Unassociated Document
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 March 31, 2008
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: 333-145949
AMERICAN
REALTY CAPITAL TRUST, INC.
(Exact
name of registrant as specified in its charter)
Maryland
|
|
71-1036989
|
(State
or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
106
Old York Road
Jenkintown,
PA
|
|
19046
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
(215)
887-2189
|
(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 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¨
|
|
Accelerated
filer¨
|
Non-accelerated
filer x
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨
Yes
x
No
The
number of outstanding shares of the registrant’s common stock on May 14, 2008
was 775,985 shares.
AMERICAN
REALTY CAPITAL TRUST, INC.
INDEX
|
|
PART
I — FINANCIAL INFORMATION
|
|
|
|
Item 1.
Financial Statements
|
3
|
|
|
Consolidated
Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
2007
|
|
|
|
Consolidated
Statement of Operations for the three months ended March 31, 2008
(Unaudited)
|
|
|
|
Consolidated
Statement of Stockholders’ Equity for the three months ended March 31,
2008 (Unaudited)
|
|
|
|
Consolidated
Statement of Cash Flows for the three months ended March 31, 2008
(Unaudited)
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
|
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
|
|
|
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
|
|
|
|
PART
II — OTHER INFORMATION
|
|
|
|
Item 1.
Legal Proceedings
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|
|
|
Item
1A. Risk Factors
|
|
|
|
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
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|
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|
Item 3.
Defaults Upon Senior Securities
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|
|
|
Item 4.
Submission of Matters to a Vote of Security Holders
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|
|
|
Item 5.
Other Information
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|
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|
Item 6.
Exhibits
|
|
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|
Signatures
|
|
PART
I - Financial Information
Item
1. Financial Statements
CONSOLIDATED
BALANCE SHEETS
|
|
March
31,
|
|
|
|
ASSETS
|
|
|
|
|
|
Real
estate investments, at cost:
|
|
|
|
|
|
Land
|
|
$
|
7,088,620
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|
$
|
—
|
|
Buildings,
fixtures and improvements
|
|
|
40,168,841
|
|
|
—
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|
Acquired
intangible lease assets
|
|
|
4,594,426
|
|
|
—
|
|
Total
real estate investments, at cost
|
|
|
51,851,887
|
|
|
—
|
|
Less
accumulated depreciation and amortization
|
|
|
(171,477
|
)
|
|
|
|
Total real estate investments, net
|
|
|
51,680,410
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
529,876
|
|
|
—
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|
Prepaid
expenses and other assets
|
|
|
600,184
|
|
|
938,157
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|
Deferred
financing costs, net
|
|
|
420,448
|
|
|
—
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|
Total
assets
|
|
$
|
53,230,918
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|
$
|
938,157
|
|
|
|
|
|
|
|
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|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Mortgage
and other notes payable
|
|
$
|
41,918,796
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|
$
|
—
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|
Related
party revolving credit facility
|
|
|
4,000,000
|
|
|
—
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|
Accounts
payable and accrued expenses
|
|
|
1,195,160
|
|
|
453,832
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|
Investor contributions
held in escrow
|
|
|
1,461,315
|
|
|
—
|
|
Due
to affiliates
|
|
|
697,629
|
|
|
284,825
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|
Deferred
rent and other liabilities
|
|
|
308,890
|
|
|
—
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|
Total
liabilities
|
|
|
49,581,790
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|
738,657
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|
|
|
|
|
|
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STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
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|
Preferred
stock, $0.01 par value; 10,000,000 shares authorized, none issued
and
outstanding
|
|
|
—
|
|
|
—
|
|
Common
stock, $.01 par value; 240,000,000 shares authorized, 623,279 and
20,000
shares issued and outstanding at March 31, 2008 and December 31,
2007,
respectively
|
|
|
6,233
|
|
|
200
|
|
Additional
paid-in capital
|
|
|
3,985,245
|
|
|
199,800
|
|
Accumulated
deficit
|
|
|
(342,350
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)
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|
(500
|
)
|
Total
stockholders’ equity
|
|
|
3,649,128
|
|
|
199,500
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|
Total
liabilities and stockholders’ equity
|
|
$
|
53,230,918
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|
$
|
938,157
|
|
See
accompanying notes to consolidated financial statements
AMERICAN
REALTY CAPITAL TRUST, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended March 31,
2008
|
|
|
|
|
|
Rental
income
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|
$
|
214,426
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Property
management fees to affiliate
|
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|
4,262
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|
General
and administrative
|
|
|
188,827
|
|
Depreciation
and amortization
|
|
|
171,477
|
|
Total
operating expenses
|
|
|
364,566
|
|
Operating
loss
|
|
|
(150,140
|
) |
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
Interest
expense
|
|
|
(191,710
|
) |
Interest
income
|
|
|
—
|
|
Total
other income (expense)
|
|
|
(191,710
|
) |
Net
loss
|
|
$
|
(341,850
|
) |
|
|
|
|
|
Basic
and diluted weighted average
|
|
|
|
|
common
shares outstanding
|
|
|
134,013
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|
Basic
and diluted loss per share
|
|
$
|
(2.55
|
)
|
See
accompanying notes to consolidated financial statements
AMERICAN
REALTY CAPITAL TRUST, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Number
of Shares
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|
Par
Value
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|
Additional
Paid-In Capital
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|
Accumulated
Deficit
|
|
Total
Stockholders’ Equity
|
|
Balance,
December 31, 2007
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|
20,000
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|
$
|
200
|
|
$
|
199,800
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|
$
|
(500
|
)
|
$
|
199,500
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|
Issuance
of common stock, net of offering costs of
$1,683,033
|
|
603,279
|
|
|
6,033
|
|
|
3,785,445
|
|
|
—
|
|
|
3,791,478
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|
Net
loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(341,850
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)
|
|
(341,850
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)
|
Balance,
March 31, 2008
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|
623,279
|
|
$
|
6,233
|
|
$
|
3,985,245
|
|
$
|
(342,350
|
)
|
$
|
3,649,128
|
|
See
accompanying notes to consolidated financial statements
AMERICAN
REALTY CAPITAL TRUST, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
|
Three
Months Ended March 31,
|
|
|
2008
|
|
|
|
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|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
|
$
|
(341,850
|
)
|
Adjustments
to reconcile net loss to net cash
used
in operating activities:
|
|
|
|
|
Depreciation
|
|
|
144,023
|
|
Amortization
of intangibles
|
|
|
27,454
|
|
Amortization
of deferred finance charges
|
|
|
3,138
|
|
Changes
in assets and liabilities:
|
|
|
|
|
Prepaid
expenses and other assets
|
|
|
(1,023,770
|
)
|
Accounts
payable and accrued
expenses
|
|
|
837,363
|
|
Deferred
rent and other liabilities
|
|
|
308,890
|
|
Net
cash used in operating activities
|
|
|
(44,752
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)
|
Cash
flows from investing activities:
|
|
|
|
|
Investment
in real estate and related assets
|
|
|
(2,543,774
|
)
|
Net
cash used in investing activities
|
|
|
(2,543,774
|
)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
Proceeds
from issuance of common stock, net
|
|
|
3,118,402
|
|
Net
cash provided by financing activities
|
|
|
3,118,402
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
529,876
|
|
Cash
and cash equivalents, beginning of
period
|
|
|
—
|
|
Cash
and cash equivalents, end of period
|
|
$
|
529,876
|
|
|
|
|
|
|
Supplemental
Disclosures of Non-Cash
Investing
and Financing Activities:
|
|
|
|
|
Debt
assumed in real estate acquisitions
|
|
$
|
45,918,796
|
|
Common
share issuance in real estate
acquisition
|
|
$
|
1,621,205
|
|
Investor
contributions held in escrow |
|
$ |
1,461,315
|
|
Non-cash
acquisition costs
|
|
$
|
306,797
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statement
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
Note
1 — Organization
American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a newly formed Maryland corporation that intends to qualify as a real estate
investment trust (“REIT”) for federal income tax purposes beginning with the
taxable year that will end December 31, 2008. On January 25, 2008, the
Company commenced an initial public offering on a “best efforts” basis of up to
150,000,000 shares of common stock offered at a price of $10.00 per
share, subject to certain volume and other discounts, pursuant to a Registration
Statement on Form S-11 filed with the Securities and Exchange Commission
(the “SEC”) under the Securities Act of 1933, as amended (the “Offering”). The
Registration Statement also covered up to 25,000,000 shares available
pursuant to a distribution reinvestment plan (the “DRIP”) under which our
stockholders may elect to have their distributions reinvested in additional
shares of the Company’s common stock at the greater of $9.50 per share or
95% of the estimated value of a share of common stock. The Company sold 20,000
shares to American Realty Capital II, LLC (the “Sponsor”) on August 17, 2007, at
$10.00 per share. As of March 31, 2008, the Company issued 623,279 shares of
Common stock for net offering proceeds of approximately $4.0
million, including 179,026 shares issued in connection with an
acquisition in March 2008 - see Note 3 - Real Estate Acquisitions.
