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Section 1: 10-Q (10-Q)

ARCP 06.30.2013 10-Q SS
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to __________
Commission file number: 001-35263

AMERICAN REALTY CAPITAL PROPERTIES, INC.
(Exact name of registrant as specified in its charter) 
Maryland
 
45-2482685
(State or other  jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
405 Park Ave., 15th Floor, New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
(212) 415-6500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox

The number of outstanding shares of the registrant’s common stock on July 31, 2013 was 184,893,886 shares.








AMERICAN REALTY CAPITAL PROPERTIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FORM 10-Q
June 30, 2013

 
Page
 
 





Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN REALTY CAPITAL PROPERTIES, INC.

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

 
 
June 30, 2013
 
December 31, 2012
 
 
(Unaudited)
 

ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
504,562

 
$
249,541

Buildings, fixtures and improvements
 
2,043,270

 
1,336,726

Acquired intangible lease assets
 
318,488

 
212,223

Total real estate investments, at cost
 
2,866,320

 
1,798,490

Less: accumulated depreciation and amortization
 
(108,765
)
 
(56,110
)
Total real estate investments, net
 
2,757,555

 
1,742,380

Cash and cash equivalents
 
10,958

 
156,873

Investment in direct financing leases, net
 
67,518

 

Other investments, at fair value
 
9,920

 
41,654

Derivatives, at fair value
 
10,161

 

Restricted cash
 
1,576

 
1,108

Prepaid expenses and other assets
 
14,626

 
7,416

Deferred costs, net
 
38,443

 
15,356

Assets held for sale
 
6,028

 
665

Total assets
 
$
2,916,785

 
$
1,965,452

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable
 
$
269,918

 
$
265,118

Senior secured revolving credit facility
 

 
124,604

Senior corporate credit facility
 
600,000

 

Convertible obligation to Series C Convertible Preferred stockholders
 
445,000

 

Contingent value rights obligation to preferred and common investors, at fair value
 
31,134

 

Derivatives, at fair value
 
1,186

 
3,830

Accounts payable and accrued expenses
 
12,060

 
9,459

Deferred rent and other liabilities
 
5,274

 
4,336

Distributions payable
 
1

 
9,946

Total liabilities
 
1,364,573

 
417,293


 
 
 
 
Convertible preferred stock, $0.01 par value, 100,000,000 shares authorized, 828,472 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively
 
8

 
8

Common stock, $0.01 par value, 240,000,000 shares authorized, 184,893,886 and 179,167,112 issued and outstanding at June 30, 2013 and December 31, 2012, respectively
 
1,846

 
1,792

Additional paid-in capital
 
1,801,460

 
1,653,900

Accumulated other comprehensive income (loss)
 
8,919

 
(3,934
)
Accumulated deficit
 
(379,502
)
 
(120,072
)
Total stockholders’ equity
 
1,432,731

 
1,531,694

Non-controlling interests
 
119,481

 
16,465

Total equity
 
1,552,212

 
1,548,159

Total liabilities and equity
 
$
2,916,785

 
$
1,965,452

The accompanying notes are an integral part of these statements.

1

Table of Contents

AMERICAN REALTY CAPITAL PROPERTIES, INC.
  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for per share data)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
43,130

 
$
11,329

 
$
81,379

 
$
17,412

Operating expense reimbursements
 
1,830

 
101

 
3,652

 
258

Total revenues
 
44,960

 
11,430

 
85,031

 
17,670

Operating expenses:
 
 
 
 
 
 
 
 
Acquisition related
 
15,144

 
7,814

 
20,726

 
12,599

Merger and other transaction related
 
4,680

 
20

 
142,449

 
20

Property operating
 
2,465

 
288

 
4,869

 
580

General and administrative
 
1,125

 
502

 
2,432

 
1,027

Equity-based compensation
 
3,454

 
178

 
4,330

 
324

Depreciation and amortization
 
27,806

 
6,994

 
52,829

 
10,529

Operating fees to affiliates
 

 

 

 
212

Total operating expenses
 
54,674

 
15,796

 
227,635

 
25,291

Operating loss
 
(9,714
)
 
(4,366
)
 
(142,604
)
 
(7,621
)
Other income (expenses):
 
 
 
 
 
 
 
 
Interest expense
 
(11,238
)
 
(2,686
)
 
(17,454
)
 
(4,142
)
Unrealized loss on contingent value rights
 
(31,134
)
 

 
(31,134
)
 

Income from investment securities
 

 

 
218

 

Gain on sale of investment securities
 

 

 
451

 

Unrealized loss on derivative instruments
 
(40
)
 

 
(45
)
 

Other income (expenses)
 
91

 
62

 
126

 
67

Total other expenses, net
 
(42,321
)
 
(2,624
)
 
(47,838
)
 
(4,075
)
Loss from continuing operations
 
(52,035
)
 
(6,990
)
 
(190,442
)
 
(11,696
)
Net loss from continuing operations attributable to non-controlling interests
 
322

 
72

 
756

 
72

Net loss from continuing operations attributable to stockholders
 
(51,713
)
 
(6,918
)
 
(189,686
)
 
(11,624
)
Discontinued operations:
 
 
 
 
 
 
 
 
Net income (loss) from operations of held for sale properties
 
36

 
(84
)
 
63

 
(97
)
Gain (loss) on held for sale properties
 

 
(82
)
 
14

 
(405
)
Net income (loss) from discontinued operations
 
36

 
(166
)
 
77

 
(502
)
Net income (loss) from discontinued operations attributable to non-controlling interests
 
(2
)
 
14

 
(4
)
 
28

Net income (loss) from discontinued operations attributable to stockholders
 
34

 
(152
)
 
73

 
(474
)
Net loss
 
(51,999
)
 
(7,156
)
 
(190,365
)
 
(12,198
)
Net loss attributable to non-controlling interests
 
320

 
86

 
752

 
100

Net loss attributable to stockholders
 
$
(51,679
)
 
$
(7,070
)
 
$
(189,613
)
 
$
(12,098
)
Other comprehensive gain (loss):
 
 
 
 
 
 
 
 
Designated derivatives, fair value adjustments
 
14,017

 
(2,236
)
 
12,840

 
(2,839
)
Unrealized gain (loss) on investment securities, net
 
(80
)
 

 
13

 

Comprehensive loss
 
$
(37,742
)
 
$
(9,306
)
 
$
(176,760
)
 
$
(14,937
)
Basic and diluted net loss per share from continuing operations attributable to common stockholders
 
$
(0.32
)
 
$
(0.10
)
 
$
(1.20
)
 
$
(0.25
)
Basic and diluted net loss per share attributable to common stockholders
 
$
(0.32
)
 
$
(0.10
)
 
$
(1.20
)
 
$
(0.26
)

The accompanying notes are an integral part of these statements.

2

Table of Contents

AMERICAN REALTY CAPITAL PROPERTIES, INC.
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In thousands, except for share data)
(Unaudited)

 
 
Convertible Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Par
Value
 
Number
of Shares
 
Par
Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total Stock-holders' Equity
 
Non-Controlling Interests
 
Total Equity
Balance December 31, 2012
 
828,472

 
$
8

 
179,167,112

 
$
1,792

 
$
1,653,900

 
$
(3,934
)
 
$
(120,072
)
 
$
1,531,694

 
$
16,465

 
$
1,548,159

Issuance of common stock
 


 


 
32,035,064

 
320

 
490,264

 

 

 
490,584

 

 
490,584

Conversion of OP Units to common stock
 

 

 
599,233

 
6

 
5,794

 

 

 
5,800

 
(5,800
)
 

Common stock issued through distribution reinvestment plan
 

 

 
489,000

 
5

 
4,890

 

 

 
4,895

 

 
4,895

Common stock repurchases
 

 

 
(27,739,523
)
 
(277
)
 
(350,119
)
 

 

 
(350,396
)
 

 
(350,396
)
Offering costs, commissions and dealer manager fees
 

 

 

 

 
(3,260
)
 

 

 
(3,260
)
 

 
(3,260
)
Equity-based compensation
 

 

 
343,000

 

 

 

 

 

 
3,682

 
3,682

Amortization of restricted shares
 

 

 

 

 
3,026

 

 

 
3,026

 

 
3,026

Consideration paid for assets of Manager in excess of carryover basis
 

 

 

 

 
(3,035
)
 

 

 
(3,035
)
 

 
(3,035
)
Distributions declared
 

 

 

 

 

 

 
(69,817
)
 
(69,817
)
 

 
(69,817
)
Issuance of operating partnership units
 

 

 

 

 

 

 

 

 
108,247

 
108,247

Contributions from non-controlling interest holders
 

 

 

 

 

 

 

 

 
750

 
750

Distributions to non-controlling interest holders
 

 

 

 

 

 

 

 

 
(3,111
)
 
(3,111
)
Net loss
 

 

 

 

 

 

 
(189,613
)
 
(189,613
)
 
(752
)
 
(190,365
)
Other comprehensive income
 

 

 

 

 

 
12,853

 

 
12,853

 

 
12,853

Balance June 30, 2013
 
828,472

 
$
8

 
184,893,886

 
$
1,846

 
$
1,801,460

 
$
8,919

 
$
(379,502
)
 
$
1,432,731

 
$
119,481

 
$
1,552,212


The accompanying notes are an integral part of this statement.


