0001562528-13-000004.txt : 20130813 0001562528-13-000004.hdr.sgml : 20130813 20130813160100 ACCESSION NUMBER: 0001562528-13-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20130630 FILED AS OF DATE: 20130813 DATE AS OF CHANGE: 20130813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARC Realty Finance Trust, Inc. CENTRAL INDEX KEY: 0001562528 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-186111 FILM NUMBER: 131033081 BUSINESS ADDRESS: STREET 1: 405 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-969-3000 MAIL ADDRESS: STREET 1: 405 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 arcrft-20130630x10q.htm 10-Q ARCRFT-2013.06.30-10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-186111
ARC Realty Finance Trust, Inc.
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
46-1406086
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
405 Park Avenue
New York, New York
 
10022
(Address of Principal Executive Office)
 
(Zip Code)

(212) 415-6500
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company x
(Do not check if a smaller reporting company)

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

The number of shares of the registrant's common stock, $0.01 par value, outstanding as of July 31, 2013 was 203,560.




TABLE OF CONTENTS

 
Page
PART I
 
PART II
 


 



PART I

Item 1. Financial Statements.

ARC REALTY FINANCE TRUST, INC.
CONSOLIDATED BALANCE SHEETS

 
June 30, 2013
 
December 31, 2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash
$
204,309

 
$
573

Loan receivable, net
3,979,467

 

Accrued interest receivable
24,631

 

Prepaid expenses and other assets
33,153

 

Deferred costs

 
940,618

Total assets
$
4,241,560

 
$
941,191

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Revolving line of credit with affiliate
$
1,950,000

 
$

Due to affiliate
1,255,056

 
121,500

Accounts payable and accrued expenses
970,329

 
635,216

Distributions payable
17,755

 

Interest payable
7,987

 

Total liabilities
4,201,127

 
756,716

Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding at June 30, 2013 and December 31, 2012

 

Common stock, $0.01 par value, 300,000,000 shares authorized, 110,610 and 8,888 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
1,106

 
89

Additional paid-in capital
218,792

 
199,911

Accumulated deficit
(179,465
)
 
(15,525
)
Total stockholders' equity
40,433

 
184,475

Total liabilities and stockholders' equity
$
4,241,560

 
$
941,191


The accompanying notes are an integral part of these statements.


1


ARC REALTY FINANCE TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Net Interest Income:
 
 
 
Interest income
$
66,076

 
$
66,077

Interest expense
8,756

 
8,756

Net interest income
57,320

 
57,321

Expenses:
 
 
 
Board expenses
81,429

 
81,429

Insurance expense
55,000

 
55,000

Professional fees
18,089

 
18,089

Other expenses
42,934

 
47,954

Total expenses
197,452

 
202,472

Net Loss
$
(140,132
)
 
$
(145,151
)
 
 
 
 
Comprehensive loss
$
(140,132
)
 
$
(145,151
)
 
 
 
 
Net loss per share, basic and diluted
$
(1.37
)
 
$
(1.42
)
Weighted average shares outstanding, basic and diluted
101,990

 
101,990



The accompanying notes are an integral part of these statements.

2


ARC REALTY FINANCE TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2013

 
Common Stock
 
 
 
 
 
 
 
Number of Shares
 
Par Value
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2012
8,888

 
$
89

 
$
199,911

 
$
(15,525
)
 
$
184,475

Issuances of common stock
101,700

 
1,017

 
2,300,483

 

 
2,301,500

Net loss

 

 

 
(145,151
)
 
(145,151
)
Distributions declared

 

 

 
(18,789
)
 
(18,789
)
Common stock issued through distribution reinvestment plan
22

 

 
526

 

 
526

Share-based compensation
3,999

 

 
6,804

 

 
6,804

Common stock offering costs, commissions and dealer manager fees

 

 
(2,288,932
)
 

 
(2,288,932
)
Balance, June 30, 2013 (Unaudited)
114,609

 
$
1,106

 
$
218,792

 
$
(179,465
)
 
$
40,433



The accompanying notes are an integral part of this statement.



3



ARC REALTY FINANCE TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)


 
For the Six months ended June 30, 2013
Cash flows from operating activities:
 
Net loss
$
(145,151
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
Discount accretion
(19,733
)
Share-based compensation
6,804

Changes in assets and liabilities:
 
Accrued interest receivable
(24,631
)
Prepaid expenses and other assets
(33,153
)
Interest payable
7,987

Accounts payable and accrued expenses
129,441

Net cash used in operating activities
$
(78,436
)
Cash flows from investing activities
 
Loan investments
$
(3,965,914
)
Principal repayments received on loan investments
6,179

Net cash used in investing activities
$
(3,959,735
)
Cash flows from financing activities:
 
Proceeds from issuances of common stock
$
2,301,500

Payments of offering costs and fees related to common stock issuances
(1,142,642
)
Advances from affiliate
1,133,556

Borrowings on revolving line of credit with affiliate
1,950,000

Distributions Paid
(507
)
Net cash provided by financing activities
$
4,241,907

Net change in cash
$
203,736

Cash, beginning of period
573

Cash, end of period
$
204,309

Supplemental disclosure of non-cash operating and financing activities:
 
Escrow deposits payable related to loan investments
$
5,500

Distributions Payable
$
17,755

Common stock issued through distribution reinvestment plan
$
526

Reclassification of deferred offering costs to additional paid-in capital
$
940,618



The accompanying notes are an integral part of this statement.


