American Strategic Investment Co. - Quarter Report: 2017 March (Form 10-Q)

March 31, 2017

March 31, 2016

123 William Street

Planned Parenthood Federation of America, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017



	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: 000-55393

American Realty Capital New York City REIT, Inc.

(Exact name of registrant as specified in its charter)



Maryland		46-4380248
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
405 Park Ave., 4^th 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 o

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

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

As of April 30, 2017, the registrant had 30,878,333 shares of common stock outstanding.

AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

INDEX TO FINANCIAL STATEMENTS



	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016	3
Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	4
Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2017 (Unaudited)	5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3. Quantitative and Qualitative Disclosures About Market Risk	33

Item 4. Controls and Procedures	34

PART II - OTHER INFORMATION	35

Item 1. Legal Proceedings	35

Item 1A. Risk Factors	35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3. Defaults Upon Senior Securities	36

Item 4. Mine Safety Disclosures	36

Item 5. Other Information	36

Item 6. Exhibits	36

Signatures	37

Table of Contents

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)



	March 31, 2017			December 31, 2016
ASSETS	(Unaudited)
Real estate investments, at cost:
Land	$	133,380		$	133,380
Buildings and improvements	504,199			502,067
Acquired intangible assets	108,933			109,498
Total real estate investments, at cost	746,512			744,945
Less accumulated depreciation and amortization	(44,615		)	(37,889		)
Total real estate investments, net	701,897			707,056
Cash and cash equivalents	49,550			47,671
Restricted cash	28,583			2,150
Investment securities, at fair value	483			477
Prepaid expenses and other assets (including amounts due from related parties of $646 and $670 at March 31, 2017 and December 31, 2016, respectively)	15,548			13,017
Deferred leasing costs, net	3,375			3,233
Total assets	$	799,436		$	773,604

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable, net of deferred financing costs	$	233,049		$	191,328
Accounts payable, accrued expenses and other liabilities (including amounts due to related parties of $272 and $167 at March 31, 2017 and December 31, 2016, respectively)	7,202			6,580
Below-market lease liabilities, net	27,612			28,528
Deferred revenue	4,434			3,024
Distributions payable	3,956			3,953
Total liabilities	276,253			233,413

Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding at March 31, 2017 and December 31, 2016	—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, 30,805,839 and 30,856,841 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	308			309
Additional paid-in capital	679,708			680,476
Accumulated other comprehensive income	16			10
Accumulated deficit	(156,849		)	(140,604		)
Total stockholders' equity	523,183			540,191
Total liabilities and stockholders' equity	$	799,436		$	773,604

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

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except for share and per share data)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Revenues:
Rental income	$	13,043		$	7,961
Operating expense reimbursements and other revenue	1,500			545
Total revenues	14,543			8,506

Operating expenses:
Property operating	6,596			3,548
Operating fees incurred from related parties	1,538			1,053
Acquisition and transaction related	6			40
General and administrative	1,576			1,416
Depreciation and amortization	6,997			4,769
Total operating expenses	16,713			10,826
Operating loss	(2,170		)	(2,320		)
Other income (expense):
Interest expense	(2,665		)	(1,216		)
Income from investment securities and interest	49			131
Total other expense	(2,616		)	(1,085		)
Net loss	$	(4,786	)	$	(3,405	)

Other comprehensive income (loss):
Unrealized gain on investment securities	6			11
Comprehensive loss	$	(4,780	)	$	(3,394	)

Basic and diluted weighted average shares outstanding	30,814,927			30,562,487
Basic and diluted net loss per share	$	(0.16	)	$	(0.11	)
Dividends declared per common share	$	0.38		$	0.38

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

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Three Months Ended March 31, 2017

(In thousands, except for share data)

(Unaudited)



	Common Stock
	Number of Shares		Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated Deficit			Total Stockholders' Equity
Balance, December 31, 2016	30,856,841		$	309		$	680,476		$	10	$	(140,604	)	$	540,191
Common stock issued through distribution reinvestment plan	225,622		2			4,793			—		—			4,795
Common stock repurchases	(276,624	)	(3		)	(5,573		)	—		—			(5,576		)
Share-based compensation	—		—			12			—		—			12
Distributions declared	—		—			—			—		(11,459		)	(11,459		)
Net loss	—		—			—			—		(4,786		)	(4,786		)
Unrealized gain on investment securities	—		—			—			6		—			6
Balance, March 31, 2017	30,805,839		$	308		$	679,708		$	16	$	(156,849	)	$	523,183

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

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net loss	$	(4,786	)	$	(3,405	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	6,997			4,769
Amortization of deferred financing costs	652			565
Accretion of below- and amortization of above-market lease liabilities and assets, net	(539		)	(635		)
Share-based compensation	12			13
Changes in assets and liabilities:
Prepaid expenses, other assets and deferred costs	(2,756		)	(1,629		)
Accounts payable, accrued expenses and other liabilities	525			297
Deferred revenue	1,410			1,333
Restricted cash	(1,613		)	—
Net cash (used in) provided by operating activities	(98		)	1,308
Cash flows from investing activities:
Deposit for real estate acquisition	—			(18,000		)
Purchase of investment securities, net	—			(4		)
Capital expenditures	(2,035		)	(5,376		)
Net cash used in investing activities	(2,035		)	(23,380		)
Cash flows from financing activities:
Proceeds from mortgage note payable	115,180			—
Payment of mortgage note payable	(96,000		)	—
Payments of financing costs	(2,931		)	(25		)
Distributions paid	(6,661		)	(5,883		)
Repurchases of common stock	(5,576		)	(1,579		)
Net cash provided by (used in) financing activities	4,012			(7,487		)
Net change in cash and cash equivalents	1,879			(29,559		)
Cash and cash equivalents, beginning of period	47,671			182,700
Cash and cash equivalents, end of period	$	49,550		$	153,141

Supplemental Disclosures:
Cash paid for interest	$	1,557		$	650

Non-Cash Investing and Financing Activities
Accrued stock repurchase requests	$	—		$	89
Distributions payable	3,956			3,928
Accrued capital expenditures	97			269
Common stock issued through distribution reinvestment plan	4,795			5,601

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

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Note 1 — Organization

American Realty Capital New York City REIT, Inc. (including, as required by context, New York City Operating Partnership, L.P., and its subsidiaries, the “Company”) was formed to invest its assets in properties in the five boroughs of New York City, with a focus on Manhattan. The Company may also purchase for investment purposes certain real estate investment assets that accompany office properties, including retail spaces and amenities, as well as hospitality assets, residential assets and other property types exclusively in New York City. All such properties may be acquired and owned by the Company alone or jointly with another party. As of March 31, 2017, the Company owned six properties consisting of 1,091,571 rentable square feet, acquired for an aggregate purchase price of $686.1 million.

The Company was incorporated on December 19, 2013 as a Maryland corporation and elected and qualified to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) beginning with its taxable year ended December 31, 2014. Substantially all of the Company’s business is conducted through New York City Operating Partnership, L.P., a Delaware limited partnership (the “OP”).

On April 24, 2014, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 30.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, for total gross proceeds of up to $750.0 million. The Company closed its IPO on May 31, 2015. As of March 31, 2017, the Company had 30.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO of $764.0 million, inclusive of $50.8 million from the DRIP and net of repurchases.

On October 24, 2016, the Company's board of directors approved an estimated net asset value per share of the Company's common stock ("Estimated Per-Share NAV") as of June 30, 2016, which was published on October 26, 2016 ("NAV Pricing Date"). The Company intends to publish subsequent valuations of Estimated Per-Share NAV at least once annually. Until the NAV Pricing Date, the Company offered shares pursuant to the DRIP and has repurchased shares pursuant to the Share Repurchase Program ("SRP") at a price based on $23.75 per share, the offering price in the IPO. Beginning with the NAV Pricing Date, the Company began to offer shares pursuant to the DRIP and repurchase shares pursuant to its SRP at a price based on Estimated Per-Share NAV of $21.25 per share as of June 30, 2016.

The Company has no employees. New York City Advisors, LLC (the "Advisor") has been retained by the Company to manage the Company's affairs on a day to-day basis. The Company has retained New York City Properties, LLC (the “Property Manager”) to serve as the Company's property manager. The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of the Company's sponsor, American Realty Capital III, LLC (the "Sponsor"), as a result of which they are related parties, and each of these entities has received or will receive compensation, fees and expense reimbursements for services related to the IPO and the investment and management of the Company's assets.

The Company is the sole general partner and holds substantially all of the units of limited partner interests in the OP (“OP units”). The Advisor contributed $2,020 to the OP in exchange for 90 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has 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, in accordance with the limited partnership agreement of the OP, provided, however, that such OP units must have been outstanding for at least one year. The remaining rights of the limited partners in the OP 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.

