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ARCP > SEC Filings for ARCP > Form 8-K on 7-Oct-2013All Recent SEC Filings

Show all filings for AMERICAN REALTY CAPITAL PROPERTIES, INC.

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


7-Oct-2013

Entry into a Material Definitive Agreement


Item 1.01. Entry into a Material Definitive Agreement.

Purchase and Sale Agreement with Subsidiaries of Fortress Investment Group LLC

On October 1, 2013, American Realty Capital Properties, Inc. (the "Company") finalized the prerequisite conditions to acquire the Portfolio (as defined below) and assumed the obligations of its sponsor, AR Capital, LLC, under that certain Purchase and Sale Agreement (the "Agreement"), dated July 24, 2013, entered into by and among AR Capital, LLC, ARC PADRBPA001, LLC (referred to together with AR Capital, LLC as the "Purchasers") and certain sellers described in the schedules thereto (collectively, the "Sellers") relating to the acquisition of the Portfolio. Pursuant to the Agreement, the Company, through the Purchasers, will purchase the Portfolio, which represents a portion of the properties to be sold pursuant to the Agreement.

Purchase of the Portfolio

The Sellers own a real estate portfolio of which the Company intends to acquire 120 properties (the "Portfolio"). The Portfolio is currently leased to 17 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 report, the remaining weighted-average term of the leases in the Portfolio is approximately 12.6 years. The annualized rental income on a cash basis for the Portfolio for the year ended December 31, 2012 was approximately $30.2 million. The contract purchase price of the Portfolio is approximately $601.2 million, subject to adjustments set forth in the Agreement and exclusive of closing costs. The Company intends to fund the purchase of the Portfolio through available cash on hand or borrowings under the Company's senior corporate credit facility.

The Agreement provides that the Company's obligation to close upon the acquisition remains subject to the Sellers' satisfaction of certain performance obligations, delivery of certain closing documents and the issuance of title policies to the Company. Pursuant to the Agreement, the closing date of the acquisition of the Portfolio shall be 15 days after the expiration of the due diligence period; however, should certain estoppels and title policies not be delivered by such date, the Company retains the right to delay closings until such documents are received. The outside closing date for the acquisition of the Portfolio is October 30, 2013.

Until the completion of the closing, there can be no assurance that the Company will acquire any or all of the remaining properties comprising the Portfolio. One of the properties comprising the Portfolio was removed from the contemplated acquisition pursuant to the terms of the Agreement. As of the date of this report, the Company purchased 41 of the properties for a contract purchase price of $200.3 million, exclusive of closing costs, and currently expects to purchase the remaining 79 properties that comprise the rest of the Portfolio for a contract purchase price of approximately $400.9 million, exclusive of closing costs. The Company believes that the completion of the closing and acquisition of the remaining properties in the Portfolio is probable but cannot guarantee that such acquisitions will be completed. .

Representations, Warranties and Covenants

The Sellers made customary representations and warranties to the Company relating to the Portfolio.

Conditions

Consummation of the closing is subject to various conditions, including, among other things, the absence of any law, order or injunction prohibiting the consummation of the acquisition of the Portfolio and the receipt of certain tenant estoppels, title policies and property condition reports. Moreover, each party's obligation to consummate the closing 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, the parties have agreed to indemnify one another, in certain circumstances, should either party fail to fulfill or perform certain of its respective obligations under the Agreement.


Termination Rights

The Agreement also includes certain termination rights for both the Purchasers and the Sellers. In the event the Purchasers breach the terms of the Agreement, the Sellers shall have the right to receive the earnest money deposit made by the Purchasers as liquidated damages. If the Sellers breach the Agreement, the Purchasers shall have the right to (i) receive the earnest money deposit it previously made and the Sellers shall reimburse the Purchasers for their reasonable documented third party out-of-pocket expenses, not to exceed $12,500 per Portfolio property or $500,000 in the aggregate or (ii) enforce specific performance of the Seller's obligations under the Agreement. The non-breaching party, in all circumstances, shall notify the breaching party of such breach and the breaching party shall then have five business days to cure such breach, subject to a permissible five business day cure period extension.

A copy of the Agreement is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The foregoing description 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 U.S. Securities and Exchange Commission ("SEC").