3

Table of Contents

AMERICAN REALTY CAPITAL PROPERTIES, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(190,365
)
 
$
(12,198
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Issuance of operating partnership units for ARCT III Merger and other transaction related expenses
 
108,247

 

Depreciation
 
42,491

 
8,676

Amortization of intangible lease assets
 
10,511

 
1,910

Amortization of deferred costs
 
3,409

 
619

Amortization of above-market lease asset
 
126

 

Loss (gain) on held for sale properties
 
(14
)
 
405

Equity-based compensation
 
6,708

 
330

Unrealized loss on derivative instruments
 
45

 

Unrealized loss on contingent value rights obligations
 
31,134

 

Gain on sale of investments

 
(451
)
 

Changes in assets and liabilities:
 
 
 
 
Prepaid expenses and other assets
 
(6,754
)
 
(1,819
)
Accounts payable and accrued expenses
 
(351
)
 
1,721

Deferred rent and other liabilities
 
938

 
814

Net cash provided by operating activities
 
5,674

 
458

Cash flows from investing activities:
 
 
 
 
Investments in real estate and other assets
 
(1,073,050
)
 
(512,024
)
Investment in direct financing leases
 
(67,518
)
 

Capital expenditures
 
(30
)
 

Investments in other assets
 
(1,041
)
 

Deposits for real estate investments
 
(665
)
 
(600
)
Payments for purchases of other investments
 
(12,000
)
 

Proceeds from sale of investment securities
 
44,188

 

Net cash used in investing activities
 
(1,110,116
)
 
(512,624
)
Cash flows from financing activities:
 
 
 
 
Proceeds from mortgage notes payable
 
4,800

 
139,400

Proceeds from senior secured revolving credit facility
 

 
32,593

Payments on senior secured revolving credit facility
 
(124,604
)
 
(107
)
Proceeds from senior corporate credit facility
 
825,000

 

Payments on senior corporate credit facility
 
(225,000
)
 

Payments of deferred financing costs
 
(25,318
)
 
(9,334
)
Advance from affiliate bridge loan
 

 
796

Payment of affiliate bridge loan
 

 
(796
)
Common stock repurchases
 
(350,396
)
 
(116
)
Proceeds from issuances of preferred shares
 

 
6,000

Proceeds from issuance of convertible obligations to Series C Convertible Preferred stockholders
 
445,000

 

Proceeds from issuances of common stock
 
490,584

 
825,246

Payments of offering costs and fees related to stock issuances
 
(808
)
 
(96,209
)
Consideration paid for assets of Manager in excess of carryover basis
 
(3,035
)
 

Contributions from non-controlling interest holders
 
750

 

Distributions to non-controlling interest holders
 
(3,111
)
 
(179
)
Distributions paid
 
(74,867
)
 
(8,343
)
Advances from affiliates, net
 

 
(708
)
Premium payment on interest rate cap
 

 
(13
)
Restricted cash
 
(468
)
 
(1,547
)
Net cash provided by financing activities
 
958,527

 
886,683

Net change in cash and cash equivalents
 
(145,915
)
 
374,517

Cash and cash equivalents, beginning of period
 
156,873

 
19,331

Cash and cash equivalents, end of period
 
$
10,958

 
$
393,848

Supplemental Disclosures:
 
 
 
 
Cash paid for interest
 
$
10,995

 
$
2,895

Cash paid for income taxes
 
354

 
59

Non-cash investing and financing activities:
 
 
 
 
OP units issued to acquire real estate investment
 

 
6,352

Common stock issued through distribution reinvestment plan
 
4,895

 
4,257

Reclassification of deferred offering costs
 

 
5,875

The accompanying notes are an integral part of these statements.

4

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


Note 1—  Organization
American Realty Capital Properties, Inc. (the “Company”), is a Maryland corporation incorporated on December 2, 2010 that qualified as a real estate investment trust for U.S. federal income tax purposes beginning in the taxable year ended December 31, 2011. On September 6, 2011, the Company completed its initial public offering (the “IPO”) and its shares of common stock began trading on the NASDAQ Capital Market under the symbol “ARCP” on September 7, 2011. On February 28, 2013, the Company's common stock was transferred to the NASDAQ Global Select Market (“NASDAQ”) in connection with the closing of the Company's acquisition of ARCT III (as defined below).
The Company acquires, owns and operates single-tenant, freestanding commercial real estate properties. The Company has acquired a combination of long-term and medium-term leases and intends to continue to acquire properties with approximately 70% long-term leases and 30% medium-term leases, with an average portfolio remaining lease term of approximately 10 to 12 years. The Company considers properties that are leased on a “medium-term” basis to mean properties originally leased long-term (ten years or longer) that currently have a primary remaining lease duration of generally three to eight years, on average. The Company expects this investment strategy to develop growth potential from below market leases. Additionally, the Company owns a portfolio that uniquely combines properties with stable income from high credit quality tenants, and properties that have substantial future growth potential.
The Company advanced its investment objectives by growing its net lease portfolio through key mergers and acquisitions. On February 28, 2013, the Company merged with American Realty Capital Trust III, Inc., a Maryland Corporation (“ARCT III”). On May 28, 2013, the Company entered into an agreement and plan of merger with CapLease, Inc. (NYSE: LSE). On June 27, 2013, the Company closed the acquisition of 447 properties from certain affiliates of GE Capital Corp. Additionally, on July 1, 2013, the Company entered into an agreement and plan of merger with American Reality Capital Trust IV, Inc. See Note 2 — Mergers and Acquisitions.
Substantially all of the Company's business is conducted through ARC Properties Operating Partnership, L.P., a Delaware limited partnership (the “OP”). The Company is the sole general partner and holder of 95.3% of the equity interest in the OP as of June 30, 2013. Certain affiliates of the Company and certain unaffiliated investors are limited partners and owners of 4.3% and 0.4%, respectively, of the equity interest in the OP. After holding units of limited partner interests in the OP (“OP Units”) for a period of one year, holders of OP Units have the right to convert OP Units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, as allowed by the limited partnership agreement of the OP. The remaining rights of the holders of OP Units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP’s assets.
The Company has retained ARC Properties Advisors, LLC (the “Manager”), a wholly owned subsidiary of AR Capital, LLC, (the “Sponsor”), to manage its affairs on a day to day basis and, as a result, is generally externally managed. Prior to the ARCT III Merger (as defined below), the Company had no employees. In connection with the ARCT III Merger, the Company internalized certain functions performed for it by the Sponsor and its affiliates prior to the ARCT III Merger, including selected acquisition, accounting and portfolio management services and, as a result, the Company currently employs eight individuals performing such functions. ARCT III was previously externally managed by American Realty Capital Advisors III, LLC (the “ARCT III Advisor”). These affiliated parties, including the Manager, RCS Advisory Services, LLC, ARC Advisory Services, LLC, American National Stock Transfer, LLC, RCS Capital, the investment income and capital markets division of Realty Capital Securities, LLC, and Realty Capital Securities, LLC, in its capacity as dealer manager (“RCS” or the “Dealer Manager”), entities which are under common ownership with the Sponsor, have performed services for the Company and ARCT III, in exchange for which they have received compensation, fees and expense reimbursements, and will continue to receive compensation, fees and expense reimbursements for providing on-going investment oversight and management services to the Company.

5

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Note 2 — Mergers and Acquisitions
Completed Mergers and Significant Acquisitions
American Realty Capital Trust III Merger
On December 14, 2012, the Company entered into an Agreement and Plan of Merger (the “ARCT III Merger Agreement”) with ARCT III and certain subsidiaries of each company. The ARCT III Merger Agreement provided for the merger of ARCT III with and into a subsidiary of the Company (the “ARCT III Merger”). The ARCT III Merger was consummated on February 28, 2013.
Pursuant to the terms and subject to the conditions set forth in the ARCT III Merger Agreement, each outstanding share of common stock of ARCT III was converted into the right to receive (i) 0.95 of a share of the Company's common stock, (the “ARCT III Exchange Ratio”) or (ii) $12.00 in cash. In addition, each outstanding unit of equity ownership of the ARCT III OP was converted into the right to receive 0.95 of the same class of unit of equity ownership in the OP.
Upon the closing of the ARCT III Merger, on February 28, 2013, 29.2 million shares, or 16.5% of the then outstanding shares of ARCT III's common stock, were paid in cash at $12.00 per share, which is equivalent to 27.7 million shares of the Company's common stock based on the ARCT III Exchange Ratio. In addition, 148.1 million shares of ARCT III's common stock were converted to shares of the Company's common stock at the Exchange Ratio, resulting in an additional 140.7 million shares of the Company's common stock outstanding after the exchange.
Upon the consummation of the ARCT III Merger, American Realty Capital III Special Limited Partnership, LLC, the holder of the special limited partner interest in the ARCT III OP, was entitled to subordinated distributions of net sales proceeds from ARCT III OP which resulted in the issuance of units of limited partner interests in the ARCT III OP, when after applying the ARCT III Exchange Ratio, resulting in the issuance of an additional 7.3 million OP Units. The parties have agreed that such OP Units will be subject to a minimum one-year holding period from the date of issuance before being exchangeable into the Company's common stock.
Upon consummation of the ARCT III Merger, the vesting of the shares of the Company's and ARCT III's outstanding restricted stock was accelerated.
In connection with the ARCT III Merger, the Company also had entered into an agreement with the Sponsor and its affiliates to internalize certain functions performed by them prior to the ARCT III Merger, at no cost to the Company, including selected acquisition, accounting and portfolio management services (the “Internalization”). In connection with the Internalization, (i) the Company and its Sponsor terminated the acquisition and capital services agreement dated September 6, 2011, between the parties, which eliminated acquisition and financing fees payable by the Company and (ii) the Manager reduced asset management fees from an annualized 0.50% of the unadjusted book value of all of the Company's assets to (a) 0.50% for up to $3.0 billion of unadjusted book value of assets and (b) 0.40% of unadjusted book value of assets greater than $3.0 billion. In addition, the Company paid $4.1 million for certain furniture, fixtures, equipment, and $1.7 million for certain costs associated with the ARCT III Merger. The Company, the Sponsor and their affiliates are considered entities under common control, as such, the assets acquired from the Advisor were recorded by the Company at their carryover basis of $1.0 million.
Accounting Treatment of the ARCT III Merger
The Company and ARCT III, to the ARCT III Merger date, were considered to be entities under common control. Both entities' advisors were wholly owned subsidiaries of the Sponsor. The Sponsor and its related parties have significant ownership interests in the Company and had significant ownership of ARCT III through the ownership of shares of common stock and other equity interests. In addition, the advisors of both entities were contractually eligible to charge potential fees for their services to both of the companies including asset management fees, incentive fees and other fees and continue to charge fees to the Company. Due to the significance of these fees, the advisors and ultimately the Sponsor is determined to have a significant economic interest in both companies in addition to having the power to direct the activities of the companies through advisory/management agreements, which qualifies them as affiliated companies under common control in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT III Merger date. In addition, U.S. GAAP requires the Company to present historical financial information as if the entities were combined for each period presented, therefore all financial statements including the notes thereto are presented combining ARCP and ARCT III historical financial information.

