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Necessity Retail REIT, Inc. - Quarter Report: 2015 March (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
 
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: 000-55197
American Realty Capital Trust V, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
90-0929989
(State or other  jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
405 Park Ave., New York, New York
  
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 has 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 (§232.405 of this chapter) 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, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of April 30, 2015, the registrant had 65,832,464 shares of common stock outstanding.


AMERICAN REALTY CAPITAL TRUST V, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.
AMERICAN REALTY CAPITAL TRUST V, INC.

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

 
March 31,
2015
 
December 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate investments, at cost:
 
 
 
Land
$
358,278

 
$
358,278

Buildings, fixtures and improvements
1,540,821

 
1,540,821

Acquired intangible lease assets
319,028

 
319,028

Total real estate investments, at cost
2,218,127

 
2,218,127

Less: accumulated depreciation and amortization
(137,013
)
 
(110,875
)
Total real estate investments, net
2,081,114

 
2,107,252

Cash and cash equivalents
94,631

 
74,760

Investment securities, at fair value
10,107

 
18,991

Prepaid expenses and other assets
16,344

 
14,104

Deferred costs, net
12,621

 
13,923

Total assets
$
2,214,817

 
$
2,229,030

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Mortgage notes payable
$
469,836

 
$
470,079

Mortgage premiums, net
20,241

 
22,100

Credit facility
423,000

 
423,000

Below-market lease liabilities, net
19,138

 
19,473

Accounts payable and accrued expenses
14,892

 
12,799

Deferred rent and other liabilities
5,897

 
7,238

Distributions payable
9,234

 
9,176

Total liabilities
962,238

 
963,865

Preferred stock, $0.01 par value per share, 50,000,000 shares authorized, none issued and outstanding
—

 
—

Common stock, $0.01 par value per share, 300,000,000 shares authorized, 65,662,261
and 65,257,954 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
657

 
653

Additional paid-in capital
1,446,554

 
1,437,147

Accumulated other comprehensive income
286

 
463

Accumulated deficit
(194,918
)
 
(173,098
)
Total stockholders' equity
1,252,579

 
1,265,165

Total liabilities and stockholders' equity
$
2,214,817

 
$
2,229,030


The accompanying notes are an integral part of these statements.

3
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
(Unaudited)

 
Three Months Ended March 31,
 
2015
 
2014
Revenues:
 
 
 
Rental income
$
40,215

 
$
26,726

Operating expense reimbursements
2,651

 
3,398

Total revenues
42,866

 
30,124

 
 
 
 
Operating expenses:
 
 
 
Property operating
3,087

 
3,527

Acquisition and transaction related
129

 
14,532

General and administrative
1,947

 
1,094

Depreciation and amortization
25,387

 
17,888

Total operating expenses
30,550

 
37,041

Operating income (loss)
12,316

 
(6,917
)
Other (expense) income:
 
 
 
Interest expense
(8,160
)
 
(3,444
)
Income from investment securities
169

 
955

Gain (Loss) on sale of investment securities
546

 
(166
)
Other income
30

 
3

Total other expense, net
(7,415
)
 
(2,652
)
Net income (loss)
$
4,901

 
$
(9,569
)
 
 
 
 
Other comprehensive income (loss):
 
 
 
Change in unrealized income on investment securities
(177
)
 
5,231

Comprehensive income (loss)
$
4,724

 
$
(4,338
)
 
 
 
 
Basic net income (loss) per share
$
0.07

 
$
(0.15
)
Diluted net income (loss) per share
$
0.07

 
$
(0.15
)
 

The accompanying notes are an integral part of these statements.

4
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2015
(In thousands, except share data)
(Unaudited)


 
Common Stock
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional Paid-in
Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2014
65,257,954

 
$
653

 
$
1,437,147

 
$
463

 
$
(173,098
)
 
$
1,265,165

Common stock issued through distribution reinvestment plan
630,906

 
6

 
14,820

 
—

 
—

 
14,826

Common stock repurchases
(227,875
)
 
(2
)
 
(5,420
)
 
—

 
—

 
(5,422
)
Share-based compensation
1,276

 
—

 
7

 
—

 
—

 
7

Distributions declared
—

 
—

 
—

 
—

 
(26,721
)
 
(26,721
)
Net loss
—

 
—

 
—

 
—

 
4,901

 
4,901

Other comprehensive income
—

 
—

 
—

 
(177
)
 
—

 
(177
)
Balance, March 31, 2015
65,662,261

 
$
657

 
$
1,446,554

 
$
286

 
$
(194,918
)
 
$
1,252,579


The accompanying notes are an integral part of this statement.



5
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
4,901

 
$
(9,569
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
16,737

 
13,058

Amortization of in-place lease assets
8,650

 
4,830

Amortization of deferred financing costs
1,302

 
754

Amortization of mortgage premiums
(1,859
)
 
(484
)
Amortization of above-market lease assets and accretion of below-market lease liabilities, net
416

 
150

Share-based compensation
7

 
5

(Gain) Loss on sale of investment securities
(546
)
 
166

Changes in assets and liabilities:
 
 
 
Prepaid expenses and other assets
(2,240
)
 
8,134

Accounts payable and accrued expenses
1,780

 
2,595

Deferred rent and other liabilities
(1,341
)
 
1,068

Net cash provided by operating activities
27,807

 
20,707

Cash flows from investing activities:
 
 
 
Investments in real estate and other assets
—

 
(416,866
)
Deposits for real estate acquisitions
—

 
(15,087
)
Proceeds from the sale of investment securities
9,253

 
9,571

Net cash provided by (used in) investing activities
9,253

 
(422,382
)
Cash flows from financing activities:
 
 
 

Payments of mortgage notes payable
(243
)
 
(76
)
Proceeds from credit facility
—

 
338,000

Payments of deferred financing costs
—

 
(8,466
)
Proceeds from issuances of common stock
—

 
127

Payments of offering costs and fees related to stock issuances, net
—

 
(24
)
Common stock repurchases
(5,109
)
 
—

Distributions paid
(11,837
)
 
(10,884
)
Restricted cash
—

 
(331
)
Net cash (used in) provided by financing activities
(17,189
)
 
318,346

Net change in cash and cash equivalents
19,871

 
(83,329
)
Cash and cash equivalents, beginning of period
74,760

 
101,176

Cash and cash equivalents, end of period
$
94,631

 
$
17,847

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest
$
8,186

 
$
421

Cash paid for income taxes
$
8

 
$
23

 
 
 
 
Non-Cash Investing and Financing Activities:
 
 
 
Mortgage notes payable assumed or used to acquire investments in real estate
$
—

 
$
422,321

Premiums on assumed mortgage notes payable
$
—

 
$
24,560

Common stock issued through distribution reinvestment plan
$
14,826

 
$
14,819


The accompanying notes are an integral part of these statements.

6
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)


Note 1 — Organization
American Realty Capital Trust V, Inc. (the "Company") was incorporated on January 22, 2013 as a Maryland corporation and qualified as a real estate investment trust for U.S. federal income tax purposes ("REIT") beginning with the taxable year ended December 31, 2013. On April 4, 2013, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 68.0 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 a registration statement on Form S-11, as amended (File No. 333-187092) (the "Registration Statement"), filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. The Registration Statement also covered up to 14.7 million shares of common stock at an initial price of $23.75 per share, which was 95.0% of the initial offering price of shares of common stock in the IPO, available pursuant to a distribution reinvestment plan (the "DRIP"), under which the Company's common stockholders could elect to have their distributions reinvested in additional shares of the Company's common stock.
On April 25, 2013, the Company received and accepted aggregate subscriptions in excess of the minimum of $2.0 million in shares of common stock, broke escrow and issued shares of common stock to its initial investors who were admitted as stockholders. As permitted under the Company's Registration Statement, the Company reallocated the remaining 14.5 million DRIP shares available under the Registration Statement to the primary offering. Concurrent with such reallocation, the Company registered an additional 14.7 million shares at an initial price of $23.75 per share to be issued under the DRIP pursuant to a registration statement on Form S-11, as amended (File No. 333-191255), which became effective on October 5, 2013. The IPO closed in October 2013. As of March 31, 2015, the Company had 65.7 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 $1.6 billion. On November 19, 2014, the Company's board of directors approved an estimated net asset value per share of the Company's common stock ("Estimated Per-Share NAV") of $23.50, calculated by the Advisor in accordance with the Company's valuation guidelines, as of September 30, 2014. Beginning with November 14, 2014 (the "NAV Pricing Date"), the price per share for shares of common stock purchased under the DRIP and the price per share for shares of common stock repurchased by the Company pursuant to the Company's share repurchase plan (the "SRP") will each be equal to the Estimated Per-Share NAV of the Company's common stock. Because the Company’s Annual Report on Form 10-K was filed in close proximity to the statutory deadline for filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, the Company did not publish Estimated Per-Share NAV as of December 31, 2014. The Company intends to publish an Estimated Per-Share NAV as of March 31, 2015 shortly following the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. In determining Estimated Per-Share NAV, each property is appraised at least annually and appraisals will be spread out over the course of a year so that, typically, approximately 25% of all properties are appraised each quarter. However, in connection with determining Estimated Per-Share NAV as of March 31, 2015 the Company expects to appraise 100% of its properties.
The Company has acquired a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant retail properties that are net leased to investment grade and other creditworthy tenants. All properties are operated by the Company or by the Company jointly with another party. The Company may also originate or acquire first mortgage loans secured by real estate. The Company purchased its first property and commenced active operations on April 29, 2013. As of March 31, 2015, the Company owned 463 properties with an aggregate purchase price of $2.2 billion, comprised of 13.1 million rentable square feet that were 100.0% leased with a weighted-average remaining lease term of 9.4 years.
Substantially all of the Company's business is conducted through American Realty Capital Operating Partnership V, L.P. (the "OP"), a Delaware limited partnership and its wholly-owned subsidiaries. The Company is the sole general partner and holds substantially all the units of limited partner interests in the OP ("OP Units"). American Realty Capital Trust V Special Limited Partner, LLC (the "Special Limited Partner"), an entity controlled by AR Capital, LLC (the "Sponsor"), contributed $2,020 to the OP in exchange for 90 OP Units, which represents a nominal percentage of the aggregate OP ownership. After holding the OP Units for a period of one year, or upon liquidation of the OP or sale of substantially all of the assets of the OP, holders of OP Units have the right to convert OP Units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.

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Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

The Company has no direct employees. The Company has retained American Realty Capital Advisors V, LLC (the "Advisor") to manage the Company's affairs on a day-to-day basis. American Realty Capital Properties V, LLC (the "Property Manager") serves as the Company's property manager. Realty Capital Securities, LLC (the "Dealer Manager") served as the dealer manager of the IPO and continues to provide the Company with various strategic investment banking services.  The Advisor and the Property Manager are wholly owned subsidiaries of, and the Dealer Manager is under common control with, the Sponsor, as a result of which, they are related parties of the Company. Each has received and/or may receive, as applicable, compensation, fees and other expense reimbursements for services related to the IPO and for the investment and management of the Company's assets. Such entities have received or may receive, as applicable, fees during the offering, acquisition, operational and liquidation stages.
During the second quarter of 2014, the Company announced that it engaged J.P. Morgan Securities LLC and RCS Capital, the investment banking division of the Dealer Manager, as financial advisors to assist the Company in evaluating potential strategic alternatives. On April 15, 2015, upon recommendation by the Advisor and approval by the Company’s board of directors, the Company adopted new Investment Objectives and Acquisition and Investment Policies (the “New Strategy”). Under the New Strategy, the Company expects to focus on originating and acquiring first mortgage and other commercial real estate-related debt investments across all major commercial real estate sectors (such investments collectively, “CRE Debt Investments”). The Company will maintain its investments in its existing portfolio of 463 net leased commercial real estate properties (the “Net Lease Portfolio”). The Company will continue to selectively invest in additional net lease properties to consolidate the Net Lease Portfolio, however the Company will not forgo opportunities to invest in other types of real estate investments that meet its overall investment objectives. The Company intends to finance its CRE Debt Investments primarily through mortgage financing secured by its Net Lease Portfolio.
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 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. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results for the entire year or any subsequent interim periods.
These 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, 2014, which are included in the Company's Annual Report on Form 10-K filed with the SEC on May 15, 2015. The Consolidated Statements of Operations and Comprehensive Income (Loss) and Cash Flows for the three months ended March 31, 2014, include adjustments, as previously disclosed in the Company’s Form 10-K, to reflect certain adjustments and final purchase price allocations to previously reported information associated with acquisitions completed during 2014. As a result, amortization and accretion of above-market lease assets and below-market lease liabilities decreased total revenue by $0.1 million, depreciation and amortization expense decreased by $1.2 million and net loss decreased $1.1 million for the three months ended March 31, 2014. In addition, real estate investments, net increased $17.7 million, below market lease liabilities, net increased $16.6 million and total stockholders’ equity increased $1.1 million as of March 31, 2014. There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2015, other than the updates described below.
Recently Issued 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 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In April 2015, the FASB proposed a one-year delay of the revised guidance, although entities will be allowed to early adopt the guidance as of the original effective date. The Company has not yet selected a transition method and is currently evaluating the impact of the new guidance.

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Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIEs") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If the Company decides to early adopt the revised guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. The Company is currently evaluating the impact of the new guidance.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for financial statements that have not previously been issued. If the Company decides to early adopt the revised guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. The Company is currently evaluating the impact of the new guidance.
Note 3 — Real Estate Investments
The Company owned 463 properties as of March 31, 2015. The rentable square feet or annualized rental income on a straight-line basis of the four properties summarized below represented 5.0% or more of the Company's total portfolio's rentable square feet or annualized rental income on a straight-line basis as of March 31, 2015.
Home Depot - Birmingham, AL
On September 24, 2013, the Company, through an indirect wholly-owned subsidiary of the OP, closed its acquisition of Home Depot, a freestanding, single-tenant distribution facility located in Birmingham, Alabama ("Home Depot Birmingham"). The seller had no preexisting relationship with the Company. The purchase price of Home Depot Birmingham was $41.4 million, exclusive of closing costs. The acquisition of Home Depot Birmingham was funded with proceeds from the Company's IPO. The Company accounted for the purchase of Home Depot Birmingham as a business combination and incurred acquisition related costs of $0.5 million, which are reflected in the acquisition and transaction related line item of the consolidated statements of operations and comprehensive loss.
Home Depot - Valdosta, GA
On September 24, 2013, the Company, through an indirect wholly-owned subsidiary of the OP, closed its acquisition of Home Depot, a freestanding, single-tenant distribution facility located in Valdosta, Georgia ("Home Depot Valdosta"). The sellers had no preexisting relationship with the Company. The purchase price of Home Depot Valdosta was $37.6 million, exclusive of closing costs. The acquisition of Home Depot Valdosta was funded with proceeds from the Company's IPO. The Company accounted for the purchase of Home Depot Valdosta as a business combination and incurred acquisition related costs of $0.4 million, which are reflected in the acquisition and transaction related line item of the consolidated statements of operations and comprehensive loss.
C&S Wholesale Grocers - Birmingham, AL
On February 21, 2014, the Company, through an indirect wholly-owned subsidiary of the OP, closed its acquisition of C&S Wholesale Grocers, a freestanding, single-tenant distribution facility located in Birmingham, Alabama ("C&S Wholesale Grocers"). The seller had no preexisting relationship with the Company. The purchase price of C&S Wholesale Grocers was $54.4 million, exclusive of closing costs. The acquisition of C&S Wholesale Grocers was funded with proceeds from the Company's IPO and the assumption of existing mortgage debt secured by the property. The Company accounted for the purchase of C&S Wholesale Grocers as a business combination and incurred acquisition related costs of $0.8 million, which are reflected in the acquisition and transaction related line item of the consolidated statements of operations and comprehensive loss.
Sanofi US - Bridgewater, NJ
On March 21, 2014, the Company, through an indirect wholly-owned subsidiary of the OP, closed its acquisition of Sanofi US, a freestanding, single-tenant office facility located in Bridgewater, New Jersey ("Sanofi"). The seller had no preexisting relationship with the Company. The purchase price of Sanofi was $251.1 million, exclusive of closing costs. The acquisition of Sanofi was funded with proceeds from the Company's IPO and the assumption of existing mortgage debt secured by the property. The Company accounted for the purchase of Sanofi as a business combination and incurred acquisition related costs of $5.8 million, which are reflected in the acquisition and transaction related line item of the consolidated statements of operations and comprehensive loss.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

