UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 8, 2014 (April 2, 2014)
American Realty Capital - Retail Centers of America, Inc.
(Exact Name of Registrant as Specified in Charter)
| Maryland | 000-55198 | 27-3279039 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
405 Park Avenue, 15th Floor New York, New York 10022 |
(Address, including zip code, of Principal Executive Offices) Registrant's telephone number, including area code: (212) 415-6500 |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
American Realty Capital — Retail Centers of America, Inc. (the "Company") previously filed a Current Report on Form 8-K on April 8, 2014 (the "Original Form 8-K") reporting its acquisition of a fee-simple interest in a retail lifestyle center known as The Streets of West Chester located in West Chester, Ohio ("The Streets of West Chester") on April 3, 2014. This Amended Current Report on Form 8-K/A is being filed solely for the purposes of amending the Original Form 8-K to provide (i) the financial information related to such acquisition as required by Item 9.01 and (ii) certain additional information with respect to such acquisition.
Item 9.01. Financial Statements and Exhibits.
| Page | |
| (a) Financial Statements of Businesses Acquired | |
| The Streets of West Chester Historical Summary: | |
| (b) Unaudited Pro Forma Consolidated Information | |
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Report of Independent Certified Public Accountants
Board of Directors and Stockholders
American Realty Capital - Retail Centers of America, Inc.
We have audited the accompanying Statements of Revenues and Certain Expenses ("Historical Summary") of the fee simple interest in The Streets of West Chester for the year ended December 31, 2013, and the related notes to the Historical Summary.
Management's responsibility for the financial statement
Management of American Realty Capital - Retail Centers of America, Inc. is responsible for the preparation and fair presentation of the Historical Summary in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Historical Summary that is free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on the Historical Summary based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Historical Summary. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Historical Summary, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the Historical Summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Historical Summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the revenues and certain expenses of The Streets of West Chester for the year ended December 31, 2013, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying Historical Summary was prepared for the purpose of complying with rules and regulations of the U.S. Securities and Exchange Commission and for inclusion in a Form 8-K/A of American Realty Capital - Retail Centers of America, Inc., as described in Note 1 to the Historical Summary, and is not intended to be a complete presentation of The Streets of West Chester's revenue and expenses.
/s/ GRANT THORNTON LLP
New York, New York
June 16, 2014
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THE STREETS OF WEST CHESTER
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(In thousands)
| Three Months Ended | Year Ended | ||||||
| March 31, 2014 | December 31, 2013 | ||||||
| (Unaudited) | |||||||
| Revenues: | |||||||
| Rental income | $ | 780 | $ | 3,165 | |||
| Operating expense reimbursements | 282 | 986 | |||||
| Total revenues | 1,062 | 4,151 | |||||
| Certain expenses: | |||||||
| Property operating | 278 | 803 | |||||
| Real estate taxes | 179 | 703 | |||||
| Insurance | 12 | 49 | |||||
| Total certain expenses | 469 | 1,555 | |||||
| Revenues in excess of certain expenses | $ | 593 | $ | 2,596 | |||
The accompanying notes are an integral part of these Statements of Revenues and Certain Expenses.
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THE STREETS OF WEST CHESTER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(References to amounts for the three months ended March 31, 2014 are unaudited)
1. Background and Basis of Presentation
The accompanying Statements of Revenues and Certain Expenses ("Historical Summary") include the operations of a fee-simple interest in a retail lifestyle center known as The Streets of West Chester located in West Chester, Ohio ("The Streets of West Chester") for the year ended December 31, 2013 and the three months ended March 31, 2014. American Realty Capital - Retail Centers of America, Inc. (the "Company") completed its acquisition of The Streets of West Chester from two unaffiliated third parties through a wholly owned subsidiary of its operating partnership on April 3, 2014 for $40.5 million, excluding closing costs.
The accompanying Historical Summary has been prepared for the purpose of complying with the provisions of Rule 3-14 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the "SEC"), which requires that certain information with respect to real estate operations be included with certain SEC filings. An audited statement of revenues and certain expenses is being presented for the most recent fiscal year available instead of the three most recent years based on the following factors: (a) The Streets of West Chester was acquired from unaffiliated parties; and (b) based on due diligence of The Streets of West Chester performed by the Company, management is not aware of any material factors relating to The Streets of West Chester that would cause this financial information not to be indicative of future operating results.
2. Summary of Significant Accounting Policies
Revenue Recognition
Under the terms of the leases, the tenants pay monthly operating expense reimbursements to the property owner for certain expenses. Reimbursements from the tenants are recognized as revenue in the period the applicable expenses are incurred. Rental income includes the effect of amortizing the aggregate minimum lease payments over the terms of the leases, which amounted to a decrease to rental income of approximately $17,000 and approximately $26,000 over the rent payments received in cash for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.
