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ARCP > SEC Filings for ARCP > Form 8-K/A on 25-Sep-2013All Recent SEC Filings

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Form 8-K/A for AMERICAN REALTY CAPITAL PROPERTIES, INC.


25-Sep-2013

Entry into a Material Definitive Agreement


Item 1.01. Entry Into a Material Definitive Agreement.

Equity Interest Purchase Agreement with Inland

On August 8, 2013, ARC entered into that certain Equity Interest Purchase Agreement (the "Agreement") with Inland. The Agreement provides for, among other things, the purchase and sale of Inland's equity interests in special purpose entities which own the properties that comprise the Portfolio, described above, pursuant to the terms and conditions contained therein. Inland, the seller, does not have a material relationship with the Company and the acquisition will not be an affiliated transaction.

Purchase and Sale of the Properties

The Portfolio includes 33 properties, five of which were purchased on September 24, 2013. The properties in the Portfolio are currently leased to 26 distinct tenants. The leases are generally net, whereby the tenants are to pay substantially all operating expenses, including all costs to maintain and repair the roof and structure of the building, and the cost of all capital expenditures, in addition to base rent. As of the date of this Amendment, the remaining weighted average term of the Portfolio leases is approximately 4.4 years. The annualized rental income on a cash basis for the Portfolio was approximately $46.4 million for the year ended December 31, 2012. The contract purchase price of the Portfolio is approximately $501.0 million, subject to adjustments set forth in the Agreement and exclusive of closing costs. The Company will assume $319.7 million of debt in connection with the acquisition of the Portfolio. The Company intends to fund the total purchase price of the Portfolio from proceeds from its recently completed convertible note offering, its recently announced private placement of common stock and Series D Cumulative Convertible Preferred Stock and from borrowings from its senior corporate credit facility.

The Agreement provides that the obligation to close upon the acquisition of the Portfolio, via three closings, remains subject to ARC's completion of due diligence with satisfactory results and other customary conditions to closing described in more detail below. The Agreement provides for three closings (the "Closings") to occur on September 23, 2013, December 6, 2013 and three business days following the receipt by Inland of certain consents from lenders with respect to the transfer of debt on the remaining properties to be sold by Inland, among other conditions.

Pursuant to the terms of the Agreement, at the Closings, the properties comprising the Portfolio will be transferred free and clear of any liens or encumbrances (other than customary permitted title exceptions). Eight of the properties previously comprising the Portfolio were removed from the contemplated acquisition pursuant to the terms of the Agreement. As of the date of this Amendment, five of the properties have been purchased, and the Company currently expects to purchase the remaining 28 properties that comprise the rest of the Portfolio. Until the completion of the Closings, there can be no assurance that the Company will acquire any or all of the remaining properties comprising the Portfolio. However, the Company believes that the completion of the Closings and acquisitions of the Portfolio is probable.

Representations, Warranties and Covenants

Inland made customary representations and warranties to ARC relating to the Portfolio. Inland has also made certain covenants related to the conduct of its business between the date of the Agreement and the Closings.


Conditions

Consummation of the Closings is subject to various conditions, including, among other things, the absence of any law, order or injunction prohibiting the consummation of the acquisition of any of the properties comprising the Portfolio, and the receipt of any necessary third party consents or governmental approvals. Moreover, each party's obligation to consummate the Closings is subject to the accuracy of the other party's representations and warranties (subject to customary qualifications) and the other party's material compliance with its covenants and agreements contained in the Agreement.

Indemnity

Pursuant to the Agreement, Inland has agreed to indemnify ARC against all losses incurred to the extent that such losses arise out of (i) breaches of their representations and warranties, (ii) any breaches of certain covenants in the Agreement, or (iii) any incorrectly calculated closing cash payments, subject to certain limitations. ARC agreed to similarly indemnify Inland.

Termination Rights

The Agreement also includes certain termination rights for both ARC and Inland. In connection with the termination of the Agreement, under specified circumstances, (i) ARC may be entitled to a return of its deposit or (ii) Inland may be entitled to retain such deposit as liquidated damages from ARC's deposit.

A copy of the Agreement is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The foregoing summary description of the material terms of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement. The representations and warranties in the Agreement were made as of a specified date, are qualified by a confidential disclosure letter, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, and may have been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Agreement are not necessarily characterizations of the actual state of facts about the Company at the time they were made or otherwise and should only be read in conjunction with the other information that the Company makes publicly available in reports, statements and other documents filed with the SEC.

