets (our "Dispositions"), and therefore own 19 properties as of June 30, 2016 (our "Same Store").
Rental Income
Rental income decreased $2.4 million to $29.8 million for the three months ended June 30, 2016, from $32.1 million for the three months ended June 30, 2015. The decrease in rental income was primarily driven by a net decrease in our Same Store of $1.3 million primarily related to lease expirations at 1440 Broadway, partially offset by leasing activity at 229 West 36th Street, 245-249 West 17th Street, 333 West 34th Street and 50 Varick Street. Our Dispositions contributed the remaining $1.1 million to the decrease in rental income.
Operating Expense Reimbursements and Other Revenue
Operating expense reimbursements and other revenue decreased $1.1 million to $3.1 million for the three months ended June 30, 2016 from $4.2 million for the three months ended June 30, 2015, largely driven by a net decrease in our Same Store of $1.0 million primarily related to lease expirations at 1440 Broadway. Our Dispositions contributed the remaining $0.1 million of the decrease in operating expense reimbursements and other revenue.
Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of certain property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. Therefore, operating expense reimbursements are directly affected by changes in property operating expenses, although not all increases in property operating expenses may be reimbursed by our tenants.
Property Operating Expenses
Property operating expenses remained stable at $10.1 million for the three months ended June 30, 2016 and 2015. Property operating expenses at our Same Store increased $0.2 million primarily due to increases at 333 W. 34th Street and 416 Washington Street which was partially offset by decreases at 1440 Broadway resulting from lower occupancy and a decrease due to our Dispositions of $0.2 million.
Hotel Revenue and Operating Expenses
Hotel revenues decreased $0.3 million to $7.1 million for the three months ended June 30, 2016, from $7.4 million for the three months ended June 30, 2015. Hotel operating expenses increased $0.1 million to $6.6 million for the three months ended June 30, 2016, from $6.5 million for the three months ended June 30, 2015.
Average occupancy and revenue per available room (commonly referred to in the hotel industry as "RevPAR") at the Viceroy Hotel of 85.0% and $294.38 for the three months ended June 30, 2016 decreased from 88.1% and $312.60 for the three months ended June 30, 2015. The increase in expenses were driven by higher sales and marketing expenses and general and administrative expenses specific to the Viceroy Hotel.
Operating Fees Incurred from the Advisor
Operating fees incurred from the Advisor of $3.1 million, which consist of asset management fees, remained consistent for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Asset management fees are currently equal to 0.5% per annum of the cost of assets, which has decreased since the prior year due to our Dispositions.
Our Property Manager is entitled to fees for the management of our properties. Property management fees increase or decrease in direct correlation with gross revenues. Our Property Manager elected to waive these fees for the three months ended June 30, 2016 and 2015. For the three months ended June 30, 2016 and 2015, we would have incurred property management fees of $0.5 million and $0.7 million, respectively, had these fees not been waived.
Transaction Related
Transaction related fees and expenses were $6.3 million during the three months ended June 30, 2016, compared to $0.1 million for the three months ended June 30, 2015. Transaction related expenses for the three months ended June 30, 2016 primarily included costs related to our strategic alternatives and our entering into the Combination Agreement with JBG along with litigation related to certain properties. Transaction related expenses for the three months ended June 30, 2015 primarily included costs related to litigation related to previous acquisitions.

36

General and Administrative Expenses
General and administrative expenses decreased $4.6 million to $0.6 million of expense for the three months ended June 30, 2016, from $5.2 million of expense for the three months ended June 30, 2015. Total equity-based compensation for the three months ended June 30, 2016 was income of $1.9 million as compared to expense of $2.2 million for the three months ended June 30, 2015. This income was partially offset by other cash-settled general and administrative expenses of $2.5 million.
Equity-based compensation expenses, which are not settled in cash, contributed $4.1 million to the decrease and was largely related to the decrease in the fair value of the OPP. The valuation of our OPP is largely dependent on the trading price of shares of our common stock in the absolute sense and relative to the share prices of our peer group. Because we are required under GAAP to remeasure the OPP quarterly and cumulatively adjust the related amortization expense, our equity-based compensation expenses tend to be volatile. See Note 14 — Share-Based Compensation to the accompanying notes to our consolidated financial statements.
The remaining net decrease in general and administrative expenses, which are settled in cash, was primarily related to decreases in professional accounting fees and other general and administrative expenses for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. We engaged KPMG LLP as our independent registered public accounting firm in February 2015, and, as such, the majority of the expenses related to the audit of our 2014 financial statements were recognized in the first two quarters of 2015 as opposed to throughout the year as is normally incurred. The decrease in professional fees was partially offset by higher compensation to our board of directors related to the addition of two independent directors in the fourth quarter of 2015, a greater number of board meetings, and general and administrative expense reimbursements to the Advisor, which began requesting such reimbursements during the third quarter of 2015.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $5.6 million to $16.6 million for the three months ended June 30, 2016, compared to $22.2 million for the three months ended June 30, 2015. The majority of the decrease was primarily related to a decrease in depreciation and amortization related to our Same Store of $4.9 million, mainly due to a decrease in in-place lease and tenant improvements values, which related to lease modifications, expirations and terminations at 229 West 36th Street, 333 West 34th Street and 1440 Broadway. The remaining $0.7 million of the decrease was due to our Dispositions.
Interest Expense
Interest expense increased $3.0 million to $9.3 million for the three months ended June 30, 2016, from $6.3 million for the three months ended June 30, 2015.
The net increase in interest expense associated with indebtedness incurred by our Same Store and Credit Facility was $3.2 million. In the third quarter of 2015, we entered into several financing transactions impacting our Same Store, including the issuance of a mortgage note payable secured by our property located at 1440 Broadway, as well as the settlement through early repayment or legal defeasance of six other mortgage notes payable before the scheduled maturity dates to allow for their inclusion in the borrowing base of our Credit Facility. As a result of these transactions, we incurred additional financing costs that are being amortized to interest expense over the respective maturity dates of the debt instruments to which they are allocated. The increase in interest expense was offset by a $0.2 million decrease in interest expense for the three months ended June 30, 2016 attributable to mortgages repaid in connection with our Dispositions.
Income from Unconsolidated Joint Venture
Income from unconsolidated joint venture for the three months ended June 30, 2016 increased $0.2 million to $0.8 million from $0.6 million for the three months ended June 30, 2015, which represents an increase in our preferred distribution, net of our pro rata share of the net income or loss of Worldwide Plaza and the amortization of the difference in basis between our investment and the book value of Worldwide Plaza's net assets. Income from unconsolidated joint venture increased in part due to increasing occupancy at Worldwide Plaza to 100.0% as of June 30, 2016 from 96.1% as of June 30, 2015.
Income from Preferred Equity Investment, Investment Securities and Interest Income
Income from preferred equity investment, investment securities and interest decreased approximately $5,000 to approximately $3,000 for the three months ended June 30, 2016 from approximately $8,000 during the three months ended June 30, 2015.
Gain on Sale of Real Estate Investments, Net
Gain on sale of real estate investments, net for the three months ended June 30, 2016, of $0.1 million related to funds held until a certificate of occupancy was obtained. We obtained the certificate of occupancy in the second quarter and the funds were released.