Substantially
all of the Company’s business is conducted through American Realty Capital
Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The
Company is the sole general partner of and owns a 99.9% partnership interest
in
the OP. American Realty Capital Advisors, LLC (the “Advisor”), the Company’s
affiliated advisor, is the sole limited partner and owner of 0.1% (minority
interest) of the partnership interests of the OP. In March 2008, the OP issued
to the Company 20,000 Operating Partnership units in exchange for
$200,000.
Additionally, in April 2008, the Advisor contributed $2,000 to the Operating
Partnership in exchange for a 0.99% limited partner interest in the Operating
Partnership. The limited partner interests have the right to convert Operating
Partnerships units into cash or, at the option of the Company, an equal number
of common shares of the Company, as allowed by the limited partnership
agreement. The remaining rights of the limited partner interests are limited,
however, and do not include the ability to replace the general partner or to
approve the sale, purchase or refinancing of the Operating Partnership’s assets.
The
Company acquires and operates primarily commercial properties. All such
properties may be acquired and operated by the Company alone or jointly with
another party. As of March 31, 2008, the Company owned 16 properties comprising
approximately 233,000 square feet of freestanding, single tenant commercial
space concentrated in Pennsylvania. As of March 31, 2008, these properties
were 100% occupied. The Company may also acquire mortgages secured by real
estate, with a view towards acquiring such real estate.
The
Company is managed by the Advisor and American Realty Capital Properties, LLC,
which serves as the Company’s property manager (“Property Manager”). Realty
Capital Securities, LLC (“Dealer Manager”), an affiliate of the Sponsor, serves
as the dealer manager of the Company’s public offering. These related parties
receive compensation and fees for services related to the offering and for
the
investment and management of the Company’s assets. These entities receive fees
during the offering, acquisition, operational and liquidation stages. The
compensation levels during the offering, acquisition and operational stages
are
discussed in Note 6 — Related Party Transactions.
The
Company’s stock is not currently listed on a national securities exchange. The
Company may seek to list its stock for trading on a national securities exchange
only if a majority of its independent directors believe listing would be in
the
best interest of its stockholders. The Company does not intend to list its
shares at this time. The Company does not anticipate that there would be any
market for its common stock until its shares are listed for trading. In the
event it does not obtain listing prior to the tenth anniversary of the
completion or termination of the Offering, its charter requires that it either:
(i) seek stockholder approval of an extension or amendment of this listing
deadline; or (ii) seek stockholder approval to adopt a plan of liquidation
of the corporation.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
Note
2 — Summary of Significant Accounting Policies
Basis
of Presentation
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or consolidated pursuant to the
rules and regulations of the Securities and Exchange Commission. Management
believes, however, that the disclosures are adequate to make the information
presented not misleading. The unaudited interim consolidated financial
statements should be read in conjunction with the audited financial statements
and the notes thereto included in the Company’s annual report on Form S-11 for
the period from August 17, 2007 (date of inception) to December 31, 2007.
In management’s opinion, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position
of
the Company and the consolidated results of its operations and its cash flows,
are included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
Basis
of Accounting
The
accompanying consolidated financial statements of the Company are prepared
on
the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America.
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management makes significant estimates regarding revenue recognition,
investments in real estate, purchase price allocations and derivative financial
instruments and hedging activities, as applicable.
Real
Estate Investments
The
Company records acquired real estate at cost and makes assessments as to the
useful lives of depreciable assets. The Company considers the period of future
benefit of the asset to determine the appropriate useful lives. Depreciation
is
computed using a straightline method over the estimated useful life of 40 years
for buildings, five to
ten
years for building fixtures and improvements and the remaining lease term for
acquired intangible lease assets.
Allocation
of Purchase Price of Acquired Assets
Upon
the
acquisition of real properties, it is the Company’s policy to allocate the
purchase price of properties to acquired tangible assets, consisting of land,
building, fixtures and improvements, and identified intangible lease assets
and
liabilities, consisting of the value of above-market and below-market leases,
as
applicable, other value of in-place leases and value of tenant relationships,
based in each case on their fair values. The Company utilizes independent
appraisals and information management obtained on each property as a result
of
pre-acquisition due diligence, as well as subsequent marketing and leasing
activities, as applicable, to determine the fair values of the tangible assets
of an acquired property (which includes land and building), amongst other market
data.
The
fair
values of above-market and below-market in-place lease values are recorded
based
on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between (a) the contractual amounts
to be paid pursuant to the in-place leases and (b) an estimate of fair market
lease rates for the corresponding in-place leases, which is generally obtained
from independent appraisals, measured over a period equal to the remaining
non-cancelable term of the lease. The above-market and below-market lease values
are capitalized as intangible lease assets or liabilities and amortized as
an
adjustment of rental income over the remaining terms of the respective leases.
The
fair
values of in-place leases include direct costs associated with obtaining a
new
tenant, opportunity costs associated with lost rentals which are avoided by
acquiring an in-place lease, and tenant relationships. Direct costs associated
with obtaining a new tenant include commissions, tenant improvements, and other
direct costs and are estimated based on independent appraisals and management’s
consideration of current market costs to execute a similar lease. These direct
costs are included in acquired intangible lease assets in the accompanying
consolidated balance sheet and are amortized to expense over the remaining
terms
of the respective leases. The value of opportunity costs is calculated using
the
contractual amounts to be paid pursuant to the in-place leases over a market
absorption period for a similar lease. Customer relationships are valued based
on expected renewal of a lease or the likelihood of obtaining a particular
tenant for other locations. These intangibles will be included in intangible
lease assets in the balance sheet and are amortized to expense over the
remaining term of the respective leases.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
The
determination of the fair values of the assets and liabilities acquired requires
the use of significant assumptions with regard to the current market rental
rates, rental growth rates, discount rates and other variables. The use of
inappropriate estimates would result in an incorrect assessment of the purchase
price allocations, which could impact the amount of the Company’s reported net
income. Initial purchase price allocations are subject to change until all
information is finalized, which is generally within one year of the acquisition
date.
As
of
March 31, 2008, acquired lease intangible assets consist only of in-place lease
intangibles totaling $4,594,426 with accumulated amortization of $27,454.
Impairment
of Long Lived Assets
The
Company follows Statement of Financial Accounting Standard (“SFAS”) No.144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” which
establishes a single accounting model for the impairment or disposal of
long-lived assets. SFAS No.144 requires that the operations related to
properties that have been sold or properties that are intended to be sold be
presented as discontinued operations in the statement of operations for all
periods presented, and properties intended to be sold to be designated as “held
for sale” on the balance sheet.
When
circumstances indicate the carrying value of a property may not be recoverable,
the Company reviews 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 impairment exists, due to the
inability to recover 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 the adjustment to fair value less estimated cost to
dispose of the asset. These assessments have a direct impact on net income
because recording an impairment loss results in an immediate negative adjustment
to net income.
Investor
contributions held in Escrow
The
Company is currently engaged in a public offering of its common stock. Included
in investor contributions held in escrow on the accompanying balance sheet
is
$1,461,315 of offering proceeds for which shares of common stock had not been
issued as of March 31, 2008.
Redeemable
Common Stock
The
Company’s share redemption program provides that all redemptions during any
calendar year, including those upon death or qualifying disability, are limited
to those that can be funded with proceeds from the Company’s DRIP. In accordance
with Accounting Series Release No. 268, “Presentation in Financial Statements of
Redeemable Preferred Stock,” the Company accounts for proceeds received from its
DRIP as redeemable common stock, outside of permanent equity. As of March 31,
2008 and December 31, 2007, the Company had not issued any common stock under
the DRIP as no dividends are required to be paid until May 2008.