Forward-Looking Statements

Information set forth in this Amendment No. 1 (including information included or incorporated by reference herein) contains "forward-looking statements" (as defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect the Company's expectations regarding future events. The forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Such forward-looking statements include, but are not limited to, whether and when the transactions contemplated by the Agreement will be consummated, the Company's plans, market and other expectations, objectives, intentions and other statements that are not historical facts.

The following additional factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement; the inability to complete the acquisition of the Portfolio due to the failure to satisfy other conditions to completion of the acquisition; unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; the inability to retain key personnel; continuation or deterioration of current market conditions; future regulatory or legislative actions that could adversely affect the companies; the business plans of the tenants of the respective parties; the outcome of any legal proceedings relating to the Agreement or the transactions contemplated by the Agreement; and risks to consummation of the Closings, including the risk that the purchase and sale will not be consummated within the expected time period or at all. Additional factors that may affect future results are contained in the Company's filings with the SEC, which are available at the SEC's website at www.sec.gov. The Company disclaims any obligation to update and revise statements contained in these materials based on new information or otherwise.


Item 9.01. Financial Statements and Exhibits.
                                                                               Page
(a) Financial Statements of Businesses Acquired
The Inland Portfolio Historical Summary:
  Report of Independent Certified Public Accounting Firm                        5
  Statements of Revenues and Certain Expenses for the year ended December
31, 2012 (audited) and the six months ended June 30, 2013 (unaudited)           6
  Notes to Statements of Revenues and Certain Expenses                          7

(b) Unaudited Pro Forma Consolidated Information
  Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2013            10
  Notes to Unaudited Pro Forma Consolidated Balance Sheet                       12
  Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 2012 and the six months ended June 30, 2013                  14
  Notes to Unaudited Pro Forma Consolidated Statements of Operations            17

(c) Exhibits

Exhibit No.   Description
    2.1       Equity Interest Purchase Agreement by and between Inland American Real
              Estate Trust, Inc. and AR Capital, LLC, dated as of August 8, 2013 *
    23        Consent of Grant Thornton LLP


__________________________


* Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.


Report of Independent Certified Public Accounting Firm

Board of Directors and Stockholders

American Realty Capital Properties, Inc.

We have audited the accompanying Historical Summary of the Inland Portfolio which comprises the statement of revenues and certain expenses for the year ended December 31, 2012, and the related notes to the Historical Summary.

Management's responsibility for the Historical Summary Management of American Realty Capital Properties, Inc. is responsible for the preparation and fair presentation of the Historical Summary in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Historical Summary that is free from material misstatement, whether due to fraud or error.

Auditor's responsibility
Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Historical Summary. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Historical Summary, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the Historical Summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Historical Summary.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the revenues and certain expenses of the Inland Portfolio for the year ended December 31, 2012, in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter
The accompanying Historical Summary was prepared for the purpose of complying with rules and regulations of the U.S. Securities and Exchange Commission and for inclusion in a Form 8-K/A of American Realty Capital Properties, Inc., as described in Note 1 to the Historical Summary, and is not intended to be a complete presentation of the Inland Portfolio's revenues and expenses.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania
September 25, 2013


                              THE INLAND PORTFOLIO

                  STATEMENTS OF REVENUES AND CERTAIN EXPENSES
                                 (In thousands)



                                        Six Months Ended          Year Ended
                                          June 30, 2013       December 31, 2012
                                           (Unaudited)            (Audited)
Revenues:
Rental income                          $           22,876    $            46,192
Operating expense reimbursements                    1,710                  2,933
Other income                                           64                    144
Total revenues                                     24,650                 49,269

Certain expenses:
Property operating                                  2,557                  5,000
Operating fees to affiliate                           643                  1,313
Total expenses                                      3,200                  6,313

Revenues in excess of certain expenses $           21,450    $            42,956

The accompanying notes are an integral part of these Statements of Revenues and Certain Expenses.


