Business Context and Reporting Period
Company: American Realty Capital New York City REIT, Inc.
Filing Type: Form 8-K (Current Report)
Report Date: April 2, 2015
Event Date: March 27, 2015
Context: The Company reported the completion of an asset acquisition and the creation of a direct financial obligation to fund the purchase.
Key Financial Metrics and Transaction Details
- Asset Acquired: 123 William Street, an institutional-quality office building in Downtown Manhattan.
- Purchase Price: $253.0 million (exclusive of closing costs).
- Acquisition Fees: $5.9 million paid to the Company's advisor.
- Property Size: Approximately 543,000 rentable square feet.
- Occupancy: 98% leased at the time of acquisition.
- Financing: Funded via proceeds from the Company's ongoing initial public offering and a new loan.
- Debt Instrument: $110.0 million loan from Capital One, National Association.
- Loan Terms: Interest rate of one-month LIBOR plus 2.25%; maturity in March 2017 with a one-time one-year extension option; nonrecourse; no prepayment penalty.
Material Changes and Tenant Concentration
The primary material change is the addition of the 123 William Street property to the Company's portfolio. The asset has significant tenant concentration, with the three largest tenants representing over 40% of annualized cash base rent:
- The People of the State of New York: Approximately 17% of annualized cash base rent (comprising four separate leases).
- Planned Parenthood Federation of America, Inc.: Approximately 14% of annualized cash base rent (lease commencing September 2015).
- The City of New York: Approximately 12% of annualized cash base rent (comprising two separate leases).
The seller was a subsidiary of a joint venture in which New York REIT, Inc. (NYRT) held a $35.1 million preferred equity interest. NYRT and the Company share the same sponsor.
Outlook, Risks, and Contingencies
- Lease Risks: Leases with state and city entities contain executory clauses limiting monetary liability to funds available to the specific departments. The City of New York holds termination rights subject to fees.
- Future Commencements: Significant leases with Planned Parenthood and the City of New York (Department of Citywide Administrative Services) are scheduled to commence in late 2015 upon completion of alterations.
- Financial Statements: Audited and unaudited financial statements for the acquired property are not included in this filing but will be filed within 71 calendar days.
- Debt Maturity: The $110.0 million loan matures in March 2017, creating a near-term refinancing or repayment obligation.
Investor Verification Checklist
- Verify the final closing costs and total capital deployed beyond the $253.0 million purchase price.
- Confirm the status of alterations required for the Planned Parenthood and City of New York leases to ensure rent commencement in late 2015.
- Review the upcoming Rule 3-14 financial statements for the property to assess historical cash flow and operating expenses.
- Monitor the Company's capital raise progress to ensure sufficient liquidity for the remaining equity portion of the purchase.
- Assess the impact of the $110.0 million debt on the Company's leverage ratios and interest coverage.