4

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)



Note 1 — Organization and Business Operations

ARC Realty Finance Trust, Inc. (the “Company”) was incorporated in Maryland on November 15, 2012 and intends to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2013. The Company intends to offer for sale a maximum of $2.0 billion of common stock, $0.01 par value per share, on a “reasonable best efforts” basis, pursuant to a registration statement on Form S-11 (the “Offering”) filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the "Securities Act"). The Offering also covers the offer and sale of up to approximately $400.0 million in shares of common stock pursuant to a distribution reinvestment plan (the “DRIP”) under which common stockholders may elect to have their distributions reinvested in additional shares of the Company’s common stock. On May 14, 2013, the Company commenced business operations after raising in excess of $2 million of equity, the amount required for the Company to release equity proceeds from escrow.

For at least until February 12, 2015, the per share purchase price in the Offering will be up to $25.00 per share (including the maximum allowed to be charged for commissions and fees) and shares issued under the DRIP will be based on the greater of $23.75 per share or 95% of the estimated value of a share of common stock. As of June 30, 2013, the aggregate value of all the common stock outstanding was $2,765,232 based on a per share value of $25.00 (or $23.75 for shares issued under DRIP). Within six months after February 12, 2015, or the NAV pricing date, the Company will begin offering shares in the Offering at a per share purchase price that will vary quarterly and will be equal to the net asset value (“NAV”) divided by the number of shares outstanding as of the end of business on the first day of each fiscal quarter after giving effect to any share purchases or repurchases effected in the immediately preceding quarter (“per share NAV”) and applicable selling commissions and dealer manager fees will be added to the per share price for shares in the Company’s primary offering but not for the DRIP.

The Company has sold 8,888 shares of the Company's common stock to ARC Realty Finance Special Limited Partnership, LLC (the “Special Limited Partner”), an entity wholly owned by American Realty Capital VIII, LLC (the “Sponsor”) for $22.50 per share or a total of $0.2 million. Substantially all of the Company's business is conducted through ARC Realty Finance Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. ARC Realty Finance Advisors, LLC (the “Advisor”), is the Company’s affiliated advisor. The Company is the sole general partner and holds substantially all of the units of limited partner interests in the OP (“OP units”). Additionally, the Special Limited Partner, through the Advisor, has contributed $2,020 to the OP in exchange for 90 units of limited partner interest in the aggregate OP ownership, which represents a nominal percentage of the aggregate OP ownership. The limited partner interests have the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, as allowed by the limited partnership agreement of the OP. The remaining rights of the 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.

The Company was formed primarily to acquire, originate and manage a diversified portfolio of commercial real estate debt secured by properties located both within and outside the United States. The Company may also invest in commercial real estate securities and commercial real estate properties. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Commercial real estate securities may include commercial mortgage-backed securities (“CMBS”), senior unsecured debt of publicly traded REITs, other publicly traded real estate companies and collateralized debt obligations (“CDOs”).

The Company has no paid employees. The Company has retained the Advisor to manage its affairs on a day-to-day basis. Realty Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, serves as the dealer manager of the Offering. The Advisor and Dealer Manager are related parties and will receive compensation and fees for services related to the Offering and the investment and management of the Company's assets. The Advisor and Dealer Manager will receive fees during the offering, acquisition, operational and liquidation stages.

Note 2 — Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements and related footnotes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’) for interim financial statements. The consolidated financial statements of the Company are prepared on an accrual basis of accounting. In the

5

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


opinion of management, the interim data includes all adjustments necessary for a fair statement of the results for the periods presented. Interim period results may not be indicative of full year or future results. The unaudited consolidated financial statements do not include all information and notes required in annual audited financial statements in conformity with GAAP.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding classification of investments, fair value measurements, credit losses and impairments of investments, and derivative financial instruments and hedging activities, as applicable.

Development Stage Company

On May 14, 2013, the Company received and accepted aggregate subscriptions in excess of the minimum $2.0
million, broke escrow in connection with the Offering and issued shares of common stock to the Company's initial investors who were admitted as stockholders. The Company commenced operations on May 14, 2013 and made its first investment on May 15, 2013. Therefore, as of May 14, 2013, the Company is no longer considered to be a development stage company.