6

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Credit Facility
The Company and the OP are parties to a credit agreement, dated February 14, 2013, for a senior corporate credit facility (as amended, supplemented or otherwise modified from time to time, the (“Credit Facility”) with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto. The Company and the OP succeeded to the Credit Facility upon the consummation of the ARCT III Merger.
Additionally, upon consummation of the ARCT III Merger, two senior secured revolving credit facilities of up to $150.0 million in the aggregate were paid in full and terminated.
See Note 5 — Credit Facility for further description of the Credit Facility and repayments and terminations of facilities upon the consummation of the ARCT III Merger.
GE Capital Portfolio Acquisition
On June 27, 2013, the Company, through its OP, acquired from certain affiliates of GE Capital Corp., the equity interests in the entities that own a real estate portfolio comprised of 447 properties, which include three other revenue generating assets (the “GE Capital Portfolio”) for consideration of $774.0 million exclusive of closing costs; no liabilities were assumed. The 447 properties are subject to 400 property operating leases, which will be accounted for on the straight-line rent basis of accounting, and 47 direct financing leases, which are accounted for as a receivable at a discount to the remaining lease payments and estimated residual values of the related properties. Income on the direct financing leases are recorded using the effective interest method. In addition, the Company has recorded the fair value of the expected residual value of the property for property under direct financing leases, which will be periodically reevaluated.
Pending Mergers
CapLease, Inc. Merger
On May 28, 2013, the Company entered into an Agreement and Plan of Merger (the “CapLease Merger Agreement”) with CapLease, Inc., a Maryland corporation (“CapLease”), and certain subsidiaries of each company. The CapLease Merger Agreement provides for the merger of CapLease with and into a subsidiary of the Company (the “CapLease Merger”).
Pursuant to the terms and subject to the conditions set forth in the CapLease Merger Agreement, at the effective time of the CapLease Merger, each outstanding share of common stock of CapLease, other than shares owned by the Company, CapLease or any of their respective wholly owned subsidiaries, will be converted into the right to receive $8.50 in cash without interest. Each outstanding share of preferred stock of CapLease, other than shares owned by the Company, CapLease or any of their respective wholly owned subsidiaries, will be converted into the right to receive an amount in cash, without interest, equal to the sum of $25.00 plus all accrued and unpaid dividends on such shares of preferred stock. In addition, in connection with the merger of CapLease, LP with and into the OP (the “CapLease Partnership Merger”), each outstanding unit of equity ownership of the CapLease's operating partnership other than units owned by CapLease or any wholly owned subsidiary of CapLease will be converted into the right to receive $8.50 in cash, without interest. 
Upon consummation of the CapLease Merger, the vesting of the shares of the CapLease's outstanding restricted stock will be accelerated and become fully vested, and restricted stock and any outstanding performance shares will be fully earned and have the right to receive $8.50 per share.
The CapLease Merger is expected to close in the third or fourth quarter of 2013. However, as of the filing of this Quarterly Report on Form 10-Q, the consummation of the CapLease Merger has not yet occurred and, although the Company believes that the completion of the CapLease Merger is probable, the closing of the CapLease Merger is subject to a vote by the CapLease common stockholders and other customary conditions, and therefore there can be no assurance that the CapLease Merger will be consummated. Accordingly, the Company cannot assure that the CapLease Merger will be completed based on the terms of the CapLease Merger Agreement or at all.
American Realty Capital Trust IV Merger
On July 1, 2013, the Company entered into an Agreement and Plan of Merger (the “ARCT IV Merger Agreement”) with American Realty Capital Trust IV, Inc., a Maryland corporation (“ARCT IV”), and certain subsidiaries of each company. The ARCT IV Merger Agreement provides for the merger of ARCT IV with and into a subsidiary of the Company (the “ARCT IV Merger”).

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Pursuant to the terms and subject to the conditions set forth in the ARCT IV Merger Agreement, at the effective time of the ARCT IV Merger, each outstanding share of common stock of ARCT IV will be converted into the right to receive (i) $30.00 in cash, but in no event will the aggregate consideration paid in cash be paid on more than 25% of the shares of ARCT IV's common stock issued and outstanding as of immediately prior to the closing of the ARCT IV Merger or, in the Company’s discretion, (ii) either (A) a number of shares of the Company common stock equal to the ARCT IV Exchange Ratio (as defined below) or (B) only if the Market Price (as defined below) is less than $14.94, 2.05 shares of the Company common stock and an amount in cash equal to the product obtained by multiplying the excess of the ARCT IV Exchange Ratio over 2.05 by the Market Price. “ARCT IV Exchange Ratio” means (1) if the volume weighted average closing sale price of a share of the Company common stock over the five (5) consecutive trading days on the NASDAQ Global Select Market ending on the trading day immediately prior to the closing date of the ARCT IV Merger, as reported in The Wall Street Journal (the “Market Price”), is equal to or greater than $14.94, then 2.05, and (2) if the Market Price is less than $14.94, then the quotient (rounded to the nearest one-hundredth) obtained by dividing $30.62 by the Market Price. If the aggregate elections for payment in cash exceed 25% of the number of shares of ARCT IV's common stock issued and outstanding as of immediately prior to the closing of the ARCT IV Merger, then the amount of cash consideration paid on cash elections will be reduced on a pro rata basis with the remaining consideration paid in Company common stock and cash, if applicable. In addition, each outstanding unit of equity ownership of the ARCT IV will be converted into the right to receive a number of OP Units equal to the ARCT IV Exchange Ratio. In addition, on the date of the ARCT IV Merger, all outstanding restricted common stock of ARCT IV date will become fully vested and exchanged for shares of Company common stock based on the ARCT IV Exchange Ratio.
In connection with the ARCT IV Merger, ARCT IV's external advisor has agreed to waive a portion of the real estate commissions contractually due to it from the Company upon the sale of properties in an amount equal to the lesser of (i) 2.0% of the sales price of the properties and (ii) one-half of the competitive real estate commissions if a third party broker is also involved. ARCT IV's external advisor and ARCT IV agreed that ARCT IV's external advisor will be entitled to a reduced real estate commission of $8.4 million.
The Company has also entered into an agreement to purchase certain assets from ARCT IV's external advisor and reimburse ARCT IV's external advisor for certain expenses related to the ARCT IV Merger totaling $5.8 million.
ARCT IV's external advisor will be entitled to subordinated distributions of net sales proceeds in an amount estimated to be approximately $65.2 million, assuming an implied price of ARCT IV's common stock of $30.47 per share in the ARCT IV Merger (which assumes that 75% of the ARCT IV's common stock is exchanged for shares of ARCP common stock, based on a per share price of $30.62 (representing the floor for stock consideration) and 25% of the ARCT IV's common stock is exchanged for cash). Such subordinated distributions of net sales proceeds will be payable in the form of equity units of ARCT IV that will automatically convert into OP Units upon consummation of the ARCT IV Merger and will be subject to a minimum one-year holding period from the date of issuance before being exchangeable into Company common stock. The actual amount of consideration to be paid for subordinated distributions of net sales proceeds will be based, in part, on the market price of Company common stock on the date of the ARCT IV Merger and will not be known until the ARCT IV Merger Agreement date.
Accounting Treatment for the ARCT IV Merger
The Company and ARCT IV are considered to be entities under common control. Both entities' advisors are wholly owned subsidiaries of the Sponsor. The Sponsor and its related parties have ownership interests in the Company and ARCT IV through the ownership of shares of common stock and other equity interests. In addition, the advisors of both entities are contractually eligible to charge potential fees for their services to both of the companies including asset management fees, incentive fees and other fees and will continue to charge fees to the Company following the ARCT IV Merger. Due to the significance of these fees, the advisors and ultimately the Sponsor is determined to have a significant economic interest in both companies in addition to having the power to direct the activities of the companies through advisory/management agreements, which qualifies them as affiliated companies under common control in accordance with U.S. GAAP. The acquisition of an entity under common control is accounted for on the carryover basis of accounting whereby the assets and liabilities of the companies are recorded upon the merger on the same basis as they were carried by the companies on the ARCT IV Merger date. In addition, U.S. GAAP requires the Company to present historical financial information as if the entities were combined for each period presented once the ARCT IV Merger is consummated.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