Note 2 — Summary of Significant Accounting Policies

The accompanying consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to this Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results for the entire year or any subsequent interim period.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

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, 2016, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 28, 2017. There have been no significant changes to the Company's significant accounting policies during the quarter ended March 31, 2017, other than the updates described below:

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. The Company is evaluating the impact of this guidance, including performing preliminary review of all revenue streams to identify any differences in timing, measurement or presentation of revenue recognition. The Company is continuing to evaluate the allowable methods of adoption.

In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. The Company is currently evaluating the impact of the new guidance.

In February 2016, the FASB issued an update that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance is effective on January 1, 2019. Early adoption is permitted. The Company has begun developing an inventory of all leases as well as identifying any non-lease components in our lease arrangements. The Company is continuing to evaluate the impact of this new guidance.

In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal or agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.

In August 2016, the FASB issued guidance on how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.

In November 2016, the FASB issued guidance on the classification of restricted cash in the statement of cash flows. The amendment requires restricted cash to be included in the beginning-of-period and end-of-period total cash amounts. Therefore, transfers between cash and restricted cash will no longer be shown on the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Recently Adopted Accounting Pronouncements

In October 2016, the FASB issued guidance where a reporting entity will need to evaluate if it should consolidate a variable interest entity ("VIE"). The amendments change the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2017 and determined that there is no impact to the Company's consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued guidance that revises the definition of a business. This new guidance is applicable when evaluating whether an acquisition should be treated as either a business acquisition or an asset acquisition. Under the revised guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single asset or group of similar assets, the assets acquired (or disposed of) would not be considered a business. The revised guidance is effective for reporting periods beginning after December 15, 2017, and the amendments will be applied prospectively. Early application is permitted only for transactions that have not previously been reported in issued financial statements. The Company has assessed this revised guidance and expects, based on historical acquisitions, future properties acquired to qualify as an asset acquisition rather than a business acquisition, which would result in the capitalization of related transaction costs. The Company adopted this guidance for the quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Note 3 — Real Estate Investments

There were no real estate assets acquired or liabilities assumed during the three months ended March 31, 2017 and 2016.

Future Minimum Cash Rent

The following table presents future minimum base cash rental payments due to the Company subsequent to March 31, 2017. These amounts exclude contingent rent payments, as applicable, that may be collected based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes, among other items.



(In thousands)	Future Minimum Base Cash Rent Payments
2017	$	33,380
2018	42,640
2019	40,892
2020	36,801
2021	32,848
Thereafter	111,918
	$	298,479

Significant Tenant

The following table lists the tenants whose annualized rental income on a straight-line basis, based on leases signed, represented greater than 10% of total annualized rental income for all portfolio properties on a straight-line basis as of March 31, 2017 and 2016.

_______________

*Tenant's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income on a straight-line basis for all portfolio properties for the period specified.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Intangible Assets and Liabilities

Acquired intangible assets and lease liabilities consist of the following as of March 31, 2017 and December 31, 2016:



	March 31, 2017
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets:
In-place leases	$	64,979	$	16,269	$	48,710
Other intangibles	31,447		2,893		28,554
Below-market ground lease	2,482		39		2,443
Above-market leases	10,025		1,983		8,042
Acquired intangible assets	$	108,933	$	21,184	$	87,749
Intangible liabilities:
Below-market lease liabilities	$	34,471	$	6,859	$	27,612



	December 31, 2016
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets:
In-place leases	$	65,544	$	14,045	$	51,499
Other intangibles	31,447		2,601		28,846
Below-market ground lease	2,482		27		2,455
Above-market leases	10,025		1,618		8,407
Acquired intangible assets	$	109,498	$	18,291	$	91,207
Intangible liabilities:
Below-market lease liabilities	$	34,471	$	5,943	$	28,528

The following table discloses amounts recognized within the consolidated statements of operations and comprehensive loss related to amortization of in-place leases and other intangibles and amortization and accretion of above- and below-market lease assets and liabilities, net, for the periods presented:



	Three Months Ended March 31,
(In thousands)	2017			2016
Amortization of in-place leases and other intangibles⁽¹⁾	$	3,080		$	2,508
Amortization and (accretion) of above- and below-market leases, net⁽²⁾	$	(551	)	$	(635	)
Amortization of below-market ground lease⁽³⁾	$	12		$	—

_______________


(1)	Reflected within depreciation and amortization expense.


(2)	Reflected within rental income.


(3)	Reflected within property operating expense.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

The following table provides the projected amortization expense and adjustments to revenues for the next five years as of March 31, 2017:



(In thousands)	April 1, 2017- December 31, 2017			2018			2019			2020			2021
In-place leases	$	7,974		$	9,502		$	8,744		$	6,842		$	5,307
Other intangibles	874			1,165			1,165			1,165			937
Total to be included in depreciation and amortization	$	8,848		$	10,667		$	9,909		$	8,007		$	6,244

Above-market lease assets	$	(1,095	)	$	(1,365	)	$	(1,300	)	$	(1,159	)	$	(1,071	)
Below-market lease liabilities	2,803			3,435			3,092			2,679			2,371
Total to be included in rental income	$	1,708		$	2,070		$	1,792		$	1,520		$	1,300

Note 4 — Investment Securities

As of March 31, 2017 and December 31, 2016, the Company had an investment in an equity security with a fair value of $0.5 million. This investment is considered to be an available-for-sale security and therefore increases or decreases in the fair value of this investment are recorded in accumulated other comprehensive income (loss) as a component of equity on the consolidated balance sheets unless the security is considered to be other-than-temporarily impaired, at which time the losses would be reclassified to expense.

The following table details the unrealized gains and losses on the investment security by security type as of March 31, 2017 and December 31, 2016:



(In thousands)	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2017
Equity security	$	467	$	16	$	—	$	483
December 31, 2016
Equity security	$	467	$	10	$	—	$	477

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Note 5 — Mortgage Notes Payable

The Company's mortgage notes payable as of March 31, 2017 and December 31, 2016 are as follows:



		Outstanding Loan Amount
Portfolio	Encumbered Properties	March 31, 2017			December 31, 2016			Effective Interest Rate		Interest Rate	Maturity
		(In thousands)			(In thousands)
123 William Street⁽¹⁾	1	$	140,000		$	96,000		4.73	%	Fixed	Mar. 2027
1140 Avenue of the Americas	1	99,000			99,000			4.17	%	Fixed	Jul. 2026
Less: deferred financing costs, net		(5,951		)	(3,672		)
Mortgage note payable, net of deferred financing costs	2	$	233,049		$	191,328		4.61	%

_____________________


(1)	The Company entered into a loan agreement with Barclays Bank PLC, in the amount of $140 million, on March 6, 2017. A portion of the proceeds from the loan was use to repay the outstanding principal balance of approximately $96 million on the existing mortgage loan secured by the Property.

Real estate assets of $443.6 million, at cost (net of below-market lease liabilities), at March 31, 2017 have been pledged as collateral to the Company's mortgage note payable and are not available to satisfy the Company's other obligations unless first satisfying the mortgage note payable on the property. The Company makes payments of interest on its mortgage note payable on a monthly basis.

The following table summarizes the scheduled aggregate principal payments subsequent to March 31, 2017:



(In thousands)	Future Minimum Principal Payments
2017	$	—
2018	—
2019	—
2020	—
2021	—
Thereafter	239,000
Total	$	239,000

The Company's mortgage note payable requires compliance with certain property-level debt covenants. As of March 31, 2017, the Company was in compliance with the debt covenants under its mortgage note agreement.

Note 6 — 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 instrument. This alternative approach also reflects the contractual terms of the instrument, as applicable, including the period to maturity, and may use observable market-based inputs, including interest rate curves and implied volatilities, and unobservable inputs, such as expected volatility. The guidance defines three levels of inputs that may be used to measure fair value.



Level 1	—	Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2	—	Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3	—	Unobservable inputs that reflect the entity's own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

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 has an investment in a real estate income fund that is traded in active markets and therefore, due to the availability of quoted market prices in active markets, classifies this investment as Level 1 in the fair value hierarchy.

The following table presents information about the Company's assets measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which that instrument falls.



	Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Level 1		Level 2		Level 3		Total
March 31, 2017
Investment Securities	$	483	$	—	$	—	$	483
December 31, 2016
Investment Securities	$	477	$	—	$	—	$	477

There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2017 or 2016.