There were no real estate assets acquired or liabilities assumed during the three months ended March 31, 2015. The following table presents the allocation of real estate assets acquired and liabilities assumed during the three months ended March 31, 2014:
 
 
Three Months Ended
 
(Dollar amounts in thousands)
 
March 31, 2014
 
Real estate investments, at cost:
 
 
 
Land
 
$
179,733

 
Buildings, fixtures and improvements
 
560,445

 
Total tangible assets
 
740,178

 
Acquired intangibles:
 
 
 
In-place leases
 
143,193

 
Above-market lease assets
 
13,403

 
Below-market lease liabilities
 
(16,759
)
 
Total assets acquired
 
880,015

 
Mortgage notes payable assumed
 
(422,321
)
 
Premiums on mortgage notes payable assumed
 
(24,560
)
 
Deposits paid in prior periods
 
(26,170
)
 
Cash paid for acquired real estate investments, at cost
 
$
406,964

(1) 
Number of properties purchased
 
204

 
_____________________________________
(1)
Excludes cash paid for real estate investments financed through accounts payable in prior periods of $9.9 million.
The following table presents future minimum base rent payments on a cash basis due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items:
(In thousands)
 
Future Minimum
Base Rent Payments
April 1, 2015 to December 31, 2015
 
$
115,784

2016
 
157,021

2017
 
159,420

2018
 
130,987

2019
 
132,708

Thereafter
 
836,223

 
 
$
1,532,143

The following table lists the tenants (including, for this purpose, all affiliates of such tenants) from which the Company derives annualized rental income on a straight-line basis constituting 10.0% or more of the Company’s consolidated annualized rental income on a straight-line basis for all portfolio properties as of the dates indicated: 
 
 
March 31,
Tenant
 
2015
 
2014
SunTrust Bank
 
17.9%
 
19.3%
Sanofi US
 
11.6%
 
12.4%
C&S Wholesale Grocer
 
10.4%
 
11.1%
The termination, delinquency or non-renewal of leases by one or more of the above tenants may have a material adverse effect on revenues. No other tenant represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of March 31, 2015 and 2014.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

The following table lists the states where the Company has concentrations of properties where annualized rental income on a straight-line basis represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of March 31, 2015 and 2014:
 
 
March 31,
State
 
2015
 
2014
New Jersey
 
20.3%
 
21.2%
Georgia
 
11.2%
 
12.0%
The Company did not own properties in any other state that in total represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of March 31, 2015 and 2014.
Note 4 — Investment Securities
As of March 31, 2015 and December 31, 2014, the Company had investments in debt securities consisting of redeemable preferred stock with an aggregate fair value of $10.1 million and $19.0 million respectively. These investments are considered available-for-sale securities and therefore increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income as a component of stockholders' equity on the consolidated balance sheets, unless the securities are considered to be permanently impaired, at which time the losses would be reclassified to expense.
The following table details the unrealized gains and losses on investment securities as of March 31, 2015 and December 31, 2014:
(In thousands)
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2015
 
 
 
 
 
 
 
 
Debt securities
 
$
9,821

 
$
293

 
$
(7
)
 
$
10,107

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
Debt securities
 
$
18,528

 
$
463

 
$
—

 
$
18,991

Unrealized losses as of March 31, 2015 were considered temporary and therefore no impairment was recorded during the three months ended March 31, 2015.
During the three months ended March 31, 2015, the Company sold investments in redeemable preferred stock and senior notes with an aggregate cost basis of $8.7 million for $9.2 million, resulting in a realized gain on sale of investment securities of $0.5 million.
The Company's preferred stock investments are redeemable at the respective issuer's option after five years from issuance.
Note 5 — Credit Facility
On September 23, 2013, the Company, through the OP, entered into a credit agreement (the "Credit Agreement") relating to a credit facility (the "Credit Facility") that provides for aggregate revolving loan borrowings of up to $200.0 million (subject to borrowing base availability), with a $25.0 million swingline subfacility and a $20.0 million letter of credit subfacility. Through amendments to the Credit Agreement, the OP increased commitments under the Credit Facility to $750.0 million as of March 31, 2015. As of March 31, 2015 and December 31, 2014, the outstanding balance under the Credit Facility was $423.0 million. The Company's unused borrowing capacity was $238.0 million and $234.6 million as of March 31, 2015 and December 31, 2014, respectively, based on the assets assigned to the Credit Facility. Availability of borrowings is based on a pool of eligible unencumbered real estate assets.
Borrowings under the Credit Facility bear interest, at the OP's election, at either (i) the base rate (which is defined in the Credit Agreement as the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 0.50%, and (c) LIBOR for a one month interest period plus 1.0%) plus an applicable spread ranging from 0.60% to 1.20%, depending on the Company's consolidated leverage ratio, or (ii) LIBOR plus an applicable spread ranging from 1.60% to 2.20%, depending on the Company's consolidated leverage ratio. The Credit Facility requires an unused fee per annum of 0.25% and 0.15%, if the unused balance of the Credit Facility exceeds, or is equal to or less than, 50.0% of the available facility, respectively.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

The Credit Facility provides for monthly interest payments for each base rate loan and periodic interest payments for each LIBOR loan, based upon the applicable interest period with respect to such LIBOR loan, with all principal outstanding being due on the maturity date. The Credit Facility will mature on September 23, 2017, provided that the OP, subject to certain conditions, may elect to extend the maturity date one year to September 23, 2018. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans. Certain of the Company's subsidiaries and certain subsidiaries of the OP guarantee, and the equity of certain subsidiaries of the OP have been pledged as collateral for, the obligations under the Credit Facility.
The Credit Facility requires the Company to meet certain financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. As of March 31, 2015, the Company was in compliance with the financial covenants under the Credit Agreement.
Note 6 — Mortgage Notes Payable
The Company's mortgage notes payable as of March 31, 2015 and December 31, 2014 consist of the following:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate as of
 
 
 
 
Portfolio
 
Encumbered Properties
 
March 31,
2015
 
December 31,
2014
 
March 31,
2015
 
December 31,
2014
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
SAAB Sensis I
 
1
 
$
8,439

 
$
8,519

 
6.01
%
 
6.01
%
 
Fixed
 
Apr. 2025
SunTrust Bank II
 
30
 
25,000

 
25,000

 
5.50
%
 
5.50
%
 
Fixed
 
Jul. 2021
C&S Wholesale Grocer I
 
4
 
82,313

 
82,313

 
5.56
%
 
5.56
%
 
Fixed
 
Apr. 2017
SunTrust Bank III
 
121
 
99,677

 
99,677

 
5.50
%
 
5.50
%
 
Fixed
 
Jul. 2021
SunTrust Bank IV
 
30
 
25,000

 
25,000

 
5.50
%
 
5.50
%
 
Fixed
 
Jul. 2021
Sanofi US I
 
1
 
190,000

 
190,000

 
5.83
%
 
5.83
%
 
Fixed
 
Dec. 2015
Stop & Shop I
 
4
 
39,407

 
39,570

 
5.63
%
 
5.63
%
 
Fixed
 
Jun. 2021
Total
 
191
 
$
469,836

 
$
470,079

 
5.66
%
(1) 
5.66
%
(1) 
 
 
 
_____________________________________
(1)
Calculated on a weighted-average basis for all mortgages outstanding as of the dates indicated.
The following table summarizes the scheduled aggregate principal payments on mortgage notes payable for the five years subsequent to March 31, 2015:
(In thousands)
 
Future Principal Payments
April 1, 2015 to December 31, 2015
 
$
190,721

2016
 
1,014

2017
 
83,393

2018
 
1,143

2019
 
1,211

Thereafter
 
192,354

 
 
$
469,836

The Company's mortgage notes payable agreements require the compliance of certain property-level financial covenants including debt service coverage ratios. As of March 31, 2015, the Company was in compliance with financial covenants under its mortgage notes payable agreements.
Note 7 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The guidance defines three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
The Company has investments in redeemable preferred stock that are traded in active markets and therefore, due to the availability of quoted prices in active markets, classified these investments as Level 1 in the fair value hierarchy.
The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014, aggregated by the level in the fair value hierarchy within which those instruments fall:
(In thousands)
 
Quoted Prices
in Active
Markets
Level 1
 
Significant Other
Observable
Inputs
Level 2
 
Significant
Unobservable
Inputs
Level 3
 
Total
March 31, 2015
 
 

 
 

 
 

 
 

Investment securities
 
$
10,107

 
$
—

 
$
—

 
$
10,107

December 31, 2014
 
 
 
 
 
 
 
 
Investment securities
 
$
18,991

 
$
—

 
$
—

 
$
18,991

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets and liabilities. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2015.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, prepaid expenses and other assets, accounts payable and accrued expenses 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 remaining financial instruments that are not reported at fair value on the consolidated balance sheets as of March 31, 2015 and December 31, 2014 are reported in the following table:
 
 
 
 
Carrying Amount at
 
Fair Value at
 
Carrying Amount at
 
Fair Value at
(In thousands)
 
Level
 
March 31, 2015
 
March 31, 2015
 
December 31, 2014
 
December 31, 2014
Mortgage notes payable and premiums, net
 
3
 
$
490,077

 
$
503,420

 
$
492,179

 
$
505,629

Credit facility
 
3
 
$
423,000

 
$
423,000

 
$
423,000

 
$
423,000

The fair value of mortgage notes payable is estimated by an independent third party using a discounted cash flow analysis, based on management’s estimates of market interest rates. Advances under the Credit Facility are considered to be reported at fair value, because its interest rate varies with changes in LIBOR.
Note 8 — Common Stock
As of March 31, 2015 and December 31, 2014, the Company had 65.7 million and 65.3 million shares of common stock outstanding, respectively, including unvested restricted shares and shares issued pursuant to the DRIP.

13
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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

On April 9, 2013, the Company's board of directors authorized, and the Company declared a distribution, which is calculated based on stockholders of record each day during the applicable period of $0.00452054795 per day, which is equivalent to $1.65 per annum, per share of common stock. Distributions began to accrue on May 13, 2013, 15 days following the Company's initial property acquisition. Distributions are payable by the fifth 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 distributions payments are not assured. See Note 15 — Subsequent Events for changes to the distribution policy.
Share Repurchase Program
The Company's board of directors has adopted the SRP that enables stockholders to sell their shares to the Company under limited circumstances. The SRP permits stockholders to sell their shares back to the Company, subject to the significant conditions and limitations described below.
Only those stockholders who purchased their shares from the Company or received their shares from the Company (directly or indirectly) through one or more non-cash transactions are able to participate in the SRP. The repurchase of shares occurs on the last business day prior to the filing of each quarterly financial filing (and in all events on a date other than a dividend payment date).
Until November 14, 2014, a stockholder must have beneficially held the shares for at least one year prior to offering them for sale to the Company through the SRP, although if a stockholder sold back all of its shares, the Company's board of directors had the discretion to exempt shares purchased pursuant to the DRIP from this one-year requirement. In addition, upon the death or disability of a stockholder, upon request, the Company could waive the one-year holding requirement.
Until November 14, 2014, the number of shares repurchased could not exceed 5.0% of the weighted-average number of shares of common stock outstanding at the end of the previous calendar year and the price per share for repurchases of shares of common stock was as follows (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the Company's common stock):
•
the lower of $23.13 and 92.5% of the price paid to acquire the shares, for stockholders who had continuously held their shares for at least one year;
•
the lower of $23.75 and 95.0% of the price paid to acquire the shares for stockholders who had continuously held their shares for at least two years;
•
the lower of $24.78 and 97.5% of the price paid to acquire the shares for stockholders who had continuously held their shares for at least three years; and
•
the lower of $25.00 and 100.0% of the price paid to acquire the shares for stockholders who had continuously held their shares for at least four years.
Effective November 14, 2014, the repurchase price for shares under the SRP is based on the estimated net asset value ("NAV") per share of the Company's common stock ("Estimated Per-Share NAV") as determined by the Company's board of directors. Purchases under the SRP are limited in any calendar quarter to 1.25% of the Company's NAV as of the last day of the previous calendar quarter, or approximately 5.0% of the Company's NAV in any 12 month period. If the Company reaches the 1.25% limit on repurchases during any quarter, the Company will not accept any additional repurchase requests for the remainder of such quarter. The SRP will automatically resume on the first day of the next calendar quarter, unless the board of directors determines to suspend the SRP.
Effective November 14, 2014, there is no minimum holding period for shares of the Company's common stock and stockholders can submit their shares for repurchase at any time through the SRP. Shares repurchased in connection with the death or disability of a stockholder will be repurchased at a purchase price equal to the greater of the price paid for such shares and the then-current NAV (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the Company's common stock).
Subject to limited exceptions, stockholders who request the repurchase of shares of the Company's common stock within the first four months from the date of purchase will be subject to a short-term trading fee of 2.0%.
The Company's board of directors reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase, change the purchase price for repurchases or otherwise amend, suspend or terminate the terms of the SRP.

14
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

When a stockholder requests repurchases and the repurchases are approved, the Company will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares purchased under the SRP will have the status of authorized but unissued shares. The following table summarizes the repurchases of shares under the SRP cumulatively through March 31, 2015:
 
 
Number of Requests
 
Number of Shares
 
Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2014
 
158

 
303,907

 
$
24.01

Three months ended March 31, 2015
 
86

 
227,875

 
23.79

Cumulative repurchases as of March 31, 2015 (1)
 
244

 
531,782

 
$
23.92

_____________________
(1)
Includes 83 unfulfilled repurchase requests consisting of 226,466 shares with a weighted-average repurchase price per share of $23.79, which were approved for repurchase as of March 31, 2015 and were completed during the second quarter of 2015. This liability was included in accounts payable and accrued expenses on the Company's consolidated balance sheet as of March 31, 2015.
See Note 15 — Subsequent Events for changes to the SRP.
Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash.  No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP.  Participants purchasing shares pursuant to the DRIP have the same rights and are treated in the same manner as if such shares were issued pursuant to the IPO. The board of directors may designate that certain cash or other distributions be excluded from the DRIP. The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued pursuant to the DRIP are recorded within stockholders' equity in the accompanying consolidated balance sheets in the period distributions are declared. Until November 14, 2014, the Company offered shares pursuant to the DRIP at $23.75, which was 95.0% of the initial offering price of shares of common stock in the IPO. Effective November 14, 2014, the Company offers shares pursuant to the DRIP at Estimated Per-Share NAV. During the three months ended March 31, 2015 and the year ended December 31, 2014, the Company issued 0.6 million and 2.6 million shares of common stock with a value of $14.8 million and $61.0 million, respectively, and a par value per share of $0.01, pursuant to the DRIP.
See Note 15 — Subsequent Events for changes to the DRIP.
Note 9 — Commitments and Contingencies
Future Minimum Ground Lease Payments
The Company entered into ground lease agreements related to certain acquisitions under leasehold interest arrangements. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter:
(In thousands)
 
Future Minimum Base Rent Payments
April 1, 2015 to December 31, 2015
 
$
666

2016
 
895

2017
 
900

2018
 
882

2019
 
882

Thereafter
 
5,526

 
 
$
9,751

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.