The ARCT IV Merger is expected to close in the third or fourth quarter of 2013. However, as of the filing of this Quarterly Report on Form 10-Q, the consummation of the ARCT IV Merger has not yet occurred and, although the Company believes that the completion of the ARCT IV Merger is probable, the closing of the ARCT IV Merger is subject to a vote by the common stockholders of both ARCT IV and the Company and other customary conditions, and therefore there can be no assurance that the ARCT IV Merger will be consummated. Accordingly, the Company cannot assure that the ARCT IV Merger will be completed based on the terms of the ARCT IV Merger or at all.
Note 3 — Summary of Significant Accounting Policies
The consolidated financial statements of the Company included herein were prepared in conformity with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results for the entire year or any subsequent interim period.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2012 of the Company, which are included on Form 8-K/A filed with the Securities and Exchange Commission (“SEC”) on May 8, 2013. There have been no significant changes to these policies during the six months ended June 30, 2013, other than the updates described below.
Reclassification
Certain reclassifications have been made to the previously issued historical financial statements of the Company to conform to this presentation.
Investment in Direct Financing Leases
The Company has acquired certain properties that are subject to leases that qualify as direct financing leases in accordance with U.S. GAAP due to the significance of the lease payments from the inception of the leases compared to the fair value of the property. Investments in direct financing leases represent the fair value of the remaining lease payments on the leases and the estimated fair value of any expected residual property value at the end of the lease term. The fair value of the remaining lease payments is estimated using a discounted cash flow based on interest rates that would represent the Company's incremental borrowing rate for similar types of debt. The expected residual property value at the end of the lease term is estimated using market data and assessments of the remaining useful lives of the properties at the end of the lease terms, among other factors. Income from direct financing leases is calculated using the effective interest method over the remaining term of the lease.
Convertible Obligation to Series C Convertible Preferred Stockholders
On June 7, 2013, the Company issued 28.4 million shares of Series C Convertible Preferred Stock (the “Series C Convertible Preferred Stock”) for gross proceeds of $445.0 million. Due to an unconditional obligation to either redeem or convert the Series C Convertible Preferred Stock into a variable number of shares of common stock predominantly based on a fixed monetary amount, the preferred securities are classified as an obligation under U.S. GAAP and are presented on the consolidated balance sheet as a liability. In addition, without the approval of the holders of the Company's common stock and Series C Convertible Preferred Stock, to amend the Company's articles supplementary designating the Series C Convertible Preferred Stock (the “Series C Articles Supplementary”) and to permit the issuance of additional shares of common stock, the sum of the number of shares issued pursuant to the June 7, 2013 private placement of common stock and the conversion of Series C Convertible Preferred Stock may not exceed 19.9% of the number of shares of Company common stock outstanding immediately prior to the closing of the June 7, 2013 private placement. As a result the Company is limited, after consideration of the previously issued 29.4 million shares of common stock in the June 7, 2013 private placement, to the issuance of an additional 3.3 million shares of its common stock, with the balance of the Series C Convertible Preferred Stock to be cancelled in exchange for cash in lieu of such common stock in an amount equal to the greater of the product of such number of excess shares into which the shares of Series C Convertible Preferred Stock would have been convertible and (i) 102% of the liquidation preference, which is $15.67, as may be adjusted from time to time (the “Conversion Price”), and (ii) the Conversion Price valued at the one-day volume-weighted average trading price (“VWAP”) of the common stock on the applicable date. Therefore upon conversion, absent a shareholder vote permitting the issuance of common stock for the conversion, a portion of the shares can be converted to common stock and the remaining shares will be cancelled for cash at a premium as specified in the Series C Articles Supplementary. The preferred shares liability is recorded at fair value at June 30, 2013, which is considered to approximate the gross proceeds received. The preferred shares liability will be carried at fair value and adjusted on a quarterly basis.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Contingent Valuation Rights
In connection with the private placement transactions described above, on June 7, 2013, the Company issued to the common stock investors 29.4 million contingent value rights (“Common Stock CVR's”), and to the Series C Convertible Preferred Stock investors 28.4 million contingent value rights (“Preferred Stock CVR's”), which may entitle the holders of Common Stock CVR's to a cash payment of up to $1.50, equal to the difference of the $15.47 purchase price and the CVR Period VWAP, per Common Stock CVR and the holders of Preferred Stock CVR's to a cash payment of up to $2.00, equal to the difference between the Conversion Price of $15.67 and the CVR Period VWAP, per Preferred Stock CVR in the future depending on the future performance of the Company's common stock, subject to certain limits. Payments to the common and Series C Convertible Preferred contingent value rights holders will be based on a comparison of the issuance price of each class of security to the VWAP of the Company's common stock for 30 trading days beginning on thirtieth trading day after the issuance of the common stock on June 7, 2013 for the common stockholder, and for the Series C Convertible Preferred stockholders, the payment will be based on the VWAP of the Company's common stock for 30 trading days beginning on ninetieth trading day after the earliest to occur of: (i) the closing of the CapLease Merger; (ii) the trading day after (a) the date of an announcement that CapLease, Inc. has accepted a competing offer (which did not occur) or (b) the CapLease Merger is otherwise terminated; and (iii) December 31, 2013. Depending on the VWAP during the respective measurement periods described above, the amount to be paid out for the contingent value rights, if any, will not be known until the end of the measurement periods. The Company has recorded a liability for its obligations to settle the contingent value rights, at fair value. The Company has estimated the fair value of the contingent value rights at June 30, 2013, using the input of third-party valuation specialists and management's own judgment, based primarily on the volatility of the Company's historical stock prices, the effect of certain economic scenarios and the Company's stock price as of June 30, 2013. Changes in the fair value of the contingent valuation rights are recorded in the consolidated statement of operations and comprehensive loss as an unrealized gain or loss in the period incurred.
Contingent Rental Income
The Company owns certain properties that have associated leases that require the tenant to pay contingent rental income based on a percentage of the tenant's sales after the achievement of certain sales thresholds, which may be monthly, quarterly or annual targets. As a lessor, the Company defers the recognition of contingent rental income until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known.
Non-Controlling Interests
As described in Note 1— Organization, certain affiliates and non-affiliated third parties have been issued OP Units. Holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interest is reflected as an addition to equity on the consolidated balance sheet. In addition, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentage. Furthermore, upon conversion of OP Units to common stock, any gain or loss attributable to the OP Unit Holders is recorded as a component of equity.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance regarding disclosures about offsetting assets and liabilities, which requires entities to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented. The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Refer to Note 9 — Derivatives and Hedging Activities for the Company's disclosure of information about offsetting and related arrangements.
In July 2012, the FASB issued revised guidance intended to simplify how an entity tests indefinite-lived intangible assets for impairment. The amendments will allow an entity first to assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. An entity will no longer be required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative test unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

In February 2013, the FASB issued guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance is effective for annual and interim periods beginning after December 15, 2012 with early adoption permitted. The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Refer to Note 9 — Derivatives and Hedging Activities for the Company's disclosure of the information about the amounts reclassified out of accumulated other comprehensive income by component.
In February 2013, the FASB issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Note 4 — Real Estate Investments
The following table presents the allocation of the assets acquired during the periods presented (dollar amounts in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013(1)
 
2012
 
2013(1)
 
2012
Real estate investments, at cost:
 
 
 
 
 
 
 
 
Land
 
$
206,282

 
$
57,161

 
$
256,463

 
$
84,268

Buildings, fixtures and improvements
 
521,765

 
219,869

 
709,374

 
372,933

Total tangible assets
 
728,047

 
277,030

 
965,837

 
457,201

Acquired intangibles:
 
 
 
 
 
 
 
 
In-place leases
 
76,986

 
36,927

 
107,213

 
61,175

Total assets acquired, net
 
805,033

 
313,957

 
1,073,050

 
518,376

OP Units issued to acquire real estate investments
 

 
(6,352
)
 

 
(6,352
)
Cash paid for acquired real estate investments
 
$
805,033

 
$
307,605

 
$
1,073,050

 
$
512,024

Number of properties acquired
 
433

 
116

 
481

 
170

_______________________________________________
(1) Excludes 47 properties comprised of $67.5 million of net investments subject to direct financing leases.
Land, buildings, fixtures and improvements, in-place lease intangibles and investments in direct financing leases include $774.0 million, comprised of $193.1 million, $450.5 million, $62.9 million and $67.5 million, respectively, provisionally assigned to each class of asset, pending receipt of the final appraisals and other information being prepared by a third-party specialist. 
During the three months ended June 30, 2013, the Company classified a Shaw's Supermarket in Plymouth, MA, as a held for sale property. As of June 30, 2013, the Company owned two properties which were classified as held for sale, including one vacant property.
The following table presents unaudited pro forma information as if the acquisitions during the three and six months ended June 30, 2013 had been consummated on January 1, 2012. Additionally, the unaudited pro forma net loss attributable to stockholders was adjusted to exclude acquisition related expenses of $15.1 million and $7.8 million for the three months ended June 30, 2013 and 2012, respectively, and merger and other transaction expenses of $4.7 million for the three months ended June 30, 2013. The unaudited pro forma net loss attributable to stockholders was adjusted to exclude acquisition related expenses of $20.7 million and $12.6 million for the six months ended June 30, 2013 and 2012, respectively, and merger and other transaction expenses of $142.4 million for the six months ended June 30, 2013.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Amounts in thousands)
 
2013
 
2012
 
2013
 
2012
Pro forma revenues
 
$
56,941

 
$
27,019

 
$
113,882

 
$
59,136

Pro forma net loss attributable to stockholders
 
$
(30,458
)
 
$
(2,393
)
 
$
(18,929
)
 
$
(2,782
)

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Future Lease Payments
The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items (amounts in thousands):
 
 
Future Minimum
Base Rent Payments
 
Future Minimum
Direct Financing Lease Payments(1)
July 1, 2013 - December 31, 2013
 
$
106,624

 
$
2,508

2014
 
210,551

 
5,105

2015
 
207,318

 
5,019

2016
 
202,300

 
4,971

2017
 
192,725

 
4,603

Thereafter
 
1,262,001

 
15,241

Total
 
$
2,181,519

 
$
37,447

_______________________________________________
(1) 47 properties are subject to direct financing leases and, therefore, for accounting purposes, revenue is recognized as direct financing lease income on the discounted cash flows of the lease payments. Amounts reflected are the cash rent on these respective properties.
Net Investment in Direct Financing Leases
The components of the Company's net investment in direct financing leases are as follows (in thousands):
 
 
June 30, 2013
Future minimum lease payments receivable
 
$
37,447

Unguaranteed residual value of property
 
48,751

Unearned income
 
(18,680
)
Net investment in direct financing leases
 
$
67,518

Tenant Concentration
The following table lists the tenants of the Company whose annualized rental income on a straight-line basis represented greater than 10% of consolidated annualized rental income on a straight-line basis as of June 30, 2013 and 2012. Annualized rental income for net leases is rental income on a straight-line basis as of June 30, 2013, which includes the effect of tenant concessions such as free rent, as applicable.
 