37

Loss on Derivative Instruments
Loss on derivative instruments of $0.1 million for the three months ended June 30, 2016 is primarily related to mark-to-market adjustments on our 1440 Broadway interest rate caps, which do not qualify for hedge accounting.
Net Loss Attributable to Non-Controlling Interests
The net loss attributable to non-controlling interests during the three months ended June 30, 2016 and 2015 was $0.3 million. During the three months ended June 30, 2016, OP unitholders redeemed 0.1 million OP units for shares of our common stock, which reduced the allocation of income (loss) to non-controlling interests.
Comparison of Six Months Ended June 30, 2016 to Six Months Ended June 30, 2015
For the six months ended June 30, 2016, net loss attributable to stockholders was $11.1 million compared to $17.5 million for the six months ended June 30, 2015, primarily driven by lower general and administrative expenses, declines in depreciation and amortization, and the recognition of gains on properties sales during 2016, partially offset by lower rental income and operating expense reimbursements and higher transaction costs and interest expense.
Rental Income
Rental income decreased $6.8 million to $58.8 million for the six months ended June 30, 2016, from $65.6 million for the six months ended June 30, 2015. The decrease in rental income was primarily driven by a net decrease in our Same Store of $4.9 million primarily related to lease expirations at 1440 Broadway and a lease termination at 256 West 38th Street, partially offset by leasing activity at 229 West 36th Street, 245-249 West 17th Street, 333 West 34th Street and 50 Varick Street. Our Dispositions contributed the remaining $1.9 million to the decrease in rental income.
Operating Expense Reimbursements and Other Revenue
Operating expense reimbursements and other revenue decreased $1.9 million to $6.5 million for the six months ended June 30, 2016 from $8.3 million for the six months ended June 30, 2015, largely driven by a net decrease in our Same Store of $1.7 million primarily related to lease expirations at 1440 Broadway. These decreases were partially offset by higher recoveries at 333 West 34th Street. Our Dispositions contributed the remaining $0.2 million of the decrease in operating expense reimbursements and other revenue.
Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of certain property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. Therefore, operating expense reimbursements are directly affected by changes in property operating expenses, although not all increases in property operating expenses may be reimbursed by our tenants.
Property Operating Expenses
Property operating expenses decreased $0.6 million to $20.5 million for the six months ended June 30, 2016, from $21.1 million for the six months ended June 30, 2015, largely driven by a net decrease in our Same Store of $0.3 million primarily related to lease expirations and terminations at 1440 Broadway and 256 West 38th Street. These decreases were partially offset by higher property operating expenses at 333 West 34th Street and bad debt expense at 416 Washington Street due to the early termination of a tenant. Our Dispositions also contributed $0.3 million of the decrease.
Hotel Revenue and Operating Expenses
Hotel revenues decreased $0.2 million to $11.4 million for the six months ended June 30, 2016, from $11.6 million for the six months ended June 30, 2015. Hotel operating expenses increased $0.7 million to $12.9 million for the six months ended June 30, 2016, from $12.2 million for the six months ended June 30, 2015.
Average occupancy and revenue per available room (commonly referred to in the hotel industry as "RevPAR") at the Viceroy Hotel of 80.35% and $240.13 for the six months ended June 30, 2016 increased from 75.2% and $245.25 for the six months ended June 30, 2015. The increase in expenses were driven by higher occupancy and primarily related to room expenses, sales and marketing expenses and general and administrative expenses specific to the Viceroy Hotel.
Operating Fees Incurred from the Advisor
Operating fees incurred from the Advisor of $6.1 million, which consist of asset management fees, decreased $0.1 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Asset management fees are currently equal to 0.5% per annum of the cost of assets, which has decreased since the prior year due to our Dispositions.
Our Property Manager is entitled to fees for the management of our properties. Property management fees increase in direct correlation with gross revenues. Our Property Manager elected to waive these fees for the six months ended June 30, 2016 and 2015. For the six months ended June 30, 2016 and 2015, we would have incurred property management fees of $1.0 million and $1.2 million, respectively, had these fees not been waived.

38

Transaction Related
Transaction related fees and expenses were $6.6 million during the six months ended June 30, 2016, compared to $0.2 million for the six months ended June 30, 2015. Transaction related expenses for the six months ended June 30, 2016 primarily related to our exploration of strategic alternatives and our entering into the Combination Agreement with JBG along with litigation related to certain properties. Transaction related expenses for the six months ended June 30, 2015 primarily included costs related to litigation related to previous acquisitions.
General and Administrative Expenses
General and administrative expenses decreased $11.9 million resulting in $2.7 million of income for the six months ended June 30, 2016, from $9.2 million of expense for the six months ended June 30, 2015. Total equity-based compensation for the six months ended June 30, 2016 was income of $8.4 million as compared to expense of $2.4 million for the six months ended June 30, 2015. This income was partially offset by other cash-settled general and administrative expenses of $5.6 million.
Equity-based compensation expenses, which are not settled in cash, contributed $10.8 million to the decrease and was largely related to the decrease in the fair value of the OPP. The valuation of our OPP is largely dependent on the trading price of shares of our common stock in the absolute sense and relative to the share prices of our peer group. Because we are required under GAAP to remeasure the OPP quarterly, our equity-based compensation expenses tend to be volatile. See Note 14 — Share-Based Compensation to the accompanying notes to our consolidated financial statements.
The remaining net decrease in general and administrative expenses, which are settled in cash, was primarily related to decreases in professional accounting fees and other general and administrative expenses for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. We engaged KPMG LLP as our independent registered public accounting firm in February 2015, and, as such, the majority of the expenses related to the audit of our 2014 financial statements were recognized during the six months ended June 30, 2015 as opposed to throughout the year as is normally incurred. The decrease in professional fees was partially offset by higher compensation to our board of directors related to the addition of two independent directors in the fourth quarter of 2015, a greater number of board meetings, and general and administrative expense reimbursements to our Advisor, which began requesting such reimbursements during the third quarter of 2015.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $10.0 million to $33.8 million for the six months ended June 30, 2016, compared to $43.8 million for the six months ended June 30, 2015. The majority of the decrease was primarily related to a decrease in depreciation and amortization related to our Same Store of $8.7 million, mainly due to a decrease in in-place lease and tenant improvements values, which related to lease modifications, expirations and terminations at 229 West 36th Street, 333 West 34th Street and 1440 Broadway. The remaining $1.3 million of the decrease was due to our Dispositions.
Interest Expense
Interest expense increased $6.4 million to $19.0 million for the six months ended June 30, 2016, from $12.6 million for the six months ended June 30, 2015.
The net increase in interest expense associated with indebtedness incurred by our Same Store and Credit Facility was $6.4 million. In the third quarter of 2015, we entered into several financing transactions impacting our Same Store, including the issuance of a mortgage note payable secured by our property located at 1440 Broadway, as well as the settlement through early repayment or legal defeasance of six other mortgage notes payable before the scheduled maturity dates to allow for their inclusion in the borrowing base of our Credit Facility. As a result of these transactions, we incurred additional financing costs that are being amortized to interest expense over the respective maturity dates of the debt instruments to which they are allocated.
Income from Unconsolidated Joint Venture
Income from unconsolidated joint venture for the six months ended June 30, 2016 increased $1.0 million to $1.8 million from $0.8 million for the six months ended June 30, 2015, which represents an increase in our preferred distribution, net of our pro rata share of the net income or loss of Worldwide Plaza and the amortization of the difference in basis between our investment and the book value of Worldwide Plaza's net assets. Income from unconsolidated joint venture increased in part due to increasing occupancy at Worldwide Plaza to 100.0% as of June 30, 2016 from 96.1% as of June 30, 2015. Our preferred return was higher for the six months ended June 30, 2016 due to $0.3 million in interest earned on preferred return amounts in arrears.
Income from Preferred Equity Investment, Investment Securities and Interest Income
Income from preferred equity investment, investment securities and interest decreased $0.9 million to approximately $21,000 for the six months ended June 30, 2016 from $0.9 million during the six months ended June 30, 2015. The primary driver for the decrease was the income received during the six months ended June 30, 2015 related to our preferred equity investment in 123 William Street, which was redeemed in March 2015.