Forward-Looking Statements

Information set forth in this Current Report on Form 8-K (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 remaining acquisitions due to the failure to satisfy other conditions to completion of the purchases unexpected costs or unexpected liabilities that may arise from the remaining acquisitions, whether or not consummated; continuation or deterioration of current market conditions; and risks to consummation of the closing, including the risk that the purchases 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 Fortress Portfolio Historical Summary:
  Report of Independent Certified Public Accounting Firm                        6
  Statements of Revenues and Certain Expenses for the year ended December
31, 2012 (audited) and the six months ended June 30, 2013 (unaudited)           7
  Notes to Statements of Revenues and Certain Expenses                          8

(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       Purchase and Sale Agreement by and among ARC PADRBPA001, LLC and AR
              Capital, LLC and the sellers described on schedules thereto, dated as
              of July 24, 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 Fortress 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 Fortress 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 Current Report Form 8-K 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 Fortress Portfolio's revenues and expenses.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania
October 7, 2013


                             THE FORTRESS 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                          $           19,675    $            29,965
Operating expense reimbursements                      547                    857
Other revenues                                         72                    149
Total revenues                                     20,294                 30,971

Certain expenses:
Property operating                                    693                    858

Revenues in excess of certain expenses $           19,601    $            30,113

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


THE FORTRESS 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 July 24, 2013, AR Capital, LLC and another related entity, 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 subsidiaries of Fortress Investment Group LLC ("Fortress") for the purchase and sale of 196 properties owned by Fortress for an aggregate contract purchase price of approximately $972.5 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 Fortress Portfolio relative to the fair value of all 196 properties to be acquired by the Company and other entities sponsored directly or indirectly by ARC Capital, LLC from Fortress. Of the 196 properties, 120 properties (collectively, the "Fortress Portfolio"), excluding one property which has been removed from the contemplated purchase, will be acquired by the Company from Fortress for a purchase price of $601.2 million, subject to adjustments set forth in the purchase and sale agreement and exclusive of closing costs.

The accompanying Statements of Revenues and Certain Expenses include the operations of certain properties owned by Fortress for the year ended December 31, 2012 and the six months ended June 30, 2013. The Fortress Portfolio contains approximately 6.1 million rentable square feet and consists of 120 properties, of which 44 properties are leasehold interests only. Of the 120 properties as of June 30, 2013, 63 properties were acquired by Fortress between late 2012 and early 2013. The Historical Summary only includes the revenues and certain expenses of those properties while under the ownership of Fortress.

The Fortress Portfolio purchase is expected to close via two closings during the fourth quarter of 2013, one of which occurred on October 1, 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 120 properties in the Fortress 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 41 of the properties for a contract purchase price of $200.3 million, exclusive of closing costs, 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 acquisition 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 Fortress Portfolio is being acquired from an unaffiliated party and (b) based on due diligence of the Fortress Portfolio by the Company, management is not aware of any material factors relating to the Fortress 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 a decrease to rental income of approximately $0.2 million and $0.9 million 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 tenants 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
Goodyear Tire & Rubber       39.1%             51.2%
CVS Caremark                 25.8%             14.1%
Buffets Inc.                 18.1%             23.7%

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.

3. Future Minimum Lease Payments

At June 30, 2013, the Fortress Portfolio was 100% leased under non-cancelable operating leases with a remaining lease term of 12.9 years on a weighted-average basis. Future minimum lease payments are as follows (in thousands):
July 1, 2013 to December 31, 2013 $ 20,773

2014                                   41,618
2015                                   41,693
2016                                   41,860
2017                                   42,046
2018 and thereafter                   335,429
Total                               $ 523,419

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.

Leasehold Interests

The Portfolio includes 44 properties which are subject to renewable operating and ground lease arrangements. Pursuant to rental lease terms, tenants occupying those properties are responsible for the direct payment of the ground lease rents through the current term of the ground lease agreements.

5. Subsequent Events

The Company has evaluated subsequent events through October 7, 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 Fortress Portfolio as of June 30, 2013. This financial statement should be read in conjunction with the Unaudited Pro Forma Consolidated Statements 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 $605.4 million, comprised of $94.7 million, $443.2 million and $67.6 million provisionally assigned to land, buildings, fixtures and improvements and acquired intangible lease assets of the Fortress 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 Fortress Portfolio as of June 30, 2013, nor does it purport to present the future financial position of the Company.

The Fortress Portfolio purchase is expected to close via two closings during the fourth quarter of 2013, one of which occurred on October 1, 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 120 properties in the Fortress 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 acquired 41 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 acquisition 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 Fortress           Realty Capital
(In thousands)                                   Inc. (1)            Portfolio (2)             Properties, Inc.
                 Assets
Real estate investments, at cost:
Land                                       $       504,562        $        94,680      (3)  $        599,242
Buildings, fixtures and improvements             2,043,270                443,180      (3)         2,486,450
Acquired intangible lease assets                   318,488                 67,565      (3)           386,053
Total real estate investments, at cost           2,866,320                605,425                  3,471,745
Less: accumulated depreciation and
amortization                                      (108,765 )                    -                   (108,765 )
Total real estate investments, net               2,757,555                605,425                  3,362,980
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        $       605,425           $      3,522,210
  Liabilities and Stockholders' Equity
Mortgage notes payable                     $       269,918        $       112,258      (4)  $        382,176
Senior corporate credit facility                   600,000                499,866      (5)         1,099,866
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
Deferred rent and other liabilities                  5,274                      -                      5,274
Distributions payable                                    1                      -                          1
Total liabilities                                1,364,573                612,124                  1,976,697
. . .
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