 
June 30,
Tenant
 
2013
 
2012
FedEx
 
*
 
19.9%
Citizens Bank
 
*
 
14.8%
Dollar General
 
*
 
14.4%
Walgreens
 
*
 
10.4%
_______________________________________________
* The tenants' annualized rental income was not greater than 10% of total consolidated annualized rental income for all portfolio properties as of the period specified.
No other tenant represents more than 10% of total consolidated annualized rental income for the periods presented.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Geographic Concentration
The following table lists the states where the Company has concentrations of properties where annual rental income for properties in that state, on a straight-line basis represented greater than 10% of consolidated annualized rental income on a straight-line basis as of June 30, 2013 and 2012:
 
 
June 30,
State
 
2013
 
2012
Missouri
 
*
 
10.7%
New York
 
*
 
10.5%
_______________________________________________
* The annualized rental income from the state was not greater than 10% of total consolidated annualized rental income for all portfolio properties as of the period specified.
Note 5 — Credit Facility
Credit Facility
The Company and the OP are parties to the Credit Facility with Wells Fargo, National Association, as administrative agent and other lenders party thereto. The Company and the OP succeeded to the Credit Facility upon the consummation of the ARCT III Merger.
At June 30, 2013, the Credit Facility has commitments of $1.45 billion. The Credit Facility has an accordion feature, which, if exercised in full, would allow the Company to increase borrowings under the Credit Facility to $2.5 billion, subject to additional lender commitments and borrowing base availability.
At June 30, 2013, the Credit Facility contains an $810.0 million term loan facility and a $640.0 million revolving credit facility. Loans under the Credit Facility are priced at the applicable rate (at the Company's election, either a floating interest rate based on one month LIBOR, determined on a daily basis) plus 1.60% to 2.20%, or a prime-based interest rate, based upon the Company’s current leverage. To the extent that the Company receives an investment grade credit rating as determined by a major credit rating agency, at the Company's election, advances under the Credit Facility will be priced at their applicable rate plus 0.90% to 1.75% and term loans will be priced at a floating interest rate of LIBOR plus 1.15% to 2.00%, based upon the Company’s then current investment grade credit rating. The Company may also make fixed rate borrowings under the Credit Facility.
As of August 6, 2013, additional commitments from lenders increased available borrowing under the Credit Facility to $1.7 billion, comprised of a $940.0 million term loan facility and a $760.0 million revolving credit facility.
The Credit Facility provides for monthly interest payments. In the event of a default, each lender has the right to terminate its obligations under the Credit Facility, and to accelerate the payment on any unpaid principal amount of all outstanding loans. The Company has guaranteed the obligations under the Credit Facility. The revolving credit facility will terminate on February 14, 2017, unless extended, to which the term loan facility will terminate on February 14, 2018. The Company may prepay borrowings under the Credit Facility and, to the extent that borrowings are unused under the revolving credit facility and the term loan facility, the Company incurs an unused fee of 0.15% to 0.25% per annum on the unused amount depending on the unused balance as a percentage of the total facility and the type of funding. The Credit Facility also requires the Company to maintain certain property available for collateral as a condition to funding.
As of June 30, 2013, there was $600.0 million outstanding on the Credit Facility, of which $85.0 million bore a floating interest rate of 1.95%, and $515.0 million was fixed at 2.80% through the use of derivative instruments, which are used to hedge against interest rate volatility. At June 30, 2013, there was up to $1.9 billion available to the Company for future borrowings, subject to borrowing availability.
The Credit Facility requires the maintenance of financial covenants, as well as restrictions on corporate guarantees, the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. At June 30, 2013, the Company was in compliance with the debt covenants under the Credit Facility.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Repayment of Previous Credit Facilities
On February 28, 2013, the Company repaid all of the outstanding borrowings under its previous senior secured revolving credit facility in the amount of $124.6 million, and the credit agreement for such facility was terminated. The average interest rate on the borrowings during the period the balance was outstanding was 3.11%. On February 14, 2013, simultaneous with entering into the Credit Facility, the Company terminated its secured credit facility agreement, which had been unused.
Note 6 — Mortgage Notes Payable
The Company’s mortgage notes payable consist of the following as of June 30, 2013 and December 31, 2012 (dollar amounts in thousands):
 
 
Encumbered Properties
 
Outstanding Loan Amount
 
Weighted Average
Effective Interest Rate (1)
 
Weighted Average Maturity (2)
June 30, 2013
 
165

 
$
269,918

 
4.25
%
 
4.99
December 31, 2012
 
164

 
$
265,118

 
4.28
%
 
5.51
_______________________________________________
(1)
Mortgage notes payable have fixed rates or are fixed by way of interest rate swap arrangements. Effective interest rates range from 2.73% to 6.13% at June 30, 2013 and 3.32% to 6.13% at December 31, 2012.
(2)
Weighted average remaining years until maturity as of June 30, 2013 and December 31, 2012, respectively.
The following table summarizes the scheduled aggregate principal repayments subsequent to June 30, 2013 (amounts in thousands):
Year
 
Total
July 1, 2013 - December 31, 2013
 
$
74

2014
 
189

2015
 
13,767

2016
 
16,820

2017
 
169,768

Thereafter
 
69,300

Total
 
$
269,918

The Company’s mortgage loan agreements generally require the maintenance of financial covenants, as well as restrictions on corporate guarantees, and the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). As of June 30, 2013, the Company was in compliance with the debt covenants under the mortgage loan agreements.
Note 7 — Other Investments
The following table details the unrealized gains and losses on investment securities as of June 30, 2013 and December 31, 2012 (amounts in thousands):
 
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Investments in real estate fund as of June 30, 2013
 
$
10,000

 
$

 
$
(80
)
 
$
9,920

Preferred securities as of December 31, 2012
 
$
41,747

 
$
223

 
$
(316
)
 
$
41,654

At June 30, 2013, the Company had investments in a real estate fund, which was invested primarily in equity securities of other publicly traded REITS.
At December 31, 2012, the Company had investments in redeemable preferred stock and senior notes, accounted for as debt securities, with a fair value of $41.7 million. These investment securities were sold during the six months ended June 30, 2013, resulting in a gain on sale of investments of $0.5 million.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Investments are considered available-for-sale securities and therefore increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income as a component of equity on the consolidated balance sheets unless the securities are considered to be permanently impaired at which time the losses are reclassified to expense.
Note 8 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The guidance defines three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The Company’s interest rate cap derivative measured at fair value on a recurring basis as of June 30, 2013 was zero and was classified in Level 2 of the fair value hierarchy.
The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments, are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties.
The Company's investments in funds and preferred units trade in active markets or are comprised of securities that trade in active markets and therefore, due to the availability of quoted market prices in active markets are classified these investments as Level 2 in the fair value hierarchy.

15

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

The following table presents information about the Company’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, aggregated by the level in the fair value hierarchy within which those instruments fall (amounts in thousands):


Quoted Prices
in Active
Markets
Level 1

Significant Other
Observable
Inputs
Level 2

Significant
Unobservable
Inputs
Level 3

Total
June 30, 2013:








Fund investments

$


$
9,920


$


$
9,920

Interest rate swap assets



10,161




10,161

Interest rate swap liabilities



(1,186
)



(1,186
)
Convertible obligation to Series C Convertible Preferred stockholders





(445,000
)

(445,000
)
Contingent value rights obligation to preferred and common investors





(31,134
)

(31,134
)









December 31, 2012:








Preferred securities

$
41,654


$


$


$
41,654

Interest rate swaps



(3,830
)



(3,830
)
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between Level 1 and Level 2 or Level 3 of the fair value hierarchy during the six months ended June 30, 2013.
The following is a reconciliation of the beginning and ending balance for the changes in instruments with level 3 inputs in the fair value hierarchy for the three and six months ended June 30, 2013:
 
 
Contingent value rights obligation to preferred and common investors
 
Convertible obligation to Series C Convertible Preferred stockholders
 
Total
Beginning balance
 
$

 
$

 
$

Fair value at issuance
 

 
(445,000
)
 
(445,000
)
Fair value adjustment
 
(31,134
)
 

 
(31,134
)
Ending balance
 
$
(31,134
)
 
$
(445,000
)
 
$
(476,134
)
The fair value of the contingent value rights obligations were estimated by a third party using a Monte Carlo simulation technique to estimate the future value of the Company's common stock price based partially upon observable inputs such as historical volatility and risk free interest rates. The fair value of the convertible obligation to the Series C Convertible Preferred stockholders was based primarily upon the results of the valuation of the contingent value rights estimate of the future value of the Company's common stock and managements intention of obtaining a shareholder vote permitting the conversion of the Series C Convertible Preferred Stock to shares of common stock.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying consolidated balance sheets due to their short-term nature.

16

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

The fair values of the Company’s financial instruments that are not reported at fair value on the consolidated balance sheets are reported below (amounts in thousands):
 
 
 
 
Carrying Amount at
 
Fair Value at
 
Carrying Amount at
 
Fair Value at
 
 
Level
 
June 30, 2013
 
June 30, 2013
 
December 31, 2012
 
December 31, 2012
Mortgage notes payable
 
3
 
$
269,918

 
$
271,645

 
$
265,118

 
$
271,056

Senior secured revolving credit facility
 
3
 

 

 
124,604

 
124,604

Senior corporate credit facility
 
3
 
600,000

 
600,000

 

 

Total
 
 
 
$
869,918

 
$
871,645

 
$
389,722

 
$
395,660

The fair value of mortgage notes payable are obtained by calculating the present value at current market rates. The terms of the senior secured revolving credit facility, the terms of the senior corporate credit facility, and the Company's level ratio are considered commensurate with the market, as such the outstanding balance on the facility approximates fair value.

17

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Note 9 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
Cash Flow Hedges of Interest Rate Risk
The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next twelve months, the Company estimates that an additional $4.3 million will be reclassified from other comprehensive income as an increase to interest expense. During the three and six months ended June 30, 2013, the Company accelerated the reclassification of approximately $27,000 in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur.