Revenue
Recognition
Upon
the
acquisition of real estate, certain properties will have leases where minimum
rent payments increase during the term of the lease. The Company will record
rental revenue for the full term of each lease on a straightline basis. When
the
Company acquires a property, the term of existing leases is considered to
commence as of the acquisition date for the purposes of this calculation. In
accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements,” the Company will defer the recognition of contingent
rental income, such as percentage rents, until the specific target that triggers
the contingent rental income is achieved. Cost recoveries from tenants are
included in tenant reimbursement income in the period the related costs are
incurred, as applicable.
The
Companies’ 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 straightline basis over the initial term of the lease. Since many of
the
leases provide for rental increases at specified intervals, straightline
basis
accounting requires the Company to record a receivable, and include in revenues,
unbilled rent receivables that the Company will only receive if the tenant
makes
all rent payments required through the expiration of the initial term of
the
lease.
The
Company continually reviews receivables related to rent and unbilled rent
receivables and determines collectibility 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
collectibility of a receivable is in doubt, the Company will record an increase
in the allowance for uncollectible accounts or record a direct write-off
of the
receivable in the consolidated statements of operations.
Organization,
Offering, and Related Costs
Organization
and offering costs (other than selling commissions and the dealer manager fee)
of the Company may be paid by the Advisor, the Dealer Manager or their
affiliates on behalf of the Company. Such organization and offering costs
include all expenses to be paid by the Company in connection with the Offering,
including but not limited to (i) legal, accounting, printing, mailing, and
filing fees; (ii) escrow related fees; (iii) reimbursement of the
Dealer Manager for amounts it may pay to reimburse the bona fide diligence
expenses of broker-dealers; and (iv) reimbursement to the Advisor for the
salaries of its employees and other costs in connection with preparing
supplemental sales materials. Pursuant to the Advisory Agreement and the Dealer
Manager Agreement, the Company is obligated to reimburse the Advisor or its
affiliates, as applicable, for organization and offering costs paid by them
on
behalf of the Company, provided that the Advisor is obligated to reimburse
the
Company to the extent selling commissions, the dealer manager fee and other
organization and offering costs incurred by the Company in the Offering exceed
15% of gross offering proceeds.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
As
a
result, these costs are only a liability of the Company to the extent selling
commissions, the dealer manager fee and other organization and offering costs
do
not exceed 15% of the gross proceeds of the Offering. Through March 31, 2008,
the Company had issued 623,279 shares for gross offering proceeds of
approximately $5.6 million and recorded offering costs of
approximately $1.6 million and selling commissions and dealer manager fees
of
$0. The total shares issued includes 179,026 shares issued in connection
with an acquisition - see Note 3. Organization costs are expensed as incurred
within general and administrative expenses, and offering costs, which include
selling commissions and dealer manager fees, are charged to stockholders’ equity
as such amounts are reimbursed from the gross proceeds of the Offering.
Reportable
Segments
The
Financial Accounting Standards Board (“FASB”) issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” which
establishes standards for reporting financial and descriptive information about
an enterprise’s reportable segments. The Company determined that it has one
reportable segment, with activities related to investing in real estate. The
Company’s investments in real estate generate rental revenue and other income
through the leasing of properties, which comprised 100% of our total
consolidated revenues for the three-month period ended March 31, 2008. Although
the Company’s investments in real estate will be geographically diversified
throughout the United States, management evaluates operating performance on
an
individual property level. The Company’s properties have been aggregated into
one reportable segment.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141, (revised 2007), “Business
Combinations,” (“SFAS No. 141(R)”), which continues the evolution toward
fair value reporting and significantly changes the accounting for acquisitions
that close beginning in 2009, both at the acquisition date and in subsequent
periods. SFAS No. 141(R) introduces new accounting concepts and valuation
complexities, and many of the changes have the potential to generate greater
earnings volatility after the acquisition. SFAS No. 141(R) applies to
acquisitions on or after January 1, 2009 and will impact the Company’s
reporting prospectively only.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”), which addresses how companies should measure fair value
when they are required to use a fair value measure for recognition or disclosure
purposes under Generally Accepted Accounting Principles (“GAAP”). As a result of
SFAS No. 157 there is now a common definition of fair value to be used
throughout GAAP. The FASB believes that the new standard will make the
measurement of fair value more consistent and comparable and improve disclosures
about those measures. The effective date of SFAS No. 157 is delayed for one
year for certain nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements
on a
recurring basis (at least annually). Certain provisions of SFAS No. 157 are
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 157 for financial assets and liabilities in the first quarter
of 2008 did not have a material effect on the Company’s results of operations
and financial position. The Company is currently evaluating the impact of
adoption SFAS No. 157 for nonfinancial assets and liabilities, on its
results of operations and financial position.
In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for
Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at
fair
value. The objective of SFAS No. 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 was
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 159 did not have a material impact on the Company’s financial
position, results of operations or cash flows in the first quarter of 2008.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51,” (“SFAS No. 160”), which requires companies to measure an
acquisition of noncontrolling (minority) interest at fair value in the equity
section of the acquiring entity’s balance sheet. The objective of SFAS
No. 160 is to improve the comparability and transparency of financial data
as well as to help prevent manipulation of earnings. The changes introduced
by
the new standards are likely to affect the planning and execution, as well
as
the accounting and disclosure, of merger transactions. The effective date to
adopt SFAS No. 160 for the Company is January 1, 2009. The adoption of
SFAS No. 160 is not expected to have a material effect on its results of
operations and financial position.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
Recent
Accounting Pronouncements (continued)
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133,” (“SFAS No. 161”). SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133, (“Accounting for Derivative
Instruments and Hedging Activities”), with the intent to provide users of
financial statements with an enhanced understanding of how and why an entity
uses derivative instruments, how derivative instruments and related hedged
items
are accounted for under SFAS No. 133 and its related interpretations and
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flow. The provisions of SFAS
No. 161 are effective for the Company beginning in the first quarter of
2009. The adoption of SFAS No. 161 is not expected to have a material
effect on the Company’s results of operations and financial position.
During
the three months ended March 31, 2008, the Company acquired 16 properties in
two
separate transactions. The following table presents the allocation of the assets
acquired and liabilities assumed during the period:
Real
estate investments, at cost:
|
|
|
|
Land
|
|
$
|
7,088,620
|
|
Buildings,
fixtures and improvements
|
|
|
40,168,841
|
|
|
|
|
47,257,461
|
|
|
|
|
|
|
Intangibles
and other assets:
|
|
|
|
|
In-place
leases
|
|
|
4,594,426
|
|
|
|
|
|
|
Total
assets acquired
|
|
|
51,851,887
|
|
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
|
Mortgage
notes
|
|
|
(37,965,000
|
)
|
Related
party note
|
|
|
(4,000,000
|
)
|
Mezzanine
financing
|
|
|
(3,953,796
|
)
|
Investor
contributions held in escrow
|
|
|
(1,461,315 |
) |
Other
liabilities
|
|
|
(306,797
|
)
|
|
|
|
|
|
Total
liabilities assumed
|
|
|
(47,686,908
|
)
|
|
|
|
|
|
Issuance
of common shares
|
|
|
(1,621,205
|
)
|
|
|
|
|
|
Cash
paid
|
|
$
|
2,543,774
|
|
|
|
|
|
|
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
During
the three months ended March 31, 2008, the Company acquired the following
properties:
Seller
/ Property Name
|
|
Acquisition
Date
|
|
No.
of Buildings
|
|
Square
Feet
|
|
Purchase
Price (1)
|
|
|
|
|
|
|
|
|
|
Federal
Express Distribution Center
|
|
March
2008
|
|
1
|
|
55,440
|
|
$10,193,831
|
Harleysville
National Bank Portfolio
|
|
March
2008
|
|
15
|
|
177,744
|
|
41,658,056
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
233,184
|
|
$51,851,887
|
________________________
|
(1)
|
-
Includes all acquisition costs, the value of acquired intangible
lease
assets and assumed liabilities.
|
In
March
2008, the Company acquired a Federal Express Distribution center located
in
Pennsylvania from a related party - see Note 6. In connection with this
transaction, the Company assumed a mortgage note obligation of $6,965,000,
which
bears interest at a fixed effective rate of 6.29%. This note is interest
only
through September 1, 2014 and then amortizes through September 1, 2037,
with
a
final balloon payment due on such date. This
property was acquired in exchange for 342,502 shares of common stock valued
at
approximately $3,083,000, of which, 179,026 shares were issued and outstanding
as of March 31, 2008. The remainder of the shares was recorded as investor
contributions held in escrow on the accompanying balance sheet and are expected
to be issued within the next twelve months. The lease expires on November
30, 2018
and
includes renewal options.