Financial instruments not carried at fair value

The Company is required to disclose at least annually the fair value of financial instruments for which it is practicable to estimate the value. The fair value of short-term financial instruments such as cash and cash equivalents, prepaid expenses and other assets, accounts payable and distributions payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's financial instruments that are not reported at fair value on the consolidated balance sheet are reported below:



		March 31, 2017				December 31, 2016
(In thousands)	Level	Gross Principal Balance		Fair Value		Gross Principal Balance		Fair Value
Mortgage note payable — 123 William Street	3	$	140,000	$	142,515	*		*
Mortgage note payable — 1140 Avenue of the Americas	3	$	99,000	$	96,600	$	99,000	$	98,000

* The fair value of the mortgage note payable is estimated to be equivalent to its carrying value because it bears interest at a variable rate that fluctuates with market and there has been no significant change in the credit risk. This mortgage note payable was repaid in March 2017.

Note 7 — Common Stock

As of March 31, 2017, the Company had 30.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total proceeds from public offerings of $764.0 million, inclusive of $50.8 million from the DRIP and net of repurchases. As of December 31, 2016, the Company had 30.9 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds of $764.8 million, inclusive of $46.0 million from the DRIP and net of repurchases.

In May 2014, the board of directors of the Company authorized, and the Company declared, a distribution payable to stockholders of record which is equivalent to $1.5125 per annum, per share of common stock. The distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.

The Company has a Share Repurchase Program ("SRP") that enables stockholders, subject to certain conditions and limitations, to sell their shares to the Company. Under the SRP stockholders may request that the Company repurchase all or any portion of their shares of common stock, if such repurchase does not impair the Company's capital or operations.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

On January 25, 2016, the Company's board of directors approved an amendment of the SRP to supersede and replace the existing SRP effective beginning on February 28, 2016. Under the SRP, as amended, repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the Company's board of directors and generally will be made semiannually (each six-month period ending June 30 or December 31, a "fiscal semester").

On October 24, 2016, the Company's board of directors approved an Estimated Per-Share NAV of $21.25 per share as of June 30, 2016.

Prior to the establishment of Estimated Per-Share NAV, the purchase price per share for requests other than for death or disability under the SRP depended on the length of time investors have held such shares as follows (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations):


•	after one year from the purchase date - the lower of $23.13 and 92.5% of the amount they actually paid for each share; and,


•	after two years from the purchase date - the lower of $23.75 and 95.0% of the amount they actually paid for each share.

Prior to the establishment of Estimated Per-Share NAV, in the case of requests for death or disability, the repurchase price per share was equal to the price paid to acquire the shares from the Company.

Following the establishment of Estimated Per-Share NAV, the purchase price per share for requests other than for death or disability under the SRP now depends on the length of time investors have held such shares as follows (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations):


•	after one year from the purchase date - 92.5% of the Estimated Per-Share NAV;


•	after two years from the purchase date - 95.0% of the Estimated Per-Share NAV;


•	after three years from the purchase date - 97.5% of the Estimated Per-Share NAV; and,


•	after four years from the purchase date - 100.0% of the Estimated Per-Share NAV.

Subsequent to the establishment of Estimated Per-Share NAV, in the case of requests for death or disability, the repurchase price per share is equal to the Estimated Per-Share NAV at the time of the repurchase.

Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, the Company is only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from the DRIP in that same fiscal semester, as well as any reservation of funds the Company's board of directors, may, in its sole discretion, make available for this purpose. If the establishment of an Estimated Per-Share NAV occurs during any fiscal semester, any repurchase requests received during such fiscal semester will be paid at the Estimated Per-Share NAV applicable on the last day of the fiscal semester.

When a stockholder requests a repurchase and the repurchase is approved by the Company's board of directors, the Company will reclassify such obligation from equity to a liability based on the value of the obligation. Shares purchased under the SRP will have the status of authorized but unissued shares. The following table reflects the number of shares repurchased cumulatively through March 31, 2017.



	Numbers of Shares Repurchased	Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2016	645,335	$	23.63
Three months ended March 31, 2017⁽¹⁾	276,624	20.15
Cumulative repurchases as of March 31, 2017	921,959	$	22.59

_____________________


(1)	Excludes rejected shares of 902,420 for $18.1 million at an average price per share of $20.03, which were unfulfilled as of March 31, 2017.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Note 8 — Commitments and Contingencies

Litigation and Regulatory Matters

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company.

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. As of March 31, 2017, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.

Note 9 — Related Party Transactions and Arrangements

As of March 31, 2017, an entity wholly owned by the Sponsor owned 8,888 shares of the Company’s outstanding common stock.

Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO, which was ongoing from April 2014 to May 2015, and, together with its affiliates, continued to provide the Company with various services through December 31, 2015. RCS Capital Corporation ("RCAP"), the parent company of the Former Dealer Manager and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of the Sponsor. In May 2016, RCAP and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc. On March 8, 2017, the creditor trust established in connection with the RCAP bankruptcy filed suit against AR Global, the Advisor, advisors of other entities sponsored by AR Global, and AR Global’s principals (including Mr. Weil, our Chief Executive Officer). The suit alleges, among other things, certain breaches of duties to RCAP. The Company is not named in the suit, nor are there allegations related to the services the Advisor provides to the Company. The Advisor has informed the Company that it believes the suit is without merit and intends to defend against it vigorously.

As of March 31, 2016, the Company had $0.5 million invested in a mutual fund managed by an affiliate of the Sponsor. There is no obligation to purchase any additional shares and the shares can be sold at any time. The Company sold its investment in a mutual fund during the fourth quarter of 2016. The Company recognized income from investment securities managed by an affiliate of the Sponsor of approximately $4,000 during the three months ended March 31, 2016.

Fees and Participations Paid in Connection With the Operations of the Company

The Advisor is paid an acquisition fee of 1.5% of (A) the contract purchase price of each acquired property and (B) the amount advanced for a loan or other investment. The Advisor is also reimbursed for expenses incurred related to selecting, evaluating and acquiring assets on the Company's behalf, regardless of whether the Company actually acquires the related assets. Specifically, the Company pays the Advisor or its affiliates for any services provided for which they incur investment-related expenses, or insourced expenses. Such insourced expenses are fixed initially at and may not exceed 0.50% of the contract purchase price of each property and 0.50% of the amount advanced for each loan or other investment, which is paid at the closing of each such investment. The Advisor is also reimbursed for legal expenses incurred in the process of acquiring properties, in an amount not to exceed 0.10% of the contract purchase price. In addition, the Company also pays third parties, or reimburses the Advisor for any investment-related expenses due to third parties. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees (as described below) payable with respect to the Company's portfolio of investments exceed 4.5% of (A) the contract purchase price or (B) the amount advanced for all loans or other investments. Once the proceeds from the primary offering have been fully invested, the aggregate amount of acquisition fees and any financing coordination fees may not exceed 1.5% of (A) the contract purchase price and (B) the amount advanced for a loan or other investment, as applicable, for all the assets acquired. The Company incurred no acquisition fees and acquisition expense reimbursements to the Advisor during the three months ended March 31, 2017 and 2016.

If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company pays the Advisor a financing coordination fee equal to 0.75% of the amount made available or outstanding under such financing, subject to certain limitations.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Until September 30, 2015, for its asset management services, the Company issued to the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the board of directors) to the Advisor performance-based, restricted, forfeitable partnership units in the OP designated as “Class B Units” on a quarterly basis in an amount equal to: (i) the product of (y) 0.1875% multiplied by (z) the cost of the Company's assets divided by (ii) the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the primary offering price minus selling commissions and dealer manager fees). The Class B Units are intended to be profits interests and will vest, and no longer be subject to forfeiture, at such time as: (a) the value of the OP's assets plus all distributions made by the Company to its stockholders equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pretax, non-compounded annual return thereon, or the "economic hurdle" (b) any one of the following events occurs concurrently with or subsequently to the achievement of the economic hurdle described above: (i) a listing of the Company's common stock on a national securities exchange; (ii) a transaction to which the Company or the OP is a party, as a result of which OP units or the Company's common stock are or will be exchanged for or converted into the right, or the holders of such securities will otherwise be entitled, to receive cash, securities or other property or any combination thereof; or (iii) the termination of the advisory agreement without cause by an affirmative vote of a majority of the Company's independent directors after the economic hurdle has been met; and (c) the Advisor pursuant to the advisory agreement is providing services to the Company immediately prior to the occurrence of an event of the type described in clause (b) above (the "performance condition"). The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. As of March 31, 2017, the Company cannot determine the probability of achieving the performance condition. The Advisor receives distributions on its vested and unvested Class B Units at the same rate as distributions received on the Company's common stock. Such distributions on issued Class B Units are expensed in the consolidated statements of operations and comprehensive loss until the performance condition is considered probable to occur. As of March 31, 2017, the Company's board of directors had approved the issuance of 159,159 Class B Units in connection with the arrangement. Beginning on October 1, 2015, and in lieu of the asset management subordinated participation, the Company began paying an asset management fee in cash to the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets. The asset management fee is payable on the first business day of each month in the amount of 0.0625% multiplied by (i) the cost of the Company's assets for the preceding monthly period or (ii) during the period of time after the Company publishes Estimated Per-Share NAV, the lower of the cost of assets and the estimated fair market value of the Company’s assets as reported in the applicable periodic or current report filed with the SEC disclosing the fair market value. The Company paid $1.4 million and $1.0 million in cash asset management fees during the three months ended March 31, 2017 and 2016, respectively.

Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee equal to: (i) for non-hotel properties, 4.0% of gross revenues from the properties managed, plus market-based leasing commissions; and (ii) for hotel properties, a market-based fee based on a percentage of gross revenues. The Company also reimburses the Property Manager for property-level expenses. The Property Manager may subcontract the performance of its property management and leasing services duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracts for these services. The Company incurred approximately $177,000 and $63,000 in property management fees during the three months ended March 31, 2017 and 2016, respectively.

The Company reimburses the Advisor’s costs of providing administrative services, subject to the limitation that the Company will not reimburse the Advisor for any amount by which the Company’s operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt, impairments or other similar non-cash expenses and excluding any gain from the sale of assets for that period, unless the Company's independent directors determine that such excess was justified based on unusual and nonrecurring factors which they deem sufficient, in which case the excess amount may be reimbursed to the Advisor in subsequent periods. Additionally, the Company reimburses the Advisor for personnel costs in connection with other services; however, the Company may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, acquisition expense reimbursements or real estate commissions. Total reimbursement of costs and expenses for the three months ended March 31, 2017 and 2016 was $0.6 million and $0.4 million, respectively.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

The predecessor to the parent of the Sponsor was party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager ("RCS Advisory"), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by the Sponsor with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to the parent of the Sponsor instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.

The Company was also party to a transfer agency agreement with American National Stock Transfer, LLC, ("ANST") a subsidiary of the parent company of the Former Dealer Manager, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end Internal Revenue Service ("IRS") reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc. ("DST"), a third-party transfer agent. The Sponsor received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. DST continued to provide the Company with transfer agency services and, on March 10, 2016, the Company entered into a definitive agreement with DST to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services). For the three months ended March 31, 2016, the fees for services from DST are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss during the period in which the service was provided.

The following table details amounts incurred, waived and payable in connection with the Company's operations-related services described above as of and for the periods presented:



	Three Months Ended March 31,
	2017				2016				Payable (receivable) as of
(In thousands)	Incurred		Waived		Incurred		Waived		March 31, 2017			December 31, 2016
Acquisition fees and reimbursements:
Acquisition fees and related cost reimbursements	$	—	$	—	$	—	$	—	$	(646	)	$	(646	)
Financing coordination fees	1,050		—		—		—		—			—
Ongoing fees:
Operating fees incurred from related parties	1,538		—		1,053		—		57			(24		)
Professional fees and other reimbursements	706		—		444		—		215			167
Distributions on Class B Units	59		—		60		—		—			—
Total related party operation fees and reimbursements	$	3,353	$	—	$	1,557	$	—	$	(374	)	$	(503	)

Fees and Participations Paid in Connection with Liquidation or Listing

The Company will pay to the Advisor an annual subordinated performance fee calculated on the basis of the Company’s return to stockholders, payable annually in arrears, such that for any year in which investors receive payment of 6.0% per annum, the Advisor will be entitled to 15.0% of the excess return, provided that the amount paid to the Advisor does not exceed 10.0% of the aggregate return for such year, and that the amount paid to the Advisor will not be paid unless investors receive a return of capital contributions. This fee will be paid only upon the sale of assets, distributions or other event which results in the return on stockholders’ capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the three months ended March 31, 2017 and 2016.

The Company will pay a brokerage commission to the Advisor or its affiliates on the sale of properties, not to exceed the lesser of 2.0% of the contract sale price of the property and 50.0% of the total brokerage commission paid if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. No such fees were incurred during the three months ended March 31, 2017 and 2016.

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Upon a sale of all or substantially all assets, the Special Limited Partner will receive a subordinated distribution from the OP equal to 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of an annual 6.0% cumulative, pre-tax non-compounded return on the capital contributed by investors. The Special Limited Partner will not be entitled to the subordinated participation in net sale proceeds unless the Company’s investors have received a return of their capital plus a 6.0% cumulative non-compounded annual return on their capital contributions. No such participation in net sales proceeds became due and payable during the three months ended March 31, 2017 and 2016.

If the Company’s shares of common stock are listed on a national exchange, the Special Limited Partner will receive a subordinated incentive listing distribution from the OP equal to 15.0% of the amount by which the Company’s market value plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to investors. The Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such distributions were incurred during the three months ended March 31, 2017 and 2016. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in net sales proceeds and the subordinated incentive listing distribution.

Upon termination or non-renewal of the advisory agreement with or without cause, the Special Limited Partner will be entitled to receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company’s market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6.0% cumulative, pre-tax, non-compounded annual return to investors. The Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.

Note 10 — Economic Dependency

Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services, transaction management and investor relations.

As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that the Advisor and its affiliates are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.

Note 11 — Share-Based Compensation

Restricted Share Plan

The Company has an employee and director incentive restricted share plan (the “RSP”), which provides for the automatic grant of 1,333 restricted shares of common stock to each of the independent directors, without any further approval by the Company’s board of directors or the stockholders, after initial election to the board of directors and after each annual stockholder meeting, with such shares vesting annually beginning with the one year anniversary of initial election to the board of directors and the date of the next annual meeting, respectively. Restricted stock issued to independent directors will vest over a five-year period in increments of 20.0% per annum. The RSP provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The total number of common shares granted under the RSP shall not exceed 5.0% of the Company’s outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 1.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. For restricted share awards granted prior to July 1, 2015, such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. For restricted share awards granted on or after July 1, 2015, such awards provide for accelerated vesting of the portion of the unvested shares scheduled to vest in the year of the recipient's voluntary termination or the failure to be re-elected to the board. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares.

The following table displays restricted share award activity during the quarter ended March 31, 2017:



	Number of Restricted Shares		Weighted-Average Issue Price
Unvested, December 31, 2016	9,065		$	22.50
Granted	—		—
Vested	(267	)	22.50
Forfeited	—		—
Unvested, March 31, 2017	8,798		$	22.50

As of March 31, 2017, the Company had $0.1 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company's RSP. That cost is expected to be recognized over a weighted-average period of 3.6 years. Restricted share awards are expensed in accordance with the service period required. Compensation expense related to restricted stock was approximately $12,000 and $13,000 for the three months ended March 31, 2017 and 2016, respectively. Compensation expense related to restricted stock is recorded as general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.

Other Share-Based Compensation

The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on the shares issued. There were no shares of common stock issued in lieu of cash during the three months ended March 31, 2017 or 2016.

Note 12 — Net Loss Per Share

The following is a summary of the basic and diluted net loss per share computation for the periods presented:



	Three Months Ended March 31,
	2017			2016
Net loss (in thousands)	$	(4,786	)	$	(3,405	)
Basic and diluted weighted average shares outstanding	30,814,927			30,562,487
Basic and diluted net loss per share	$	(0.16	)	$	(0.11	)

The Company had the following potentially dilutive securities as of March 31, 2017 and 2016, which were excluded from the calculation of diluted net loss per share attributable to stockholders as the effect would have been antidilutive:



	Three Months Ended March 31,
	2017	2016
Unvested restricted stock	8,798	6,132
OP units	90	90
Class B units	159,159	159,159
Total potentially dilutive securities	168,047	165,381

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AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2017

(Unaudited)

Note 13 — Subsequent Events

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of American Realty Capital New York City REIT, Inc. (including, as required by context, New York City Operating Partnership, L.P. and its subsidiaries, the "Company," "we," "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.