THE INLAND PORTFOLIO

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(References to amounts for the six months ended June 30, 2013 are unaudited)

1. Background and Basis of Presentation

On August 8, 2013 AR Capital, LLC, on behalf of American Realty Capital Properties, Inc. (the "Company") and certain other entities sponsored directly or indirectly by AR Capital, LLC, entered into a purchase and sale agreement with Inland American Real Estate Trust, Inc. ("Inland") for the purchase and sale of the equity interests of 67 companies owned by Inland for an aggregate contract purchase price of approximately $2.3 billion, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs. Of the 67 companies, the equity interests of 10 companies (the "Inland Portfolio") will be acquired by the Company from Inland for a purchase price of approximately $501.0 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs, which was allocated to the Company based on the pro-rata fair value of the Inland Portfolio relative to the fair value of all 67 companies to be acquired by the Company and other entities sponsored directly or indirectly by AR Capital, LLC from Inland.

The accompanying Statements of Revenues and Certain Expenses include the operations of the properties represented by the equity interests of the Inland Portfolio for the year ended December 31, 2012 and the six months ended six. The Inland Portfolio owns 35 leasable spaces, comprised of 33 buildings, including 2 multi-tenant buildings, with 31 property leases and 4, and contains approximately 7.0 million rentable square feet.

The Inland Portfolio purchase is expected to close via three closings, of which one occurred in September 2013 with the remaining to occur during the fourth quarter of 2013. The purchase and sale agreement, however, includes provisions that allow the Company to exclude certain properties based on criteria related to issues with obtaining clear title to the property and obtaining satisfactory environmental reports among other provisions. Therefore, the Company cannot assure that all 33 properties in the Inland Portfolio presented in this Historical Summary (as defined below) will be included in the final purchased portfolio. As of the date of this report, the Company has acquired five of the properties and, although the closing of the acquisition on the remaining properties is subject to certain conditions, including the completion of due diligence with satisfactory results, there can be no assurance that the Company will acquire any or all of these remaining properties. However, the Company believes that the completion of such acquisitions is probable.

The accompanying Statements of Revenues and Certain Expenses ("Historical Summary") have been prepared for the purpose of complying with the provisions of Rule 3-14 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the "SEC"), which require that certain information with respect to real estate operations be included within certain SEC filings. An audited statement of revenues and certain operating expenses is being presented for the most recent fiscal year available instead of the three most recent years based on the following factors: (a) the Inland Portfolio is being acquired from an unaffiliated party and (b) based on due diligence of the Inland Portfolio by the Company, management is not aware of any material factors relating to the Inland Portfolio that would cause this financial information not to be indicative of future operating results.

2. Summary of Significant Accounting Policies

Revenue Recognition

Rental income includes the effect of amortizing the aggregate minimum lease payments over the terms of the leases, which amounted to an increase to rental income of approximately $0.5 million and $39,000 over the rental payments received in cash for the year ended December 31, 2012 and for the six months ended June 30, 2013, respectively. Under the terms of certain leases, certain tenants reimburse the properties' owner for certain expenses on a monthly basis. Reimbursements from the tenants are recognized as revenue in the period the applicable expenses are incurred.

The following table lists the tenant whose annualized rental income on a straight-line basis represented greater than 10% of total annualized rental income for all tenants as of June 30, 2013 and December 31, 2012:
Tenant June 30, 2013 December 31, 2012 AT&T Services, Inc. 36.0% 35.4%

The termination, delinquency or non-renewal of leases by the above tenant may have a material adverse effect on revenues. No other tenant represents more than 10% of annualized rental income for all tenants as of June 30, 2013 and December 31, 2012.


Use of Estimates

The preparation of the Historical Summary in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions of the reported amounts of revenues and certain expenses during the reporting periods. Actual results could differ from those estimates used in the preparation of the Historical Summary.


THE INLAND PORTFOLIO

NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(References to amounts for the six months ended June 30, 2013 are unaudited)

3. Future Minimum Lease Payments

At June 30, 2013, the Inland Portfolio of operating leases had a remaining lease term of 4.6 years on a weighted-average basis. Future minimum payments under non-cancelable operating leases are as follows (in thousands):
July 1, 2013 to December 31, 2013 $ 22,470

2014                                   44,424
2015                                   42,015
2016                                   36,598
2017                                   27,200
2018 and thereafter                    49,660
Total                               $ 222,367

4. Commitments and Contingencies

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.