Real Estate Debt Investments

Commercial real estate debt investments are intended to be held until maturity and, accordingly, are carried at cost, net of unamortized origination fees, acquisition fees and expenses, discounts or premiums and unfunded commitments. Real estate debt investments that are deemed to be impaired will be carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums, origination fees and acquisition fees and expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations.

Allowance for Loan Losses

The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through the "Provision for loan losses" on the Company's consolidated statements of operations and comprehensive loss and is decreased by charge-offs when losses are confirmed through the receipt of assets such as cash in a pre-foreclosure sale or via ownership control of the underlying collateral in full satisfaction of the loan upon foreclosure or when significant collection efforts have ceased. The Company uses a uniform process for determining its allowance for loan losses. The allowance for loan losses includes a general, formula-based component and an asset-specific component.

The general reserve component covers performing loans. General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon assigned risk ratings for loans with similar risk characteristics during the Company's quarterly loan portfolio assessment. During this assessment, the Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company considers, among other

6

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss. The Company currently estimates loss rates based on historical realized losses experienced in the industry and takes into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.

The asset-specific reserve component relates to reserves for losses on individual impaired loans. The Advisor considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.

For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. The Advisor generally will use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Advisor will obtain external "as is" appraisals for loan collateral, generally when third party participations exist. Valuations will be performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they will be updated if circumstances indicate that a significant change in value has occurred

A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when a concession is granted and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan.

Income recognition will be suspended for loans at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Advisor, a full recovery of income and principal becomes doubtful. Income recognition will be resumed when the suspended loan becomes contractually current and performance is demonstrated to be resumed. A loan will be written off when it is no longer realizable and legally discharged.

Real Estate Securities

On the acquisition date, all of the Company’s commercial real estate securities will be classified as available for sale, and will be carried at fair value, with any unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. However, the Company may elect the fair value option for certain of its available for sale securities, and as a result, any unrealized gains or losses on such securities will be recorded as unrealized gains or losses on investments in the Company’s consolidated and comprehensive loss. Premiums or discounts on commercial real estate securities will be recognized using the effective interest method and recorded as an adjustment to interest income.

Impairment Analysis of Securities

Commercial real estate securities for which the fair value option has not been elected will be periodically evaluated for other-than-temporary impairment. If the fair value of a security is less than its amortized cost, the security will be considered impaired. Impairment of a security will be considered to be other-than-temporary when: (i) the Advisor has the intent to sell the impaired security; (ii) it is more likely than not the Company will be required to sell the security; or (iii) the Advisor does not expect to recover the entire amortized cost of the security. If the Advisor determines that an other-than-temporary impairment exists and a sale is likely to occur, the impairment charge will be recognized as an “Impairment of assets” on the Company's consolidated statement of operations and comprehensive loss. If a sale is not expected to occur, the portion of the impairment charge related to credit factors will be recorded as an “Impairment of assets” on the Company's consolidated statement of operations and comprehensive loss with the remainder recorded as an unrealized gain or loss on investments reported as a component of accumulated other comprehensive income or loss.
 

7

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


Commercial real estate securities for which the fair value option has been elected will not be evaluated for other-than-temporary impairment as changes in fair value are recorded in the Company’s consolidated statement of operations and comprehensive loss.

Fair Value of Financial Instruments

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, accrued interest receivable, due to affiliates and accounts payable and accrued expenses approximate their carrying value on the accompanying consolidated balance sheets due to their short-term nature.
    
As of June 30, 2013, the Company had acquired one loan. This loan was acquired in May of 2013, and therefore the carrying value approximates the fair value as of June 30, 2013.

As of June 30, 2013, the Company had $2.0 million outstanding under its revolving line of credit, which bears interest at a fixed rate of 3.25%. As of June 30, 2013, the Company believes the carrying value of its revolving line of credit approximates fair value.

Cash and Cash Equivalents

Cash includes cash in bank accounts. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit. Cash equivalents include short-term, liquid investments in a money market fund.

Restricted Cash

Restricted cash may primarily consist of escrow deposits for future debt service payments, taxes, insurance, property maintenance or other amounts collected with mortgage loan originations.

Deferred Costs

Deferred costs may consist primarily of deferred financing costs or deferred offering costs. Deferred financing costs represent commitment fees, legal fees, and other costs associated with obtaining commitments for financing. These costs will be amortized over the terms of the respective financing agreements using the straight-line method. Unamortized deferred financing costs will be expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close will be expensed in the period in which it is determined that the financing will not close.

Deferred offering costs may represent professional fees, fees paid to various regulatory agencies, and other costs incurred in connection with the registration and sale of shares of the Company's common stock. As of December 31, 2012, such costs totaled $0.9 million. On February 12, 2013, the day the Company commenced its Offering, deferred offering costs were reclassified to stockholders' equity.