The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:


•	We have a limited operating history which makes our future performance difficult to predict;

•

All of our executive officers are also officers, managers or holders of a direct or indirect controlling interest in our advisor, New York City Advisors, LLC (our "Advisor") and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"); as a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investor entities advised by AR Global affiliates and conflicts in allocating time among these entities and us, which could negatively impact our operating results;


•	We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants;


•	We may not be able to achieve our rental rate objectives on new and renewal leases and our expenses could be greater, which may impact operations;


•	Our properties may be adversely affected by economic cycles and risks inherent to the New York metropolitan statistical area, especially New York City;


•	We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates;


•	We may fail to continue to qualify to be treated as a real estate investment trust for United States federal income tax purposes ("REIT");

•

Because investment opportunities that are suitable for us may also be suitable for other AR Global-advised programs or investors, our Advisor and its affiliates may face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders;


•	No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid;


•	Our stockholders are limited in their ability to sell their shares pursuant to our share repurchase program (the “SRP”) and may have to hold their shares for an indefinite period of time;


•	If we and our Advisor are unable to find suitable investments, then we may not be able to achieve our investment objectives, or pay distributions with cash flows from operations;


•	There can be no assurance we will be able to continue paying cash distributions at our current level or at all if we fail to generate sufficient cash flows from operations;


•	We cannot assure our stockholders that we will be able to continue to pay distributions or that distributions will increase over time;


•	We may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act; and


•	As of March 31, 2017, we owned only six properties and therefore have limited diversification.

Overview

We were formed to invest our assets in properties in the five boroughs of New York City, with a focus on Manhattan. We may also purchase certain real estate assets that accompany office properties, including retail spaces and amenities, as well as

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hospitality assets, residential assets and other property types exclusively in New York City. As of March 31, 2017, we owned six properties consisting of 1,091,571 rentable square feet acquired for an aggregate purchase price of $686.1 million.

We were incorporated on December 19, 2013 as a Maryland corporation and elected and qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2014. Substantially all of our business is conducted through New York City Operating Partnership, L.P. a Delaware limited partnership (the “OP”).

On April 24, 2014, we commenced our initial public offering ("IPO") on a "reasonable best efforts" basis of up to 30.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, for total gross proceeds of up to $750.0 million. We closed our IPO on May 31, 2015. As of March 31, 2017, we had 30.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and the DRIP of $764.0 million, inclusive of $50.8 million from the DRIP and net of repurchases.

On October 24, 2016, our board of directors approved an estimated net asset value per share of our common stock ("Estimated Per-Share NAV) of $21.25 per share based on an estimated fair value of our assets less the estimated fair value of our liabilities, divided by 30,419,798 shares of common stock outstanding on a fully diluted basis as of June 30, 2016, which was published on October 26, 2016 ("NAV Pricing Date"). We intend to publish subsequent valuations of Estimated Per-Share NAV at least once annually. We offer shares pursuant to the DRIP and repurchase shares pursuant to our SRP at a price based on Estimated Per-Share NAV.

We have no employees. Our Advisor manages our affairs on day-to-day basis. We have retained New York City Properties, LLC (our "Property Manager") to serve as our property manager. The Advisor and Property Manager are under common control with AR Global, the parent of our Sponsor, as a result of which they are related parties and each of these entities has received or will receive compensation, fees and expense reimbursements for services related to our IPO and, the investment and management of our assets. We are the sole general partner and hold substantially all of the units of limited partner interests in the OP, entitled "OP units" (“OP units”). The Advisor contributed $2,020 to the OP in exchange for 90 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of our common stock or, at the option of the OP, a corresponding number of shares of our common stock, in accordance with the limited partnership agreement of the OP, provided, however, that such OP units must have been outstanding for at least one year. The remaining rights of the limited partners in the OP 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.

Significant Accounting Estimates and Critical Accounting Policies

Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:

Offering and Related Costs

All offering costs incurred by us, our Advisor and its affiliates on our behalf are charged to additional paid-in capital on the consolidated balance sheets. Offering and related costs include all expenses incurred in connection with our IPO. Offering costs (other than selling commissions and the dealer manager fees) include costs that may be paid by the Advisor, the Former Dealer Manager or their affiliates on our behalf. These costs include but are not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Former Dealer Manager for amounts it may pay to reimburse itemized and detailed due diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities. We are obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs (excluding selling commissions and the dealer manager fee) incurred by us in our IPO exceeded 2.0% of gross offering proceeds in the IPO. As a result, these costs are our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs are less than 12.0% of the gross proceeds determined at the end of the IPO. As of the end of the IPO, aggregate selling commissions, dealer manager fees and other offering costs did not exceed 12.0% of the gross proceeds received in the IPO.

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Revenue Recognition

Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Because many of our leases provide for rental increases at specified intervals, accounting principles generally accepted in the United States ("GAAP") require us to record a receivable, and include in revenues on a straight-line basis, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. We defer the revenue related to lease payments received from tenants in advance of their due dates. When we acquire a property, the acquisition date is considered to be the commencement date for the purposes of this calculation.

Rental revenue recognition commences when the tenant takes possession of or controls the physical use of the leased space. For the tenant to take possession, the leased space must be substantially ready for its intended use. To determine whether the leased space is substantially ready for its intended use, we evaluate whether we own or if the tenant owns the tenant improvements. When we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such improvements are substantially complete. When we conclude that the tenant is the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space.

When we conclude that we are the owner of tenant improvements, we capitalize the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants. When we conclude that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred leasing costs, net on the consolidated balance sheets and amortized as a reduction to rental income on a straight-line basis over the term of the lease.

We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, we will record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations.

We may own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant's sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, we defer the recognition of contingent rental income until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. If we own certain properties with leases that include these provisions, contingent rental income will be included in rental income on the consolidated statements of operations and comprehensive loss.

Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.

Investments in Real Estate

We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statement of operations. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.

We allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-controlling interests based on their respective estimated fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets or liabilities may include the value of in-place leases, above- and below-market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics.

The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the comparable fair market lease rate, measured over the remaining term of the lease. The fair value of other intangible assets, such as real estate tax abatements and signage rights, are recorded based on the present value of the expected benefit and amortized over the expected useful life including any below-market fixed rate renewal options for below-market leases.

Fair values of assumed mortgages, if applicable, are recorded as debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates.

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Non-controlling interests in property owning entities are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.

We use a number of sources in making our estimates of fair values for purposes of allocating purchase price, including real estate valuations prepared by independent valuation firms. We also consider information and other factors including: market conditions, the industry in which the tenant operates, characteristics of the real estate such as location, size, demographics, value and comparative rental rates, tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business.

Disposals of real estate investments that represent a strategic shift in operations that will have a major effect on our operations and financial results are presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all periods presented; otherwise, we continue to report these properties' operations within continuing operations. Properties that are intended to be sold will be designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs for all periods presented when they meet specific criteria to be presented as held for sale. Properties are no longer depreciated when they are classified as held for sale.

Restricted Cash

Restricted cash consists of mortgage lender required reserves for maintenance, real estate tax, structural, debt service, lease, tenant improvement and leasing commission cost.

Depreciation and Amortization

Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five to seven years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

Acquired above-market leases are amortized as a reduction of rental income over the remaining terms of the respective leases. Acquired below-market leases are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.

The value of in-place leases, exclusive of the value of above and below-market in-place leases, is amortized to depreciation and amortization expense over the remaining periods of the respective leases.

Assumed mortgage premiums or discounts, if applicable, are amortized as a reduction or increase to interest expense over the remaining term of the respective mortgages.

Impairment of Long Lived Assets

When circumstances indicate the carrying value of a property may not be recoverable, we review the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If such estimated cash flows are less than the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is based on the adjustment to estimated fair value less estimated cost to dispose of the asset. Generally, we determine estimated fair value for properties held for sale based on the agreed-upon selling price of an asset. These assessments may result in the immediate recognition of an impairment loss resulting in a reduction to net income (loss).

Recent Accounting Pronouncement

In May 2014, the FASB issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. We are evaluating the impact of this guidance, including performing preliminary review of all revenue streams to identify any differences in timing, measurement or presentation of revenue recognition. We are continuing to evaluate the allowable methods of adoption.

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In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. We are currently evaluating the impact of the new guidance.

In February 2016, the FASB issued a new standard which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new standard supersedes the previous leasing standard. The standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. Early adoption permitted. We have begun developing an inventory of all leases as well as identifying any non-lease components in our lease arrangements. We are continuing to evaluate the impact of this new guidance.

In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal or agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.

In August 2016, the FASB issued guidance on how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.

In November 2016, the FASB issued guidance on the classification of restricted cash in the statement of cash flows. The amendment requires restricted cash to be included in the beginning-of-period and end-of-period total cash amounts. Therefore, transfers between cash and restricted cash will no longer be shown on the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.