18

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

As of June 30, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
Interest rate swaps
 
10
 
$
667,590

As of December 31, 2012, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
Interest rate swaps
 
7
 
$
152,590

Interest rate cap
 
1
 
50,000

Total
 
8
 
$
202,590

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2013 and December 31, 2012 (dollar amounts in thousands):
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
June 30, 2013
 
December 31, 2012
Interest rate products
 
Derivative assets, at fair value
 
$
10,161

 
$

Interest rate products
 
Derivative liabilities, at fair value
 
$
(1,186
)
 
$
(3,830
)
The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2013 and 2012, respectively (amounts in thousands).
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships
 
2013
 
2012
 
2013
 
2012
Amount of gain (loss) recognized in accumulated other comprehensive income on interest rate derivatives (effective portion)
 
$
12,748

 
$
(2,485
)
 
$
10,889

 
$
(3,174
)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as interest expense (effective portion)
 
$
(1,269
)
 
$
(249
)
 
$
(1,951
)
 
$
(335
)
Amount of gain (loss) recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)
 
$
(23
)
 
$

 
$
(23
)
 
$

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of June 30, 2013 and December 31, 2012. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.
Offsetting of Derivative Assets and Liabilities
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets Presented in the Consolidated Balance Sheet
 
Net Amounts of Liabilities Presented in the Consolidated Balance Sheet
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
June 30, 2013
 
$
10,161

 
$
(1,186
)
 
$

 
$
10,161

 
$
(1,186
)
 
$

 
$

 
$
8,975

December 31, 2012
 
$

 
$
(3,830
)
 
$

 
$

 
$
(3,830
)
 
$

 
$

 
$
(3,830
)
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

19

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

As of June 30, 2013, the fair value of the derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $1.3 million. As of June 30, 2013, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $1.3 million at June 30, 2013.
Reclassifications out of Accumulated Other Comprehensive Income (“AOCI”)
The following table details reclassification adjustments out of AOCI and the corresponding effect on net income for the three and six months ended June 30, 2013 and 2012 (amount in thousands):
AOCI Component
 
Amount Reclassified from AOCI
 
Affected Line Items in the Consolidated Statements of Operations and Comprehensive Loss
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
 
Unrealized loss on investment securities, net
 
$

 
$

 
$
93

 
$

 
Gain on sale of investment securities
Designated derivatives, fair value adjustment
 
(1,269
)
 
(249
)
 
(1,951
)
 
(335
)
 
Interest expense
Note 10 Convertible Preferred Stock
The Company has the following classes of convertible preferred stock outstanding at June 30, 2013:
Issue
 
Date Issued
 
Units
 
Gross Proceeds
(In thousands)
 
Liquidation Preference
 
Dividend/Interest Rate
 
 
 
 
 
Shares classified as Equity:
 
 
 
 
 
 
 
 
 
 
Series A Convertible Preferred Stock(1)
 
May 11, 2012
 
545,454

 
$
6,000

 
$
11.00

 
$
0.77

Series B Convertible Preferred Stock(2)
 
July 24, 2012
 
283,018

 
3,000

 
10.60

 
0.74


 
 
 
 
 
 
 
 
 
 
Shares classified as Liabilities:
 
 
 
 
 
 
 
 
 
 
Series C Convertible Preferred Stock (3)
 
June 7, 2013
 
28,398,213

 
$
445,000

 
$
15.67

 
5.81
%
_______________________________________________
(1)The Series A Convertible Preferred Stock may be redeemed at the option of the Company in whole or in part after the issuance date at $11.00 per share.
(2)The Series B Convertible Preferred Stock may be redeemed at the option of the Company in whole or in part after the issuance date at $10.60 per share.
(3)The Series C Convertible Preferred Stock is mandatorily redeemable or exchangeable for shares of common stock at the option of the Company within three business days following the earliest to occur of (A) the closing of the CapLease Merger (B) the first trading day following (a) an announcement that CapLease has accepted a competing offer (which did not occur within the time specified in the CapLease Merger Agreement) or (b) the CapLease Merger Agreement is otherwise terminated, and (C) December 31, 2013, the Company will have the option to: (I) convert all shares of Series C Convertible Preferred Stock into such number of shares of the Company’s common stock equal to the par value of the Series C Convertible Preferred Stock divided by the lowest of (i) a 2% discount to the VWAP of the Company’s common stock for the 10 prior trading days, (ii) a 2% discount to the closing price on such date and (iii) $15.67, as adjusted from time to time or (II) redeem all shares of the Company’s Series C Convertible Preferred Stock in cash at 120% of its par value. As of June 30, 2013, the Company is limited, without the approval of holders of the Company's common stock and Series C Convertible Preferred Stock to amend the Series C Articles Supplementary, to issuing no more than 3.3 million shares of common stock upon conversion of shares of Series C Convertible Preferred Stock due to limitations imposed by the articles supplementary for the Series C Convertible Preferred Stock. Therefore, upon the required conversion the Company will cancel any remaining Series C Convertible Preferred Stock in exchange for cash in lieu of common stock in an amount equal to the greater of the product of such number of excess shares into which the shares of Series C stock would have been convertible and (i) 120% of the liquidation preference, which is $15.67, as may be adjusted from time to time, and (ii) the Conversion Price valued at the one-day VWAP of the common stock on the applicable date.

20

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Note 11 — Common Stock
Increases in Authorized Common Stock
On July 2, 2013, the Company filed articles of amendment to its charter to increase the number of authorized shares of common stock to 750,000,000 shares.
Offerings
On August 1, 2012, the Company filed a $500 million universal shelf registration statement and a resale registration statement with the SEC. Each registration statement became effective on August 17, 2012. As of June 30, 2013, the Company had issued 2.1 million shares of common stock under the $500 million universal shelf registration statement. No preferred stock, debt or equity-linked security had been issued under this $500 million universal shelf registration statement. The resale registration statement, as amended, registers the resale of up to 1,882,248 shares of common stock issued in connection with any future conversion of certain currently outstanding restricted shares, convertible preferred stock or limited partnership interests in the OP.
On March 13, 2013, the Company filed a universal automatic shelf registration statement that was automatically declared effective and achieved well-known seasoned issuer (“WKSI”) status. The Company intends to maintain both the $500 million universal shelf registration statement and the WKSI universal automatic shelf registration statement.
In January 2013, the Company commenced its “at the market” equity offering program (“ATM”) in which it may from time to time offer and sell shares of its common stock having an aggregate offering proceeds of up to $60.0 million. The shares will be issued pursuant to the Company's $500.0 million universal shelf registration statement.
The following are the Company's equity offerings of common stock during the six months ended June 30, 2013 (dollar amounts in millions):
Type of offering
 
Closing Date
 
Number of Shares(1)
 
Gross Proceeds
Registered follow on offering
 
January 29, 2013
 
2,070,000

 
$
26.7

ATM
 
January 1 - June 30, 2013
 
553,300

 
8.9

Private placement offering
 
June 7, 2013
 
29,411,764

 
455.0

Total
 
 
 
32,035,064

 
$
490.6

_______________________________________________
(1) Excludes 140.7 million shares of common stock that were issued to the stockholders of ARCT III's common stock in conjunction with the ARCT III Merger.
Upon the closing of the ARCT III Merger, 29.2 million shares of the then outstanding shares of ARCT III's common stock were paid in cash at $12.00 per share, which equals 27.7 million shares of the Company's common stock after the application of the ARCT III Exchange Ratio. In addition, upon closing of the ARCT III Merger, 148.1 million shares of ARCT III's common stock were converted to shares of Company's common stock at the ARCT III Exchange Ratio, resulting in an additional 140.7 million shares of the Company's common stock outstanding after the exchange.

21

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Dividends
The Company's board of directors has authorized, and the Company began paying, dividends since October 2011 on the fifteenth day of each month to stockholders of record on the eight day of such month. During the six months ended June 30, 2013, the board of directors of the Company has authorized the following increases in the Company's dividend.
Dividend increase declaration date
 
Annualized dividend per share
 
Effective date
March 17, 2013
 
$0.91
 
June 8, 2013
May 28, 2013
 
$0.94
 
*
_______________________________________________
* The dividend increase is contingent upon, and effective with, the earlier of the close of the ARCT IV Merger or the close of the CapLease Merger.
The annualized dividend rate at June 30, 2013 was $0.910 per share.
Note 12— Share-Based Compensation
Equity Plan
The Company has adopted the American Realty Capital Properties, Inc. Equity Plan (the “Equity Plan”), which provides for the grant of stock options, restricted shares of common stock, restricted stock units, dividend equivalent rights and other equity-based awards to the Manager, non-executive directors, officers and other employees and independent contractors, including employees or directors of the Manager and its affiliates who are providing services to the Company.
The Company authorized and reserved a total number of shares equal to 10.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis assuming the redemption of all OP Units for shares of common stock) to be issued at any time under the Equity Plan for equity incentive awards excluding an initial grant of 167,400 shares to the Manager in connection with the IPO. All such awards of shares will vest ratably on a quarterly or annual basis over a three-year period beginning on the first anniversary of the date of grant and shall provide for “distribution equivalents” with respect to this restricted stock, whether or not vested, at the same time and in the same amounts as dividends are paid to the stockholders.
In February 2013, the Company granted 325,000 restricted shares of common stock to the Manager and certain employees. These shares did not vest upon the consummation of the ARCT III Merger but will vest ratably over a three-year period and shall provide for “distribution equivalents” with respect to this restricted stock, whether or not vested, at the same time and in the same amounts as dividends are paid to the stockholders.
Director Stock Plan
The Company has adopted the American Realty Capital Properties, Inc. Non-Executive Director Stock Plan (the “Director Stock Plan”), which provides for the grant of restricted shares of common stock to each of the Company's independent directors, each of whom is a non-executive director. Awards of restricted stock will vest ratably over a five-year period following the first anniversary of the date of grant in increments of 20.0% per annum, subject to the director’s continued service on the board of directors, and shall provide for “distribution equivalents” with respect to this restricted stock, whether or not vested, at the same time and in the same amounts as distributions are paid to the stockholders. At June 30, 2013, a total of 99,000 shares of common stock are reserved for issuance under the Director Stock Plan.
The fair value of restricted common stock awards under the Equity Plan and Director Stock Plan is determined on the grant date using the closing stock price on NASDAQ that day. The fair value of restricted common stock under the Equity Plan is updated at the end of each quarter based on quarter end closing stock price through the final vesting date.