39

Gain on Sale of Real Estate Investments, Net
Gain on sale of real estate investments, net of $6.6 million during the six months ended June 30, 2016 resulted from the sales of Duane Reade, 1623 Kings Highway and Foot Locker.
Loss on Derivative Instruments
Loss on derivative instruments of $0.4 million for the six months ended June 30, 2016 is primarily related to mark-to-market adjustments on our 1440 Broadway interest rate caps, which do not qualify for hedge accounting. Loss on derivative instruments for the six months ended June 30, 2015 was approximately $4,000.
Net Loss Attributable to Non-Controlling Interests
The net loss attributable to non-controlling interests during the six months ended June 30, 2016 and 2015 was $0.3 million and $0.5 million, respectively. During the six months ended June 30, 2016, OP unitholders redeemed 2.6 million OP units for shares of our common stock, which reduced the allocation of loss to non-controlling interests.
Cash Flows for the Six Months Ended June 30, 2016
For the six months ended June 30, 2016, net cash provided by operating activities was $6.1 million, which represents a decrease of $10.2 million compared to the $16.3 million of net cash provided by operating activities for the six months ended June 30, 2015. The decrease is partially the result of a large lease of approximately 184,000 square feet that expired in the fourth quarter of 2015 and a lease of approximately 72,000 square feet that expired in the second quarter of 2016 at 1440 Broadway, both of which reduced net income. At 1440 Broadway, a large portion of the expired space has subsequently been re-leased, but the tenants that replaced a part of the vacated space did not pay cash rent until the second quarter of 2016. Our Dispositions also contributed to the decrease in net cash provided by operating activities.
The level of cash flows used in or provided by operating activities is affected by the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of property operating expenses. Net loss of $11.4 million for the six months ended June 30, 2016 was adjusted for depreciation and amortization of tangible and intangible real estate assets, equity-based compensation, gains on sale of real estate investments and other non-cash charges of $19.3 million, which resulted in cash inflows from operations of $7.9 million. Net cash provided by operating activities also reflected an increase in deferred revenue of $0.3 million, an increase in accrued unbilled ground rent of $1.4 million, which results from recording rental expenses on a straight-line basis and an increase in accounts payable and accrued expenses of $2.2 million. These cash inflows were partially offset by an increase in prepaid expenses, other assets and deferred costs of $0.5 million, an increase in unbilled rent receivables of $4.1 million recorded in accordance with accounting for rental income on a straight-line basis and an increase in tenant and other receivables of $1.0 million.
Net cash provided by investing activities during the six months ended June 30, 2016 of $41.8 million is primarily related to proceeds received from our Dispositions of $35.4 million and distributions received in respect of our investment in Worldwide Plaza of $16.1 million. These cash inflows were partially offset by capital expenditures for building and tenant improvements of $9.7 million primarily related to 50 Varick Street and 1440 Broadway.
Net cash used in financing activities of $58.4 million during the six months ended June 30, 2016 included the repayment of mortgage principal amounts of $19.1 million related to our Dispositions and principal amortization of another current mortgage note payable. Net cash used in financing activities also included dividends paid to stockholders of $37.9 million, decreases to restricted cash of $0.3 million, distributions to non-controlling interest holders of $1.5 million and payment of $0.2 million for income taxes related to restricted shares that vested during the period.
Cash Flows for the Six Months Ended June 30, 2015
For the six months ended June 30, 2015, net cash provided by operating activities was $16.3 million. The level of cash flows used in or provided by operating activities is affected by the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of property operating expenses. Cash flows provided by operating activities included a net loss adjusted for non-cash items, resulting in a cash inflow of $25.3 million (net loss of $18.0 million adjusted for depreciation and amortization of tangible and intangible real estate assets and other non-cash charges of $43.4 million), an increase in accrued unbilled ground rent of $1.8 million from recording ground rent expense on a straight-line basis, an increase in accounts payable and accrued expenses of $1.2 million, primarily due to legal and professional fees related to our outsourced internal audit firm as well as proxy costs and a decrease in tenant and other receivables of $0.1 million. These cash inflows were partially offset by an increase in unbilled rent receivables of $8.7 million from recording rental income on a straight-line basis, an increase in prepaid expenses and other assets of $3.3 million, primarily related to leasing costs and a net decrease in deferred revenue of $0.1 million.

40

Net cash provided by investing activities during the three months ended March 31, 2015 of $27.8 million primarily related to the sale of 123 William Street and the return of the principal balance of our preferred equity investment of $35.1 million, free rent credits released from escrow of $4.6 million related to our August 2014 acquisition of 245-249 West 17th Street and $1.1 million of proceeds from the sale of investment securities. These cash inflows were partially offset by $12.9 million of capital expenditures and approximately $42,000 in purchases of additional investment securities.
Net cash used in financing activities of $39.1 million during the three months ended March 31, 2015 primarily related to dividends to common stockholders of $37.3 million, $1.4 million of distributions to non-controlling interest holders, increases to restricted cash of $0.1 million, primarily related to real estate tax escrows, payments of deferred financing costs of $0.2 million and principal payments on mortgage notes payable of $0.2 million.
Non-GAAP Financial Measures
This section includes non-GAAP financial measures, including Funds from Operations, Core Funds from Operations, Adjusted Funds from Operations, Adjusted Earnings before Interest, Taxes and Depreciation and Amortization, Net Operating Income, Cash Net Operating Income and Adjusted Cash Net Operating Income. A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income (loss), is provided below.
Funds from Operations, Core Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure but is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of a real estate asset diminishes predictably over time, especially if not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, because 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 and certain other items may be less informative. Historical accounting for real estate requires us to depreciate or amortize our assets in accordance with GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, among other things, 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 (loss). However, FFO, core funds from operations ("Core FFO") and adjusted funds from operations (“AFFO”), as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance. In calculating FFO, Core FFO and AFFO, 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 or calculate Core FFO or AFFO differently than we do. Consequently, our presentation of FFO, Core FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs.
We consider FFO, Core FFO and AFFO useful indicators of our performance. 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), FFO facilitates comparisons of operating performance between periods and between other REITs in our peer group.
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.