15
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company maintains environmental insurance for its properties that provides coverage for potential environmental liabilities, subject to the policy's coverage conditions and limitations. 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 its financial position or results of operations.
Note 10 — Related Party Transactions and Arrangements
As of March 31, 2015 and December 31, 2014, the Special Limited Partner, an entity controlled by the Sponsor, owned 8,888 shares of the Company's outstanding common stock and 90 OP Units.
Fees Incurred in Connection with the IPO
The Dealer Manager was entitled to receive fees and compensation in connection with the sale of the Company's common stock in the IPO. The Dealer Manager received selling commissions of up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Dealer Manager received up to 3.0% of the gross proceeds from the sale of shares of common stock, before reallowance to participating broker-dealers, as a dealer manager fee. The Dealer Manager was permitted to reallow its dealer manager fee to such participating broker-dealers, based on such factors as the volume of shares sold by respective participating broker-dealers and marketing support incurred as compared to those of other participating broker-dealers. The following table details total selling commissions and dealer manager fees incurred from and due to the Dealer Manager as of and for the periods presented:
 
 
Three Months Ended March 31,
 
Payable as of
(In thousands)
 
2015
 
2014
 
March 31, 2015
 
December 31, 2014
Total commissions and fees from the Dealer Manager
 
$
—

 
$
(3
)
(1) 
$
—

 
$
(13
)
_________________________________
(1)
During the three months ended March 31, 2014, the Company was reimbursed for selling commissions and dealer manager fees as a result of share purchase cancellations related to common stock sales prior to the close of the IPO.
The Advisor and its affiliates received fees and expense reimbursements for services relating to the IPO. The Company utilizes transfer agent services provided by an affiliate of the Dealer Manager. All offering costs related to the IPO incurred by the Company or its affiliated entities on behalf of the Company were charged to additional paid-in capital on the accompanying consolidated balance sheets. The following table details offering costs and reimbursements incurred from and due to the Advisor and Dealer Manager as of and for the periods presented:
 
 
Three Months Ended March 31,
 
Payable as of
(In thousands)
 
2015
 
2014
 
March 31, 2015
 
December 31, 2014
Fees and expense reimbursements from the Advisor and Dealer Manager
 
$
—

 
$
(253
)
 
$
—

 
$
—

Fees and Participations Incurred in Connection With the Operations of the Company
The Advisor receives an acquisition fee of 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. The Advisor is also paid for services provided for which it incurs investment-related expenses, or insourced expenses. Such insourced expenses will be fixed initially at, and may not exceed, 0.5% of the contract purchase price and 0.5% of the amount advanced for a loan or other investment. Additionally, the Company pays third party acquisition expenses. Once the proceeds from the IPO have been fully invested, the aggregate amount of acquisition fees and financing coordination fees (as described below) shall not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. As of March 31, 2015, aggregate acquisition fees and financing fees did not exceed the 1.5% threshold. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees payable with respect to a particular investment or reinvestment exceed 4.5% of the contract purchase price to be measured at the close of the acquisition phase or 4.5% of the amount advanced for a loan or other investment. As of March 31, 2015, the total of all acquisition fees, acquisition expenses and any financing coordination fees did not exceed the 4.5% threshold.

16
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

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 will pay the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations.
In connection with providing strategic advisory services related to certain portfolio acquisitions, the Company has entered into arrangements in which the investment banking division of the Dealer Manager receives a transaction fee of 0.25% of the Transaction Value for certain portfolio acquisition transactions. Pursuant to such arrangements to date, "Transaction Value" has been defined as (i) the value of the consideration paid or to be paid for all the equity securities or assets in connection with the sale transaction or acquisition transaction (including consideration payable with respect to convertible or exchangeable securities and option, warrants or other exercisable securities and including dividends or distributions and equity security repurchases made in anticipation of or in connection with the sale transaction or acquisition transaction), or the implied value for all the equity securities or assets of the Company or acquisition target, as applicable, if a partial sale or purchase is undertaken, plus (ii) the aggregate value of any debt, capital lease and preferred equity security obligations (whether consolidated, off-balance sheet or otherwise) of the Company or acquisition target, as applicable, outstanding at the closing of the sale transaction or acquisition transaction), plus (iii) the amount of any fees, expenses and promote paid by the buyer(s) on behalf of the Company or the acquisition target, as applicable. Should the Dealer Manager provide strategic advisory services related to additional portfolio acquisition transactions, the Company will enter into new arrangements with the Dealer Manager on such terms as may be agreed upon between the two parties.
In connection with the asset management services provided by the Advisor, 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 of the OP designated as "Class B Units." The Class B Units are intended to be profit 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 equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pretax, non-compounded annual return thereon (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; (ii) a transaction to which the Company or the OP, shall be a party, as a result of which OP Units or the Company's common stock shall be exchanged for, or converted into, the right, or the holders of such securities shall otherwise be entitled, to receive cash, securities or other property or any combination thereof; or (iii) the termination of the advisory agreement without cause; 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, unless the failure to provide such services is attributable to the termination without cause of the advisory agreement by an affirmative vote of a majority of the Company's independent directors after the economic hurdle described above has been met. Unvested Class B Units will be forfeited immediately if: (x) the advisory agreement is terminated for any reason other than a termination without cause; or (y) the advisory agreement is terminated without cause by an affirmative vote of a majority of the board of directors before the economic hurdle described above has been met.
When and if approved by the board of directors, the Class B Units are issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The number of Class B Units issued in any quarter is equal to the cost of the Company's assets multiplied by 0.1875%, divided by the value of one share of common stock as of the last day of such calendar quarter, which was initially equal to $22.50 (the initial offering price in the IPO minus selling commissions and dealer manager fees) and, as of the NAV Pricing Date, to Estimated Per-Share NAV. See Note 15 — Subsequent Events for changes to this arrangement. As of March 31, 2015, in aggregate, the Company's board of directors had approved the issuance of 703,796 Class B Units to the Advisor in connection with this arrangement. As of March 31, 2015, the Company could not determine the probability of achieving the performance condition, as such, no expense was recognized in connection with this arrangement during the three months ended March 31, 2015 and 2014.
The Advisor receives distributions on unvested Class B Units equal to the distribution rate received on the Company's common stock. Such distributions on issued Class B Units are included in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).

17
Table of Contents
AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Effective August 1, 2013, the Company entered into an agreement with the Dealer Manager to provide strategic advisory services and investment banking services required in the ordinary course of the Company's business, such as performing financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition strategy, a capitalization structure to optimize future liquidity options and structuring operations. Strategic advisory fees were fully amortized to general and administrative expenses as of December 31, 2013. No such costs were incurred during the three months ended March 31, 2015. The Dealer Manager and its affiliates also provide transfer agency services, as well as transaction management and other professional services. These fees are also included in general and administrative expenses on the accompanying consolidated statements of operations and comprehensive income (loss) during the period the service was provided.
The following table details amounts incurred, forgiven and payable to related parties in connection with the operations-related services described above as of and for the periods presented:
 
 
Three Months Ended March 31,
 
Payable as of
 
 
2015
 
2014
 
(In thousands)
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
March 31, 2015
 
December 31, 2014
One-time fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees and related cost reimbursements
 
$
—

 
$
—

 
$
8,824

 
$
—

 
$
—

 
$
—

Financing coordination fees
 
—

 
—

 
4,778

 
—

 
—

 
—

Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
Transfer agent and other professional services
 
631

 
—

 
490

 
—

 
867

 
753

Distributions on Class B Units
 
286

 
—

 
43

 
—

 
—

 
—

Total related party operation fees and reimbursements
 
$
917

 
$
—

 
$
14,135

 
$
—

 
$
867

 
$
753

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 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. The Company may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, acquisition expenses or real estate commissions. No reimbursements were incurred from the Advisor for providing administrative services during the three months ended March 31, 2015 and 2014.
In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to waive certain fees. Because the Advisor may waive certain fees, cash flows from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that are forgiven are not deferrals and, accordingly, will not be paid to the Advisor. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's general and administrative costs and/or property operating costs. No such fees were waived or costs were absorbed by the Advisor during the three months ended March 31, 2015 and 2014.
Fees and Participations Incurred in Connection With Liquidation or Listing
In May 2014, the Company entered into a transaction management agreement with RCS Advisory Services, LLC, an entity under common control with the Dealer Manager, to provide strategic alternatives transaction management services through the occurrence of a liquidity event and a-la-carte services thereafter. The Company agreed to pay and has paid $3.0 million pursuant to this agreement. The Company did not incur expenses for services provided pursuant to this agreement during the three months ended March 31, 2015 and 2014. The Company incurred all expenses pursuant to this agreement during the second and third quarters of 2014 in acquisition and transaction related expense on the consolidated statements of operations and comprehensive income (loss).

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

In May 2014, the Company entered into an information agent and advisory services agreement with the Dealer Manager and American National Stock Transfer, LLC, an entity under common control with the Dealer Manager, to provide in connection with a liquidity event, advisory services, educational services to external and internal wholesalers, communication support as well as proxy, tender offer or redemption and solicitation services. The Company agreed to pay $1.9 million in the aggregate pursuant to this agreement. The Company did not incur expenses for services provided pursuant to this agreement during the three months ended March 31, 2015 and 2014. During the three months ended March 31, 2015, the Company prepaid $0.3 million related to this agreement. As of March 31, 2015, $0.7 million of prepayments related to this agreement are included in prepaid expenses and other assets on the accompanying consolidated balance sheet.
The investment banking and capital markets division of the Dealer Manager provides the Company with strategic and financial advice and assistance in connection with (i) a possible sale transaction involving the Company (ii) the possible listing of the Company's securities on a national securities exchange, and (iii) a possible acquisition transaction involving the Company. The Dealer Manager will receive a listing advisory fee equal to the greatest of (i) an amount equal to 0.25% of Transaction Value (as defined above), (ii) $1.0 million and (iii) the highest fee payable to any co-bookrunner (or comparable person) in connection with the listing. If one of the above events does not occur, the Dealer Manager will receive a base advisory services fee of $1.0 million on the earlier of (a) the date the Dealer Manager resigns or is terminated for cause and (b) 18 months from the date of any other termination of this agreement by the Company. The Company did not incur expenses for services provided pursuant to this agreement during the three months ended March 31, 2015 and 2014. The Company incurred $1.0 million expenses pursuant to this agreement during the third quarter of 2014, which is included in accounts payable and accrued expenses on the accompanying consolidated balance sheet as of March 31, 2015.
The Company may pay the Advisor a subordinated performance fee calculated on the basis of the Company's total return to stockholders, payable annually in arrears, such that for any year in which the Company's total return on stockholders' capital exceeds 6.0% per annum, the Advisor will be entitled to 15.0% of the excess total return, provided that the annual subordinated performance fee paid to the Advisor does not exceed 10.0% of the aggregate total return for such year. This fee will be payable 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, 2015 and 2014.
If the Company is not listed on a national securities exchange, the Company intends to pay a subordinated participation in the net sales proceeds of the sale of real estate assets of 15.0% of remaining net sales proceeds after return of capital contributions to investors plus payment to investors of an annual 6.0% cumulative, pre-tax, non-compounded annual return on the capital contributed by investors. There can be no assurance that the Company will provide this 6.0% annual return and the Special Limited Partner will not be entitled to the subordinated participation in net sale proceeds unless the Company's investors have received an annual 6.0% cumulative, pre-tax, 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, 2015 and 2014.
If the common stock of the Company is listed on a national securities exchange, the Company expects to pay a subordinated incentive listing distribution from the OP of 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 an annual 6.0% cumulative, pre-tax, non-compounded annual return to investors, which amount would be evidenced by a non-interest bearing promissory note. The Company cannot assure that it will provide this 6.0% annual return and the Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received an annual 6.0% cumulative, pre-tax, non-compounded annual return on their capital contributions. No such distribution was incurred during the three months ended March 31, 2015 and 2014. Neither the Advisor nor any of its affiliates can earn both the subordination participation in the net 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 a 6.0% annual cumulative, pre-tax, non-compounded annual return to investors. The Advisor 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.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

The Company pays the Advisor a brokerage commission on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and one-half 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, 2015 and 2014.
Note 11 — 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, the sale of shares of the Company's common stock available for issue, transfer agency services, as well as other administrative responsibilities for the Company including accounting services, transaction management services and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 12 — 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 action by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholders' meeting. Restricted stock issued to independent directors will vest over a five-year period following the date of grant 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 other entities that provide services to the Company. The total number of shares of common stock granted under the RSP shall not exceed 5.0% of the Company's shares of common stock on a fully diluted basis at any time, and in any event will not exceed 3.4 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).
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. 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. 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 reflects restricted share award activity for the three months ended March 31, 2015:
 
Number of Shares of Common Stock
 
Weighted-Average Issue Price
Unvested, December 31, 2014
4,799

 
$
22.50

Granted
1,276

 
23.50

Unvested, March 31, 2015
6,075

 
$
22.71

The fair value of the restricted shares is being expensed on a straight-line basis over the service period of five years. Compensation expense related to restricted stock was approximately $7,000 and $5,000 for the three months ended March 31, 2015 and 2014, respectively.
As of March 31, 2015, 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 2.7 years.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at each director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. There were no shares of common stock issued to directors in lieu of cash compensation during the three months ended March 31, 2015 and 2014.
Note 13 — Accumulated Other Comprehensive Income
The following tables illustrate the changes in accumulated other comprehensive income for the period presented below:
(In thousands)
 
Unrealized Gains on Available-for-sale Securities
 
Balance, January 1, 2015
 
$
463

 
Other comprehensive loss, before reclassifications
 
(723
)
 
Amounts reclassified from accumulated other comprehensive income
 
546

(1) 
Balance, March 31, 2015
 
$
286

 
_________________________________
(1)
Amounts were reclassified to gain (loss) on sale of investment securities on the consolidated statements of operations and comprehensive income (loss).
Note 14 — Net Income (Loss) Per Share
The following is a summary of the basic and diluted net loss per share computation for the three months ended March 31, 2015 and 2014:
 
 
Three Months Ended March 31,
(In thousands, except share and per share amounts)
 
2015
 
2014
Basic net income (loss)
 
$
4,901

 
$
(9,569
)
Adjustments to net income (loss) for common share equivalents
 
(116
)
 
—

Diluted net income (loss)
 
$
4,785

 
$
(9,569
)
 
 
 
 
 
Basic weighted-average shares outstanding
 
65,672,016

 
62,693,554

Basic net income (loss) per share
 
$
0.07

 
$
(0.15
)
Diluted weighted-average shares outstanding
 
65,677,204

 
62,693,554

Diluted net income (loss) per share
 
$
0.07

 
$
(0.15
)
Diluted net income (loss) per share assumes the conversion of all common stock equivalents into an equivalent number of common shares, unless the effect is antidilutive. The Company considers unvested restricted stock, OP Units and Class B Units to be common share equivalents, and thus were included in the calculation of diluted net income per share for the three months ended March 31, 2015 to the extent their effect was dilutive. The Company had the following common share equivalents as of March 31, 2014, which were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2014 as their effect would have been antidilutive for the periods presented:
 
 
Three Months Ended March 31,
 
 
2014
Unvested restricted stock
 
4,000

OP Units
 
90

Class B Units
 
171,673

Total common stock equivalents
 
175,763


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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Note 15 — 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, or disclosures in, the consolidated financial statements except for the following disclosures:
Listing on NYSE and Name Change
On April 15, 2015, the Company applied to list its common stock on the New York Stock Exchange ("NYSE") under the symbol "AFIN" (the "Listing"). In connection with the Listing, the Company intends to file Articles of Amendment to change the Company's name to "American Finance Trust, Inc."
Completion of the Listing is subject to final approval by the NYSE. There can be no assurance that the Company’s shares of Common Stock will be listed on the NYSE.
New Strategy
On April 15, 2015, the Advisor recommended, and the Company's board of directors approved, the Company’s New Strategy, pursuant to which the Company expects to focus its new investment activity on originating and acquiring CRE Debt Investments. The Company will continue to maintain and selectively invest in additions to the Net Lease Portfolio, however the Company will not forgo opportunities to invest in other types of real estate investments that meet the Company’s overall investment objectives.
Tender Offer
The Company announced that in connection with the Listing, the Company also intends to commence an offer to purchase up to $125.0 million of shares of its common stock from its stockholders at a price of $25.50 per share (the "Tender Offer"), net to the tendering stockholders in cash, less any applicable withholding taxes and without interest. The Company believes the Tender Offer will augment the options available to stockholders in connection with the Listing by allowing them to tender all or a portion of their shares in the Tender Offer at a fixed price. If the Tender Offer is oversubscribed, proration of the tendered shares will be determined promptly after the Tender Offer expires. The Company intends to fund the Tender Offer with cash on hand and funds available under the Credit Facility. The Company expects to commence the Tender Offer on the date of the Listing and the Tender Offer will expire on 20th business day thereafter (unless the Company extends the offer). The Tender Offer will be subject to certain conditions.
Reaffirmation of Current Monthly Distributions and Change to Payment Dates
The Company announced that it intends to continue payment of monthly distributions at an annualized rate of $1.65 per share. Historically, the Company has calculated its monthly distribution based upon daily record and distribution declaration dates so that its stockholders would be entitled to be paid distributions beginning with the month in which their shares were purchased. Following the Listing, the Company will pay distributions on the 15th day of each month to stockholders of record as of close of business on the 8th day of such month.
Subordinated Listing Distribution
In connection with the Listing, the Company, as the general partner of the OP, will cause the OP to issue a note (the “Listing Note”) to the Special Limited Partner to evidence the OP’s obligation to distribute to the Special Limited Partner an aggregate amount (the “Listing Amount”) equal to 15.0% of the difference (to the extent the result is a positive number) between:
•
the sum of (i) the “market value” (as defined in the Listing Note) of the Company’s Common Stock plus (ii) the sum of all distributions or dividends (from any source) paid by the Company to its stockholders prior to the Listing; and
•
the sum of (i) the total raised in the Company’s initial public offering (“IPO”) and under the Company’s distribution reinvestment plan (“DRIP”) prior to the Listing (“Gross Proceeds”) plus (ii) the total amount of cash that, if distributed to those stockholders who purchased shares of Common Stock in the IPO and under the DRIP, would have provided those stockholders a 6.0% cumulative, non-compounded, pre-tax annual return (based on a 365-day year) on the Gross Proceeds.
The “market value” used to calculate the Listing Amount will not be determinable until the end of a measurement period, the period of 30 consecutive trading days, commencing on the 180th day following the Listing, unless another liquidity event, such as a merger, occurs prior to the end of the measurement period. If another liquidity event occurs prior to the end of the measurement period, the Listing Note provides for appropriate adjustment to the calculation of the Listing Amount.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