22

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

ARCT III Restricted Share Plan
ARCT III had an employee and director incentive restricted share plan (the “RSP”), which provided for the automatic grant of 3,000 restricted shares of common stock to each of its independent directors, without any further action by ARCT III’s board of directors or its stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder’s meeting thereafter. Restricted stock issued to independent directors vested over a five-year period following the first anniversary of the date of grant in increments of 20.0% per annum. The RSP provided ARCT III with the ability to grant awards of restricted shares to its directors, officers and employees (if ARCT III ever had employees), employees of ARCT III's Advisor and its affiliates, employees of entities that provided services to ARCT III, directors of the ARCT III Advisor or of entities that provided services to ARCT III, certain consultants to ARCT III and the ARCT III Advisor and its affiliates or to entities that provided services to ARCT III.
Immediately prior to the effective time of the ARCT III Merger, each then-outstanding share of ARCT III restricted stock fully vested. All shares of ARCT III common stock then-outstanding as a result of the full vesting of shares of ARCT III restricted stock, and the satisfaction of any applicable withholding taxes, had the right to receive a number of shares of the Company's common stock based on the ARCT III Exchange Ratio.
The following tables detail the restricted shares activity within the Equity Plan, Director Stock Plan and RSP during the three and six months ended June 30, 2013:
Restricted Share Awards
 
 
Equity Plan
 
RSP & Director Stock Plan
 
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
Awarded December 31, 2012
 
259,909

 
$
11.84

 
30,300

 
$
10.68

Granted
 
325,000

 
13.88

 
18,000

 
14.58

Forfeited
 

 

 

 

Awarded June 30, 2013
 
584,909

 
$
12.95

 
48,300

 
$
12.13

Unvested Restricted Shares
 
 
Equity Share Plan
 
RSP & Director Stock Plan
 
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
 
Number of
Restricted Common Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2012
 
186,403

 
$
11.62

 
27,930

 
$
10.58

Granted
 
325,000

 
13.83

 
18,000

 
14.58

Vested
 
(186,403
)
 
(11.62
)
 
(27,930
)
 
(10.58
)
Forfeited
 

 

 

 

Unvested, June 30, 2013
 
325,000

 
$
13.83

 
18,000

 
$
14.58

In connection with the ARCT III Merger, each share of the Company's and ARCT III's restricted stock outstanding as of immediately prior to the effective date of the ARCT III Merger became fully vested.
For the three months ended June 30, 2013 and 2012, compensation expense for restricted shares was $0.2 million, respectively. For the six months ended June 30, 2013 and 2012, compensation expense for restricted shares was $0.6 million and $0.4 million, respectively. Compensation expense for the accelerated vesting of restricted shares in conjunction with the ARCT III Merger restricted shares of $2.2 million during the three and six months ended June 30, 2013 was recorded as Merger costs.
In July 2013, the Company granted 300,000 restricted shares of common stock to the Manager and certain employees at a grant date price of $14.80 per share. These shares will vest ratably over a three-year period and shall provide for “distribution equivalents” with respect to these restricted shares, whether or not vested, at the same time and in the same amounts as dividends are paid to the stockholders.

23

Table of Contents
AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Multi-Year Performance Plan
Upon consummation of the ARCT III Merger, the Company entered into the 2013 Advisor Multi-Year Outperformance Agreement (the “OPP”) with the Manager, whereby the Manager will be able to potentially earn compensation upon the attainment of stockholder value creation targets.
Under the OPP, the manager was granted 8,241,101 long term incentive plan units (“LTIP Units”) of the OP, which will be earned or forfeited based on the Company's total return to stockholders (including both share price appreciation and common stock distributions) (“Total Return”), for the three year period consisting of:
Absolute Component: 4.0% of any excess Total Return attained above an absolute hurdle of 7.0% for each annual measurement period, non-compounded, 14.0% for the interim measurement period and 21.0% for the full performance period; and
Relative Component: 4.0% of any excess Total Return attained above the Total Return for the performance period of a peer group comprised of the following companies: CapLease, Inc.; EPR Properties; Getty Realty Corporation; Lexington Realty Trust; National Retail Properties, Inc.; and Realty Income Corporation.
The award will be funded (“OPP Pool”) up to a maximum award opportunity equal to 5% of the Company's equity market capitalization at the ARCT III Merger date of $2.1 billion (the “OPP Cap”). Awards under the OPP are dependent on achieving an annual hurdle that commenced December 11, 2012, an interim (two-year) hurdle and then the aforementioned three-year hurdle ending on December 31, 2015.
In order to further ensure that the interests of the Manager are aligned with the Company's investors, the Relative Component is subject to a ratable sliding scale factor as follows:
100.0% will be earned if the Company attains a median Total Return of at least 6.0% for each annual measurement period, non-compounded, at least 12% for the interim measurement period, and at least 18.0% for the full performance period;
50.0% will be earned if the Company attains a median Total Return of at least 0.0% for each measurement period;
0.0% will be earned if the Company attains a median Total Return of less than 0.0% for each measurement period; and
A percentage from 50.0% to 100.0% calculated by linear interpolation will be earned if the Company's median Total Return is between 0.0% and the percentage set for each measurement period.
For each year during the performance period a portion of the OPP Cap equal to a maximum of up to 1.25% of the Company's equity market capitalization of $2.1 billion will be “locked-in” based upon the attainment of the performance hurdles set forth above for each annual measurement period. In addition, a portion of the OPP Cap equal to a maximum of up to 3.0% of the Company's equity market capitalization will be “locked-in” based upon the attainment of the performance hurdles set forth above for the interim measurement period, which if achieved, will supersede and negate any prior “locked-in” portion based upon annual performance through December 31, 2013 and 2014 (i.e., a maximum award opportunity equal to a maximum of up to 3.0% of the Company's equity market capitalization may be “locked-in” through December 31, 2014).
Following the performance period, the Absolute Component and the Relative Component will be calculated separately and then added together to determine the aggregate award earned under the OPP, which will be the lesser of the sum of the two components and the OPP Cap. The OPP Pool will be used to determine the number of LTIP units that vest. Any unvested LTIP units will be immediately forfeited on December 31, 2015. At June 30, 2013, 100% of the pool has been allocated.
The Manager will be entitled to convert 33.3% of the LTIP units earned into OP Units on each of December 31, 2015, 2016 and 2017 and within 30 days following such date. In addition, the OPP provides for accelerated earning and vesting of LTIP Units and redemption of vested LTIP Units for cash if the Manager is terminated or if the Company experiences a change in control. The Manager will be entitled to receive a tax gross-up in the event that any amounts paid to it under the OPP constitute “parachute payments” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”).
The fair value of the LTIP Units granted are being amortized over the performance period. During the three and six months ended June 30, 2013, the Company has recorded expense of $3.1 million and $3.7 million, respectively, for the OPP.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Note 13 — Commitments and Contingencies
Contractual Lease Obligations
The following table reflects the minimum base rental cash payments due from the Company over the next five years and thereafter for ground lease arrangements (amounts in thousands):
 
 
Future Minimum
Base Rent Payments
July 1, 2013 - December 31, 2013
 
$
174

2014
 
348

2015
 
349

2016
 
349

2017
 
353

Thereafter
 
2,477

Total
 
$
4,050

Litigation
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company, except as follows:
Since the announcement of the CapLease Merger Agreement on May 28, 2013, the following lawsuits have been filed:
CapLease, its directors, and its affiliates, CapLease's operating partnership and the general partner of the operating partnership, as well as the Company, the OP and a CapLease Merger related subsidiary, have been named as defendants in a putative class action lawsuit in connection with the proposed merger, styled Mizani v. CapLease, Inc., No. 651986/2013, in the Supreme Court of the State of New York, New York County. The complaint alleges, among other things, that the CapLease Merger Agreement was the product of breaches of fiduciary duty by CapLease’s directors because the CapLease Merger does not provide for full and fair value for the CapLease’s stockholders, the CapLease Merger was not the result of a competitive bidding process, the CapLease Merger Agreement contains coercive deal protection measures, and the CapLease Merger Agreement and the CapLease Merger were approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the CapLease Merger Agreement. The complaint also alleges that CapLease, the Company, the OP and a CapLease Merger related subsidiary, aided and abetted the directors’ alleged breaches of fiduciary duty. The plaintiff seeks, among other things, to enjoin completion of the CapLease Merger. The Company believes that the allegations of the complaint are without merit and that it has substantial meritorious defenses to the claims set forth in the complaint.
Separately, CapLease, its directors and its affiliates, the CapLease's operating partnership and the general partner of the CapLease's operating partnership, as well as the Company, the OP and a CapLease Merger related subsidiary, have been named as defendants in a putative class action and derivative lawsuit in connection with the proposed merger, styled Tarver v. CapLease, Inc., No. 24C13004176, in the Circuit Court of the State of Maryland, Baltimore City. The complaint alleges, among other things, that the CapLease Merger Agreement was the product of breaches of fiduciary duty by CapLease’s directors because the CapLease Merger does not provide for full and fair value for the CapLease’s stockholders, the CapLease Merger Agreement contains coercive deal protection measures, the CapLease Merger was not the result of a competitive bidding process, and the CapLease Merger Agreement and the CapLease Merger were approved as a result of improper self-dealing. The complaint also alleges that CapLease, CapLease's operating partnership, the general partner of the CapLease's operating partnership, the Company, the OP and a CapLease Merger related subsidiary aided and abetted the directors’ alleged breaches of fiduciary duty. The plaintiff seeks, among other things, to enjoin completion of the CapLease Merger. The Company believes that the allegations of the complaint are without merit and that it has substantial meritorious defenses to the claims set forth in the complaint.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Separately, CapLease, its directors and its affiliates, the CapLease's operating partnership and the general partner of the CapLease's operating partnership, as well as the Company, the OP and a CapLease Merger related subsidiary, have been named as defendants in a putative class action and derivative lawsuit in connection with the proposed CapLease Merger, styled Carach v. CapLease, Inc., No. 651986/2013, in the Supreme Court of the State of New York, New York County. The complaint alleges, among other things, that the CapLease Merger Agreement was the product of breaches of fiduciary duty by the CapLease’s directors because the CapLease Merger does not provide for full and fair value for the CapLease’s stockholders, the CapLease directors failed to take steps to maximize the value of CapLease or properly value CapLease, failed to protect against various alleged conflicts of interest, and failed to fully disclose material information concerning the process that led to the CapLease Merger. The complaint also alleges that CapLease's operating partnership, the general partner of CapLease's operating partnership, the Company, the OP and a CapLease Merger related subsidiary aided and abetted the CapLease directors’ alleged breaches of fiduciary duty. The plaintiff seeks, among other things, to enjoin completion of the CapLease Merger. The Company believes that the allegations of the complaint are without merit and that it has substantial meritorious defenses to the claims set forth in the complaint.
Since the announcement of the ARCT III Merger Agreement on December 17, 2012, Randell Quaal filed a putative class action lawsuit filed on January 19, 2013 against the Company, the OP, ARCT III, ARCT III OP, the members of the board of directors of ARCT III and certain subsidiaries of the Company in the Supreme Court of the State of New York. The lawsuit alleges, among other things, that the board of ARCT III breached its fiduciary duties in connection with the transactions contemplated under the ARCT III Merger Agreement. In February 2013, the parties agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of ARCT III stockholders. In connection with the settlement contemplated by that memorandum of understanding, the class action and all claims asserted therein will be dismissed, subject to court approval. The proposed settlement terms required ARCT III to make certain additional disclosures related to the ARCT III Merger, which were included in a Current Report on Form 8-K filed by ARCT III with the SEC on February 21, 2013. The memorandum of understanding also added that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to ARCT III’s stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding, therefore any losses that may be incurred to settle this matter are not determinable.
The Company maintains directors and officers liability insurance which the Company believes should provide coverage to the Company and its officers and directors for most or all of any costs, settlements or judgments resulting from the lawsuits.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.
Note 14 — Related Party Transactions and Arrangements
Ownership by Affiliates
Certain affiliates of the Company have ownership in the Company through ownership of shares of the Company's common stock, shares of unvested restricted common stock or OP units. As of June 30, 2013 and December 31, 2012, 4.82% and 1.39%, respectively, of the total equity units issued by the Company were owned by affiliates.
The Company has issued restricted stock to the Manager and non-executive directors in conjunction with a share-based compensation plan. See Note 12— Share-Based Compensation .
Fees Paid in Connection with Common Stock Offerings
RCS received selling commissions of 6% of the gross offering proceeds from the sale of the Company’s common stock in the IPO. In addition, RCS received dealer manager fees of 2% of the gross offering proceeds before reallowance to participating broker-dealers in the IPO. RCS was permitted to re-allow all or a portion of its dealer manager fee to participating broker-dealers.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