In
March
2008, the Company acquired a fifteen building portfolio 100% leased to
Harleysville National Bank from a related party - see Note 6. These properties
are all located in Pennsylvania. In connection with this transaction, the
Company assumed a mortgage note obligation of $31,000,000, which bears interest
at a fixed effective rate of 6.59%. This
note
is interest only through January 1, 2011 and then amortizes through January
1,
2018, with a final balloon payment due on such date. In addition, the Company
assumed a mezzanine
financing obligation of approximately $3,954,000. This obligation bears interest
at a fixed effective rate of 12.49% and
matures in January 2009. The Company borrowed $4,000,000 from the Advisor under
its short-term revolving credit facility in connection with this acquisition-
see Note 4. The initial term of the master lease expires on December 31, 2022
and includes renewal options.
Note
4 — Mortgage and Other Notes Payable
As
of
March 31, 2008, the Company had total mortgage and other notes payable of
$41,918,796. During the three months ended March 31, 2008, the Company incurred,
or assumed, the following mortgage notes payable in connection with the real
estate acquisitions described in Note 3 above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Encumbered
Properties
|
|
Loan
Amount
|
|
Effective
Interest Rate
|
|
|
|
Interest
Rate
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Express Distribution Center
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
$
|
6,965,000
|
|
|
6.29
|
%
|
|
|
|
|
Fixed
|
|
|
September
2037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harleysville
National Bank Portfolio
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
31,000,000
|
|
|
6.59
|
%
|
|
(1)
|
|
|
Fixed
|
|
|
January
2018
|
|
Mezzanine
financing
|
|
|
|
|
|
3,953,796
|
|
|
12.49
|
%
|
|
|
|
|
Fixed
|
|
|
January
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
41,918,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________
(1)
- The
effective interest rate resets at the end of year five to the then current
5-year Treasury rate plus 2.25%, but in no event will be less than 6.5%.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
In
addition, during the three months ended March 31, 2008, the OP entered into
a
revolving credit facility with the Advisor whereby the Advisor can lend to
the
OP up to $10,000,000 from time to time as needed to provide short-term financing
relating to property acquisitions. Such borrowings need to be repaid within
a
six month period and will accrue interest at a commercially reasonable rate.
In
connection with the acquisition of the Harleysville National Bank portfolio
outlined in Note 3, the Company borrowed $4.0 million, accruing interest at
an
annual rate of 8.0% and can be paid off without penalty.
The
following table summarizes the scheduled aggregate principal repayments for
the
five years subsequent to March 31, 2008:
|
|
Mortgage
and Other Notes
|
|
Related
Party Revolving Credit Facility
|
|
Total
|
|
2008
|
|
$
|
-
|
|
$
|
4,000,000
|
|
$
|
4,000,000
|
|
2009
|
|
|
3,953,796
|
|
|
-
|
|
|
3,953,796
|
|
2010
|
|
|
-
|
|
|
-
|
|
|
-
|
|
2011
|
|
|
190,662
|
|
|
-
|
|
|
190,662
|
|
2012
|
|
|
794,312
|
|
|
-
|
|
|
794,312
|
|
2013
and thereafter
|
|
|
36,980,026
|
|
|
-
|
|
|
36,980,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,918,796
|
|
$
|
4,000,000
|
|
$
|
45,918,796
|
|
As
of
March 31, 2008, the Company was in compliance with the debt covenants under
our
loan agreements.
Note
5 — Commitments and Contingencies
Litigation
In
the
ordinary course of business, the Company may become subject to litigation or
claims. There are no material legal proceedings pending or known to be
contemplated against us.
Environmental
Matters
In
connection with the ownership and operation of real estate, the Company may
potentially be liable for costs and damages related to environmental matters.
The Company has not been notified by any governmental authority of any
non-compliance, liability or other claim, and the Company is not aware of any
other environmental condition that it believes will have a material adverse
effect on the consolidated results of operations.
Note
6 — Related-Party Transactions and Arrangements
Certain
affiliates of the Company receive, and will continue to receive, fees and
compensation in connection with the sale of the Company’s common stock, and the
acquisition, management and sale of the assets of the Company. The Dealer
Manager receives, and will continue to receive, a selling commission of up
to
7.0% of gross offering proceeds before reallowance of commissions earned by
participating broker-dealers. The Dealer Manager reallows, and intends to
continue to reallow, 100% of commissions earned to participating broker-dealers.
In addition, the Dealer Manager will receive up to 3.0% of the gross proceeds
from the Offering, before reallowance to participating broker-dealers, as a
dealer-manager fee. The Dealer Manager, in its sole discretion, may reallow
all
or a portion of its dealer-manager fee to such participating broker-dealers,
based on such factors as the volume of shares sold by such participating
broker-dealers and marketing support incurred as compared to those of other
participating broker-dealers. No selling commissions or dealer-manager fees
are
paid to the Dealer Manager in respect of shares sold under the DRIP. During
the
three months ended March 31, 2008, the Company paid no such commissions and
fees
to the Dealer Manager.
All
organization and offering expenses associated with the sale of the Company’s
common stock (excluding selling commissions and the dealer-manager fee) are
paid
for by the Advisor or its affiliates and are reimbursed by the Company up to
1.5% of gross offering proceeds. The Advisor receives an acquisition and
advisory fee of 1.0% of the contract purchase price of each acquired property
and will be reimbursed for acquisition costs incurred in the process of
acquiring properties, but not to exceed 0.5% of the contract purchase price.
In
no event will the total of all fees and acquisition expenses payable with
respect to a particular property or investment exceed 4.0% of the contract
purchase price. During the three months ended March 31, 2008, the Company
reimbursed the Advisor $119,207 and $0 for organizational and offering expenses
and acquisition costs, respectively. The Company incurred acquisition advisory
fees of $510,237 during the period, all of which was paid as of March 31, 2008.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
The
Advisor receives a financing coordination fee equal to 1.0% of the amount
available under such financing. During the three months ended March 31, 2008,
the Company incurred finance coordination fees of $379,650 payable to the
Advisor, of which $69,650 was paid. The balance of $310,000 was recorded in
due
to affiliates on the accompanying balance sheet as of March 31, 2008.
The
Company pays, and expects to continue to pay, its affiliated Property Manager
fees for the management and leasing of the Company’s properties. Such fees equal
2.0% of gross revenues from our single tenant properties and 4.0% of the gross
revenues from our multi-tenant properties, plus reimbursement of the Property
Managers’ costs of managing the properties. In the event that the Property
Manager assists a tenant with tenant improvements, a separate fee may be charged
to the tenant by the Property Manager at a fee not to exceed 5.0% of the cost
of
such tenant improvements. The Property Manager will be paid leasing commissions
at prevailing market rates and may also receive a fee for the initial leasing
of
newly constructed properties, which generally would equal one month’s rent. The
aggregate of all property management and leasing fees paid to affiliates plus
all payments to third parties will not exceed the amount that other
nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. The Property Manager may subcontract
its duties for a fee that may be less than the fee provided for in the property
management agreement. During the three months ended March 31, 2008, the Company
paid the Property Manager $1,001 for property management fees. In addition,
the
Property Manager earned an additional property management fee of
$3,261,
which
was paid to the Property Manager in April 2008.
The
Company pays the Advisor an annualized asset management fee of 1.0% based on
the
aggregate contract purchase price of all properties. The asset management fee
is
payable quarterly in advance on the first day of the month following the end
of
each calendar quarter end. During the three months ended March 31, 2008, the
Company paid no such fees to the Advisor. The
Advisor has elected to waive its asset management fee for the three months
ended
March 31, 2008.