The Special Limited Partner will have the right to receive distributions of “Net Sales Proceeds,” as defined in the Listing Note, until the Listing Note is paid in full; provided that, the Special Limited Partner has the right, but not the obligation, to convert the entire Special Limited Partner interest into OP Units. OP Units are convertible into shares of the Company’s Common Stock in accordance with the terms governing conversion of OP Units into shares of Common Stock and contained in the Second Amended and Restated Agreement of Limited Partnership of the OP (the “OP Agreement”), which will be entered into at Listing.
Amendment to Advisory Agreement    
On April 15, 2015, the Company's board of directors approved an amendment (the "Amendment") to the Amended and Restated Advisory Agreement, dated June 5, 2013 (as amended by the Amendment, the "Advisory Agreement") by and among the Company, the OP and the Advisor, which, among other things, provides that, effective as of the date thereof:
(i)
for any period commencing on or after April 1, 2015, the Company shall pay the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets an Asset Management Fee (as defined in the Advisory Agreement) equal to 0.75% per annum of the Cost of Assets (as defined in the Advisory Agreement);
(ii)
such Asset Management Fee will be payable monthly in arrears in cash, in shares of common stock, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor; and
(iii)
the Company shall not cause the OP to issue any Class B Units in respect of periods subsequent to March 31, 2015.
Amendments to Agreement of Limited Partnership of the OP
Third Amendment to the Agreement of Limited Partnership of the OP
On April 29, 2015, the board of directors authorized the execution by the Company, as general partner of its OP, of a Third Amendment (the “Third Amendment”) to the OP Agreement to conform the OP Agreement to the previously announced amendment on April 15, 2015, to that certain Amended and Restated Advisory Agreement, dated June 5, 2013, by and among the Company, the OP and the Advisor. The Third Amendment provides that the OP will not issue any Class B Units in respect of periods subsequent to March 31, 2015.
Amended and Restated Agreement of Limited Partnership of the OP
On April 29, 2015, the board of directors authorized the execution, in conjunction with the Listing, of an Amended and Restated Agreement of Limited Partnership of the OP (the “A&R OP Agreement”) by the Company, as general partner of its OP, with the limited partners party thereto to conform more closely with agreements of limited partnership of other operating partnerships controlled by real estate investment trusts whose securities are publicly traded and listed, and to add long term incentive plan units (“LTIP Units”) as a new class of units of limited partnership in the OP to the existing common units (“OP Units”). Pursuant to the A&R OP Agreement, the LTIP Units will be created. The Company may at any time cause the OP to issue LTIP Units to members of the Company’s senior management team. These LTIP Units will be earned and will vest on such terms as are determined by the Company’s Compensation Committee. In general, LTIP Units are a special class of units entitled to receive profit distributions. Upon issuance and prior to being fully earned, holders of LTIP Units are entitled to receive per unit profit distributions equal to ten percent (10.0%) of per unit profit distributions on the outstanding OP Units. After LTIP Units are fully earned, a holder of LTIP Units first will be entitled to receive a catch-up of the other ninety percent (90.0%) of per unit profit distributions not previously distributed, and, subsequently, they will be entitled to receive the same per unit profit distributions as the other outstanding OP Units. However, as profits interests, LTIP Units initially will not have full parity, on a per unit basis, with the OP Units with respect to liquidating distributions, and a holder of LTIP Units would receive nothing if the OP were liquidated immediately after the LTIP Unit is awarded. Upon the occurrence of specified events, LTIP Units can over time achieve full parity with the OP Units and therefore accrete to an economic value for the holder equivalent to the OP Units. In order for LTIP Units to have full parity with the OP Units, the capital accounts of the holders of LTIP Units with respect to such LTIP Units would have to be equalized (on a per unit basis) with the capital accounts of the holders of the OP Units. This capital account equalization per unit would occur through special allocations of net increases in valuation (if any) of the Company’s assets upon the occurrence of certain revaluation events permitted under the Code and Treasury regulations, including: (i) the acquisition of an additional interest in the OP by a new or existing partner in exchange for more than a de minimus capital contribution, (ii) the distribution by the OP of more than a de minimus amount of property as consideration for the repurchase or redemption of an interest in the OP (which may include the redemption or conversion of LTIP Units into OP Units or the Company’s Common Stock), (iii) the liquidation of the OP or (iv) at such other times as the Company reasonably determines to be necessary or desirable to comply with Treasury regulations (including the issuance of new LTIP Units). LTIP Units cannot achieve immediate full parity with OP Units under any circumstances at the time of grant of such LTIP Units. Generally, an LTIP Unit will be convertible into an OP Unit at any time after such LTIP Unit vests and the capital account associated with such LTIP Unit is equalized.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Second Amended and Restated Advisory Agreement
On April 29, 2015, the independent directors of the board of directors unanimously approved certain amendments to the Amended and Restated Advisory Agreement, as amended (the “Advisory Agreement”), by and among the Company, the OP and the Advisor (the “Second A&R Advisory Agreement”). The Second A&R Advisory Agreement will take effect only upon approval by the Company’s stockholders of certain changes to the Company’s Articles of Amendment and Restatement (“Stockholder Approval”), and, which, among other things, provides that:
(i)
the Annual Subordinated Performance Fee (as defined in the Advisory Agreement) shall be changed from an annual fee equal to 15.0% of the total return to stockholders in excess of 6.0% per annum to a quarterly fee, payable in arrears, equal to (x) 15.0% of the applicable quarter’s Core Earnings per share in excess of $0.375 per share plus (y) 10.0% of the applicable quarter’s Core Earnings per share in excess of $0.50 per share;
(ii)
Core Earnings shall be defined as, for the applicable period, GAAP net income (loss) excluding non-cash equity compensation expense, the variable management fee, acquisition and transaction related fees and expenses, financing related fees and expenses, depreciation and amortization, realized gains and losses on the sale of assets, any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income, one-time events pursuant to changes in GAAP and certain non-cash charges, impairment losses on real estate related investments and other than temporary impairment of securities, amortization of deferred financing costs, amortization of tenant inducements, amortization of straight-line rent, amortization of market lease intangibles, provision for loss loans, and other non-recurring revenue and expenses;
(iii)
the Acquisition Fee and Financing Coordination Fee (both as defined in the Advisory Agreement) will terminate 180 days after Stockholder Approval (the “Fee Termination Date”), except for Acquisition Fees with respect to properties under contract, letter of intent, or under negotiation as of the Fee Termination Date;
(iv)
a Base Management Fee equal to $4.5 million per quarter plus 0.375% of the cumulative net proceeds of any equity raised subsequent to the Listing, shall be added;
(v)
all fees accrued and expenses incurred shall be paid quarterly in arrears; and
(vi)
the initial term of the Advisory Agreement, commencing upon Stockholder Approval, will be 20 years, and automatically renewable for another 20-year term upon each 20-year anniversary unless terminated by the board of directors for cause.
Multi-Year Outperformance Plan Agreement
On April 29, 2015, the board of directors approved the general terms of a Multi-Year Outperformance Agreement (the “OPP”) to be entered into with the Company, the OP and the Advisor, in connection with the Listing.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Under the OPP, the Advisor will be issued LTIP Units in the OP with a maximum award value equal to 5.0% of the Company’s market capitalization (the “OPP Cap”) on the date of Listing (the “Effective Date”). The LTIP Units will be structured as profits interest in the OP. The Advisor will be eligible to earn a number of LTIP Units with a value up to the OPP Cap based on the Company’s achieving certain levels of total return to its stockholders (“Total Return”) on both an absolute basis and a relative basis measured against a peer group of companies, as set forth below, for a three-year period commencing on the Effective Date (the “Performance Period”). In addition, Advisor may “lock-in” a portion of the OPP Cap based on the attainment of pro-rata performance hurdles, as set forth below, during each 12-month period in the Performance Period (each such period, an “One-Year Period”) and during the initial 24-month period of the Performance Period (the “Two-Year Period”). Each of the relevant performance periods will be evaluated separately based on performance through the end of the relevant performance period.
 
 
 
 
 
Three-Year Period
 
Each One-Year Period
 
Two-Year Period
Absolute Component: 4% of any excess Total Return attained above an absolute total stockholder return hurdle measured from the beginning of such period as follows:
 
21%
 
7%
 
14%
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achieving cumulative Total Return measured from the beginning of the period:
 
 
 
 
 
 
 
•
 
100% of the Relative Component will be earned if cumulative Total Return achieved is at least:
 
18%
 
6%
 
12%
 
•
 
50% of the Relative Component will be earned if cumulative Total Return achieved is:
 
—%
 
—%
 
—%
 
•
 
0% of the Relative Component will be earned if cumulative Total Return achieved is less than:
 
—%
 
—%
 
—%
 
•
 
a percentage from 50% to 100% of the Relative Component calculated by linear interpolation will be earned if the cumulative Total Return achieved is between:
 
0% - 18%
 
0% - 6%
 
0%- 12%
______________________ 
*
The “Peer Group” is comprised of Arbor Realty Trust, Inc., Ares Commercial Real Estate Corp., Colony Financial, Inc., and Starwood Property Trust, Inc.
The maximum “lock-in” amount for any given One-Year Period is 25.0% of the OPP Cap. The maximum “lock-in” amount for the Two-Year Period is 60.0% of the OPP Cap. Accordingly, any “lock-in” amount for the Two-Year Period may supersede and negate any awards for the first two One-Year Periods. Any LTIP Units that are unearned at the end of the Performance Period will be forfeited.
Subject to Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of the Effective Date. Any earned and vested LTIP Units may be converted into OP Units of the OP in accordance with the terms and conditions of the partnership agreement of the OP (as described above).
The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in the event Advisor is terminated by the Company or in the event the Company incurs a change in control, in either case prior to the end of the Performance Period. The OPP also provides for accelerated vesting of earned LTIP Units in the event Advisor is terminated or in the event of a change in control of the Company on or following the end of the Performance Period.
Amended and Restated Incentive Restricted Share Plan
On April 29, 2015, the board of directors adopted an Amended and Restated RSP (the “A&R Restricted Share Plan”) that replaces in its entirety the Company’s Employee and Director RSP (the “Old Restricted Share Plan”). The A&R Restricted Share Plan amends the terms of the Old Restricted Share Plan as follows:
•
it increases the number of shares of Company capital stock, par value $0.01 per share (the “Capital Stock”), available for awards thereunder from 5.0% of the Company’s outstanding shares of Capital Stock on a fully diluted basis at any time, not exceed 3.4 million shares of Capital Stock, to 10.0% of the Company’s outstanding shares of Capital Stock on a fully diluted basis at any time;
•
it removes the fixed amount of shares that were automatically granted to the Company’s independent directors; and
•
it adds restricted stock units (including dividend equivalent rights thereon) as a permitted form of award.

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AMERICAN REALTY CAPITAL TRUST V, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(Unaudited)

Notice of Amendment and Suspension of the DRIP
In connection with the Listing and the Tender Offer, pursuant to the terms of the DRIP, on April 15, 2015, the Company's board of directors approved an amendment to the DRIP (the "DRIP Amendment") that enables the Company to suspend the DRIP. Subsequently, pursuant to the DRIP as amended by the DRIP Amendment, the Company's board of directors approved the suspension of the DRIP, effective immediately following the payment of the Company’s June 2015 monthly distribution. Accordingly, the final issuance of shares of common stock pursuant to the DRIP will occur in connection with the Company’s June 2015 distribution payable no later than July 5, 2015.
Notice of Termination of the SRP
In connection with the Listing and the Tender Offer, pursuant to the requirements of applicable tender offer rules, on April 15, 2015, the board of directors approved the termination of the SRP. The Company has processed all of the requests received under the SRP for the first and second quarters of 2015 and will not process further requests.
Engagement of New Financial Advisor
The Company announced that in connection with the Listing, the Company has also engaged UBS Securities LLC as a financial advisor. As previously disclosed, RCS Capital, the investment banking and capital markets division of the Dealer Manager, is also advising the Company in connection with the Listing.

26
Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of American Realty Capital Trust V, Inc. and the notes thereto. As used herein, the terms "Company," "we," "our" and "us" refer to American Realty Capital Trust V, Inc., a Maryland corporation, including, as required by context, American Realty Capital Operating Partnership V, L.P., a Delaware limited partnership, which we refer to as the "OP," and its subsidiaries. The Company is externally managed by American Realty Capital Advisors V, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein but not otherwise defined have the meaning ascribed to those terms in "Part I — Financial Information" included in the notes to the consolidated financial statements contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of American Realty Capital Trust V, Inc. (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:
•
All of our executive officers are also officers, managers or holders of a direct or indirect controlling interest in American Realty Capital Advisors V, LLC (the "Advisor"), our dealer manager, Realty Capital Securities, LLC (the "Dealer Manager") or other entities under common control with AR Capital, LLC (our "Sponsor"). 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 investment programs advised by American Realty Capital affiliates and conflicts in allocating time among these entities and us, which could negatively impact our operating results.
•
The purchase price per share for shares of common stock issued pursuant to our distribution reinvestment plan (the "DRIP") and shares repurchased under our share repurchase program (the "SRP") are based on our estimated net asset value ("NAV") per share of our common stock ("Estimated Per-Share NAV") as determined by our board of directors. Our published NAV may not accurately reflect the value of our assets. 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. On November 19, 2014, our board of directors determined an Estimated Per-Share NAV of $23.50 as of September 30, 2014.
•
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.
•
We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our tenants.
•
Our tenants may not achieve our rental rate incentives and our expenses could be greater, which may impact our results of operations.
•
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.
•
We may not generate cash flows sufficient to pay distributions to our stockholders, as such, we may be forced to borrow at unfavorable rates or depend on our Advisor to waive reimbursement of certain expenses and fees to fund our operations. There is no assurance that our Advisor will waive reimbursement of expenses or fees.
•
We may be unable to pay or maintain cash distributions or increase distributions over time.
•
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates, including fees upon the sale of properties. Our Advisor and its affiliates receive fees in connection with transactions involving the purchase, financing, management and sale of our investments, and, because our Advisor does not maintain a significant equity interest in us and is entitled to receive substantial minimum compensation regardless of performance, our Advisor’s interest are not wholly aligned with those of our stockholders.
•
We are subject to risks associated with any dislocation or liquidity disruptions that may exist or occur in the credit markets of the United States of America from time to time.