In addition, RCS, served as the dealer manager of the ARCT III IPO. RCS received fees and compensation in connection with the sale of ARCT III’s common stock in the ARCT III IPO. RCS received a selling commission of up to 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers in the ARCT III IPO. In addition, RCS received up to 3% of the gross proceeds from the sale of common stock, before reallowance to participating broker-dealers, as a dealer-manager fee in the ARCT III IPO. RCS was permitted to reallow its dealer-manager fee to such participating broker-dealers, based on such factors as the volume of shares sold by respective participating broker-dealers and marketing support incurred as compared to those of other participating broker-dealers.
The following table details the results of such activities related to RCS, which are recorded as offering costs on the consolidated statement of changes in equity (amounts in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable as of
 
 
2013
 
2012
 
2013
 
2012
 
June 30, 2013
 
December 31, 2012
Total commissions and fees paid to RCS
 
$

 
$
57,914

 
$

 
$
79,791

 
$

 
$

The Company reimbursed the Manager, the ARCT III Advisor and RCS for services relating to the IPO, the Company's follow-on offerings, the ARCT III IPO, and other significant transactions such as the ARCT III Merger, for which the Manager provided assistance. The following table details the results of such activities related to offering and other significant transactions costs reimbursed to the Manager, the ARCT III Advisor and RCS (amounts in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable as of
 
 
2013
 
2012
 
2013
 
2012
 
June 30, 2013
 
December 31, 2012
Offering expense and other significant transactions reimbursements
 
$
499

 
$
12,869

 
$
1,114

 
$
20,231

 
$
100

 
$

Fees Paid in Connection with the Operations of the Company
Each of the Company and ARCT III paid the Manager and the ARCT III Advisor, as applicable, an acquisition fee equal to 1.0% of the contract purchase price (including assumed indebtedness) of each property the Company or ARCT III, as applicable, acquired. The acquisition fee was payable in cash at the closing of each acquisition. In conjunction with the ARCT III Merger, it was agreed that these fees would no longer be paid to either party. Acquisition fees are recorded in Acquisition related costs in the consolidated statements of operations and comprehensive loss.
Each of the Company and ARCT III paid the Manager and the ARCT III Advisor, as applicable, a financing fee equal to 0.75% of the amount available under any secured mortgage financing or refinancing that the Company or ARCT III, as applicable, obtained and used for the acquisition of properties that was arranged by the Manager or ARCT III Advisor, as applicable. The financing coordination fee was payable in cash at the closing of each financing. In conjunction with the ARCT III Merger, it was agreed that these fees would no longer be paid to either party.
The Company paid the Manager an annual base management fee equal to 0.50% per annum of the average unadjusted book value of the Company's real estate assets, calculated and payable monthly in advance. The Company's Manager waived such portion of its management fee in excess of certain net income thresholds related to our operations. The management fee is payable in cash. In conjunction with the ARCT III Merger, the base management fee was reduced to 0.40% per annum for the unadjusted book value of assets over $3.0 billion. Management fees, if accrued are recorded in Operating fees to affiliates in the consolidated statements of operations and comprehensive loss.
Until July 1, 2012, ARCT III paid the ARCT III Advisor an asset management fee of 0.75% per annum of the cost of its assets (cost includes the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs, but excludes acquisition fees) plus costs and expenses incurred by the ARCT III Advisor in providing asset management services; provided, however, that the asset management fee was reduced by any amounts payable to ARCT III's property manager as an oversight fee, such that the aggregate of the asset management fee and the oversight fee did not exceed 0.75% per annum of the cost of ARCT III's assets plus costs and expenses incurred by the ARCT III Advisor in providing asset management services.
Prior to July 1, 2012, this fee was payable in monthly installments at the discretion of ARCT III's board of directors in cash, common stock or restricted stock grants, or any combination thereof. Asset management fees, if accrued are recorded in Operating fees to affiliates in the consolidated statements of operations and comprehensive loss. The Company also pays fees for transfer agent services to an affiliate, American National Stock Transfer, LLC.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

Effective July 1, 2012, the payment of asset management fees in monthly installments in cash, shares or restricted stock grants, or any combination thereof to the ARCT III Advisor was eliminated. Instead, ARCT III issued (subject to periodic approval by its board of directors) to the ARCT III Advisor performance-based restricted partnership units of the ARCT III OP designated as “Class B units,” which were intended to be profits interests and to vest, and no longer be subject to forfeiture, at such time as: (x) the value of the ARCT III OP’s assets plus all distributions made equal or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the “economic hurdle”); and among other potential events, a liquidity event accrued.
The ARCT III Advisor received distributions on unvested Class B units equal to the distribution rate received on ARCT III common stock. Such distributions on issued Class B units were included as general and administrative expense in the consolidated statement of operations until the performance condition is considered probable to occur. 145,022 Class B units were approved by ARCT III's board of directors as of December 31, 2012. During January and February 2013, ARCT III's board of directors approved, and ARCT III issued, 603,599 Class B units to the ARCT III Advisor for its asset management services provided. As of December 31, 2012, ARCT III did not consider achievement of the performance condition to be probable as the shareholder vote for the ARCT III Merger, which would allow vesting of these Class B Units, was not completed. The performance condition related to these Class B units was satisfied upon the completion of the ARCT III Merger and expense of $9.9 million was recorded at that time. The Class B units then converted to ARCT III OP units which converted to 711,190 OP Units after the application of the ARCT III Exchange Ratio. These expenses were recorded in ARCT III Merger and other transaction related in the consolidated statements of operations and comprehensive loss.
The Company may be required to pay the Manager a quarterly incentive fee, calculated based on 20 percent of the excess Company annualized core earnings (as defined in the management agreement with the Manager) over the weighted average number of shares multiplied by the weighted average price per share of common stock. One half of each quarterly installment of the incentive fee will be payable in shares of common stock. The remainder of the incentive fee will be payable in cash. No such incentive fees have been incurred or paid to the Manager since inception.
ARCT III paid an affiliate of the Sponsor, unless it contracted with a third party, a property management fee of up to 2% of gross revenues from ARCT III's stand-alone single-tenant net leased properties and 4% of gross revenues from its multi-tenant properties, plus, in each case, market-based leasing commissions applicable to the geographic location of the property. ARCT III also reimbursed the affiliate for property level expenses. If ARCT III contracted directly with third parties for such services, it paid them customary market fees and paid the affiliated property manager, an oversight fee of up to 1.0% of the gross revenues of the property managed. Property management fees are recorded in Operating fees to affiliates in the consolidated statements of operations and comprehensive loss.
In order to facilitate the smooth transition of property management services following the consummation of the ARCT III Merger, the Company, the OP and the Sponsor agreed that the Property Management and Leasing Agreement will be extended for a 60 day period following the consummation of the ARCT III Merger for which the Company paid the Sponsor $2.3 million. These fees were recorded in merger and transaction related in the consolidated statements of operations and comprehensive loss.
The Company is required to reimburse the Manager for all out-of-pocket costs actually incurred by the Manager, including without limitation, legal fees and expenses, due diligence fees and expenses, other third party fees and expenses, costs of appraisals, travel expenses, nonrefundable option payments and deposits on properties not acquired, accounting fees and expenses, title insurance premiums and other closing costs, personnel costs and miscellaneous expenses relating to the selection, acquisition and due diligence of properties. The Company's reimbursement obligation is not subject to any dollar limitation. Expenses will be reimbursed in cash on a monthly basis following the end of each month. However, the Company will not reimburse the Manager for the salaries and other compensation of its personnel. Reimbursements are recorded based on the related activity to which the expense relates.

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AMERICAN REALTY CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

The following table details amounts incurred by the Company or ARCT III and contractually due to the Sponsor, ARCT III Advisor or the Manager and forgiven in connection with the operations related services described above (amounts in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable as of
 
 
2013
 
2012
 
2013
 
2012
 
June 30, 2013
 
December 31, 2012
 
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
Incurred