The
Company will pay the Advisor a fee for substantial assistance in connection
with
the sale of properties. This brokerage commission, paid when the sale of a
property occurs, may not exceed the lesser of one-half of a reasonable customary
and competitive real estate commission or 3% of the contract price of each
property sold, inclusive of commissions paid to third-party brokers; provided,
however, in no event may the real estate commissions paid to the Advisor, its
affiliates or unaffiliated third-parties exceed 6% of the contract price. During
the three months ended March 31, 2008, the Company did not pay the Advisor
any
brokerage commissions.
If
the
Advisor or its affiliates provides a substantial amount of services, as
determined by the Company’s independent directors, in connection with the sale
of property, the Company will pay the Advisor a brokerage commission not to
exceed the lesser of one-half of a reasonable, customary and competitive real
estate commission or 3.0% of the contract price for the property sold, inclusive
of any commission paid to outside brokers. In addition, after investors have
received a return of their net capital contributions and a 6.0% annual
cumulative, non-compounded return, then the Advisor is entitled to receive
15.0%
of remaining net sale proceeds. During the three months ended March 31, 2008,
the Company did not pay any fees or amounts to the Advisor relating to the
sale
of properties.
In
the
event the Company’s common stock is listed in the future on a national
securities exchange, a subordinated incentive listing fee equal to 15.0% of
the
amount by which the market value of the Company’s outstanding stock plus all
distributions paid by the Company prior to listing, exceeds the sum of the
total
amount of capital raised from investors plus an amount equal to a 6.0% annual
cumulative, non-compounded return to investors will be paid to the Advisor.
In
the
event that the advisory agreement with the Advisor is terminated upon a change
of control of the Company, by the Company without cause, or by the Advisor
for
good reason (as such terms may be defined in the definitive agreement
memorializing the engagement of the Advisor by the Company), the Company shall
pay the Advisor a termination fee not to exceed 15.0% of the amount, if any,
by
which the appraised value of the properties owned by the Company on the date
of
such termination, less amounts of all indebtedness secured by such properties
exceeds the dollar amount equal to the sum of a 6.0% cumulative non-compound
return on the Company's stockholders' net investment plus the amount of such
investment.
The
Company may reimburse the Advisor for all expenses it paid or incurred in
connection with the services provided to the Company, subject to the limitation
that the Company does not reimburse for any amount by which its operating
expenses (including the asset management fee) at the end of the four preceding
fiscal quarters exceeds the greater of (i) 2.0% of average invested assets,
or (ii) 25% of net income other than any additions to reserves for depreciation,
bad debts or other similar non-cash reserves and excluding any gain from the
sale of assets for that period. The Company will not reimburse for personnel
costs in connection with services for which the Advisor receives acquisition
fees or real estate commissions. During the three months ended March 31, 2008,
the Company did not reimburse the Advisor for any such costs.
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
At
March
31, 2008 and December 31, 2007, the Company had approximately $698,000 and
$285,000, respectively, due to affiliates, which is included in due to
affiliates in the accompanying consolidated balance sheets and is payable to
the
Advisor. At March 31, 2008, amounts due to affiliates consisted of amounts
payable to the Advisor for deferred finance coordination and property management
fees aggregating $314,000 and $384,000 relating to advances for general working
capital purposes. In addition, at March 31, 2008, amounts due the Advisor
included a short term bridge financing of $4,000,000 as outlined in Note
4.
The
Company acquired 16 properties in two separate transactions during the quarter
ended March 31, 2008 from related parties. A Federal Express distribution
center
was acquired on March 5, 2008. A sale leaseback transaction involving 15
properties 100% occupied by Harleysville National Bank occurred on March
12,
2008. These
acquisitions were approved by the Company’s Board of Trustees; with two inside
directors abstaining because the acquisition was an affiliated transaction.
The
Company acquired these assets at sellers’ cost, which did not exceed the fair
market value of the properties as determined by a qualified independent
appraiser.
Note
7 — Economic Dependency
Under
various agreements, the Company has engaged or will engage the Advisor and
its
affiliates to provide certain services that are essential to the Company,
including asset management services, supervision of the management and leasing
of properties owned by the Company, asset acquisition and disposition decisions,
the sale of shares of the Company’s common stock available for issue, as well as
other administrative responsibilities for the Company including accounting
services and investor relations.
As
a
result of these relationships, the Company is dependent upon the Advisor and
its
affiliates. In the event that these companies were unable to provide the Company
with the respective services, the Company would be required to find alternative
providers of these services.
Note
8 — Independent Directors’ 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, subject to
the absolute discretion of the board of directors and the applicable limitations
of the Plan. The Company intends to grant options under the Plan to each
qualifying director annually. The exercise price for all stock options granted
under the Plan will be fixed at $10.00 per share until the termination of our
initial public offering, and thereafter the exercise price for stock options
granted to our independent directors will be equal to the fair market value
of a
share on the last business day preceding the annual meeting of stockholders.
As
of March 31, 2008, the Company had granted options to purchase 9,000 shares
at
$10.00 per share, each with a two year vesting period. A total of 1,000,000
shares have been authorized and reserved for issuance under the Plan. The
Company accounts for the issuance of stock options under SFAS No. 123R,
“Share-Based Payment,” which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and
directors, including stock options related to the Plan, based on estimated
fair
values.
During
the three months ended March 31, 2008, 9,000 were granted and no options were
forfeited, became vested, or were exercised. As of March 31, 2008, unvested
options to purchase 9,000 shares at $10.00 per share remained outstanding with
a
weighted average contractual remaining life of approximately ten years. The
total compensation charge relating to these option grants under SFAS No. 123R
is
immaterial.
Note
9 — Net Income (Loss) Per Share
The
following is a reconciliation of the numerator and denominator of the basic
and
diluted net income (loss) per share computation for the three months ended
March
31, 2008:
|
|
Basic
and Diluted
|
|
|
|
Three
Months Ended
|
|
|
|
March
31, 2008
|
|
|
|
|
|
Net
loss
|
|
$
|
(341,850
|
)
|
Total
weighted average common shares outstanding
|
|
|
134,013
|
|
Loss
per share
|
|
$
|
(2.55
|
)
|
AMERICAN
REALTY CAPITAL TRUST, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2008
(Unaudited)
Note
10 — Subsequent Events
Sale
of Shares of Common Stock
As
of May
14,
2008,
the Company had raised approximately $5,400,000 million
of gross proceeds through the issuance of approximately 776,000 shares
of
its common stock under the Offering (including shares sold under the DRIP).
As
of May 14,
2008,
approximately $1,492 million
(149 million
shares) remained available for sale to the public under the Initial Offering,
exclusive of shares available under the DRIP.
Real
Estate Acquisitions
|
The
Company acquired the following properties subsequent to March 31,
2008:
|
Property
|
Acquisition
Date
|
No.
Of Buildings
|
Square
Feet
|
Purchase
Price (1)
|
|
|
|
|
|
Rockland
Trust Company portfolio
|
May
2008
|
18
|
121,057
|
32,960,000
|
|
|
|
|
|
|
(1)
|
Includes
all acquisition costs, the value of acquired intangible lease assets
and
assumed liabilities.
|
On
May 2,
2008, the Company acquired an 18 building portfolio for a total purchase price
of approximately $33.0 million, inclusive of closing costs and an acquisition
fee, from Independent Bank Corp., which operates as the holding company for
Rockland Trust Company and provides commercial banking, retail banking, and
investment management services in Massachusetts. The properties consist of
both
operation centers and bank branches leased on a triple-net basis, with an
aggregate weighted average lease term of 13.2 years, exclusive of certain lease
extension provisions.