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•
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and our cash available for distributions.
•
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.
•
Changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United States or international lending, capital and financing markets.
Overview
We were incorporated on January 22, 2013 as a Maryland corporation and qualified as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013. On April 4, 2013, we commenced our initial public offering (our "IPO") on a "reasonable best efforts" basis of up to 68.0 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 a registration statement on Form S-11, as amended (File No. 333-187092) (the "Registration Statement"), filed with the SEC under the Securities Act of 1933, as amended (the "Securities Act"). The Registration Statement also covered up to 14.7 million shares of common stock at an initial price of $23.75 per share, which was 95.0% of the initial offering price of shares of common stock in the IPO, available pursuant to DRIP, under which our common stockholders could elect to have their distributions reinvested in additional shares of our common stock.
On April 25, 2013, we received and accepted aggregate subscriptions in excess of the minimum of $2.0 million in shares of common stock, broke escrow and issued shares of common stock to our initial investors who were admitted as stockholders. As permitted under our Registration Statement, we reallocated the remaining 14.5 million DRIP shares available under the Registration Statement to the primary offering. Concurrent with such reallocation, we registered an additional 14.7 million shares at an initial price of $23.75 per share to be issued under the DRIP pursuant to a registration statement on Form S-11, as amended (File No. 333-191255), which became effective on October 5, 2013. Our IPO closed on October 31, 2013. As of March 31, 2015, we had 65.7 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 $1.6 billion. On November 19, 2014, our board of directors approved an Estimated Per-Share NAV of $23.50, calculated by the Advisor in accordance with our valuation guidelines, as of September 30, 2014. Beginning with November 14, 2014 (the "NAV Pricing Date"), the price per share for shares of common stock purchased under the DRIP and the price per share for shares of common stock repurchased by us pursuant to the SRP will each be equal to the Estimated Per-Share NAV of our common stock. Because our Annual Report on Form 10-K was filed in close proximity to the statutory deadline for filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, we did not publish Estimated Per-Share NAV as of December 31, 2014. We intend to publish an Estimated Per-Share NAV as of March 31, 2015 shortly following the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. In determining Estimated Per-Share NAV, each property is appraised at least annually and appraisals will be spread out over the course of a year so that, typically, approximately 25% of all properties are appraised each quarter. However, in connection with determining Estimated Per-Share NAV as of March 31, 2015 we expect to appraise 100% of our properties.
We have acquired a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant retail properties that are net leased to investment grade and other creditworthy tenants. All properties are operated by us or by us jointly with another party. We may also originate or acquire first mortgage loans secured by real estate. We purchased our first property and commenced active operations on April 29, 2013. As of March 31, 2015, we owned 463 properties with an aggregate purchase price of $2.2 billion, comprised of 13.1 million rentable square feet that were 100.0% leased with a weighted-average remaining lease term of 9.4 years.
Substantially all of our business is conducted through American Realty Capital Operating Partnership V, L.P. (the "OP"), a Delaware limited partnership and its wholly-owned subsidiaries. We are the sole general partner and hold substantially all the units of limited partner interests in the OP ("OP Units"). American Realty Capital Trust V Special Limited Partner, LLC (the "Special Limited Partner"), an entity controlled by the Sponsor, contributed $2,020 to the OP in exchange for 90 OP Units, which represents a nominal percentage of the aggregate OP ownership. After holding the OP Units for a period of one year, or upon liquidation of the OP or sale of substantially all of the assets of the OP, holders of OP Units have 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. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.

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We have no direct employees. We have retained the Advisor to manage our affairs on a day-to-day basis. American Realty Capital Properties V, LLC (the "Property Manager") serves as our property manager. The Dealer Manager served as the dealer manager of our IPO. The Advisor and the Property Manager are wholly owned subsidiaries of, and the Dealer Manager is under common control with, the Sponsor, as a result of which, they are related parties of ours. Each has received and/or may receive compensation, fees and other expense reimbursements for services related to our IPO and the investment and management of our assets. Such entities have received or may receive, as applicable, fees during the offering, acquisition, operational and liquidation stages.
During the second quarter of 2014, we announced that we engaged J.P. Morgan Securities LLC and RCS Capital, the investment banking division of the Dealer Manager, as financial advisors to assist us in evaluating potential strategic alternatives. On April 15, 2015, upon recommendation by our Advisor and approval by our board of directors, we adopted new Investment Objectives and Acquisition and Investment Policies (our “New Strategy”). Under the New Strategy, we expect to focus on originating and acquiring first mortgage and other commercial real estate-related debt investments across all major commercial real estate sectors (such investments collectively, “CRE Debt Investments”). We will maintain our investments in our existing portfolio of 463 net leased commercial real estate properties (our “Net Lease Portfolio”). We will continue to selectively invest in additional net lease properties to consolidate the Net Lease Portfolio, however we will not forgo opportunities to invest in other types of real estate investments that meet our overall investment objectives. We intend to finance our CRE Debt Investments primarily through mortgage financing secured by our Net Lease Portfolio.
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 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
Offering and related costs include all expenses incurred in connection with our IPO. Offering costs (other than selling commissions and the dealer manager fee) include costs that may be paid by the Advisor, the 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 related fees; (iii) reimbursement of the 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 the salaries 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 its offering exceed 2.0% of gross offering proceeds from the IPO. As a result, these costs are only our liability to the extent selling commissions, the dealer manager fees and other organization and offering costs do not exceed 12.0% of the gross proceeds determined at the end of the IPO. As of the end of our IPO, offering costs were less than 12.0% of the gross proceeds received in the IPO.
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. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. We defer the revenue related to lease payments received from tenants in advance of their due dates.
We 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. Contingent rental income is included in rental income on the consolidated statements of operations and comprehensive income (loss).
We continually review receivables related to rent and unbilled rents receivable 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. If a receivable is deemed uncollectible, we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive income (loss).

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Cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive income (loss) in the period the related costs are incurred, as applicable.
Real Estate Investments
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred.
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 statements of operations and comprehensive income (loss). 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.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets may include the value of in-place leases and above- and below- market leases. In addition, any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values.
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 fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease, including any below-market fixed rate renewal options for below-market leases.
In allocating the fair value to assumed mortgages, amounts are recorded to 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.
In allocating non-controlling interests, amounts are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including real estate valuations, prepared by independent valuation firms. We also consider information and other factors including: market conditions, the industry that the tenant operates in, characteristics of the real estate, i.e.: location, size, demographics, value and comparative rental rates, tenant credit profile, store profitability and the importance of the location of the real estate to the operations of the tenant’s business.
We are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the consolidated statements of operations and comprehensive income (loss) at the lesser of carrying amount or fair value less estimated selling costs for all periods presented to the extent the disposal of a component represents a strategic shift that has or will have a major effect on our operations and financial results. Properties that are intended to be sold are to be designated as "held for sale" on the consolidated balance sheets 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.
Depreciation and Amortization
We are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate investments, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
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 years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense 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-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.

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Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms 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 property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
Recently Issued 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 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted under accounting principles generally accepted in the United States of America ("GAAP"). The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In April 2015, the FASB proposed a one-year delay of the revised guidance, although entities will be allowed to early adopt the guidance as of the original effective date. We have not yet selected a transition method and are currently evaluating the impact of the new guidance.
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIEs") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If we decide to early adopt the revised guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. We are currently evaluating the impact of the new guidance.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for financial statements that have not previously been issued. If we decide to early adopt the revised guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. We are currently evaluating the impact of the new guidance.

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Properties
As of March 31, 2015, we owned 463 properties located in 37 states. All of these properties are freestanding, single-tenant properties, 100.0% leased with a weighted-average remaining lease term of 9.4 years as of March 31, 2015. In the aggregate, these properties represent 13.1 million rentable square feet.
The following table represents certain additional information about the properties we own at March 31, 2015:
Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
 
Remaining Lease
Term (1)
 
Base Purchase
Price (2)
 
 
 
 
 
 
 
 
 
 
(In thousands)
Dollar General I
 
Apr. & May 2013
 
2
 
18,126

 
13.1
 
$
2,243

Walgreens I
 
Jul. 2013
 
1
 
10,500

 
22.5
 
3,632

Dollar General II
 
Jul. 2013
 
2
 
18,052

 
13.2
 
2,346

Auto Zone I
 
Jul. 2013
 
1
 
7,370

 
12.3
 
1,519

Dollar General III
 
Jul. 2013
 
5
 
45,989

 
13.1
 
5,783

BSFS I
 
Jul. 2013
 
1
 
8,934

 
8.8
 
3,047

Dollar General IV
 
Jul. 2013
 
2
 
18,126

 
10.9
 
1,989

Tractor Supply I
 
Aug. 2013
 
1
 
19,097

 
12.7
 
4,074

Dollar General V
 
Aug. 2013
 
1
 
12,480

 
12.9
 
2,295

Mattress Firm I
 
Aug. & Nov. 2013;
Feb., Mar. & Apr. 2014
 
5
 
23,612

 
10.4
 
10,817

Family Dollar I
 
Aug. 2013
 
1
 
8,050

 
6.3
 
955

Lowe's I
 
Aug. 2013
 
5
 
671,313

 
14.3
 
58,695

O'Reilly Auto Parts I
 
Aug. 2013
 
1
 
10,692

 
15.3
 
1,005

Food Lion I
 
Aug. 2013
 
1
 
44,549

 
14.6
 
8,910

Family Dollar II
 
Aug. 2013
 
1
 
8,028

 
8.3
 
969

Walgreens II
 
Aug. 2013
 
1
 
14,490

 
18.0
 
3,200

Dollar General VI
 
Aug. 2013
 
1
 
9,014

 
10.9
 
1,431

Dollar General VII
 
Aug. 2013
 
1
 
9,100

 
13.0
 
1,210

Family Dollar III
 
Aug. 2013
 
1
 
8,000

 
7.5
 
1,004

Chili's I
 
Aug. 2013
 
2
 
12,700

 
10.7
 
5,760

CVS I
 
Aug. 2013
 
1
 
10,055

 
10.9
 
2,640

Joe's Crab Shack I
 
Aug. 2013
 
2
 
16,012

 
12.0
 
7,975

Dollar General VIII
 
Sep. 2013
 
1
 
9,100

 
13.4
 
1,418

Tire Kingdom I
 
Sep. 2013
 
1
 
6,635

 
10.0
 
2,063

Auto Zone II
 
Sep. 2013
 
1
 
7,370

 
8.2
 
1,591

Family Dollar IV
 
Sep. 2013
 
1
 
8,320

 
8.3
 
879

Fresenius I
 
Sep. 2013
 
1
 
5,800

 
10.3
 
2,223

Dollar General IX
 
Sep. 2013
 
1
 
9,014

 
10.1
 
875

Advance Auto I
 
Sep. 2013
 
1
 
10,500

 
8.3
 
834

Walgreens III
 
Sep. 2013
 
1
 
15,120

 
11.0
 
4,839

Walgreens IV
 
Sep. 2013
 
1
 
13,500

 
9.5
 
2,796

CVS II
 
Sep. 2013
 
1
 
13,905

 
21.9
 
2,958

Arby's I
 
Sep. 2013
 
1
 
3,000

 
13.3
 
2,320

Dollar General X
 
Sep. 2013
 
1
 
9,100

 
13.0
 
1,305

AmeriCold I
 
Sep. 2013
 
9
 
1,407,166

 
12.5
 
173,939

Home Depot I
 
Sep. 2013
 
2
 
1,315,200

 
11.9
 
79,055

New Breed Logistics I
 
Sep. 2013
 
1
 
390,486

 
6.6
 
24,738

American Express Travel Related Services I
 
Sep. 2013
 
2
 
785,164

 
4.9
 
91,548

L.A. Fitness I
 
Sep. 2013
 
1
 
45,000

 
8.9
 
12,067

SunTrust Bank I
 
Sep. 2013
 
32
 
182,400

 
2.8
 
59,395

National Tire & Battery I
 
Sep. 2013
 
1
 
10,795

 
8.7
 
1,311

Circle K I
 
Sep. 2013
 
19
 
54,521

 
13.6
 
25,815

Walgreens V
 
Sep. 2013
 
1
 
14,490

 
12.4
 
5,750

Walgreens VI
 
Sep. 2013
 
1
 
14,560

 
14.1
 
4,470


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Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
 
Remaining Lease
Term (1)
 
Base Purchase
Price (2)
 
 
 
 
 
 
 
 
 
 
(In thousands)
FedEx Ground I
 
Sep. 2013
 
1
 
21,662

 
8.2
 
2,999

Walgreens VII
 
Sep. 2013
 
10
 
142,140

 
14.6
 
40,517

O'Charley's I
 
Sep. 2013
 
20
 
135,973

 
16.6
 
42,970

Krystal Burgers Corporation I
 
Sep. 2013
 
6
 
12,730

 
14.5
 
8,461

Merrill Lynch I
 
Sep. 2013
 
3
 
553,841

 
9.7
 
165,436

1st Constitution Bancorp I
 
Sep. 2013
 
1
 
4,500

 
8.8
 
1,907

American Tire Distributors I
 
Sep. 2013
 
1
 
125,060

 
8.8
 
8,868

Tractor Supply II
 
Oct. 2013
 
1
 
23,500

 
8.5
 
1,627

United Healthcare I
 
Oct. 2013
 
1
 
400,000

 
6.3
 
66,568

National Tire & Battery II
 
Oct. 2013
 
1
 
7,368

 
17.2
 
2,199

Tractor Supply III
 
Oct. 2013
 
1
 
19,097

 
13.1
 
2,813

Mattress Firm II
 
Oct. 2013
 
1
 
4,304

 
8.4
 
1,058

Dollar General XI
 
Oct. 2013
 
1
 
9,026

 
12.1
 
1,102

Academy Sports I
 
Oct. 2013
 
1
 
71,640

 
13.3
 
8,890

Talecris Plasma Resources I
 
Oct. 2013
 
1
 
22,262

 
8.0
 
3,275

Amazon I
 
Oct. 2013
 
1
 
79,105

 
8.3
 
9,548

Fresenius II
 
Oct. 2013
 
2
 
16,047

 
12.4
 
6,542

Dollar General XII
 
Nov. 2013 & Jan. 2014
 
2
 
18,126

 
13.7
 
2,276

Dollar General XIII
 
Nov. 2013
 
1
 
9,169

 
11.0
 
1,065

Advance Auto II
 
Nov. 2013
 
2
 
13,887

 
8.1
 
3,260

FedEx Ground II
 
Nov. 2013
 
1
 
48,897

 
8.3
 
4,844

Burger King I
 
Nov. 2013
 
41
 
168,192

 
18.7
 
63,138

Dollar General XIV
 
Nov. 2013
 
3
 
27,078

 
13.2
 
3,764

Dollar General XV
 
Nov. 2013
 
1
 
9,026

 
13.6
 
1,337

FedEx Ground III
 
Nov. 2013
 
1
 
24,310

 
8.4
 
4,071

Dollar General XVI
 
Nov. 2013
 
1
 
9,014

 
10.7
 
994

Family Dollar V
 
Nov. 2013
 
1
 
8,400

 
8.0
 
877

Walgreens VIII
 
Dec. 2013
 
1
 
14,490

 
8.8
 
5,150

CVS III
 
Dec. 2013
 
1
 
10,880

 
8.8
 
3,341

Mattress Firm III
 
Dec. 2013
 
1
 
5,057

 
8.3
 
1,887

Arby's II
 
Dec. 2013
 
1
 
3,494

 
13.1
 
1,325

Family Dollar VI
 
Dec. 2013
 
2
 
17,484

 
8.8
 
1,903

SAAB Sensis I
 
Dec. 2013
 
1
 
90,822

 
10.0
 
19,346

Citizens Bank I
 
Dec. 2013
 
9
 
34,777

 
8.8
 
26,158

Walgreens IX
 
Jan. 2014
 
1
 
14,490

 
7.8
 
6,158

SunTrust Bank II
 
Jan. 2014
 
30
 
148,233

 
2.8
 
61,326

Mattress Firm IV
 
Jan. 2014
 
1
 
5,040

 
9.4
 
2,504

FedEx Ground IV
 
Jan. 2014
 
1
 
59,167

 
8.3
 
5,885

Mattress Firm V
 
Jan. 2014
 
1
 
5,548

 
8.6
 
2,261

Family Dollar VII
 
Feb. 2014
 
1
 
8,320

 
9.3
 
794

Aaron's I
 
Feb. 2014
 
1
 
7,964

 
8.4
 
1,052

Auto Zone III
 
Feb. 2014
 
1
 
6,786

 
8.0
 
1,253

C&S Wholesale Grocer I
 
Feb. 2014
 
5
 
3,044,685

 
7.5
 
200,212

Advance Auto III
 
Feb. 2014
 
1
 
6,124

 
9.4
 
1,984

Family Dollar VIII
 
Mar. 2014
 
3
 
24,960

 
8.3
 
3,179

Dollar General XVII
 
Mar. & May 2014
 
3
 
27,078

 
13.0
 
3,400

SunTrust Bank III
 
Mar. 2014
 
121
 
646,535

 
2.8
 
248,976

SunTrust Bank IV
 
Mar. 2014
 
30
 
171,209

 
2.8
 
59,903

Dollar General XVIII
 
Mar. 2014
 
1
 
9,026

 
13.0
 
1,139

Sanofi US I
 
Mar. 2014
 
1
 
736,572

 
11.3
 
251,114

Family Dollar IX
 
Apr. 2014
 
1
 
8,320

 
9.0
 
1,234


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Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
 