Recently Adopted Accounting Pronouncements

In October 2016, the FASB issued guidance where a reporting entity will need to evaluate if it should consolidate a variable interest entity ("VIE"). The amendments change the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We adopted the provisions of this guidance beginning January 1, 2017 and determined that there is no impact to our consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued guidance that revises the definition of a business. This new guidance is applicable when evaluating whether an acquisition should be treated as either a business acquisition or an asset acquisition. Under the revised guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar assets, the assets acquired would not be considered a business. The revised guidance is effective for reporting periods beginning after December 15, 2017, and the amendments will be applied prospectively. Early application is permitted only for transactions that have not previously been reported in issued financial statements. We have assessed this revised guidance and expect, based on historical acquisitions, future properties acquired to qualify as an asset acquisition rather than a business acquisition, which would result in the capitalization of related transaction costs. We adopted this guidance for the quarter ended March 31, 2017. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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Properties -

The following table presents certain information about the investment properties we owned as of March 31, 2017:



Portfolio	Acquisition Date	Rentable Square Feet	Occupancy		Remaining Lease Term⁽¹⁾
421 W. 54th Street - Hit Factory	Jun. 2014	12,327	100.0	%	3.5
400 E. 67th Street - Laurel Condominium	Sept. 2014	58,750	100.0	%	7.0
200 Riverside Boulevard - ICON Garage	Sept. 2014	61,475	100.0	%	20.5
9 Times Square	Nov. 2014	166,640	56.0	%	4.2
123 William Street	Mar. 2015	542,676	93.1	%	7.2
1140 Avenue of the Americas	Jun. 2016	249,703	86.3	%	4.9
		1,091,571	86.7	%	6.1

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(1) Remaining lease term in years as of March 31, 2017, calculated on a weighted-average basis, as applicable.

Results of Operations

As of March 31, 2016, we owned five properties (our "Three-Month Same Store"). In June 2016, we acquired one property located at 1140 Avenue of the Americas in Manhattan, New York (our "1140 Property"), and therefore as of March 31, 2017 we owned six properties. Due to our 1140 Property our results of operations for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, reflect significant increases in most categories.

As of March 31, 2017, our overall portfolio occupancy was 86.7% leased notwithstanding the fact that our property located at 9 Times Square was 56.0% leased as of March 31, 2017 and December 31, 2016. Subsequent to the acquisition of 9 Times Square in November 2014, we allowed leases to expire and terminate as part of the implementation of our repositioning, redeveloping and remarketing plan with respect to the property. This effort has taken longer than anticipated, however, as of March 31, 2017, we have substantially completed our repositioning and redevelopment plan and are working to lease the remaining vacant space at the property. To the extent we continue to experience vacancy at that property, our revenue related to 9 Times Square will be lower than expected.

Comparison of Three Months Ended March 31, 2017 to Three Months Ended March 31, 2016

Rental Income

Rental income increased $5.1 million to $13.0 million for the three months ended March 31, 2017, from $8.0 million for the three months ended March 31, 2016, primarily due to our 1140 Property, which contributed $4.7 million to the increase and our Three-Month Same Store provided $0.4 million of the increase in rental income.

Operating Expense Reimbursements

Operating expense reimbursements increased $1.0 million to $1.5 million for the three months ended March 31, 2017, compared to $0.5 million for the three months ended March 31, 2016, due to our 1140 Property and Three-Month Same Store which each contributed $0.3 million and $0.6 million to the increase.

Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of certain property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for most operating costs of the respective properties. Therefore, operating expense reimbursements are directly affected by changes in property operating expenses, although not all increases in property operating expenses may be reimbursed by our tenants.

Property Operating Expenses

Property operating expenses increased $3.0 million to $6.6 million for the three months ended March 31, 2017 from $3.5 million for the three months ended March 31, 2016 primarily due to our 1140 Property, which contributed $2.7 million to the increase. Our Three-Month Same Store provided $0.3 million of the increase. The increase in property operating expenses primarily related to lease commencements and the increased costs of maintaining our six properties including real estate taxes, condominium fees, utilities, repairs and maintenance and property insurance.

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Operating Fees incurred from Related Parties

We incurred $1.5 million and $1.1 million in fees for asset and property management services from our Advisor and Property Manager for the three months ended March 31, 2017 and 2016. We paid $1.4 million and $1.0 million in cash for asset management fees for the three months ended March 31, 2017 and 2016. Property management fees increased in direct correlation with gross revenue and amounted to approximately $177,000 and $63,000 for the three months ended March 31, 2017 and 2016.

Acquisition and Transaction Related Expenses

We incurred approximately $6,000 acquisition and transaction related expenses for the three months ended March 31, 2017. For the three months ended March 31, 2016, we incurred approximately $40,000 of acquisition and transaction related expenses in connection with entering into an agreement of purchase and sale to acquire our 1140 Property.

General and Administrative Expenses

General and administrative expenses increased $0.2 million to $1.6 million for the three months ended March 31, 2017 compared to $1.4 million for the three months ended March 31, 2016, primarily due to general and administrative expense reimbursements incurred from our Advisor of $0.6 million for the three months ended March 31, 2017 compared to $0.4 million for the three months ended March 31, 2016.

Depreciation and Amortization

Depreciation and amortization expenses increased $2.2 million to $7.0 million for the three months ended March 31, 2017, compared to $4.8 million for the three months ended March 31, 2016, due to our 1140 Property. Our Three-Month Same Store contributed $0.1 million to the increase.

Interest Expense

Interest expense increased $1.4 million to $2.7 million for the three months ended March 31, 2017, from $1.2 million for the three months ended March 31, 2016, primarily due to the closing of the loan on our 1140 Property in June 2016. As of March 31, 2017, we had two loans outstanding with a combined balance of $239.0 million and a weighted average effective interest rate of 4.61%.

Income from Investment Securities and Interest

Income from investment securities and interest decreased approximately $82,000 to approximately $49,000 for the three months ended March 31, 2017, compared to approximately $131,000 three months ended March 31, 2016. The income primarily related to interest earned on our cash balance for the three months ended March 31, 2017 and 2016.

Cash Flows for the Three Months Ended March 31, 2017

During the three months ended March 31, 2017, net cash used in operating activities was approximately $98,000, compared to $1.3 million of net cash provided by operating activities during three months ended March 31, 2016. The decrease is primarily due to the 1140 Avenue of the Americas property, acquired in June 2016.

The level of cash flows used in operating activities is affected by the restricted cash, the timing of interest payments, the receipt of scheduled rent payments and the level of property operating expenses. Notwithstanding a net loss of $4.8 million, net cash used in operating activities included adjustments for depreciation and amortization of tangible and intangible assets and other non-cash expenses of $7.1 million, which resulted in cash outflows of $2.3 million. Net cash used in operating activities included net cash inflows of $1.4 million for an increase in deferred rent related to payments received from tenants in advance of their due dates and other liabilities.

Net operating cash outflows primarily related to an increase in prepaid expenses and other assets of $2.8 million primarily related to an increase in unbilled rent receivables recorded in accordance with accounting for rental income on a straight-line basis and restricted cash of $1.6 million reserved for ground rent, real estate taxes, and insurance required by the mortgage lender for the property at 1140 Avenue of the Americas, as well as a $0.5 million increase related to accounts payable and accrued expenses associated with operating activities.

Net cash used in investing activities of $2.0 million during the three months ended March 31, 2017 related to payments of capital expenditures of $2.0 million relating to building and tenant improvements at 9 Times Square, 123 William Street and 1140 Avenue of the Americas.

Net cash provided by financing activities of $4.0 million during the three months ended March 31, 2017 primarily related to the proceeds from mortgage note payable of $115.2 million, which include $140.0 million of mortgage note payable, net $24.8 million of restricted cash required by the mortgage lender for leasing, tenant improvement and leasing commission reserves, partially offset by payment of mortgage note payable of $96.0 million, distributions to stockholders of $6.7 million, payments of $2.9 million relating to financing costs and repurchases of common stock of $5.6 million.

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Cash Flows for the Three Months Ended March 31, 2016

During the three months ended March 31, 2016, net cash provided by operating activities was $1.3 million. Net cash provided by operating activities contained acquisition and transaction related expenses of approximately $40,000 for the three months ended March 31, 2016.

The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, the timing of interest payments, the receipt of scheduled rent payments and the level of property operating expenses. Notwithstanding a net loss of $3.4 million, net cash used in operating activities included adjustments for depreciation and amortization of tangible and intangible assets and other non-cash expenses of $4.7 million, which resulted in cash inflows of $1.3 million. Net cash used in operating activities also included net cash inflows of $1.3 million for an increase in deferred rent related to payments received from tenants in advance of their due dates and other liabilities as well as $0.3 million related to the increase in accounts payable and accrued expenses associated with operating activities.

Net operating cash outflows primarily related to an increase in prepaid expenses and other assets of $1.6 million primarily related to an increase in unbilled rent receivables recorded in accordance with accounting for rental income on a straight-line basis.