Subsequent
to March 31, 2008, the Company incurred or assumed the following mortgage notes
payable in connection with the real estate acquisitions described
above:
|
|
|
|
|
|
|
Mortgage
Debt
|
|
Type
|
|
Rate
|
|
Maturity
Date
|
|
|
|
|
|
|
|
$
24,412,500
|
|
Variable
|
|
30
Day LIBOR + 1.375% (1)
|
|
May
2013
|
|
|
|
|
(1)
|
The
Company entered into a rate lock agreement to limit its interest
rate
exposure. The LIBOR floor and cap are 3.54% and 4.125% (initial year),
respectively.
|
|
|
|
In
addition to the mortgage noted in the above table, the Company secured
a mezzanine loan in the amount of $3,955,000. This obligation bears
interest at an effective rate of 14.1%
and
matures in April 2009. This preferred equity investment is convertible into
Operating Partnership units, valued at $9.00 per unit, on or before March 31,
2009, pursuant to a limited liability company agreement entered into between
the
OP and the unaffiliated third-party investor. Such Operating Partnership units
are convertible into shares of stock in the REIT at the holders election. The
Company borrowed $2,500,000 from the Advisor under its short-term revolving
credit facility in connection with this acquisition - see Note 4. The initial
term of the lease is 10 years for 7 properties and 15 years for 11 properties.
Each location has four concurrent renewal options, each for a five-year term
at
the then prevailing market rate.
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 financial statements of American Realty Capital Trust, Inc. and
the
notes thereto. As used herein, the terms “we,” “our” and “us” refer to American
Realty Capital Trust, Inc., a Maryland corporation, and, as required by context,
American Realty Capital Operating Partnership, L.P., a Delaware limited
partnership, which we refer to as the “Operating Partnership” and to their
subsidiaries. American Realty Capital Trust, Inc. is externally managed by
the
American Realty Capital Advisors, LLC (a Delaware limited liability company)
or
the “Advisor.”
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 American Realty Capital Trust, Inc. 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.
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:
|
•
|
|
Neither
we nor our Advisor have a prior operating history and our Advisor
does not
have any experience operating a public company. This inexperience
makes
our future performance difficult to predict.
|
|
•
|
|
All
of our executive officers are also officers, managers and/or holders
of a
direct or indirect controlling interest in our Advisor, our dealer
manager
and other affiliated entities. 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 investors advised by American Realty Capital affiliates
and conflicts in allocating time among us and these other investors.
These
conflicts could result in unanticipated actions.
|
|
•
|
|
Because
investment opportunities that are suitable for us may also be suitable
for
other American Realty Capital-advised investors, our Advisor and
its
affiliates face conflicts of interest relating to the purchase of
properties and such conflicts may not be resolved in our favor, meaning
that we could invest in less attractive properties, which could reduce
the
investment return to our stockholders.
|
|
•
|
|
If
we raise substantially less than the maximum offering in our ongoing
initial public offering, we may not be able to invest in a diverse
portfolio of real estate assets and the value of an investment in
us may
vary more widely with the performance of specific assets.
|
|
•
|
|
While
we are raising capital and investing the proceeds of our ongoing
initial
public offering, the high demand for the type of properties we desire
to
acquire may cause our distributions and the long-term returns of
our
investors to be lower than they otherwise would.
|
|
•
|
|
We
depend on tenants for our revenue, and, accordingly, our revenue
is
dependent upon the success and economic viability of our tenants.
|
|
•
|
|
Increases
in interest rates could increase the amount of our debt payments
and limit
our ability to pay distributions to our stockholders.
|
All
forward-looking statements should be read in light of the risks identified
in
our Registration Statement on Form S-11 for the period from August 17, 2007
(dated of inception) to December 31, 2007, filed with the SEC and the risks
identified in this quarterly report.
Overview
We
are a
Maryland corporation that will elect to be taxed as a real estate investment
trust, or REIT, beginning with the taxable year ending December 31, 2008.
On September 10, 2007, we filed a registration statement on Form S-11 with
the
SEC to offer a minimum of 750,000 shares and a maximum of 150,000,000 shares
of
common stock for sale to the public. The SEC declared the registration statement
effective on January 25, 2008, at which time we launched our ongoing initial
public offering. On March 11, 2008, we broke escrow in our ongoing initial
public offering and then commenced our real estate operations. As of March
31,
2008, we had issued 623,279 shares of common stock in our ongoing public
offering for gross offering proceeds of approximately $4,018,000
excluding 179,026 shares of common stock issued in connection with the
acquisition of a property. As of March 31, 2008, we had not redeemed any shares
sold in our ongoing initial public offering pursuant to our share repurchase
program. We are dependent upon the net proceeds from the offering to conduct
our
proposed operations.
We
intend
to use the proceeds of our ongoing initial public offering to acquire and manage
a diverse portfolio of real estate properties consisting primarily of
freestanding, single-tenant properties net leased to investment grade and other
creditworthy tenants throughout the United States and Puerto Rico as well as
certain other real-estate related investments. We plan to own substantially
all
of our assets and conduct our operations through our Operating Partnership,
of
which we are the sole general partner. We have no paid employees. Our advisor,
American Realty Capital Advisors, LLC, conducts our operations and manages
our
portfolio of real estate investments.
As
of
March 31, 2008, we owned 16 properties compromising approximately 233,000 square
feet, 100% leased with an initial weighted average remaining lease term of
14.0
years. In constructing our portfolio, we intend to target and derive
approximately 50% to 60% of our revenues from investment-grade tenants.
Additionally, we intend to target approximately 50% of our revenues from
financial institutions.
We
intend
to continue our strategy of acquiring high quality, single tenant properties
through sale leaseback transactions and marketed transactions with in-place
long-term leases, and to finance our acquisitions with a combination of equity
and debt. We expect to arrange long-term financing on both a secured and
unsecured fixed rate basis. We intend to continue to grow our existing
relationships and develop new relationships throughout various markets we serve,
which we expect will lead to further acquisition opportunities.
Real
estate-related investments are higher-yield and higher-risk investments that
our
advisor will actively manage. The real estate-related investments in which
we
may invest include: (i) mortgage loans; (ii) equity securities such as
common stocks, preferred stocks and convertible preferred securities of real
estate companies; (iii) debt securities such as mortgage-backed securities,
commercial mortgages, mortgage loan participations and debt securities issued
by
other real estate companies; and (iv) certain types of illiquid securities,
such as mezzanine loans and bridge loans. While we may invest in any of these
real estate-related investments, we expect that the majority of these
investments will consist of mezzanine loans and B-note obligations.
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 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
straightline basis over the initial term of the lease. Since many of our leases
provide for rental increases at specified intervals, straightline basis
accounting requires us to record a receivable, and include in revenues, 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
continually review receivables related to rent and unbilled rent receivables
and
determine collectibility 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 collectibility of a
receivable is in doubt, we record an increase in our allowance for uncollectible
accounts or record a direct write-off of the receivable in our consolidated
statements of operations.
Investments
in Real Estate
Investments
in real estate are recorded at cost. Improvements and replacements are
capitalized when they extend the useful life of the asset. Costs of repairs
and
maintenance are expensed as incurred. Depreciation is computed using the
straightline method over the estimated useful life of up to 40 years for
buildings and improvements, five to ten years for fixtures and improvements
and
the shorter of the useful life or the remaining lease term for tenant
improvements and leasehold interests.
We
are
required to make subjective assessments as to the useful lives of our properties
for purposes of determining the amount of depreciation to record on an annual
basis with respect to our investments in real estate. These assessments have
a
direct impact on our net income because if we were to shorten the expected
useful lives of our investments in real estate, we would depreciate these
investments over fewer years, resulting in more depreciation expense and lower
net income on an annual basis.
We
follow
Statement of Financial Accounting Standards (SFAS) No.144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” which established a single
accounting model for the impairment or disposal of long-lived assets including
discontinued operations. SFAS No.144 requires that the operations related to
properties that have been sold or properties that are intended to be sold be
presented as discontinued operations in the statement of operations for all
periods presented, and properties intended to be sold to be designated as “held
for sale” on the balance sheet.
Long-lived
assets are carried at cost and evaluated for impairment when events or changes
in circumstances indicate such an evaluation is warranted or when they are
designated as held for sale. Valuation of real estate is considered a “critical
accounting estimate” because the evaluation of impairment and the determination
of fair values involve a number of management assumptions relating to future
economic events that could materially affect the determination of the ultimate
value, and therefore, the carrying amounts of our real estate. Additionally,
decisions regarding when a property should be classified as held for sale are
also highly subjective and require significant management judgment.