Remaining Lease
Term (1)
 
Base Purchase
Price (2)
 
 
 
 
 
 
 
 
 
 
(In thousands)
Stop & Shop I
 
May 2014
 
8
 
544,112

 
11.6
 
145,445

Bi-Lo I
 
May 2014
 
1
 
55,718

 
10.8
 
7,819

Dollar General XIX
 
May 2014
 
1
 
12,480

 
13.4
 
1,502

Dollar General XX
 
May 2014
 
5
 
48,584

 
12.1
 
5,988

Dollar General XXI
 
May 2014
 
1
 
9,238

 
13.4
 
1,634

Dollar General XXII
 
May 2014
 
1
 
10,566

 
12.1
 
1,342

 
 
 
 
463
 
13,107,548

 
9.4
 
$
2,169,308

_____________________
(1)
Remaining lease term in years as of March 31, 2015. If the portfolio has multiple properties with varying lease expirations, remaining lease term is calculated on a weighted-average basis.
(2)
Contract purchase price, excluding acquisition related costs.
Results of Operations
We were incorporated on January 22, 2013 and purchased our first property and commenced active operations on April 29, 2013. As of March 31, 2015, we owned 463 properties with an aggregate base purchase price of $2.2 billion, comprised of 13.1 million rentable square feet that were 100.0% leased on a weighted-average basis. As of March 31, 2014, we owned 443 properties with an aggregate base purchase price of $2.0 billion, comprised of 12.4 million rentable square feet that were 100.0% leased on a weighted-average basis. Accordingly, our results of operations for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 reflect significant increases in most categories due to our acquisition activity.
Comparison of the Three Months Ended March 31, 2015 to the Three Months Ended March 31, 2014
Rental Income
Rental income increased $13.5 million to $40.2 million for the three months ended March 31, 2015, compared to $26.7 million for the three months ended March 31, 2014. Rental income was driven by our operation of 463 properties with an aggregate base purchase price of $2.2 billion, comprising 13.1 million rentable square feet that were 100.0% leased on a weighted-average basis as of March 31, 2015, which includes the operation of the 204 properties we purchased during the three months ended March 31, 2014 for the full three months ended March 31, 2015. Rental income was driven by our operation of 443 properties with an aggregate base purchase price of $2.0 billion, comprising 12.4 million rentable square feet that were 100.0% leased on a weighted-average basis as of March 31, 2014.
Operating Expense Reimbursements
Operating expense reimbursement revenue decreased $0.7 million to $2.7 million for the three months ended March 31, 2015, compared to $3.4 million for the three months ended March 31, 2014. Pursuant to certain of our lease agreements, tenants are required to reimburse us for certain property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. This decrease in operating expense reimbursements was due to decreased reimbursement of common area maintenance expenses at our Merrill Lynch properties as a result of revisions to the properties’ operating budget.
Property Operating Expense
Property operating expense decreased $0.4 million to $3.1 million for the three months ended March 31, 2015, compared to $3.5 million for the three months ended March 31, 2014. These costs primarily related to ground lease rent, real estate taxes, insurance and other property operating costs on our properties. The decrease in property operating expense was due to decreased common area maintenance expenses at our Merrill Lynch properties as a result of a revisions to the properties’ operating budget.
Acquisition and Transaction Related Expense
Acquisition and transaction related expense decreased $14.4 million to $0.1 million for the three months ended March 31, 2015, compared to $14.5 million for the three months ended March 31, 2014. We did not acquire any properties during the three months ended March 31, 2015; the $0.1 million of acquisition and transaction related expense primarily related to third party appraisal costs incurred in connection with our purchase price allocation procedures. For the three months ended March 31, 2014, acquisition and transaction related expense related to acquisition fees, legal fees and other closing costs associated with our purchase of 204 properties with an aggregate base purchase price of $855.5 million.

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General and Administrative Expense
General and administrative expense increased $0.8 million to $1.9 million for the three months ended March 31, 2015, compared to $1.1 million for three months ended March 31, 2014. This increase is primarily due to higher professional fees, local income taxes, directors and officers insurance costs, distributions on Class B Units and board member compensation to support our current real estate portfolio compared to the three months ended March 31, 2014.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $7.5 million to $25.4 million for the three months ended March 31, 2015, compared to $17.9 million for the three months ended March 31, 2014. This increase was driven by our operation of 463 properties acquired as of March 31, 2015, which includes the operation of the 204 properties we purchased during the three months ended March 31, 2014 for the full three months ended March 31, 2015, compared to our operation of 443 properties as of March 31, 2014. The purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over their estimated useful lives.
Interest Expense
Interest expense increased $4.8 million to $8.2 million for the three months ended March 31, 2015, compared to $3.4 million for the three months ended March 31, 2014. This increase is due primarily to an increase in interest, unused fees and amortization of deferred financing costs associated with our mortgage notes payable and credit facility, partially offset by amortization of mortgage premiums. For the three months ended March 31, 2015, our mortgage notes payable outstanding had a weighted-average balance of $470.0 million and a weighted-average effective interest rate of 5.66% and our borrowings outstanding under our credit facility had a weighted-average balance of $423.0 million and a weighted-average effective interest rate of 1.93%. For the three months ended March 31, 2014, our mortgage notes payable outstanding had a weighted-average balance of $147.5 million and a weighted-average effective interest rate of 5.65% and our borrowings outstanding under our credit facility had a weighted-average balance of $167.8 million and a weighted-average effective interest rate of 3.85%.
Income from Investment Securities
Income from investment securities decreased $0.8 million to $0.2 million for the three months ended March 31, 2015, compared to $1.0 million for the three months ended March 31, 2014. This decrease primarily relates to our sale of several investment securities between March 31, 2014 and March 31, 2015. We held investment securities, at fair value, of $10.1 million as of March 31, 2015, compared to $54.1 million as of March 31, 2014.
Gain on Sale of Investment Securities
Gain on sale of investment securities of $0.5 million for the three months ended March 31, 2015 resulted from the sale of investments in redeemable preferred stock with an aggregate cost basis of $8.7 million for $9.2 million. Loss on sale of investment securities of $0.2 million for the three months ended March 31, 2014 resulted from the sale of investments in redeemable preferred stock and senior notes with an aggregate cost basis of $9.8 million for $9.6 million.
Cash Flows for the Three Months Ended March 31, 2015
During the three months ended March 31, 2015, we had cash flows provided by operating activities of $27.8 million. The level of cash flows used in or provided by operating activities is affected by, among other things, the amount of acquisition and transaction related costs incurred, as well as the receipt of scheduled rent payments. Cash flows from operating activities during the three months ended March 31, 2015 include $0.1 million of acquisition and transaction related costs. Cash inflows during the three months ended March 31, 2015 included a net income adjusted for non-cash items of $29.6 million (net income of $4.9 million adjusted for non-cash items, including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs and share-based compensation, partially offset by a gain on sale of investments and amortization of mortgage premiums, of $24.7 million) and an increase in accounts payable and accrued expenses of $1.8 million. These cash inflows were partially offset by an increase in prepaid expenses and other assets of $2.2 million and a decrease in deferred rent and other liabilities of $1.3 million.
The net cash provided by investing activities during the three months ended March 31, 2015 of $9.3 million related to proceeds from the sale of investment securities.
The net cash used in financing activities of $17.2 million during the three months ended March 31, 2015 consisted primarily of cash distributions of $11.8 million, common stock repurchases of $5.1 million and payments of mortgage notes payable of $0.2 million.

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Cash Flows for the Three Months Ended March 31, 2014
During the three months ended March 31, 2014, we had cash flows provided by operating activities of $20.7 million. The level of cash flows used in or provided by operating activities is affected by the amount of acquisition and transaction related costs incurred, as well as the receipt of scheduled rent payments. Cash flows provided by operating activities during the three months ended March 31, 2014 include $14.5 million of acquisition costs. Cash inflows during the three months ended March 31, 2014 included a net loss adjusted for non-cash items of $8.9 million (net loss of $9.6 million adjusted for non-cash items, including depreciation and amortization of tangible and intangible real estate assets, share-based compensation and loss on sale of investments, of $18.5 million). Cash inflows also included a decrease in prepaid expenses and other assets of $8.1 million primarily due to a decrease in accounts receivable based on the timing of receipt of payments. Cash inflows also included an increase of $2.6 million in accounts payable and accrued expenses and an increase of $1.1 million in deferred rent.
The net cash used in investing activities during the three months ended March 31, 2014 of $422.4 million related to the investments in real estate and other assets of $416.9 million and deposits for real estate acquisitions of $15.1 million, partially offset by proceeds from the sale of investment securities of $9.6 million.
The net cash provided by financing activities of $318.3 million during the three months ended March 31, 2014 consisted primarily of proceeds from our line of credit of $338.0 million. These cash inflows were partially offset by cash distributions of $10.9 million, payments of financing costs of $8.5 million and an increase in our restricted cash balance of $0.3 million.
Liquidity and Capital Resources
On April 25, 2013, we received and accepted aggregate subscriptions in excess of the minimum of $2.0 million in shares of common stock, broke escrow and issued shares of common stock to our initial investors who were admitted as stockholders. As permitted under our Registration Statement, we reallocated the remaining 14.5 million DRIP shares available under the Registration Statement to the primary offering. Concurrent with such reallocation, we registered an additional 14.7 million shares to be issued under the DRIP pursuant to a registration statement on Form S-11, as amended (File No. 333-191255), which became effective on October 5, 2013. Our IPO closed on October 31, 2013. As of March 31, 2015, we had 65.7 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 $1.6 billion. On November 19, 2014, our board of directors approved an Estimated Per-Share NAV of $23.50, calculated by the Advisor in accordance with our valuation guidelines, as of September 30, 2014. Beginning with the NAV Pricing Date, the price per share for shares of common stock purchased under the DRIP and the price per share for shares of common stock repurchased by us pursuant to our SRP will each be equal to our Estimated Per-Share NAV.
We purchased our first property and commenced active operations on April 29, 2013. We did not acquire any properties during the three months ended March 31, 2015. As of March 31, 2015, we owned 463 properties with an aggregate base purchase price of $2.2 billion. As of March 31, 2015, we had cash and cash equivalents of $94.6 million. Our principal demands for funds is the payment of our operating and administrative expenses, debt service obligations and cash distributions to our stockholders.
We expect to fund our future short-term operating liquidity requirements through net cash provided by our current property operations. Management expects that our properties will continue to generate sufficient cash flow to fund operating expenses and the payment of our monthly distributions. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings and undistributed funds from operations.
We have used 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 by our charter), as of the date of any borrowing, which is generally expected to be approximately 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, it is currently our intention to limit our aggregate borrowings to 45% 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, calculated after the close of our IPO and once we have invested substantially all the proceeds of our IPO, 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 the requirements under our charter. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. As of March 31, 2015, we had $469.8 million of mortgage notes payable outstanding and the outstanding balance under our Credit Facility (as described below) was $423.0 million.

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On September 23, 2013, we, through the OP, entered into a credit agreement (the "Credit Agreement") relating to a credit facility (the "Credit Facility") that provides for aggregate revolving loan borrowings of up to $200.0 million (subject to borrowing base availability), with a $25.0 million swingline subfacility and a $20.0 million letter of credit subfacility. Through amendments to the Credit Agreement, the OP increased commitments under our Credit Facility to $750.0 million as of March 31, 2015. During the three months ended March 31, 2015, we drew $423.0 million on our Credit Facility to partially fund acquisition activity. As of March 31, 2015, the outstanding balance under our Credit Facility was $423.0 million and our unused borrowing capacity was $238.0 million, based on the assets assigned to the Credit Facility.
The Credit Facility provides for monthly interest payments for each base rate loan and periodic interest payments for each LIBOR loan, based upon the applicable interest period with respect to such LIBOR loan, with all principal outstanding being due on the maturity date. The Credit Facility will mature on September 23, 2017, provided that the OP, subject to certain conditions, may elect to extend the maturity date one year to September 23, 2018. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans. Certain of our subsidiaries and certain subsidiaries of the OP guarantee, and the equity of certain subsidiaries of the OP have been pledged as collateral for, the obligations under the Credit Facility.
Our board of directors adopted a share repurchase program (the "SRP") that enabled our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requested a repurchase, we, subject to certain conditions, repurchased the shares presented for repurchase for cash to the extent we had sufficient funds available to fund such repurchase. There are limits on the number of shares we may repurchase under this program during any 12-month period. Further, we were only authorized to repurchase shares using the proceeds received from the DRIP in any given quarter. Our board of directors terminated the SRP on April 15, 2015.
The following table summarizes the repurchases of shares under the SRP cumulatively through March 31, 2015:
 
 
Number of Requests
 
Number of Shares
 
Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2014
 
158

 
303,907

 
$
24.01

Three months ended March 31, 2015
 
86

 
227,875

 
23.79

Cumulative repurchases as of March 31, 2015 (1)
 
244

 
531,782

 
$
23.92

_____________________
(1)
Includes 83 unfulfilled repurchase requests consisting of 226,466 shares with a weighted-average repurchase price per share of $23.79, which were approved for repurchase as of March 31, 2015 and were completed during the second quarter of 2015. This liability was included in accounts payable and accrued expenses on the Company's consolidated balance sheet as of March 31, 2015.
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by 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, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT's policy described above.

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The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may not be fully informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying, or book, value exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, because impairments are based on estimated undiscounted future cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.
Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, 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. However, FFO and modified funds from operations ("MFFO"), as described below, 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 method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.
There have been 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. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation, but have a limited and defined acquisition period. We are using the proceeds raised in our offering to, among other things, acquire properties. We intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national stock exchange, a merger or sale or another similar transaction) within three to five years of the completion of the offering. Thus, unless we raise, or recycle, a significant amount of capital after we complete our offering, we will not be continuing to purchase assets at the same rate as during our offering. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association ("IPA"), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to purchase a significant amount of new assets after we complete our offering. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, 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 our properties and once our portfolio is stabilized. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our IPO has been completed and our portfolio has been stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry.

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Table of Contents

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 the following items, as applicable, included in the determination of GAAP net income: 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. The accretion of discounts and amortization of premiums on debt investments, gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.
Our MFFO calculation complies with the IPA's Practice Guideline described above. In calculating MFFO, we exclude acquisition and transaction-related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to non-controlling interests. Under GAAP, acquisition and transaction-related fees and expenses are characterized as operating expenses in determining operating net income during the period in which the asset is acquired. These expenses are paid in cash by us, and therefore such funds will not be available to invest in other assets, pay operating expenses or fund distributions. MFFO that excludes such costs and expenses would only be comparable to that of non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives as items which are unrealized. We view both gains and losses from dispositions of assets and fair value adjustments of derivatives as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. While we are responsible for managing interest rate, hedge and foreign exchange risk, we will retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to our investors.
We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, which have defined acquisition periods and targeted exit strategies, and allow us to evaluate our performance against other non-listed REITs. By excluding expensed acquisition and transaction-related costs, the use of MFFO provides information consistent with management's analysis of the operating performance of the properties.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily 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 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 GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure while an offering is ongoing such as our IPO where the price of a share of common stock is a stated value and there is no NAV determination during the offering stage and for a period thereafter.
Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

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Table of Contents

The table below reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the period indicated:
 
 
Three Months Ended March 31, 2015
(In thousands)
 
Net income (in accordance with GAAP)
 
$
4,901

Depreciation and amortization
 
25,387

FFO
 
30,288

Acquisition fees and expenses
 
129

Amortization of above-market lease assets and accretion of below-market lease liabilities, net
 
416

Straight-line rent
 
(2,088
)
Amortization of mortgage premiums
 
(1,859
)
Gain on sale of investments
 
(546
)
MFFO
 
$
26,340

Distributions
On April 9, 2013, our board of directors authorized, and we declared, distributions which are calculated based on stockholders of record each day during the applicable period equal to $0.00452054795 per day, which is equivalent to $1.65 per annum, per share of common stock. 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.
The amount of distributions payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for distribution, 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 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.
Distributions began to accrue on May 13, 2013, 15 days following our initial property acquisition. The first distribution was paid in June 2013. During the three months ended March 31, 2015, distributions paid to common stockholders totaled $26.7 million, inclusive of $14.8 million of distributions for shares of common stock that were reinvested in shares issued pursuant the DRIP.  During the three months ended March 31, 2015, cash used to pay distributions was generated from funds received from property operating results and shares issued pursuant to the DRIP.