The following table lists a tenant whose annualized rental income on a straight-line basis represented greater than 10% of total annualized rental income on a straight-line basis for all tenants of The Streets of West Chester as of March 31, 2014 and December 31, 2013:
| Tenant | March 31, 2014 | December 31, 2013 | ||
| AMC | 54.2% | 54.1% | ||
The termination, delinquency or non-renewal of this lease may have a material adverse effect on revenues. No other tenant represents 10% or greater of annualized rental income on a straight-line basis as of March 31, 2014 and December 31, 2013, respectively.
Use of Estimates
The preparation of the Historical Summary in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions of the reported amounts of revenues and certain expenses during the reporting period. Actual results could differ from those estimates used in the preparation of the Historical Summary.
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THE STREETS OF WEST CHESTER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(References to amounts for the three months ended March 31, 2014 are unaudited)
3. Future Minimum Lease Payments
At March 31, 2014, The Streets of West Chester's future minimum lease payments are as follows (in thousands):
| April 1, 2014 to December 31, 2014 | $ | 2,292 | ||
| 2015 | 2,964 | |||
| 2016 | 2,656 | |||
| 2017 | 2,581 | |||
| 2018 | 2,494 | |||
| 2019 and thereafter | 725 | |||
| Total | $ | 13,712 | ||
4. Subsequent Events
The Company has evaluated subsequent events through June 16, 2014, the date upon which this Historical Summary has been issued, and has determined that there have not been any events that have occurred that would require adjustments to the disclosures in the Historical Summary.
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AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2014
The following Unaudited Pro Forma Consolidated Balance Sheet is presented as if American Realty Capital - Retail Centers of America, Inc. (the "Company") had acquired The Streets of West Chester as of March 31, 2014. This financial statement should be read in conjunction with the Unaudited Pro Forma Consolidated Statements of Operations and the Company's historical financial statements and notes thereto in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014. The Pro Forma Consolidated Balance Sheet is unaudited and is not necessarily indicative of what the actual financial position would have been had the Company acquired The Streets of West Chester as of March 31, 2014, nor does it purport to present the future financial position of the Company.
| (In thousands) | American Realty Capital - Retail Centers of America, Inc. (1) | The Streets of West Chester (2) | Pro Forma American Realty Capital - Retail Centers of America, Inc. | |||||||||
| ASSETS | ||||||||||||
| Real estate investments, at cost: | ||||||||||||
| Land | $ | 24,640 | $ | 11,925 | $ | 36,565 | ||||||
| Buildings, fixtures and improvements | 66,254 | 23,532 | 89,786 | |||||||||
| Acquired intangible lease assets | 15,940 | 5,043 | 20,983 | |||||||||
| Total real estate investments, at cost | 106,834 | 40,500 | 147,334 | |||||||||
| Less: accumulated depreciation and amortization | (7,307 | ) | — | (7,307 | ) | |||||||
| Total real estate investments, net | 99,527 | 40,500 | 140,027 | |||||||||
| Cash and cash equivalents | 131,443 | (40,578 | ) | 90,865 | ||||||||
| Restricted cash | 688 | — | 688 | |||||||||
| Prepaid expenses and other assets | 4,692 | (23 | ) | 4,669 | ||||||||
| Deferred costs, net | 1,346 | — | 1,346 | |||||||||
| Land held for sale | 564 | — | 564 | |||||||||
| Total assets | $ | 238,260 | $ | (101 | ) | $ | 238,159 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| Mortgage notes payable | $ | 63,083 | $ | — | $ | 63,083 | ||||||
| Below-market lease liabilities, net | 895 | — | 895 | |||||||||
| Derivatives, at fair value | 143 | — | 143 | |||||||||
| Accounts payable and accrued expenses | 5,510 | 643 | 6,153 | |||||||||
| Deferred rent and other liabilities | 407 | — | 407 | |||||||||
| Distributions payable | 1,019 | — | 1,019 | |||||||||
| Total liabilities | 71,057 | 643 | 71,700 | |||||||||
| Common stock | 210 | — | 210 | |||||||||
| Additional paid-in capital | 179,292 | — | 179,292 | |||||||||
| Accumulated other comprehensive loss | (143 | ) | — | (143 | ) | |||||||
| Accumulated deficit | (12,156 | ) | (744 | ) | (12,900 | ) | ||||||
| Total stockholders' equity | 167,203 | (744 | ) | 166,459 | ||||||||
| Total liabilities and stockholders' equity | $ | 238,260 | $ | (101 | ) | $ | 238,159 | |||||
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AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2014:
| (1) | Reflects the Company's historical unaudited Balance Sheet as of March 31, 2014, as previously filed. |
| (2) | Reflects the acquisition of The Streets of West Chester. The purchase price, excluding related expenses, was $40.5 million. |
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings, fixtures, and tenant improvements are based on cost segregation studies performed by independent third-parties or the Company's analysis of comparable properties in its portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases. Depreciation is computed using the straight-line method over the estimated lives of 40 years for buildings, 15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements.