Events
or
changes in circumstances that could cause an evaluation for impairment include
the following:
|
•
|
|
a
significant decrease in the market price of a long-lived
asset;
|
|
|
|
•
|
|
a
significant adverse change in the extent or manner in which a long-lived
asset is being used or in its physical condition;
|
|
|
|
•
|
|
a
significant adverse change in legal factors or in the business climate
that could affect the value of a long-lived asset, including an adverse
action or assessment by a regulator;
|
|
|
|
•
|
|
an
accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived asset;
and
|
|
|
|
•
|
|
a
current-period operating or cash flow loss combined with a history
of
operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset.
|
We
review
our portfolio on an on-going basis to evaluate the existence of any of the
aforementioned events or changes in circumstances that would require us to
test
for recoverability. In general, our review of recoverability 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 expected, as well as the effects
of
leasing demand, competition and other factors. If impairment exists due to
the
inability to recover 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. We are required to make subjective assessments as to whether
there are impairments in the values of our investments in real estate. These
assessments have a direct impact on our net income because recording an
impairment loss results in an immediate negative adjustment to net
income.
Purchase
Price Allocation
Pursuant
to SFAS No.141, “Business Combinations,” we follow the purchase method of
accounting for all business combinations. To ensure that intangible assets
acquired and liabilities assumed in a purchase method business combination
can
be recognized and reported apart from goodwill, we ensure that the applicable
criteria specified in SFAS No.141 are met.
We
allocate the purchase price of acquired properties to tangible and identifiable
intangible assets acquired based on their respective fair values. Tangible
assets include land, buildings, equipment and tenant improvements on an as-if
vacant basis. We utilize various estimates, processes and information to
determine the as-if vacant property value. Estimates of value are made using
customary methods, including data from appraisals, comparable sales, discounted
cash flow analysis and other methods. Identifiable intangible assets include
amounts allocated to acquired leases for above- and below-market lease rates,
the value of in-place leases, and the value of customer
relationships.
Amounts
allocated to land, buildings, equipment and fixtures are based on cost
segregation studies performed by independent third-parties or on our analysis
of
comparable properties in our portfolio. Depreciation is computed using the
straightline method over the estimated life of 40 years for buildings, five
to
ten years for building equipment and fixtures, and the lesser of the useful
life
or the remaining lease term for tenant improvements.
Above-market
and below-market in-place lease values for owned properties are recorded based
on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between the contractual amounts
to
be paid pursuant to the in-place leases and management’s estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal
to the remaining non-cancelable term of the lease. The capitalized above-market
lease values are amortized as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial
term
and any fixed-rate renewal periods in the respective leases. The aggregate
value
of intangible assets related to in-place leases is primarily the difference
between the property valued with existing in-place leases adjusted to market
rental rates and the property valued as if vacant. Factors considered by us
in
our analysis of the in-place lease intangibles include an estimate of carrying
costs during the expected lease-up period for each property, taking into account
current market conditions and costs to execute similar leases. In estimating
carrying costs, we include real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during the expected
lease-up period, which typically ranges from six to 18 months. We also
estimate costs to execute similar leases including leasing commissions, legal
and other related expenses.
The
aggregate value of intangibles assets related to customer relationship is
measured based on our evaluation of the specific characteristics of each
tenant’s lease and our overall relationship with the tenant. Characteristics
considered by us in determining these values include the nature and extent
of
our existing business relationships with the tenant, growth prospects for
developing new business with the tenant, the tenant’s credit quality and
expectations of lease renewals, among other factors.
The
value
of in-place leases is amortized to expense over the initial term of the
respective leases, which range primarily from two to 20 years. The value of
customer relationship intangibles is amortized to expense over the initial
term
and any renewal periods in the respective leases, but in no event does the
amortization period for intangible assets exceed the remaining depreciable
life
of the building. If a tenant terminates its lease, the unamortized portion
of
the in-place lease value and customer relationship intangibles is charged to
expense.
In
making
estimates of fair values for purposes of allocating purchase price, we utilize
a
number of sources, including independent appraisals that may be obtained in
connection with the acquisition or financing of the respective property and
other market data. We also consider information obtained about each property
as
a result of our pre-acquisition due diligence, as well as subsequent marketing
and leasing activities, in estimating the fair value of the tangible and
intangible assets acquired and intangible liabilities assumed. The allocations
presented in the accompanying consolidated balance sheets are substantially
complete; however, there are certain items that we will finalize once we receive
additional information. Accordingly, these allocations are subject to revision
when final information is available, although we do not expect future revisions
to have a significant impact on our financial position or results of
operations.
Results
of Operations
Three
Months Ended March 31,
2008
We
acquired 16 properties in two separate transactions during the quarter ended
March 31, 2008. A Federal Express distribution center was acquired on March
5,
2008. A sale leaseback transaction involving 15 properties 100% occupied by
Harleysville National Bank occurred on March 12, 2008. The property operating
results outlined below relate to the partial period we owned these investment
assets during the period.
Rental
Income
Rental
income of approximately $214,000 was recognized during the three months ended
March 31, 2008. This rental income includes a partial month of revenue derived
from the properties we acquired in March 2008.
Property
Management Fees to Affiliate
Property
management fees to affiliate of approximately $4,000 were incurred during the
three months ended March 31, 2008. Such fees represent amounts paid to our
affiliated property manager, American Realty Capital Properties, LLC, to manage
and lease our properties.
General
and Administrative Expenses
General
and administrative expenses of approximately $189,000 were incurred during
the
three months ended March 31, 2008. The majority of such expenses included
$119,000 reimbursed to the Advisor relating to various organizational costs,
$31,000 of insurance expense amortization of
our
directors and officers’ insurance policy, $20,000 of board member compensation
and $11,000 of professional fees.
Depreciation
and Amortization Expense
Depreciation
and amortization expense of approximately $171,000 was recognized during the
three months ended March 31, 2008. This expense includes a partial month of
depreciation and amortization incurred from the properties we acquired in March
2008.
Interest
Expense
Interest
expense of approximately $192,000 was recognized during the three months ended
March 21, 2008. Such amount includes a partial month of interest expense
relating to the debt incurred to fund a portion of the properties we acquired
in
March 2008.
Our
property acquisitions during the three months ended March 31, 2008 were financed
in part with short-term and long-term notes payable as discussed in Note 4
to
our consolidated financial statements. Our interest expense in future periods
will vary based on our level of future borrowings, which will depend on the
level of proceeds raised in the Offering, the cost of borrowings, and the
opportunity to acquire real estate assets which meet our investment
objectives.
Cash
Flows for the Three Months Ended March 31, 2008
During
the three months ended March 31, 2008, net cash used in operating activities
was
approximately $45,000. The level of cash flows provided by (used in) operating
activities is affected by both the timing of interest payments and amount of
borrowings outstanding during the period. It is also affected by the receipt
of
scheduled rent payments and disbursement of deposits required in connection
with
property acquisitions. Prepaid expenses and other assets increased by
approximately $1,024,000 principally resulting from payments for a $500,000
deposit on an acquisition that closed in May 2008 (Rockland Trust Company
portfolio), $420,000 of finance coordination fees incurred during the period,
net of amortization, as well as payments relating to annual Board of Trustee
retainers and the partial funding of our Directors and Officers’ insurance
policy. This amount is offset by the increase in accounts payable and accrued
expenses of approximately $837,000, the majority of which relates to
professional fees, accrued interest and finance coordination fees, as well
as an
increase in deferred rent and liabilities of approximately $309,000, primarily
representing rent payments received in advance of the respective due date.
Net
cash
used in investing activities during the three months ended March 31, 2008
totaled approximately $2,544,000 relating to investment properties acquired
during the period.
Net
cash
provided by financing activities totaled approximately $3,118,000 during the
three months ended March 31, 2008. Such amount consisted of approximately
$3,818,000 of proceeds received from the issuance of 424,253 shares of common
stock, reduced by approximately $700,000 of related offering costs.
Liquidity
and Capital Resources
We
expect
to continue to raise capital through the sale of our common stock and to utilize
the net proceeds from the sale of our common stock and proceeds from secured
financings to complete future property acquisitions. As of March 31, 2008,
we
had received and accepted subscriptions for 623,279 shares of common stock
in
our Offering for net proceeds of approximately $4.0 million.
The
amount of distributions payable to our stockholders is determined by our board
of directors and is dependent on a number of factors, including funds available
for distribution, financial condition, capital expenditure requirements, as
applicable, and annual distribution requirements needed to qualify and maintain
our status as a REIT under the Code. Operating cash flows are expected to
increase as additional properties are acquired in our investment
portfolio.