41

Core FFO is FFO, excluding transaction related costs and other items that are considered to be not comparable from period to period, such as gains on sales of securities and investments, miscellaneous revenue, such as lease termination fees and insurance proceeds, and expenses related to the early extinguishment of debt. Additionally, we exclude transaction related expenses, which are primarily comprised of expenses related to our strategic alternatives process, as these expenses are not the result of the operations of our properties. By excluding transaction related costs and and other items that are considered to be not comparable from period to period, we believe Core FFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management's analysis of the investing and operating performance of our properties.
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 and gains or losses on contingent valuation rights. In addition, by excluding non-cash income and expense items such as equity-based compensation expenses, amortization of above-market and below-market lease intangibles, amortization of deferred financing costs and straight-line rent from AFFO, we believe we provide useful information regarding income and expense items which have no cash impact and do not provide liquidity to the Company or require capital resources of the Company. Similarly, we include items such as free rent credits paid by sellers in our calculation of AFFO because these funds are paid to us during the free rent period and therefore impact our performance. We also include second generation capital expenditures in our calculation of AFFO because these funds are paid in order to maintain the level of operating performance. 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. 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 calculating AFFO, we exclude certain expenses, which under GAAP are characterized as operating expenses in determining operating net income, such as certain non-cash fair value and other adjustments, and are considered operating 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, Core FFO and AFFO, together with the required 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.

42

The table below reflects the items deducted from or added to net income in our calculation of FFO, Core FFO and AFFO during the period presented. We have calculated our FFO, Core FFO and AFFO based on our net income, which is before adjusting for the net loss attributable to our non-controlling interests, and all adjustments are made based on our gross adjustments, without excluding the portion of the adjustments attributable to our non-controlling interests, other than adjustments related to the unconsolidated joint venture.
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
March 31, 2016
 
June 30, 2016
 
June 30, 2016
Net income (loss) (in accordance with GAAP)
 
$
419

 
$
(11,807
)
 
$
(11,388
)
Gain on sale of real estate investments, net
 
(6,505
)
 
(125
)
 
(6,630
)
Depreciation and amortization
 
17,225

 
16,587

 
33,812

Depreciation and amortization related to unconsolidated joint venture(1)
 
6,114

 
6,400

 
12,514

FFO
 
17,253

 
11,055

 
28,308

Transaction-related expenses
 
349

 
6,261

 
6,610

Other income(2)
 
(57
)
 
(132
)
 
(189
)
    Straight-line rent bad debt expense
 
79

 
98

 
177

    Deferred financing and other costs(3)
 
345

 
—

 
345

Core FFO
 
17,969

 
17,282

 
35,251

Non-cash compensation expense
 
(6,430
)
 
(1,932
)
 
(8,362
)
Amortization of deferred financing costs
 
2,426

 
2,406

 
4,832

Amortization of market lease intangibles
 
(1,724
)
 
(1,616
)
 
(3,340
)
Mark-to-market adjustments on derivatives
 
251

 
107

 
358

Straight-line rent
 
(2,252
)
 
(1,801
)
 
(4,053
)
Straight-line ground rent
 
686

 
686

 
1,372

Tenant improvements - second generation
 
—

 
(430
)
 
(430
)
Leasing commissions - second generation
 
(987
)
 
(473
)
 
(1,460
)
Building improvements - second generation
 
(609
)
 
(1,174
)
 
(1,783
)
Proportionate share of straight-line rent related to unconsolidated joint venture
 
(709
)
 
(364
)
 
(1,073
)
AFFO
 
$
8,621

 
$
12,691

 
$
21,312

___________________________
(1)
Proportionate share of depreciation and amortization related to unconsolidated joint venture and amortization of difference in basis.
(2)
Represents approximately $60,000 of lease termination fee revenue and approximately $130,000 of insurance proceeds received relating to casualty claims.
(3)
Represents prepayment penalties, deferred financing and other costs that were written off as a result of paying off mortgages in advance of their scheduled maturity dates.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, Net Operating Income, Cash Net Operating Income and Adjusted Cash Net Operating Income.
We believe that earnings before interest, taxes, depreciation and amortization adjusted for transaction-related expenses, other non-cash items and including our pro rata share from unconsolidated joint ventures ("Adjusted EBITDA") is an appropriate measure of our ability to incur and service debt. Adjusted EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity or as an alternative to net income as an indicator of our operating activities. Other REITs may calculate Adjusted EBITDA differently and our calculation should not be compared to that of other REITs.

43

Net operating income ("NOI") is a non-GAAP financial measure equal to net income (loss), the most directly comparable GAAP financial measure, less discontinued operations, interest, other income and income from preferred equity investments and investments securities, plus corporate general and administrative expense, transaction-related expenses, depreciation and amortization, other non-cash expenses and interest expense. NOI is adjusted to include our pro rata share of NOI from unconsolidated joint ventures. Cash NOI is NOI presented on a cash basis, which is NOI after eliminating the effects of straight-lining of rent and the amortization of above and below market leases. Adjusted Cash NOI is Cash NOI after eliminating the effects of free rent.
We use NOI, Cash NOI and Adjusted Cash NOI internally as performance measures and believe NOI, Cash NOI and Adjusted Cash NOI provide useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe NOI, Cash NOI and Adjusted Cash NOI are useful measures for evaluating the operating performance of our real estate assets and to make decisions about resource allocations. Further, we believe NOI, Cash NOI and Adjusted Cash NOI are useful to investors as performance measures because, when compared across periods, NOI, Cash NOI and Adjusted Cash NOI reflect the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition activity on an unlevered basis. NOI, Cash NOI and Adjusted Cash NOI exclude certain components from net income in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not linked to the operating performance of a real estate asset and Cash NOI is not affected by whether the financing is at the property level or corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI, Cash NOI and Adjusted Cash NOI presented by us may not be comparable to NOI, Cash NOI and Adjusted Cash NOI reported by other REITs that define NOI, Cash NOI and Adjusted Cash NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI, Cash NOI and Adjusted Cash NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI, Cash NOI and Adjusted Cash NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity.
The table below reflects the reconciliation of net income (loss) to Adjusted EBITDA, NOI, Cash NOI and Adjusted Cash NOI during the period presented. We have calculated our Adjusted EBITDA, NOI, Cash NOI and Adjusted Cash NOI based on our net income, which is before adjusting for the net loss attributable to our non-controlling interests, and all adjustments are made based on our gross adjustments, without excluding the portion of the adjustments attributable to our non-controlling interests, other than adjustments related to the unconsolidated joint venture as noted in the table below.