The aggregate value of intangible assets and liabilities, as applicable, related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which is estimated to be nine months. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. The value of in-place leases is amortized to expense over the initial term of the respective lease, which ranges from five to 15 years. If a tenant terminates its lease, the unamortized portion of the in-place lease value and intangible is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about the property as a result of pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
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AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND THE THREE MONTHS ENDED MARCH 31, 2014
The following Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2013 and the three months ended March 31, 2014 are presented as if American Realty Capital - Retail Centers of America, Inc. (the "Company") had acquired The Streets of West Chester as of the beginning of the periods presented. These financial statements should be read in conjunction with the Unaudited Pro Forma Consolidated Balance Sheet and the Company's historical financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014. The Pro Forma Consolidated Statements of Operations are unaudited and are not necessarily indicative of what the actual results of operations would have been had the Company acquired The Streets of West Chester as of the beginning of the periods presented, nor does it purport to present the future results of operations of the Company.
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2013:
| (In thousands) | American Realty Capital - Retail Centers of America, Inc. (1) | The Streets of West Chester (2) | Pro Forma Adjustments The Streets of West Chester | Pro Forma American Realty Capital - Retail Centers of America, Inc. | ||||||||||||
| Revenues: | ||||||||||||||||
| Rental income | $ | 5,406 | $ | 3,165 | $ | 94 | (3) | $ | 8,665 | |||||||
| Operating expense reimbursements | 1,755 | 986 | — | 2,741 | ||||||||||||
| Total revenues | 7,161 | 4,151 | 94 | 11,406 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Property operating | 2,337 | 1,555 | 41 | (4) | 3,933 | |||||||||||
| Acquisition and transaction related | 978 | — | — | 978 | ||||||||||||
| General and administrative | 457 | — | — | 457 | ||||||||||||
| Depreciation and amortization | 5,202 | — | 3,993 | (5) | 9,195 | |||||||||||
| Total operating expenses | 8,974 | 1,555 | 4,034 | 14,563 | ||||||||||||
| Operating (loss) income | (1,813 | ) | 2,596 | (3,940 | ) | (3,157 | ) | |||||||||
| Other expenses: | ||||||||||||||||
| Interest expense | (2,761 | ) | — | — | (2,761 | ) | ||||||||||
| Extinguishment of debt | (130 | ) | — | — | (130 | ) | ||||||||||
| Total other expenses | (2,891 | ) | — | — | (2,891 | ) | ||||||||||
| Net (loss) income | $ | (4,704 | ) | $ | 2,596 | $ | (3,940 | ) | $ | (6,048 | ) | |||||
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AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013 AND THE THREE MONTHS ENDED MARCH 31, 2014
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2014:
| (In thousands) | American Realty Capital - Retail Centers of America, Inc. (1) | The Streets of West Chester (2) | Pro Forma Adjustments The Streets of West Chester | Pro Forma American Realty Capital - Retail Centers of America, Inc. | ||||||||||||
| Revenues: | ||||||||||||||||
| Rental income | $ | 2,115 | $ | 780 | $ | 27 | (3) | $ | 2,922 | |||||||
| Operating expense reimbursements | 684 | 282 | — | 966 | ||||||||||||
| Total revenues | 2,799 | 1,062 | 27 | 3,888 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Property operating | 941 | 469 | 10 | (4) | 1,420 | |||||||||||
| Acquisition and transaction related | 20 | — | — | 20 | ||||||||||||
| General and administrative | 107 | — | — | 107 | ||||||||||||
| Depreciation and amortization | 1,644 | — | 998 | (5) | 2,642 | |||||||||||
| Total operating expenses | 2,712 | 469 | 1,008 | 4,189 | ||||||||||||
| Operating (loss) income | 87 | 593 | (981 | ) | (301 | ) | ||||||||||
| Other expense: | ||||||||||||||||
| Interest expense | (686 | ) | — | — | (686 | ) | ||||||||||
| Net (loss) income | $ | (599 | ) | $ | 593 | $ | (981 | ) | $ | (987 | ) | |||||
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AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2013 and the three months ended March 31, 2014.
| (1) | Reflects the Company's historical operations for the period indicated as previously filed. |
| (2) | Reflects the operations of The Streets of West Chester for the period indicated, excluding acquisition costs. |
| (3) | Represents adjustments to straight-line rent for lease terms as of the acquisition date. |
| (4) | Represents a 100 basis point increase in property management fees as a percentage of gross rental receipts. The Company pays a property management fee to its Advisor equal to 4.0% of gross rental receipts, while the seller paid the seller’s property manager a property management fee equal to 3.0% of gross rental receipts. |
| (5) | Represents the estimated depreciation and amortization of real estate investments and intangible lease assets had the property been acquired as of the beginning of each period presented. Depreciation is computed using the straight-line method over the estimated lives of 40 years for buildings, 15 years for land improvements, and five years for fixtures. The value of in-place leases and tenant improvements are amortized to expense over the initial term of the respective leases, which ranges from five to 15 years. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC. | ||
| Dated: June 16, 2014 | By: | /s/ Nicholas Radesca |
| Nicholas Radesca | ||
| Chief Financial Officer | ||
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