5. Operating Fees to Affiliate

The Inland Portfolio contracted a property management company that is affiliated with Inland to manage the day-to-day operations of its real estate investments. The affiliated property management company was paid a contractual management fee that was computed based on a percentage of the gross income, as defined in the management agreement, of each real estate investment. The percentages applied to gross income varied based on the type of real estate asset and ranged from 2.25% to 4.5%. The Inland Portfolio incurred $1.3 million and $0.6 million, respectively, of property management fees to the affiliate during the year ended December 31, 2012 and six months ended June 30, 2013.

6. Subsequent Events

The Company has evaluated subsequent events through September 25, 2013, the date on which this Historical Summary has been issued and has determined that there have not been any events that have occurred that would require adjustments to, or disclosure in, the Historical Summary.


AMERICAN REALTY CAPITAL PROPERTIES, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2013

The following Unaudited Pro Forma Consolidated Balance Sheet of American Realty Capital Properties, Inc. (the "Company") is presented as if the Company had acquired the Inland Portfolio as of June 30, 2013. This financial statement should be read in conjunction with the Unaudited Pro Forma Consolidated Statement of Operations and the Company's historical financial statements and notes thereto in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013. Land, buildings, fixtures and improvements and acquired intangible lease assets include $513.0 million, comprised of $78.8 million, $368.9 million and $65.3 million provisionally assigned to land, buildings, fixtures and improvements and acquired intangible lease assets of the Inland Portfolio, respectively, pending management's final analysis of the classification of the acquired assets. The Pro Forma Consolidated Balance Sheet is unaudited and is not necessarily indicative of what the actual financial position would have been had the Company acquired the Inland Portfolio as of June 30, 2013, nor does it purport to present the future financial position of the Company.

The Inland Portfolio purchase is expected to close via three closings, of which one occurred in September 2013 with the remaining to occur during the fourth quarter of 2013. The purchase and sale agreement, however, includes provisions that allow the Company to exclude certain properties based on criteria related to issues with obtaining clear title to the property and properties exceeding certain delinquency thresholds among other provisions. Therefore, the Company cannot assure that all 33 properties in the Inland Portfolio presented in the accompanying Unaudited Pro Forma Consolidated Balance Sheet or the Unaudited Pro Forma Consolidated Statements of Operations will be included in the final purchased portfolio. As of the date of this report, the Company has closed on five properties. Although the closing of the remaining properties is subject to certain conditions, including the completion of due diligence with satisfactory results, there can be no assurance that the Company will acquire any or all of the remaining properties in the Inland Portfolio. However, the Company believes that the completion of such acquisitions is probable.


                    AMERICAN REALTY CAPITAL PROPERTIES, INC.

                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                              AS OF JUNE 30, 2013



                                             American Realty                                  Pro Forma American
                                           Capital Properties,      Pro Forma Inland            Realty Capital
(In thousands)                                   Inc. (1)            Portfolio (2)             Properties, Inc.
                 Assets
Real estate investments, at cost:
Land                                       $       504,562        $        78,821      (3)  $        583,383
Buildings, fixtures and improvements             2,043,270                368,947      (3)         2,412,217
Acquired intangible lease assets                   318,488                 65,262      (3)           383,750
Total real estate investments, at cost           2,866,320                513,030                  3,379,350
Less: accumulated depreciation and
amortization                                      (108,765 )                    -                   (108,765 )
Total real estate investments, net               2,757,555                513,030                  3,270,585
Cash and cash equivalents                           10,958                      -                     10,958
Investments in direct financing leases,
net                                                 67,518                      -                     67,518
Other investments, at fair value                     9,920                      -                      9,920
Derivatives, at fair value                          10,161                      -                     10,161
Restricted cash                                      1,576                      -                      1,576
Prepaid expenses and other assets                   14,626                      -                     14,626
Deferred costs, net                                 38,443                      -                     38,443
Assets held for sale                                 6,028                      -                      6,028
Total assets                               $     2,916,785        $       513,030           $      3,429,815
  Liabilities and Stockholders' Equity
Mortgage notes payable, at fair value      $       269,918        $       319,676      (4)  $        589,594
Senior corporate credit facility                   600,000                202,147      (5)           802,147
Convertible obligation to Series C
Convertible Preferred stockholders                 445,000                      -                    445,000
Contingent value rights obligation to
preferred and common investors, at fair
value                                               31,134                      -                     31,134
Derivatives, at fair value                           1,186                      -                      1,186
Accounts payable and accrued expenses               12,060                      -                     12,060
. . .
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