Net cash used in investing activities during the three months ended March 31, 2016 was $23.4 million, primarily related to deposits for real estate acquisitions of $18.0 million related to our impending acquisition of 1140 Avenue of the Americas in Manhattan, New York. Net cash used in investing activities also related to capital expenditures of $5.4 million relating to building and tenant improvements at 9 Times Square and 123 William Street.

Net cash used in financing activities of $7.5 million during the three months ended March 31, 2016 consisted primarily of distributions to stockholders of $5.8 million and repurchases of common stock of $1.6 million.

Liquidity and Capital Resources

As of March 31, 2017, we had cash and cash equivalents of $49.6 million. The decrease in cash and cash equivalents from the fourth quarter 2016 is primarily due to distributions paid to our stockholders, capital expenditures, the repurchase of shares during the first quarter 2017 and the set-aside of restricted cash required by mortgage lenders for ground rent, maintenance, real estate taxes, structural, debt service, lease, tenant improvement and leasing commission reserves. Our principal demands for cash will be for acquisition costs, including the purchase price of any properties, loans and securities we acquire, improvement costs, the payment of our operating and administrative expenses, continuing debt service obligations, distributions to our stockholders and repurchases under our SRP. If we acquire additional assets, we intend to pay for them with a portion of the remaining cash proceeds from our IPO and mortgage or other debt, but we also may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price for the asset in cash with a portion of the remaining proceeds from our IPO or in OP units. During 2016, we used cash on hand to fund distributions and, in 2017, expect to continue to use cash on hand to fund distributions. In 2017, cash on hand include excess cash received as a result of refinancing the 123 William Street mortgage in March 2017.

We expect to fund our future short-term operating liquidity requirements, including distributions, through a combination of net cash provided by our current property operations and the operations of properties to be acquired in the future, the remaining proceeds from the sale of common stock and proceeds from secured mortgage financings. Management expects that, as our portfolio of investments stabilizes, specifically 9 Times Square, cash flow from our properties will be sufficient to fund operating expenses and a larger portion of the payment of our monthly distributions. Other potential future sources of capital include proceeds from secured and unsecured financings from banks or other lenders, proceeds from future offerings, proceeds from the sale of properties and undistributed funds from operations when and if we have cash flow in excess of current distributions.

We have used mortgage financing to acquire two of our properties and expect to use debt financing as a source of capital. Under our charter, the maximum amount of our total indebtedness may not exceed 300% of our total "net assets" (as defined in our charter) as of the date of any borrowing, which is generally equal to 75% of the cost of our investments. We may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, we intend to limit our aggregate borrowings to 40% to 50% of the aggregate fair market value of our assets unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation will be calculated once we have invested substantially all the proceeds of our IPO and will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to satisfy our requirements under our charter. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits.

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To the extent that we maintain borrowing capacity under a line of credit, such available amount will be included in calculating our liquid assets. Our Advisor will consider various factors in determining the amount of liquid assets we should maintain, including, but not limited to, our receipt of proceeds from sales of additional shares, our cash flow from operations, available borrowing capacity under a line of credit, if any, our receipt of proceeds from any asset sale, and the use of cash to fund repurchases. Our board of directors will review the amount and sources of liquid assets on a quarterly basis.

Share Repurchase Program

Our board of directors has adopted the SRP that enables stockholders, subject to certain conditions and limitations, to sell their shares to us. Due to these conditions and limitations, there can be no assurance that all, or any, shares submitted validly for repurchase will be repurchased under the SRP. On January 25, 2016, we announced that our board of directors had unanimously approved an amendment to the SRP. Under the SRP amendment, repurchases of shares of our common stock, when requested, are at the sole discretion of our board of directors and generally will be made semiannually (each six-month period ending June 30 or December 31, a "fiscal semester"). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, we are only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from the DRIP in that same fiscal semester, as well as any reservation of funds our board of directors may, in its sole discretion, make available for this purpose. Since we established an Estimated Per-Share NAV during the second fiscal semester of 2016, any repurchase requests received during the second fiscal semester of 2016 were paid at the Estimated Per-Share NAV. The SRP amendment became effective on February 28, 2016.

If a stockholder requests a repurchase and the repurchase is approved by our board of directors, we will reclassify such obligation from equity to a liability based on the value of the obligation. Shares purchased under the SRP will have the status of authorized but unissued shares. The following table reflects the number of shares repurchased cumulatively through March 31, 2017.



	Numbers of Shares Repurchased	Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2016	645,335	$	23.63
Three months ended March 31, 2017⁽¹⁾	276,624	20.15
Cumulative repurchases as of March 31, 2017	921,959	$	22.59

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(1)	Excludes rejected shares of 902,420 for $18.1 million at an average price per share of $20.03, which were unfulfilled as of March 31, 2017.

Capital Expenditures

We may invest in additional capital expenditures to further enhance the value of our investments. Additionally, many of our lease agreements with tenants include provisions for tenant improvement allowances.

As previously noted, subsequent to the acquisition of 9 Times Square in November 2014, we allowed leases to expire and terminate as part of the implementation of our repositioning, redeveloping and remarketing plan with respect to the property. As a result of these initiatives, we incurred approximately $7.1 million of capital expenditures in 2016 related to building improvements, tenant improvements and leasing commissions. While we have substantially completed our repositioning and redevelopment plan with respect to 9 Times Square and are currently working to lease the remaining vacant space at the property, there can be no assurance that we will be successful in lease-up of this property or effectively repositioning or remarketing any other property we may acquire for these purposes, including increasing the occupancy rate. We expect capital expenditures in 2017 to be less than 2016 and consist primarily of tenant requested improvements incurred in connection with our leasing efforts. The remainder of $9.7 million in capital expenditures for the year ended December 31, 2016 related to building and tenant improvements at 123 William Street and 1140 Avenue of the Americas. For the three months ended March 31, 2017, we incurred $2.0 million of capital expenditures.

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Non-GAAP Financial Measures

This section includes non-GAAP financial measures, including funds from operations ("FFO") and modified funds from operations ("MFFO"). A description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income (loss), is provided below.

Funds from Operations and Modified Funds from Operations

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

The National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as FFO, which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and, when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, has published a standardized measure of performance known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year over year, both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisitions fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses, amounts relating to deferred rent receivables and amortization of above-and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income, gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

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We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.

None of the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guideline or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

The table below reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the periods presented.



	Three Months Ended
(In thousands)	March 31, 2017
Net loss (in accordance with GAAP)	$	(4,786	)
Depreciation and amortization	6,997
FFO	2,211
Acquisition and transaction related	6
Accretion of below- and amortization of above-market lease liabilities and assets, net	(539		)
Straight-line rent	(618		)
Straight-line ground rent	27
Non-recurring losses (gain) on extinguishment of debt	131
MFFO	$	1,218

Distributions

In May 2014, our board of directors authorized, and we began paying distributions to stockholders of record at a rate equal to $1.5125 per annum, per share of common stock. We continue to pay monthly distributions at the rate.

Future distributions to our stockholders will be determined by our board of directors and are dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Distribution payments are dependent on the availability of funds. Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.

During the quarter ended March 31, 2017, distributions paid to common stockholders totaled $11.5 million. Of that amount, $4.8 million was reinvested in shares of our common stock pursuant to the DRIP. During the quarter ended March 31, 2017, we funded distributions from cash on hand which represents a portion of the remaining proceeds from the IPO and proceeds from the sale of our shares through the DRIP.

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For the quarter ended March 31, 2017, our cash flows from operations was negative, and we do not expect to generate sufficient cash flow from operations in 2017 to fund distributions at our current level. No assurance as to cash flows from operations can be made with respect to future years. The amount of cash available for distributions is affected by many factors, such as rental income from acquired properties, our operating expense levels, the amount of our cash and many other variables. Actual cash available for distributions may vary substantially from estimates. With limited operating history, we cannot assure our stockholders that we will be able to continue to pay distributions or that distributions will increase over time. We cannot give any assurance that rents from the properties we have acquired will increase, or that future acquisitions of real properties will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing a distribution rate to stockholders.

We expect to use cash on hand, which represents a portion of the remaining proceeds we received from the IPO, and proceeds from the sale of our shares through DRIP to pay distributions. A decrease in the level of stockholder participation in our DRIP or continued negative cash flow or need to use cash flow that we may generate in the future for other purposes could have an adverse impact on our ability to meet these expectations. If these sources are insufficient, we may use other sources, such as from borrowings, the sale of additional securities, advances from our Advisor, and our Advisor's deferral, suspension or waiver of its fees and expense reimbursements, as to which it has no obligation, to fund distributions. There can be no assurance we will be able to continue paying cash distributions at our current level or at all.