44

 
 
Three Months Ended
Six Months Ended
(In thousands)
 
March 31, 2016
 
June 30, 2016
 
June 30, 2016
Net income (loss) (in accordance with GAAP)
 
$
419

 
$
(11,807
)
 
$
(11,388
)
Transaction related
 
349

 
6,261

 
6,610

Depreciation and amortization
 
17,225

 
16,587

 
33,812

Interest expense
 
9,726

 
9,312

 
19,038

Gain on sale of real estate investments, net
 
(6,505
)
 
(125
)
 
(6,630
)
Loss on derivatives
 
251

 
107

 
358

Adjustments related to unconsolidated joint venture(1)
 
11,129

 
11,414

 
22,543

Adjusted EBITDA
 
32,594

 
31,749

 
64,343

General and administrative
 
(3,344
)
 
609

 
(2,735
)
Operating fees incurred from the Advisor
 
3,074

 
3,050

 
6,124

Interest income
 
(18
)
 
(3
)
 
(21
)
Preferred return on unconsolidated joint venture
 
(4,068
)
 
(3,987
)
 
(8,055
)
Proportionate share of other adjustments related to unconsolidated joint venture
 
1,989

 
1,949

 
3,938

NOI
 
30,227

 
33,367

 
63,594

Amortization of above/below market lease assets and liabilities
 
(1,724
)
 
(1,616
)
 
(3,340
)
Straight-line rent
 
(2,173
)
 
(1,702
)
 
(3,875
)
Straight-line ground rent
 
686

 
685

 
1,371

Proportionate share of adjustments related to unconsolidated joint venture
 
(709
)
 
(364
)
 
(1,073
)
Cash NOI
 
26,307

 
30,370

 
56,677

Free rent
 
1,151

 
649

 
1,800

Adjusted Cash NOI
 
$
27,458

 
$
31,019

 
$
58,477

_________________
(1)
Proportionate share of adjustments related to unconsolidated joint venture and amortization of difference in basis.
Liquidity and Capital Resources
As of June 30, 2016, we had cash and cash equivalents of $88.1 million. In the normal course of business, our principal demands for funds are to pay or fund operating expenses, capital expenditures, dividends to our stockholders, distributions to our OP unitholders and LTIP unitholders, and principal and interest payments on our outstanding indebtedness. We have met these demands primarily through cash flows from operations, borrowings under our Credit Facility, preferred distributions in respect of our interest in Worldwide Plaza and the sale or redemption of certain assets. Future sources of capital could also include proceeds from secured or unsecured financings, proceeds from the sale of properties and undistributed funds from operations (if any). Our principal sources and uses of funds are further described below.
Asset Sale Plan and Refinancing Plan
On August 2, 2016, simultaneously with our announcement of the termination of the Combination Agreement, we announced that our board of directors had approved the Asset Sale Plan, beginning the process of selling our assets on an individual basis subject to, among other things, the limitations set forth in the Credit Facility and any requirements of applicable law. We would only sell assets under the Asset Sale Plan to the extent permitted under the Credit Facility and Maryland law, and the proceeds would be distributed to our stockholders after repaying any applicable debt obligations and funding any reserves or other needs and complying with any provisions of applicable law. Sales of assets could be made on an individual or portfolio basis and the Asset Sale Plan does not preclude a sale of us if an offer is made that our board of directors considers to be more attractive than sales of assets.
Throughout the strategic process conducted by our board of directors that resulted in the entry into the Combination Agreement, we engaged with a significant number of potential buyers who were interested in acquiring individual properties from us. We intend to contact parties that had previously indicated interest in our individual assets during the strategic process. We will also seek other qualified buyers.

45

We also announced that our board of directors had instructed our management to pursue the Refinancing Plan and seek to either amend the Credit Facility or obtain new financing to prepay the Credit Facility in full, provide additional capital for the Company to exercise the WWP Option, and to provide the Company increased flexibility to sell assets and distribute the permitted proceeds to stockholders. As of August 1, 2016, our Credit Facility had an outstanding loan balance of $485.0 million.
The outcome of pursuing the Asset Sale Plan and the Refinancing Plan is uncertain and exposes us to certain risks. See “Part II - Other Information - Item 1A. Risk Factors.”
Principal Sources of Funds
Cash Flows from Operating Activities
Our cash flows from operating activities is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent, operating escalations and recoveries from our tenants and the level of operating and other costs, including general and administrative expenses. We expect to increase the amount of cash flow generated from operating activities in future periods by re-leasing our vacant and expiring space at current market rates. Furthermore, we anticipate increased cash flow through the contractual rent escalations included in a majority of our current leases during the primary term of the lease.
Availability of Funds from Credit Facility
On April 14, 2014, we entered into our Credit Facility. The Credit Facility allows for total borrowings of up to $705.0 million with a $305.0 million term loan and a $400.0 million revolving loan which mature on August 20, 2018 and August 20, 2016, respectively. We have two one-year options to extend the revolving loan to August 20, 2018, subject to customary conditions and fees. In June 2016, we notified Capital One, National Association of our intention to exercise the first option, which will extend the maturity date of the revolving portion of the Credit Facility through August 2017, effective as of the original maturity date. The Credit Facility contains an "accordion feature" to allow us, under certain circumstances and with consent of our lenders, to increase the aggregate loan borrowings to up to $1.0 billion of total borrowings. As of June 30, 2016, the outstanding balance of the term loan and revolving components of the Credit Facility was $305.0 million and $180.0 million, respectively, with a combined weighted average interest rate of 2.6%. The actual availability of borrowings under our Credit Facility for any period is based on requirements outlined in our Credit Facility with respect to the pool of eligible unencumbered assets that comprise our borrowing base properties. The unused borrowing capacity, based on the debt service coverage ratio of the borrowing base properties as of June 30, 2016, was $56.8 million.
The Credit Facility requires interest only payments, with all principal outstanding being due on the maturity dates. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
The Credit Facility requires us to meet certain financial and non-financial covenants, including 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. We were in compliance with all financial and non-financial covenants under the Credit Facility as of June 30, 2016. We continuously monitor our compliance with all covenants. Certain covenants may restrict our ability to obtain additional borrowings under the Credit Facility or alternative sources of capital, such as the minimum debt service coverage ratio that we must maintain.
We view a mix of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage our working capital needs. Our interest expense in future periods will vary based, in part, on our level of future borrowings and the cost of these borrowings.
Other Sources of Funds
During the six months ended June 30, 2016, we received $16.1 million in distributions in respect of our interest in Worldwide Plaza. We expect to continue to receive cash distributions in respect of our interest in Worldwide Plaza in accordance with our investment agreement.
On September 30, 2015, we obtained a mortgage note payable of up to $325.0 million, secured by our property located at 1440 Broadway. As of June 30, 2016, the mortgage note payable outstanding was $305.0 million, and up to $20.0 million is available in the future as additional advances, subject to customary funding conditions to pay, among other things, for certain tenant allowances, capital expenditures and leasing costs that have been approved by the lender.