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The following table shows the sources for the payment of distributions to common stockholders, including distributions on unvested restricted stock, for the period indicated:
 
 
Three Months Ended
March 31, 2015
 
 
(In thousands)
 
 
 
Percentage of Distributions
Distributions:
 
 
 
 
Distributions paid in cash directly to stockholders
 
$
11,835

 
 
Distributions reinvested in common stock issued under the DRIP
 
14,826

 
 
Distributions on unvested restricted stock
 
2

 
 
Total distributions
 
$
26,663

 
 
 
 
 
 
 
Source of distribution coverage:
 
 
 
 
Cash flows provided by operations (1)
 
$
11,837

 
44.4
%
Offering proceeds from issuances of common stock
 
—

 
—
%
Offering proceeds reinvested in common stock issued under the DRIP
 
14,826

 
55.6
%
Proceeds from financings
 
—

 
—
%
Total source of distribution coverage
 
$
26,663

 
100.0
%
 
 
 
 
 
Cash flows provided by operations (GAAP basis) (1)
 
$
27,807

 
 
Net income (in accordance with GAAP)
 
$
4,901

 
 
_____________________
(1)
Cash flows provided by operations for the three months ended March 31, 2015 include acquisition and transaction related expenses of $0.1 million.
The following table compares cumulative distributions paid, including distributions related to unvested restricted shares, to cumulative net loss and cumulative cash flows provided by operations (in accordance with GAAP) and our cumulative FFO for the period from January 22, 2013 (date of inception) to March 31, 2015:
(In thousands)
 
Period from
January 22, 2013
(date of inception) to
March 31, 2015
Distributions paid:
 
 
Common stockholders in cash
 
$
71,547

Common stockholders pursuant to DRIP/offering proceeds
 
96,232

Distributions on unvested restricted stock
 
12

Total distributions paid
 
$
167,791

 
 
 
Reconciliation of net loss:
 
 
Revenues
 
$
225,535

Acquisition and transaction related expenses
 
(49,658
)
Depreciation and amortization
 
(133,713
)
Other operating expenses
 
(29,761
)
Other non-operating income, net
 
(30,296
)
Net loss (in accordance with GAAP) (1)
 
$
(17,893
)
 
 
 
Cash flows provided by operations
 
$
114,001

 
 
 
FFO
 
$
115,820

_____________________
(1)
Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization expense as well as costs incurred relating to acquisitions and related transactions.

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For the three months ended March 31, 2015, cash flows provided by operations were $27.8 million. As shown in the table above, we funded distributions with cash flows provided by operations as well as proceeds from our IPO which were reinvested in common stock issued under our DRIP. To the extent we pay distributions in excess of cash flows provided by operations, your investment may be adversely impacted. Since inception, our cumulative distributions have exceeded our cumulative FFO. See “Risk Factors - Distributions paid from sources other than our cash flows from operations, particularly from proceeds of our IPO, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments and may dilute our stockholders' interests in us, which may adversely affect our ability to fund future distributions with cash flows from operations and may adversely affect our stockholders' overall return.” under Item 1A in this Quarterly Report on Form 10-Q.
Loan Obligations
The payment terms of certain of our mortgage loan obligations require principal and interest payments monthly, with all unpaid principal and interest due at maturity. Our loan agreements stipulate that we comply with specific reporting covenants. As of March 31, 2015, we were in compliance with the debt covenants under our loan agreements.
Our Advisor may, with approval from our board of directors, seek to borrow short-term capital that, combined with secured mortgage financing, exceeds our targeted leverage ratio. As of March 31, 2015, our secured debt leverage ratio (total secured debt divided by the base purchase price of acquired real estate investments) and leverage ratio (total debt divided by total assets) approximated 21.7% and 40.3%, respectively.
Contractual Obligations
The following table reflects contractual debt obligations under our mortgage notes payable and Credit Facility as well as minimum base rental cash payments due for leasehold interests over the next five years and thereafter as of March 31, 2015. These minimum base rental cash payments due for leasehold interests amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items:
 
 
 
 
April 1, 2015 to December 31, 2015
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
 
2016-2017
 
2018-2019
 
Thereafter
Principal on mortgage notes payable
 
$
469,836

 
$
190,721

 
$
84,407

 
$
2,354

 
$
192,354

Interest on mortgage notes payable
 
86,850

 
19,953

 
27,734

 
21,437

 
17,726

Credit Facility
 
423,000

 
—

 
423,000

 
—

 
—

Interest on Credit Facility
 
22,348

 
7,154

 
15,194

 
—

 
—

Ground lease rental payments due
 
9,751

 
666

 
1,795

 
1,764

 
5,526

 
 
$
1,011,785

 
$
218,494

 
$
552,130

 
$
25,555

 
$
215,606

Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. We believe that, commencing with such taxable year, we are organized and operate in such a manner as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. In order to continue to qualify for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties, as well as federal income and excise taxes on our undistributed income.
Inflation
Some of our leases with our tenants 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. However, 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 costs and operating expenses resulting from inflation.

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Related-Party Transactions and Agreements
We have entered into agreements with entities under common control with our Sponsor, under which we have paid or may in the future pay certain fees or reimbursements to our Advisor, its affiliates and entities under common control with our Advisor in connection with items such as acquisition and financing activities, sales and maintenance of common stock under our IPO, transfer agency services, asset and property management services and reimbursement of operating and offering related costs. In addition, during the second quarter of 2014, we announced that we engaged RCS Capital, the investment banking division of our Dealer Manager, as a financial advisor to assist us in evaluating potential strategic alternatives. See Note 10 — Related Party Transactions and Arrangements to our consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of the various related party transactions, agreements and fees.
In addition, the limited partnership agreement of the OP provides for a special allocation, solely for tax purposes, of excess depreciation deductions of up to $10.0 million to our Advisor, a limited partner of the OP. In connection with this special allocation, our Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP. Our Advisor is directly or indirectly controlled by certain of our officers and directors.
Recent Developments
Since March 31, 2015, there have been a number of developments that we expect to have a significant effect on our future financial condition and results of operations:
Listing on NYSE and Name Change
On April 15, 2015, we applied to list our common stock on the New York Stock Exchange ("NYSE") under the symbol "AFIN" (the "Listing"). In connection with the Listing, we intend to file Articles of Amendment to change our name to "American Finance Trust, Inc."
Completion of the Listing is subject to final approval by the NYSE. There can be no assurance that our shares of Common Stock will be listed on the NYSE.
New Strategy
On April 15, 2015, our Advisor recommended, and our board of directors approved, our New Strategy, pursuant to which we expect to focus our new investment activity on originating and acquiring CRE Debt Investments. We will continue to maintain and selectively invest in additions to the Net Lease Portfolio, however we will not forgo opportunities to invest in other types of real estate investments that meet our overall investment objectives.
Tender Offer
In connection with the Listing, we also intend to commence an offer to purchase up to $125.0 million of shares of our common stock from our stockholders at a price of $25.50 per share (the "Tender Offer"), net to the tendering stockholders in cash, less any applicable withholding taxes and without interest. We believe the Tender Offer will augment the options available to stockholders in connection with the Listing by allowing them to tender all or a portion of their shares in the Tender Offer at a fixed price. If the Tender Offer is oversubscribed, proration of the tendered shares will be determined promptly after the Tender Offer expires. We intend to fund the Tender Offer with cash on hand and funds available under the Credit Facility. We expect to commence the Tender Offer on the date of the Listing and the Tender Offer will expire on 20th business day thereafter (unless we extend the offer). The Tender Offer will be subject to certain conditions.
Reaffirmation of Current Monthly Distributions and Change to Payment Dates
We announced that we intend to continue payment of monthly distributions at an annualized rate of $1.65 per share. Historically, we have calculated our monthly distribution based upon daily record and distribution declaration dates so that our stockholders would be entitled to be paid distributions beginning with the month in which their shares were purchased. Following the Listing, we will pay distributions on the 15th day of each month to stockholders of record as of close of business on the 8th day of such month.

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Subordinated Listing Distribution
In connection with the Listing, we, as the general partner of the OP, will cause the OP to issue a note (the “Listing Note”) to the Special Limited Partner to evidence the OP’s obligation to distribute to the Special Limited Partner an aggregate amount (the “Listing Amount”) equal to 15.0% of the difference (to the extent the result is a positive number) between:
•
the sum of (i) the “market value” (as defined in the Listing Note) of our Common Stock plus (ii) the sum of all distributions or dividends (from any source) that we paid to our stockholders prior to the Listing; and
•
the sum of (i) the total raised in our IPO and under our DRIP prior to the Listing (“Gross Proceeds”) plus (ii) the total amount of cash that, if distributed to those stockholders who purchased shares of Common Stock in the IPO and under the DRIP, would have provided those stockholders a 6.0% cumulative, non-compounded, pre-tax annual return (based on a 365-day year) on the Gross Proceeds.
The “market value” used to calculate the Listing Amount will not be determinable until the end of a measurement period, the period of 30 consecutive trading days, commencing on the 180th day following the Listing, unless another liquidity event, such as a merger, occurs prior to the end of the measurement period. If another liquidity event occurs prior to the end of the measurement period, the Listing Note provides for appropriate adjustment to the calculation of the Listing Amount.
The Special Limited Partner will have the right to receive distributions of “Net Sales Proceeds,” as defined in the Listing Note, until the Listing Note is paid in full; provided that, the Special Limited Partner has the right, but not the obligation, to convert the entire Special Limited Partner interest into OP Units. OP Units are convertible into shares of our Common Stock in accordance with the terms governing conversion of OP Units into shares of Common Stock and contained in the Second Amended and Restated Agreement of Limited Partnership of the OP (the “OP Agreement”), which will be entered into at Listing.
Amendment to Advisory Agreement
On April 15, 2015, our board of directors approved an amendment (the "Amendment") to the Amended and Restated Advisory Agreement, dated June 5, 2013 (as amended by the Amendment, the "Advisory Agreement") by and among us, the OP and the Advisor, which, among other things, provides that, effective as of the date thereof:
(i)
for any period commencing on or after April 1, 2015, the Company shall pay the Advisor or its assignees as compensation for services rendered in connection with the management of our assets an Asset Management Fee (as defined in the Advisory Agreement) equal to 0.75% per annum of the Cost of Assets (as defined in the Advisory Agreement);
(ii)
such Asset Management Fee will be payable monthly in arrears in cash, in shares of common stock, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor; and
(iii)
we shall not cause the OP to issue any Class B Units in respect of periods subsequent to March 31, 2015.
Amendments to Agreement of Limited Partnership of the OP
Third Amendment to the Agreement of Limited Partnership of the OP
On April 29, 2015, the board of directors authorized the execution by us, as general partner of its OP, of a Third Amendment (the “Third Amendment”) to the OP Agreement to conform the OP Agreement to the previously announced amendment on April 15, 2015, to that certain Amended and Restated Advisory Agreement, dated June 5, 2013, by and among us, the OP and the Advisor. The Third Amendment provides that the OP will not issue any “Class B Units” (as defined in the OP Agreement) in respect of periods subsequent to March 31, 2015.

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Amended and Restated Agreement of Limited Partnership of the OP
On April 29, 2015, the board of directors authorized the execution, in conjunction with the Listing, of an Amended and Restated Agreement of Limited Partnership of the OP (the “A&R OP Agreement”) by us, as general partner of its OP, with the limited partners party thereto to conform more closely with agreements of limited partnership of other operating partnerships controlled by real estate investment trusts whose securities are publicly traded and listed, and to add long term incentive plan units (“LTIP Units”) as a new class of units of limited partnership in the OP to the existing common units (“OP Units”). Pursuant to the A&R OP Agreement, the LTIP Units will be created. We may at any time cause the OP to issue LTIP Units to members of our senior management team. These LTIP Units will be earned and will vest on such terms as are determined by our Compensation Committee. In general, LTIP Units are a special class of units entitled to receive profit distributions. Upon issuance and prior to being fully earned, holders of LTIP Units are entitled to receive per unit profit distributions equal to ten percent (10.0%) of per unit profit distributions on the outstanding OP Units. After LTIP Units are fully earned, a holder of LTIP Units first will be entitled to receive a catch-up of the other ninety percent (90.0%) of per unit profit distributions not previously distributed, and, subsequently, they will be entitled to receive the same per unit profit distributions as the other outstanding OP Units. However, as profits interests, LTIP Units initially will not have full parity, on a per unit basis, with the OP Units with respect to liquidating distributions, and a holder of LTIP Units would receive nothing if the OP were liquidated immediately after the LTIP Unit is awarded. Upon the occurrence of specified events, LTIP Units can over time achieve full parity with the OP Units and therefore accrete to an economic value for the holder equivalent to the OP Units. In order for LTIP Units to have full parity with the OP Units, the capital accounts of the holders of LTIP Units with respect to such LTIP Units would have to be equalized (on a per unit basis) with the capital accounts of the holders of the OP Units. This capital account equalization per unit would occur through special allocations of net increases in valuation (if any) of our assets upon the occurrence of certain revaluation events permitted under the Code and Treasury regulations, including: (i) the acquisition of an additional interest in the OP by a new or existing partner in exchange for more than a de minimus capital contribution, (ii) the distribution by the OP of more than a de minimus amount of property as consideration for the repurchase or redemption of an interest in the OP (which may include the redemption or conversion of LTIP Units into OP Units or our Common Stock), (iii) the liquidation of the OP or (iv) at such other times as we reasonably determine to be necessary or desirable to comply with Treasury regulations (including the issuance of new LTIP Units). LTIP Units cannot achieve immediate full parity with OP Units under any circumstances at the time of grant of such LTIP Units. Generally, an LTIP Unit will be convertible into an OP Unit at any time after such LTIP Unit vests and the capital account associated with such LTIP Unit is equalized.
Second Amended and Restated Advisory Agreement
On April 29, 2015, the independent directors of the board of directors unanimously approved certain amendments to the Amended and Restated Advisory Agreement, as amended (the “Advisory Agreement”), by and among us, the OP and the Advisor (the “Second A&R Advisory Agreement”). The Second A&R Advisory Agreement will take effect only upon approval by our stockholders of certain changes to our Articles of Amendment and Restatement (“Stockholder Approval”), and, which, among other things, provides that:
(i)
the Annual Subordinated Performance Fee (as defined in the Advisory Agreement) shall be changed from an annual fee equal to 15.0% of the total return to stockholders in excess of 6.0% per annum to a quarterly fee, payable in arrears, equal to (x) 15.0% of the applicable quarter’s Core Earnings per share in excess of $0.375 per share plus (y) 10.0% of the applicable quarter’s Core Earnings per share in excess of $0.50 per share;
(ii)
Core Earnings shall be defined as, for the applicable period, GAAP net income (loss) excluding non-cash equity compensation expense, the variable management fee, acquisition and transaction related fees and expenses, financing related fees and expenses, depreciation and amortization, realized gains and losses on the sale of assets, any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income, one-time events pursuant to changes in GAAP and certain non-cash charges, impairment losses on real estate related investments and other than temporary impairment of securities, amortization of deferred financing costs, amortization of tenant inducements, amortization of straight-line rent, amortization of market lease intangibles, provision for loss loans, and other non-recurring revenue and expenses;
(iii)
the Acquisition Fee and Financing Coordination Fee (both as defined in the Advisory Agreement) will terminate 180 days after Stockholder Approval (the “Fee Termination Date”), except for Acquisition Fees with respect to properties under contract, letter of intent, or under negotiation as of the Fee Termination Date;
(iv)
a Base Management Fee equal to $4.5 million per quarter plus 0.375% of the cumulative net proceeds of any equity raised subsequent to the Listing, shall be added;
(v)
all fees accrued and expenses incurred shall be paid quarterly in arrears; and
(vi)
the initial term of the Advisory Agreement, commencing upon Stockholder Approval, will be 20 years, and automatically renewable for another 20-year term upon each 20-year anniversary unless terminated by the board of directors for cause.