Our
principal demands for funds will continue to be for property acquisitions,
either directly or through investment interests, for the payment of operating
expenses and distributions, and for the payment of interest on our outstanding
indebtedness and other investments. Generally, cash needs for items other than
property acquisitions are expected to be met from operations, and cash needs
for
property acquisitions are expected to be met from the public offering of our
shares. However, there may be a delay between the sale of our shares and our
purchase of properties, which could result in a delay in the benefits to our
stockholders, if any, of returns generated from our operations. Our Advisor
evaluates potential acquisitions of real estate and real estate related assets
and engages in negotiations with sellers and borrowers on our behalf. Investors
should be aware that after a purchase contract is executed that contains
specific terms, the property will not be purchased until the successful
completion of due diligence and negotiation of final binding agreements. During
this period, we may decide to temporarily invest any unused proceeds from the
Offering in certain investments that could yield lower returns than the
properties. These lower returns may affect our ability to make
distributions.
We
expect
to meet our future short-term operating liquidity requirements through net
cash
provided by our current property operations and the operations of properties
to
be acquired in the future. Management also expects that our properties will
generate sufficient cash flow to cover operating expenses and the payment of
a
monthly distribution. Other potential future sources of capital include proceeds
from secured or unsecured financings from banks or other lenders, proceeds
from
the sale of properties and undistributed funds from operations.
On
February 25, 2008, the Board of Directors declared a dividend for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of
real
estate investments, payable in cash on the 21st day following each month end
to
stockholders of record at the close of business each day during the applicable
period. The dividend will be calculated based on stockholders of record each
day
during the applicable period at a rate of $0.00178082191 per day, and will
equal
a daily amount that, if paid each day for a 365-day period, would equal a 6.5%
annualized rate based on the share price of $10.00.
The
payment terms of our loan obligations vary. In general, interest only is payable
monthly with all unpaid principal and interest due at maturity. Certain of
our
mortgage loans require principal repayment in subsequent years. Our loan
agreements stipulate that we comply with specific reporting and financial
covenants. As of March 31, 2008, we were in compliance with the debt covenants
under our loan agreements.
As
of
March 31, 2008, we had cash and cash equivalents of approximately $530,000,
which we expect to be used primarily to invest in additional real estate, pay
operating expenses and pay stockholder distributions.
Contractual
Obligations
The
following is a summary of our contractual obligations as of March 31, 2008:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
Due During the Years Ending December 31
|
|
Contractual
Obligations
|
|
Total
|
|
Remainder of 2008
|
|
2009-2010
|
|
2011-2012
|
|
Thereafter
|
|
Outstanding
debt obligations(1)
|
|
$
|
41,918,796
|
|
$
|
—
|
|
$
|
3,953,796
|
|
$
|
984,974
|
|
$
|
36,980,026
|
|
Related
party revolving credit facility
|
|
|
4,000,000
|
|
|
4,000,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase
obligations
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
45,918,796
|
|
$
|
4,000,000
|
|
$
|
3,953,796
|
|
$
|
984,974
|
|
$
|
36,980,026
|
|
(1)
|
Amounts
include principal payments only. We incurred interest expense of
approximately $189,000 excluding amortization of deferred financing
costs,
during the three months ended March 31, 2008, and expect to incur
interest
in future periods on outstanding debt
obligations.
|
Election
as a REIT
We
will
elect to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code commencing with our taxable year ending December 31, 2008. If
we qualify for taxation as a REIT, we generally will not be subject to federal
corporate income tax to the extent we distribute our REIT taxable income to
our
stockholders, and so long as we distribute at least 90% of our REIT taxable
income. REITs are subject to a number of other organizational and operational
requirements. Even if we qualify for taxation as a REIT, we may be subject
to
certain state and local taxes on our income and property, and federal income
and
excise taxes on our undistributed income. We believe we are organized and
operating in such a manner as to qualify to be taxed as a REIT for the taxable
year ending December 31, 2009.
Inflation
Some
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,
including common area maintenance costs, real estate taxes and insurance. This
may reduce our exposure to increases in costs and operating expenses resulting
from inflation.
Related-Party
Transactions and Agreements
We
have
entered into agreements with American Realty Capital II, LLC and its
wholly-owned affiliates, whereby we pay certain fees or reimbursements to our
Advisor or its affiliates for acquisition fees and expenses, organization and
offering costs, sales commissions, dealer manager fees, asset and property
management fees and reimbursement of operating costs. See Note 6 to our
consolidated financial statements included in this report for a discussion
of
the various related-party transactions, agreements and fees.
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements that 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.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
We
are
exposed to interest rate changes primarily as a result of long-term debt used
to
acquire properties. Our interest rate risk management objectives are to
limit the impact of interest rate changes on earnings and cash flows and to
lower overall borrowing costs. To achieve these objectives, we may borrow at
fixed rates or variable rates with the lowest margins available and in some
cases, the ability to convert variable rates to fixed rates. With regard to
variable rate financing, we will assess interest rate cash flow risk by
continually identifying and monitoring changes in interest rate exposures that
may adversely impact expected future cash flows and by evaluating hedging
opportunities. At March 31, 2008, all of our borrowings were at fixed
interest rates.
We
do not
have any foreign operations and thus we are not exposed to foreign currency
fluctuations.
PART
II
OTHER
INFORMATION
Item
1. Legal Proceedings
We
are
not a party to, and none of our properties are subject to, any material pending
legal proceedings.
Item
1A. Risk Factors
There
have been no material changes from the risk factors set forth in our Annual
Report on Form S-11 for period from August 17, 2007 (date of inception)
to March 31, 2008.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Share
Redemption Program
Our
board
of directors has adopted a share repurchase program that enables our
stockholders to sell their shares to us in limited circumstances. In order
to
provide stockholders with the benefit of interim liquidity, stockholders who
have held their shares for at least one year and who purchased their shares
from
us or received the shares through a non-cash transaction, not in the secondary
market, may present all or a portion of the holder’s shares to us for
repurchase. At that time, we may, subject to the conditions and limitations,
redeem the shares presented for repurchase for cash to the extent that we have
sufficient funds available to us to fund such repurchase. Upon the death or
disability of a stockholder, upon request, we will waive the one-year holding
requirement. Shares repurchased in connection with the death or disability
of a
stockholder will be repurchased at a purchase price equal to the price actually
paid for the shares during the offering, or if not engaged in the offering,
the
current net asset value of the shares if higher. During any calendar year,
the
number of shares we will repurchase will be limited to the proceeds in the
distribution reinvestment plan; provided, however, that shares subject to a
repurchase requested upon the death or disability of a stockholder will not
be
subject to this cap. The cash available for repurchase of our shares will be
limited to the proceeds from the sale of shares pursuant to our distribution
reinvestment plan legally available for the repurchase of our
stock.
No
shares
were redeemed under this program during the quarter ended March 31, 2008.
Item
3. Defaults Upon Senior Securities
Item
4. Submission of Matters to a Vote of Security Holders
Item
5.
Other Information
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.
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.
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|
|
|
|
|
|
|
|
American
Realty Capital Trust, Inc.
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/
Nicholas S. Schorsch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas
S. Schorsch
|
|
|
|
|
|
|
Chief
Executive Officer and President
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/
Brian S. Block
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
S. Block
|
|
|
|
|
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
Date:
May
14, 2008
EXHIBIT
INDEX
The
following exhibits are included, or incorporated by reference, in this Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008 (and are numbered
in
accordance with Item 601 of Regulation S-K).
Exhibit
No.
|
Description
|
|
|
10.1
|
Agreement
of Assignment of Partnership Interests between American Realty Capital
Operating Partnership, L.P. and American Realty Capital LLC, William
M.
Kahane, Nicholas S. Schorsch, Lou Davis and Peter and Maria Wirth
dated
March 5, 2008. — Federal Express Distribution Center
|
|
|
10.2
|
Agreement
of Assignment of Partnership Interests between American Realty Capital
Operating Partnership, L.P. and Nicholas S. Schorsch dated March
12, 2008.
— Harleysville National Bank Portfolio
|
|
|
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 (filed herewith). |
|
|
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 (filed
herewith). |
|
|
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. |
|
|