46

Principal Use of Funds
Strategic Process and Transaction Costs
During the six months ended June 30, 2016, we incurred $6.6 million of transaction costs, which were primarily related to our strategic alternatives process. We may incur additional transaction costs relating to our strategic alternatives process, as part of our pursuit of the Asset Sale Plan and Refinancing Plan or otherwise, in the future. We intend to fund transaction costs primarily with cash on hand, future borrowings and cash flows from operations.
Capital Expenditures
As of June 30, 2016, we owned 19 properties. In connection with the leasing of our properties, we have entered into and will continue to enter into agreements with our tenants to provide allowances for tenant improvements. These allowances require us to fund capital expenditures up to amounts specified in our lease agreements. We intend to fund tenant improvement allowances with cash on hand, future borrowings and cash flows from operations. We funded $9.7 million in capital expenditures during the six months ended June 30, 2016, which was funded primarily from cash on hand. We currently estimate that we will fund between $30.0 million and $35.0 million of capital expenditures during the remainder of 2016 for our consolidated real estate portfolio, of which the largest portion relates to tenant improvements, building improvements and leasing commissions resulting from retail repositioning and releasing efforts at 1440 Broadway.
Worldwide Plaza Option
We expect to exercise the WWP Option, which will be in the amount of $1.4 billion less the amount of mortgage debt outstanding, for the remaining interest in Worldwide Plaza during the option exercise period commencing in January 2017 and fund the approximately $270 million in additional capital we expect will be required through the Refinancing Plan. Failure to exercise the WWP Option will subject us to a fee equal to $25.0 million. In addition, the loan securing Worldwide Plaza includes provisions which could restrict our exercise of the WWP Option unless we prepay the loan or meet certain tests, including net worth tests. While we believe we currently meet such tests, there can be no assurance that we will meet them at the time that we desire to exercise the WWP Option.
See “Part II - Other Information - Item 1A. Risk Factors. Our ability to exercise the WWP Option in the future depends on our ability to raise additional capital, through the Refinancing Plan or otherwise, and the existing mortgage loans encumbering Worldwide Plaza includes provisions which could restrict our ability to assume those loans upon exercise of the WWP Option."
Dividends
During the three months ended June 30, 2016, we declared and paid a dividend at a rate equal to $0.46 per share per annum. Payments on dividends declared are made to stockholders of record at the close of business on the 8th day of each month, and payable on the 15th day of such month. For U.S Federal income tax purposes, amounts paid to our stockholders may be a return of capital and not a return on a stockholder's investment. Our board of directors may reduce the amount of dividends or distributions paid or suspend dividend payments at any time and therefore dividend payments are not assured.
During the six months ended June 30, 2016, dividends paid totaled $39.4 million, inclusive of $1.5 million of distributions paid on OP units and participating LTIP units. During the six months ended June 30, 2016, cash used to pay our dividends was primarily generated from cash flows provided by operations, cash on hand and distributions in respect of our interest in Worldwide Plaza. We expect to fund dividend payments for the rest of the year primarily from cash flows from operations, cash on hand and distributions in respect of our interest in Worldwide Plaza. We are required to distribute annually at least 90% of our annual REIT taxable income, determined without regard for the deduction for dividends paid and excluding net capital gains.
Covenants in the Credit Facility restrict us from paying dividends or distributions to stockholders above a percentage threshold of its Modified Funds From Operations (as defined in the Credit Facility), which could cause us to lower the level of cash dividends as our operating cash flows decline in connection with any asset sales, pursuant to the Asset Sale Plan or otherwise. See “Part II - Other Information - Item 1A. Risk Factors. We may be unable to maintain our current level of cash dividends as assets are sold.”


47

The following table shows the sources for the payment of dividends for the periods presented:
 
 
Three Months Ended
 
Six Months Ended
 
 
March 31, 2016
 
June 30, 2016
 
June 30, 2016
(In thousands)
 
 
 
Percentage
of
Distributions
 
 
 
Percentage
of
Distributions
 
 
 
Percentage of Distributions
Dividends:
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash
 
$
18,895

 
 
 
$
18,986

 
 
 
$
37,881

 
 
Other(1)
 
428

 
 
 
1,047

 
 
 
1,475

 
 
Total dividends
 
$
19,323

 
 
 
$
20,033

 
 
 
$
39,356

 
 
Source of dividend coverage:
 
 
 
 
 
 
 
 
 
 

 
 
Cash flows provided by operations 
 
$
5,708

 
29.5
%
 
$
387

 
1.9
%
 
$
6,095

 
15.5
%
Distributions in respect of our interest in Worldwide Plaza
 
7,900

 
40.9
%
 
8,200

 
40.9
%
 
$
16,100

 
40.9
%
Cash on hand, including cash from property dispositions and borrowings
 
5,715

 
29.6
%
 
11,446

 
57.2
%
 
17,161

 
43.6
%
Total sources of dividends
 
$
19,323

 
100.0
%
 
$
20,033

 
100.0
%
 
$
39,356

 
100.0
%
Cash flows provided by operations (GAAP basis)
 
$
5,708

 
 
 
$
387

 
 
 
$
6,095

 
 

Net income attributable to stockholders (in accordance with GAAP)
 
$
487

 
 
 
$
(11,540
)
 
 
 
$
(11,053
)
 
 

__________________
(1)
Includes distributions on OP units and participating LTIP units.
Loan Obligations
As of June 30, 2016, we had consolidated mortgage notes payable of $369.3 million, excluding $427.9 million of unconsolidated mortgage debt relating to our pro rata share of Worldwide Plaza's total mortgage debt of $875.0 million. As of June 30, 2016, the consolidated mortgage notes payable had a weighted average interest rate of 4.0% and our pro rata share of unconsolidated mortgage debt relating to Worldwide Plaza had a weighted average interest rate of 4.6%.
The payment terms of our mortgage loan obligations require principal and interest amounts payable monthly and our Credit Facility is interest-only with all unpaid principal and interest due at maturity. Our loan agreements require us to comply with specific reporting covenants. As of June 30, 2016, we were in compliance with the debt covenants under our loan agreements.
The revolving portion of our Credit Facility matures in August 2016. We have two options to extend the maturity date of the revolving loan component of the Credit Facility through August 2018. In June 2016, we notified Capital One, National Association of our intention to exercise the first option, which will extend the maturity date of the revolving portion of the Credit Facility through August 2017.
Contractual Obligations
Debt Obligations
The following is a summary of our contractual debt obligations as of June 30, 2016:
 
 
 
 
 
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
July 1, 2016 - December 31, 2016
 
2017 — 2018
 
2019 — 2020
 
Thereafter
Principal payments due:
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
 
$
369,291

 
$
211

 
$
51,948

 
$
312,910

 
$
4,222

Credit Facility
 
485,000

 
—

 
485,000

 
—

 
—

 
 
$
854,291

 
$
211

 
$
536,948

 
$
312,910

 
$
4,222

Interest payments due:
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable
 
$
46,205

 
$
8,428

 
$
26,436

 
$
11,240

 
$
101

Credit Facility
 
22,553

 
6,326

 
16,227

 
—

 
—

 
 
$
68,758

 
$
14,754

 
$
42,663

 
$
11,240

 
$
101


48

Lease Obligations
We entered into lease agreements with the owners of the ground leases at 350 Bleecker Street and the Viceroy Hotel. The following table reflects the minimum base cash rental payments due from us over the next five years and thereafter under these arrangements. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes, among other items.
 