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Multi-Year Outperformance Plan Agreement
On April 29, 2015, the board of directors approved the general terms of a Multi-Year Outperformance Agreement (the “OPP”) to be entered into with us, the OP and the Advisor, in connection with the Listing.
Under the OPP, the Advisor will be issued LTIP Units in the OP with a maximum award value equal to 5.0% of our market capitalization (the “OPP Cap”) on the date of Listing (the “Effective Date”). The LTIP Units will be structured as profits interest in the OP. The Advisor will be eligible to earn a number of LTIP Units with a value up to the OPP Cap based on our achieving certain levels of total return to our stockholders (“Total Return”) on both an absolute basis and a relative basis measured against a peer group of companies, as set forth below, for a three-year period commencing on the Effective Date (the “Performance Period”). In addition, Advisor may “lock-in” a portion of the OPP Cap based on the attainment of pro-rata performance hurdles, as set forth below, during each 12-month period in the Performance Period (each such period, an “One-Year Period”) and during the initial 24-month period of the Performance Period (the “Two-Year Period”). Each of the relevant performance periods will be evaluated separately based on performance through the end of the relevant performance period.
 
 
 
 
 
Three-Year Period
 
Each One-Year Period
 
Two-Year Period
Absolute Component: 4% of any excess Total Return attained above an absolute total stockholder return hurdle measured from the beginning of such period as follows:
 
21%
 
7%
 
14%
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achieving cumulative Total Return measured from the beginning of the period:
 
 
 
 
 
 
 
•
 
100% of the Relative Component will be earned if cumulative Total Return achieved is at least:
 
18%
 
6%
 
12%
 
•
 
50% of the Relative Component will be earned if cumulative Total Return achieved is:
 
—%
 
—%
 
—%
 
•
 
0% of the Relative Component will be earned if cumulative Total Return achieved is less than:
 
—%
 
—%
 
—%
 
•
 
a percentage from 50% to 100% of the Relative Component calculated by linear interpolation will be earned if the cumulative Total Return achieved is between:
 
0% - 18%
 
0% - 6%
 
0%- 12%
______________________ 
*
The “Peer Group” is comprised of Arbor Realty Trust, Inc., Ares Commercial Real Estate Corp., Colony Financial, Inc., and Starwood Property Trust, Inc.
The maximum “lock-in” amount for any given One-Year Period is 25.0% of the OPP Cap. The maximum “lock-in” amount for the Two-Year Period is 60.0% of the OPP Cap. Accordingly, any “lock-in” amount for the Two-Year Period may supersede and negate any awards for the first two One-Year Periods. Any LTIP Units that are unearned at the end of the Performance Period will be forfeited.
Subject to Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth anniversaries of the Effective Date. Any earned and vested LTIP Units may be converted into OP Units of the OP in accordance with the terms and conditions of the partnership agreement of the OP (as described above).
The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in the event Advisor is terminated by us or in the event we incur a change in control, in either case prior to the end of the Performance Period. The OPP also provides for accelerated vesting of earned LTIP Units in the event Advisor is terminated or in the event of a change in control of us on or following the end of the Performance Period.
Amended and Restated Incentive Restricted Share Plan
On April 29, 2015, the board of directors adopted an Amended and Restated RSP (the “A&R Restricted Share Plan”) that replaces in its entirety our Employee and Director RSP (the “Old Restricted Share Plan”). The A&R Restricted Share Plan amends the terms of the Old Restricted Share Plan as follows:
•
it increases the number of shares of our capital stock, par value $0.01 per share (the “Capital Stock”), available for awards thereunder from 5.0% of our outstanding shares of Capital Stock on a fully diluted basis at any time, not exceed 3.4 million shares of Capital Stock, to 10.0% of our outstanding shares of Capital Stock on a fully diluted basis at any time;
•
it removes the fixed amount of shares that were automatically granted to our independent directors; and
•
it adds restricted stock units (including dividend equivalent rights thereon) as a permitted form of award.

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Notice of Amendment and Suspension of the DRIP
In connection with the Listing and the Tender Offer, pursuant to the terms of the DRIP, on April 15, 2015, our board of directors approved an amendment to the DRIP (the "DRIP Amendment") that enables us to suspend the DRIP. Subsequently, pursuant to the DRIP as amended by the DRIP Amendment, our board of directors approved the suspension of the DRIP, effective immediately following the payment of our June 2015 monthly distribution. Accordingly, the final issuance of shares of common stock pursuant to the DRIP will occur in connection with our June 2015 distribution payable no later than July 5, 2015.
Notice of Termination of the SRP
In connection with the Listing and the Tender Offer, pursuant to the requirements of applicable tender offer rules, on April 15, 2015, the board of directors approved the termination of the SRP. We have processed all of the requests received under the SRP for the first and second quarters of 2015 and will not process further requests.
Engagement of New Financial Advisor
We announced that in connection with the Listing, we have also engaged UBS Securities LLC as a financial advisor. As previously disclosed, RCS Capital, the investment banking and capital markets division of the Dealer Manager, is also advising us in connection with the Listing.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have 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 and our Credit Facility, 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. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus are not exposed to foreign currency fluctuations.
As of March 31, 2015, our debt consisted of both fixed- and variable-rate debt. As of March 31, 2015, we had fixed-rate secured mortgage financings with a carrying value of $490.1 million and a fair value of $503.4 million. Changes in market interest rates on our fixed-rate debt impact the fair value of the debt, but it has no impact on interest expense incurred or cash flow. 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, 2015 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 $14.4 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 $13.3 million. 
As of March 31, 2015 our variable-rate Credit Facility had a carrying and fair value of $423.0 million. Interest rate volatility associated with this variable-rate Credit Facility affects interest expense incurred and cash flow. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their March 31, 2015 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate Credit Facility would increase or decrease our interest expense by $4.2 million annually.
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. The information presented above includes only those exposures that existed as of March 31, 2015 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.

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Item 4. Controls and Procedures.
Evaluation of Disclosure 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"), we, under the supervision and with the participation of our Chief Executive Officer and 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. As described below, management has identified material weaknesses in the Company’s internal control over financial reporting and management, including each of the Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2015 due to these material weaknesses. Management believes the consolidated financial statements contained herein present fairly, in all material respects, our financial position as of the specified dates and our results of operations and cash flows for the specified periods.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
During the period covered by this Quarterly Report on Form 10-Q, management concluded that our internal control over financial reporting was not effective as of March 31, 2015 due to the material weaknesses in internal control over financial reporting described in our Annual Report on Form 10-K filed with the SEC on May 15, 2015. Management, with the concurrence of the audit committee of the board of directors of the Company, has proceeded with a remediation plan, which is also described in our Annual Report on Form 10-K filed with the SEC on May 15, 2015. The implementation of this remediation plan is expected to be reflected as changes in our internal control over financial reporting in future periods.


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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, except as set forth below:
Distributions paid from sources other than our cash flows from operations, particularly from proceeds of our IPO, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments and may dilute your interests in us, which may adversely affect our ability to fund future distributions with cash flows from operations and may adversely affect your overall return.
Our cash flows provided by operations were $27.8 million for the three months ended March 31, 2015. During the three months ended March 31, 2015, we paid distributions of $26.7 million, of which $11.9 million, or 44.4%, was funded from cash flows from operations and $14.8 million, or 55.6%, was funded from proceeds from our IPO which were reinvested in common stock issued pursuant to the DRIP. Using offering proceeds to pay distributions, especially if the distributions are not reinvested through our DRIP, reduces cash available for investment in assets or other purposes, and reduces our per share stockholders' equity. We may continue to use offering proceeds which were reinvested in common stock issued pursuant to the DRIP to fund distributions.
We may not continue to generate sufficient cash flows from operations to pay future distributions. If we do not generate sufficient cash flows from our operations and 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, to fund distributions, we may continue to use offering proceeds which were reinvested in common stock issued pursuant to the DRIP to fund distributions. Moreover, our board of directors may change our distribution policy, in its sole discretion, at any time. Distributions made from offering proceeds are a return of capital to stockholders, from which we will have already paid offering expenses in connection with our IPO.
Funding distributions from borrowings could restrict the amount we can borrow for investments. Funding distributions with the sale of assets or the proceeds from sales of common stock may affect our ability to generate additional operating cash flows. Funding distributions from the sale of additional securities could dilute each stockholder's interest in us if we sell shares of our common stock or securities that are convertible or exercisable into shares of our common stock to third-party investors. Payment of distributions from the mentioned sources could restrict our ability to generate sufficient cash flows from operations, affect our profitability or affect the distributions payable to stockholders upon a liquidity event, any or all of which may have an adverse effect on an investment in our shares.
We rely significantly on six major tenants (including, for this purpose, all affiliates of such tenants) and therefore, are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.
As of March 31, 2015, the following six major tenants had annualized rental income on a straight-line basis, which represented 5.0% or more of our consolidated annualized rental income on a straight-line basis including, for this purpose, all affiliates of such tenants:
Tenant
 
March 31, 2015
SunTrust Bank
 
17.9%
Sanofi US
 
11.6%
C&S Wholesale Grocer
 
10.4%
AmeriCold
 
7.8%
Merrill Lynch
 
7.8%
Stop & Shop
 
6.1%
Therefore, the financial failure of any of these tenants could have a material adverse effect on our results of operations and our financial condition. In addition, the value of our investment is historically driven by the credit quality of the underlying tenant, and an adverse change in either the tenant's financial condition or a decline in the credit rating of such tenant may result in a decline in the value of our investments.

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We are subject to tenant geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas.
As of March 31, 2015, the following states had concentrations of properties where annualized rental income on a straight-line basis represented 5.0% or greater of our consolidated annualized rental income on a straight-line basis:
State
 
March 31, 2015
New Jersey
 
20.3%
Georgia
 
11.2%
Massachusetts
 
8.2%
Florida
 
7.4%
North Carolina
 
6.7%
Alabama
 
5.5%
As of March 31, 2015, our tenants operated in 37 states. Any adverse situation that disproportionately affects the states listed above may have a magnified adverse effect on our portfolio. Factors that may negatively affect economic conditions in these states include:
•
business layoffs or downsizing;
•
industry slowdowns;
•
relocations of businesses;
•
changing demographics;
•
increased telecommuting and use of alternative work places;
•
infrastructure quality;
•
any oversupply of, or reduced demand for, real estate;
•
concessions or reduced rental rates under new leases for properties where tenants defaulted; and
•
increased insurance premiums.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sale of Unregistered Equity Securities
We did not sell any equity securities that were not registered under the Securities Act during the three months ended March 31, 2015.
Use of Proceeds from Sales of Registered Securities
On April 4, 2013, we commenced our IPO on a "reasonable best efforts" basis of up to 68.0 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. The Registration Statement also covered up to 14.7 million shares of common stock at an initial price of $23.75 per share, which was 95.0% of the initial offering price of shares of common stock in the IPO, available pursuant to the DRIP, under which our common stockholders could elect to have their distributions reinvested in additional shares of our common stock. As permitted under our Registration Statement, we reallocated the remaining 14.5 million DRIP shares available under the Registration Statement to the primary offering. Concurrent with such reallocation, we registered an additional 14.7 million shares at an initial price of $23.75 per share to be issued under the DRIP pursuant to a registration statement on Form S-11, as amended (File No. 333-191255), which became effective on October 5, 2013. Our IPO closed on October 31, 2013. As of March 31, 2015, we had 65.7 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 $1.6 billion.
The following table reflects the cumulative offering costs associated with the issuance of common stock:
(In thousands)
 
Period from
January 22, 2013
(date of inception) to
March 31, 2015
Selling commissions and dealer manager fees
 
$
143,006

Other offering costs
 
30,693

Total offering costs
 
$
173,699


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The Dealer Manager reallowed 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 common shares:
(In thousands)
 
Period from
January 22, 2013
(date of inception) to
March 31, 2015
Total commissions paid to the Dealer Manager
 
$
143,006

Less:
 
 
  Commissions to participating brokers
 
(93,336
)
  Reallowance to participating broker dealers
 
(14,913
)
Net to the Dealer Manager
 
$
34,757

As of March 31, 2015, cumulative offering costs, excluding selling commissions and dealer manager fees, included $30.5 million from our Advisor and Dealer Manager. We were responsible for offering and related costs from the IPO, excluding selling commissions and dealer manager fees, up to a maximum of 2.0% of gross proceeds received from the IPO, measured at the end of the IPO. Offering costs, excluding selling commissions and dealer manager fees, in excess of the 2.0% cap as of the end of the IPO are the Advisor's responsibility. As of the end of our IPO, cumulative offering and related costs, excluding selling commissions and dealer manager fees, did not exceed the 2.0% threshold.
We used the proceeds from our IPO to acquire a diversified portfolio of income producing real estate properties, focusing primarily on acquiring freestanding, single-tenant retail properties net leased to investment grade and other creditworthy tenants. We may originate or acquire first mortgage loans secured by real estate. As of March 31, 2015, we have used the net proceeds from our IPO to purchase 463 properties with an aggregate base purchase price of $2.2 billion.
Issuer Purchases of Equity Securities
Although we have announced our intent to list on NYSE, our common stock is currently not listed on a national securities exchange. In order to provide stockholders with interim liquidity, our board of directors adopted the SRP, which enabled our stockholders to sell their shares back to us, subject to significant conditions and limitations. Our Sponsor, Advisor, directors and affiliates are prohibited from receiving a fee on any share repurchases.
Under the SRP, stockholders were permitted to request that we repurchase all or any portion, subject to certain minimum conditions, of their shares on any business day, if such repurchase did not impair our capital or operations.
Until November 14, 2014, the number of shares repurchased could not exceed 5.0% of the weighted-average number of shares of common stock outstanding at the end of the previous calendar year and the price per share for repurchases of shares of common stock was as follows:
•
the lower of $23.13 and 92.5% of the price paid to acquire the shares, for stockholders who had continuously held their shares for at least one year;
•
the lower of $23.75 and 95.0% of the price paid to acquire the shares for stockholders who had continuously held their shares for at least two years;
•
the lower of $24.78 and 97.5% of the price paid to acquire the shares for stockholders who had continuously held their shares for at least three years; and
•
the lower of $25.00 and 100.0% of the price paid to acquire the shares for stockholders who had continuously held their shares for at least four years (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock).
Effective November 14, 2014, the repurchase price for shares under the SRP was based on the Estimated Per-Share NAV as determined by our board of directors. Only those stockholders who purchased their shares from us or received their shares from us (directly or indirectly) through one or more non-cash transactions were able to participate in the SRP. The repurchase of shares occurred on the last business day prior to the filing of each quarterly financial filing (and in all events on a date other than a dividend payment date). Purchases under the SRP were limited during any 12-month period to approximately 5.0% of the Company's NAV in any 12 month period.
Effective November 14, 2014, there was no minimum holding period for shares of the Company's common stock and stockholders could have submitted their shares for repurchase at any time through the SRP. Shares repurchased in connection with the death or disability of a stockholder would have been repurchased at a purchase price equal to the greater of the price paid for such shares and the then-current NAV (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the Company's common stock)v.

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Subject to limited exceptions, stockholders who requested the repurchase of shares of our common stock within the first four months from the date of purchase were subject to a short-term trading fee of 2.0%.
When a stockholder requested redemption and the redemption was approved, we reclassified such obligation from equity to a liability based on the settlement value of the obligation. Funding for the SRP is derived from proceeds we maintain from the sale of shares pursuant to the DRIP. Shares purchased under the SRP have the status of authorized but unissued shares. The following table summarizes the repurchases of shares under the SRP cumulatively through March 31, 2015:
 
 
Number of Requests
 
Number of Shares
 
Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2014
 
158

 
303,907

 
$
24.01

Three months ended March 31, 2015
 
86

 
227,875

 
23.79

Cumulative repurchases as of March 31, 2015 (1)
 
244

 
531,782

 
$
23.92

_____________________
(1)
Includes 83 unfulfilled repurchase requests consisting of 226,466 shares with a weighted-average repurchase price per share of $23.79, which were approved for repurchase as of March 31, 2015 and were completed during the second quarter of 2015. This liability was included in accounts payable and accrued expenses on the Company's consolidated balance sheet as of March 31, 2015.
Our board of directors terminated the SRP on April 15, 2015.
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 TRUST V, INC.
 
By:
/s/ William M. Kahane
 
 
William M. Kahane
 
 
Chief Executive Officer, President and Chairman of the Board of Directors
(Principal Executive Officer)
 
 
 
 
By:
/s/ Nicholas Radesca
 
 
Nicholas Radesca
 
 
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
Dated: May 18, 2015

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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, 2015 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
  
Description
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 Trust V, Inc.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2015, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Stockholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
____________________
*     Filed herewith.

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