The following table shows the sources for the payment of distributions to common stockholders for the periods presented:



	Three Months Ended
	March 31, 2017
(In thousands)				Percentage of Distributions
Distributions:⁽¹⁾
Distributions to stockholders⁽²⁾	$	11,455
Source of distribution coverage:
Cash flows provided by operations	*			—	%
Net proceeds from the sale of shares through DRIP	—			—	%
Available cash on hand⁽³⁾	11,455			100.0	%
Total sources of distributions	$	11,455		100.0	%
Cash flows used in operations (GAAP basis)	$	(98	)
Net loss (in accordance with GAAP)	$	(4,786	)

__________________________________

(1) Excludes distributions related to Class B Units, the expense for which is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

(2) Distribution reinvested in common stock under our DRIP for the three months ended March 31, 2017 was $4.8 million.

* No cash flows from operations were used to cover distribution during the three months ended March 31, 2017. Net cash used in operating activities was approximately $98 thousand.

(3) Includes remaining proceeds from the IPO and distribution reinvested under the DRIP.

Contractual Obligations

Debt Obligations

The following is a summary of our contractual debt obligations as of March 31, 2017:



					Years Ended December 31,
(In thousands)	Total		April 1, 2017 — December 31, 2017		2018 — 2019		2020 — 2021		Thereafter
Mortgage note payable:
Principal payments	$	239,000	$	—	$	—	$	—	$	239,000
Interest payments	104,789		8,097		21,496		21,525		53,671
Total debt obligations	$	343,789	$	8,097	$	21,496	$	21,525	$	292,671

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Ground Lease Obligations

The following is a summary of our contractual ground lease obligations as of March 31, 2017:



					Years Ended December 31,
(In thousands)	Total		April 1, 2017 — December 31, 2017		2018 — 2019		2020 — 2021		Thereafter
Ground lease payments	$	244,028	$	3,560	$	9,492	$	9,492	$	221,484

Election as a REIT

We elected and qualified to be taxed as a REIT under the Code, effective for our taxable year ended December 31, 2014. We believe that, commencing with such taxable year, we have been organized and operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified for taxation as a REIT. In order to continue to qualify for taxation as a REIT we must, among other things, distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties as well as federal income and excise taxes on our undistributed income.

Inflation

Many of our leases contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. In addition, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in operating expenses resulting from inflation.

Related-Party Transactions and Agreements

See Note 9 — Related Party Transactions and Arrangements to our accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings, bears interest at fixed and variable-rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. From time to time, we may enter into interest rate hedge contracts such as swaps, caps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

As of March 31, 2017, our debt consisted of fixed-rate secured mortgage notes payable with an aggregate carrying value of $239.0 million and a fair value of $239.1 million. Changes in market interest rates on our fixed-rate debt impact the fair value of the note, but it has no impact on interest due on the note. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed–rate debt assumes an immediate 100 basis point move in interest rates from their March 31, 2017 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $221.4 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $258.6 million.

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These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and assuming no other changes in our capital structure. As the information presented above includes only those exposures that existed as of March 31, 2017 and does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

Item 4. Controls and Procedures.

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.

No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to any material pending legal proceedings.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities.

Recent Sales of Unregistered Securities

On July 29, 2016, we granted 3,999 shares of restricted stock that vest over a period of five years to our independent directors, pursuant to our employee and director incentive restricted share plan. No selling commissions or other consideration were paid in connection with such issuance, which was made without registration under the Securities Act in reliance upon exemption from the registration in Section 4(a)(2) of the Securities Act as transactions not involving any public offering.

Use of Proceeds from Sales of Registered Securities

On April 24, 2014, we commenced our IPO on a "reasonable best efforts" basis of up to 30.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, pursuant to the Registration Statement filed with the SEC under the Securities Act (File No. 333-194135). The Registration Statement also covered 10.5 million shares of common stock issuable pursuant to the DRIP under which common stockholders may elect to have their distributions reinvested in additional shares of common stock. On May 29, 2014, we received and accepted subscriptions in excess of the minimum offering amount for the IPO of $2.0 million in shares, broke general escrow and issued shares of common stock to initial investors who were admitted as stockholders. On May 31, 2015, we closed our IPO after having sold substantially all of the shares registered in our IPO, and continued to accept subscriptions in process as of that date. As of March 31, 2017, we had 30.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and DRIP of $764.0 million, inclusive of $50.8 million from the DRIP.

The following table reflects the offering costs associated with the issuance of common stock:



	Year Ended December 31,
(In thousands)	2015		2014
Selling commissions and dealer manager fees	$	22,374	$	46,997
Other offering costs	6,050		8,628
Total offering costs	$	28,424	$	55,625

The Former Dealer Manager was able to reallow the selling commissions and a portion of the dealer manager fees to participating broker-dealers. The following table details the selling commissions incurred and reallowed related to the sale of shares of common stock:



	Year Ended December 31,
(In thousands)	2015			2014
Total commissions paid to the Former Dealer Manager	$	22,374		$	46,997
Less:
Commissions to participating brokers	(15,505		)	(31,920		)
Reallowance to participating broker dealers	(2,625		)	(5,685		)
Net to the Former Dealer Manager	$	4,244		$	9,392

As of March 31, 2017, we have incurred $84.0 million of cumulative offering costs in connection with the issuance and distribution of our registered securities. Cumulative offering proceeds from the sale of common stock exceeded cumulative offering costs by $680.0 million at March 31, 2017.

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As of March 31, 2017, cumulative offering costs included $69.4 million of selling commissions and dealer manager fees and $11.9 million of offering cost reimbursements incurred from the Advisor and Former Dealer Manager. We are obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs (excluding selling commissions and the dealer manager fee) incurred by us in our IPO exceed 2.0% of gross offering proceeds in the IPO. As a result, these costs were only our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs did not exceed 12.0% of the gross proceeds determined at the end of the IPO. As of the end of the IPO, aggregate selling commissions, dealer manager fees and other offering costs did not exceed 12.0% of the gross proceeds received in the IPO.

As of March 31, 2017, we have used $700.7 million of the $713.2 million in aggregate net proceeds from our IPO, excluding the DRIP, as follows: (i) $492.5 million to pay all or a portion of the purchase price of six properties; (ii) $69.4 million to pay selling commissions and dealer manager fees to our Former Dealer Manager; (iii) $11.9 million to reimburse our Advisor for Offering expenses; (iv) $17.6 million to pay acquisition fees, acquisition cost reimbursements, financing coordination fees and other fees and reimbursements to our Advisor and its affiliates; (v) $55.3 million to pay distributions to our stockholders; (vi) $33.2 million to fund capital expenditures; and (vii) $20.8 million to repurchase shares of our common stock pursuant to the SRP.

Issuer Purchases of Equity Securities

As permitted under the SRP, our board of directors authorized, with respect to redemption requests received during the quarter ended March 31, 2017, the repurchase of shares validly submitted for repurchase in an amount equal to the amount of proceeds received from the DRIP in that same fiscal semester, representing less than all the shares validly submitted for repurchase during the quarter ended March 31, 2017. When a stockholder requests a repurchase and the repurchase is approved by our board of directors, we will reclassify such obligation from equity to a liability based on the value of the obligation. Shares purchased under the SRP will have the status of authorized but unissued shares. The following table reflects the number of shares repurchased cumulatively through March 31, 2017.



	Numbers of Shares Repurchased	Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2016	645,335	$	23.63
Three months ended March 31, 2017⁽¹⁾	276,624	20.15
Cumulative repurchases as of March 31, 2017	921,959	$	22.59

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(1)	Excludes rejected shares of 902,420 for $18.1 million at an average price per share of $20.03, which were unfulfilled as of March 31, 2017.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	AMERICAN REALTY CAPITAL NEW YORK CITY REIT, INC.
	By:	/s/ Edward M. Weil, Jr.
		Edward M. Weil, Jr.
		Executive Chairman, Chief Executive Officer, President and Secretary (Principal Executive Officer)

	By:	/s/ Nicholas Radesca
		Nicholas Radesca
		Interim Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

Dated: May 11, 2017

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EXHIBITS INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (and are numbered in accordance with Item 601 of Regulation S-K).



Exhibit No.		Description
10.1 *		Loan Agreement dated March 6, 2017 between ARC NYC123WILLIAM, LLC and Barclays Bank PLC
10.2 *		Limited Recourse Guaranty dated March 6, 2017 by New York City Operating Partnership, L.P.
10.3 *		Environmental Indemnity Agreement dated March 6, 2017 by ARC NYC 123WILLIAM, LLC and New York City Operating Partnership, L.P.
31.1 *		Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *		Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 *		Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 *		XBRL (eXtensible Business Reporting Language). The following materials from American Realty Capital New York City REIT, Inc.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2017, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

____________________

* Filed herewith