 
 
 
 
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
July 1, 2016 - December 31, 2016
 
2017 — 2018
 
2019 — 2020
 
Thereafter
Capital lease obligations
 
$
3,791

 
$
43

 
$
172

 
$
172

 
$
3,404

Operating lease obligations
 
269,441

 
2,474

 
9,994

 
10,692

 
246,281

Total lease obligations
 
$
273,232

 
$
2,517

 
$
10,166

 
$
10,864

 
$
249,685

Election as a REIT
We elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), effective for our taxable year ended December 31, 2010. We believe that, commencing with such taxable year, we have been organized and operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified for taxation as a REIT. In order to continue to qualify for taxation as a REIT we must, among other things, distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties as well as federal income and excise taxes on our undistributed income.
Inflation
Many of our leases contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. In addition, our net leases require the tenant to pay its allocable share of operating expenses, which may include 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
We have entered into agreements with affiliates of our Sponsor, whereby we have paid or may in the future pay certain fees or reimbursements to our Advisor, its affiliates and entities under common control with our Advisor in connection with acquisition and financing activities, asset and property management services and reimbursement of operating and offering related costs. The predecessor to the parent of the Sponsor is a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided us and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to the parent of the Sponsor instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory. We were party to a transfer agency agreement with American National Stock Transfer, LLC ("ANST"), pursuant to which ANST provided us with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc., a third-party transfer agent. AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. Subsequently, we entered into an agreement with Computershare, Inc, a third-party transfer agent to provide us directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services). See Note 12 — Related Party Transactions and Arrangements to our accompanying consolidated financial statements.

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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 long-term debt, which consists of secured financings and our Credit Facility, bears interest at fixed rates and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. From time to time, we may enter into interest rate hedge contracts such as swaps, caps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do 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, 2016, our debt consisted of both fixed and variable-rate debt. We had fixed-rate secured mortgage notes payable and fixed-rate loans under our Credit Facility, with an aggregate carrying value of $144.3 million and a fair value of $148.4 million. Changes in market interest rates on our fixed-rate debt impact the fair value of the notes, but it has no impact on interest due on the notes. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation 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, 2016 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 $1.5 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 $1.5 million.
As of June 30, 2016, our variable-rate debt had a carrying and fair value of $710.0 million. Interest rate volatility associated with this variable-rate debt affects interest expense incurred and cash flow. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their June 30, 2016 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate debt would increase or decrease our interest expense by $7.1 million annually.
These amounts were determined by considering the impact of hypothetical interest rates changes on our borrowing costs, and assuming no other changes in our capital structure. As the information presented above includes only those exposures that existed as of June 30, 2016, 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.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.
Changes in Internal Control Over Financial Reporting.
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The information contained under the heading "Litigation" in "Note 11 — Commitments and Contingencies" to our consolidated financial statements is incorporated by reference into this Part II, Item 1. Except as set forth therein, as of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
The outcome of pursuing the Asset Sale Plan and the Refinancing Plan is uncertain and exposes us to certain risks.
On August 2, 2016, we announced that our board had adopted the Asset Sale Plan to begin the process of selling our assets on an individual basis. Under the Asset Sale Plan, we would only sell assets to the extent permitted under the Credit Facility and Maryland law. In connection with adopting the Asset Sale Plan, our board also instructed our management to seek to either amend the Credit Facility or obtain new financing to prepay the Credit Facility in full, provide additional capital for us to exercise the WWP Option, and to provide us with increased flexibility to sell assets and distribute the permitted proceeds to stockholders.
There can be no assurance that we will be able to implement the Asset Sale Plan or the Refinancing Plan on favorable terms, or at all. Our ability to implement the Asset Sale Plan and the Refinancing Plan is dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our assets and applicable provisions of the Code that impose restrictions on the ability of a REIT to dispose of properties. Further, the process of pursuing the Asset Sale Plan and the Refinancing Plan will be time-consuming, require our management to divert their focus from our day-to-day business, and result in us incurring expenses outside the normal course of operations, including expenses for our financial and legal advisors. There are various other risks and uncertainties associated with the Asset Sale Plan and the Refinancing Plan, some of which have been previously described in our Annual Report on Form 10-K and others of which are discussed in more detail in this Quarterly Report on Form 10-Q.
There can be no assurance that any asset sales will actually occur pursuant to the Asset Sale Plan, and, to the extent such sales do occur, there can be no assurance as to timing of and the amount of proceeds of such sales to be distributed to our stockholders.
The Asset Sale Plan contemplates the sale of our assets, all of which are real estate investments, and we cannot predict whether we will be able to do so at a price or on the terms and conditions acceptable to us. Investments in real properties are relatively illiquid. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or other real estate investment. In some circumstances, sales of real estate investments may result in losses. Further, we may be required to invest capital to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct these defects or to make these improvements. Moreover, asset sales are unlikely to close until the Credit Facility is refinanced in full.
Upon sales of properties or assets, we may become subject to contractual indemnity obligations and incur material liabilities and expenses, including tax liabilities, change of control costs, prepayment penalties, required debt repayments, transfer taxes and other transaction costs. To the extent we are able to sell assets, the proceeds would only be distributed to our stockholders after repaying any applicable debt obligations and funding any reserves, transaction expenses or other needs and complying with any provisions of applicable law. Payment of these amounts will affect the amount of proceeds of such sales to be distributed to our stockholders. In addition, covenants in the Credit Facility that restrict us from paying dividends or distributions to stockholders above a percentage threshold of its Modified Funds From Operations (as defined in the Credit Facility) could affect the amount of proceeds of any sales we are able to distribute to our stockholders
Our Credit Facility contains certain financial and operating covenants and other terms that could adversely affect our ability to engage in the type of actions contemplated by the Asset Sale Plan and other asset sales unless we are able to successfully implement the Refinancing Plan.
Our Credit Facility contains operating covenants that limit our ability, among other things, to liquidate or sell all or substantially all of our assets, pay dividends or distributions to stockholders above a percentage threshold of our Modified Funds From Operations (as defined in the Credit Facility), and financial covenants, including 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. Our Credit Facility also restricts us from selling the 12 properties currently included in the “borrowing base” unless we substitute a property with equal or greater value and equal or greater net operating income and contains requirements as to the minimum number of properties in our borrowing base.


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In addition to the existing loan encumbering Worldwide Plaza, other mortgage loans we have entered into include other financial and operating covenants, including transfer restrictions, and other restrictions, such as prepayment penalties or assumption fees, that could affect the net proceeds we would realize upon a sale.
These terms of our Credit Facility and other indebtedness could adversely affect our ability to engage in the type of actions contemplated by the Asset Sale Plan and other asset sales. In the event that we breach any of these terms, we could be in default under our Credit Facility or other indebtedness and may be required to repay our indebtedness with capital from other sources. Under such circumstances, other sources of debt or equity capital may not be available to us, or may be available only on unattractive terms.
Unless we are able to successfully implement the Refinancing Plan and prepay or amend our Credit Facility, which we may fail to achieve on favorable terms, or at all, we will be limited in our ability to engage in the type of actions contemplated by the Asset Sale Plan and other asset sales.
Our ability to exercise the WWP Option in the future depends on our ability to raise additional capital, through the Refinancing Plan or otherwise, and the existing mortgage loans encumbering Worldwide Plaza includes provisions which could restrict our ability to assume those loans upon exercise of the WWP Option.
We will need to rely on third-party sources to fund any capital needs in the future, including the exercise of the WWP Option. The WWP Option may be exercised anytime from January 1, 2017 through June 30, 2017 and is expected to require approximately $270 million in additional capital. We do not currently have the funds to exercise the WWP Option but will seek the necessary funding primarily through the Refinancing Plan. This funding may not be available on favorable terms, or at all.
In addition, the existing mortgage loans encumbering Worldwide Plaza includes provisions which could restrict our ability to assume the mortgage loans relating to Worldwide Plaza upon exercise of the WWP Option. In order be a “qualified transferee” eligible to assume the existing mortgage loans encumbering Worldwide Plaza without lender consent, we would be required to meet a minimum net worth requirement and a minimum value of real estate assets controlled (through ownership or management) requirement. Selling any of our assets prior to exercising the WWP Option could result in us failing to meet the requirement as to real estate assets controlled, and there can be no assurance that we will meet the requirements to be a "qualified transferee" at the time that we desire to exercise the WWP Option. Repayment of the existing mortgage loans encumbering Worldwide Plaza would result in a substantial prepayment penalty, which would currently be significant, and, to the extent we do not meet the requirements to be a “qualified transferee,” we may not be able to obtain lender consent on commercially reasonable terms, or at all.
We may be unable to maintain our current level of cash dividends as assets are sold.
Covenants in the Credit Facility restrict us from paying dividends or distributions to stockholders above a percentage threshold of its Modified Funds From Operations (as defined in the Credit Facility), which could cause us to lower the level of cash dividends as our operating cash flows decline in connection with any asset sales, pursuant to the Asset Sale Plan or otherwise. There can be no assurance at what rate we will pay dividends, if at all.
If the Credit Facility is prepaid or amended to permit us to sell all or substantially all of our assets, any such sale of all or substantially all of our assets would require approval by a majority of our stockholders holding at least 50% of our outstanding shares of common stock.
Under Maryland law, selling all or substantially all of our assets requires approval by a majority of our stockholders holding at least 50% of our outstanding shares of common stock. Our Credit Facility contains operating covenants that limit our ability, among other things, to liquidate or sell all or substantially all of our assets and otherwise restrict our ability to sell assets. Under the Asset Sale Plan, we will only sell assets to the extent permitted under the Credit Facility and Maryland law. If the Credit Facility is prepaid or amended to permit us to sell all or substantially all of our assets, we would need stockholder approval to sell all or substantially all of our assets, and there can be no assurance we would be able to obtain such approval.
We will incur transaction expenses in pursuing the Asset Sale Plan or the Refinancing Plan, whether or not either is successfully implemented.
We expect to incur a certain level of transaction expenses pursuing the Asset Sale Plan or the Refinancing Plan, whether or not either is successfully implemented, and factors beyond our control could affect the total amount or the timing of its integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Payment of these expenses will affect the amount of proceeds of such sales to be distributed to our stockholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 2, 2016, in accordance with the provisions of the agreement of limited partnership of the OP, we issued 94,659 shares of our common stock upon redemption of 94,659 OP units held by certain individuals who are current or former employees of the Advisor and its affiliates. The shares were issued in reliance upon an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) under Section 4(a)(2) of the Securities Act.

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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
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, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
NEW YORK REIT, INC.
 
By:
/s/ Michael A. Happel
 
 
Michael A. Happel
 
 
Chief Executive Officer and President
(Principal Executive Officer)
 
 
 
 
By:
/s/ Nicholas Radesca
 
 
Nicholas Radesca
 
 
Interim Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)

Date: August 9, 2016

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EXHIBIT INDEX


The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
 
Description
2.1 (1)
 
Master Combination Agreement, dated as of May 25, 2016, by and among New York REIT, Inc., New York Recovery Operating Partnership, L.P., JBG Properties Inc., JBG/Operating Partners, L.P., each of the parties listed on Schedule A thereto.
10.1 *
 
Amendment No. 1, dated as of April 25, 2016, to the Seventh Amended and Restated Advisory Agreement, dated as of June 26, 2015, among New York REIT, Inc., New York Recovery Operating Partnership, L.P. and New York Recovery Advisors, LLC.
10.2 (1)
 
Transition Services Agreement, dated as of May 25, 2016, by and among New York REIT, Inc., New York Recovery Operating Partnership, L.P. and New York Recovery Advisors, LLC.
10.3 (2)
 
Omnibus Amendment and Termination Agreement for the New York REIT, Inc. Second Amended and Restated 2014 Advisor Multi-Year Outperformance Agreement, dated as of May 25, 2016, by and among New York REIT, Inc., New York Recovery Operating Partnership, L.P., New York Recovery Advisors, LLC and each of the persons whose names are set forth on Schedule A thereto.
10.4 (1)
 
Termination Agreement and Release, dated as of May 25, 2016, by and among New York REIT, Inc., New York Recovery Operating Partnership, L.P., New York Recovery Properties, LLC and New York Recovery Advisors, LLC.
10.5 (1)
 
Support Agreement, dated as of May 25, 2016, by and among JBG/Operating Partners, L.P., Michael Happel and William Kahane.
10.6 (1)
 
JBG-HAPPEL Consulting Agreement Terms dated as of May 25, 2016.
10.7 (3)
 
Termination And Release Agreement, dated as of August 2, 2016, by and among New York REIT, Inc., New York Recovery Operating Partnership, L.P., JBG Properties Inc., JBG/Operating Partners, L.P., and the other parties thereto
31.1 *
 
Certification of the Principal 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 Principal 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 *
 
Written statements of the Principal Executive Officer and Principal 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 New York REIT, Inc.'s Quarterly Report on Form 10-Q for the three months ended June 30, 2016, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
_____________________
* Filed herewith.
(1) Filed as an exhibit to New York REIT, Inc.'s Current Report on Form 8-K filed with the SEC on May 26, 2016.
(2) Filed as an exhibit to New York REIT, Inc.'s Current Report on Form 8-K/A filed with the SEC on June 17, 2016.
(3) Filed as an exhibit to New York REIT, Inc.'s Current Report on Form 8-K filed with the SEC on August 2, 2016.


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New York REIT Liquidating LLC Reports