Share Repurchase Program

The Company has a Share Repurchase Program (“SRP”) that enables stockholders to sell their shares to the Company. Under the SRP, stockholders may request that the Company redeem all or any portion, subject to certain minimum conditions described below, if such repurchase does not impair the Company's capital or operations.

Prior to the time that the Company’s shares are listed on a national securities exchange and until the Company begins to calculate its NAV, the repurchase price per share will depend on the length of time investors have held such shares as follows: after one year from the purchase date — the lower of $23.13 and 92.5% of the amount they actually paid for each share; after two years from the purchase date — the lower of $23.75 and 95.0% of the amount they actually paid for each share; after three years from the purchase date — the lower of $24.38 and 97.5% of the amount they actually paid for each share; and after four years from the purchase date — the lower of $25.00 and 100% of the amount they actually paid for each share (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations).


8

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


Once the Company begins to calculate its NAV, the price per share that the Company will pay to repurchase shares of the Company’s common stock on any business day will be the Company's per share NAV for the quarter, calculated after the close of business on the first business day of each quarter, plus applicable selling commissions and dealer manager fees. Subject to limited exceptions, stockholders who redeem their 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% of the aggregate per share NAV of the shares of common stock received. Because the Company's per share NAV will be calculated quarterly, the redemption price may fluctuate between the redemption request day and the date on which the Company pays redemption proceeds.

Until the Company begins to calculate its NAV, the Company is only authorized to repurchase shares pursuant to the SRP using the proceeds received from the DRIP and will limit the amount spent to repurchase shares in a given quarter to the amount of proceeds received from the DRIP in that same quarter. In addition, the board of directors may reject a request for redemption, at any time. Due to these limitations, the Company cannot guarantee that it will be able to accommodate all repurchase requests. Purchases under the SRP by the Company will be limited in any calendar year to 5% of the weighted average number of shares outstanding during the prior year.

After the Company begins to calculate its NAV, purchases under the SRP will be limited in any calendar year to 1.25% of Company's NAV as of the last day of the previous calendar quarter, or approximately 5% of the Company's NAV in any 12 month period. If the Company reaches the 1.25% limit on redemptions during any quarter, the Company will not accept any additional redemption requests for the remainder of such quarter. The SRP will automatically resume on the first day of the next calendar quarter, unless our board of directors determines to suspend the share repurchase plan.
 
When a stockholder requests redemption and the redemption is approved, the Company will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP will have the status of authorized but unissued shares. At June 30, 2013, no shares were eligible to be redeemed.

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 Offering. 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 under the DRIP are recorded to equity in the balance sheet in the period distributions are declared. There have been 22 shares issued under the DRIP as of June 30, 2013.

Derivative Instruments

The Company may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with its borrowings. Certain of the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions.

The Company will record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.


9

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments will be recognized immediately in gains (losses) on derivative instruments in the Company's consolidated statement of operations and comprehensive loss. If the derivative is designated and qualifies for hedge accounting treatment the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
 
Offering and Related Costs

Offering and related costs include all expenses incurred in connection with the Company’s Offering. Offering costs (other than selling commissions and the dealer manager fee) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company. Offering costs were reclassified from deferred costs to stockholders' equity (deficit) on the day the Company commenced its operations. Offering costs include all expenses incurred by the Company in connection with its Offering as of such date. These costs include but are not limited to: (i) legal, accounting, printing, mailing and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities. The Company is obligated to reimburse the Advisor or its affiliates, as applicable, for organizational and offering costs paid by them on behalf of the Company, not withstanding that the Advisor is obligated to reimburse the Company to the extent organizational and offering costs (excluding selling commissions and the dealer manager fee) incurred by the Company in its offering exceed 2% of gross offering proceeds. As a result, these costs are only a liability of the Company to the extent aggregate selling commissions, the dealer manager fees and other offering costs do not exceed 12% of the gross proceeds determined at the end of offering (See Note 8 — Related Party Transactions and Arrangements).

Share-Based Compensation

The Company has a stock-based incentive award plan, which is accounted for under the guidance for share based payments. The expense for such awards will be included in general and administrative expenses and will be recognized over the vesting period or when the requirements for exercise of the award have been met (See Note 10 — Share-Based Compensation).

Income Taxes

The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ending December 31, 2013. If the Company qualifies for taxation as a REIT, it generally will not be subject to federal corporate income tax as long as it distributes at least 90% of its REIT taxable income to its stockholders. REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.

Per Share Data

The Company will calculate basic income per share by dividing net income for the period by weighted-average shares of its common stock outstanding for a respective period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options, unvested restricted stock and other securities which are convertible to common stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding.

Reportable Segments

The Company will conduct its business through the following segments:

The real estate debt business will be focused on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.


10

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


The real estate securities business will be focused on investing in and asset managing commercial real estate securities primarily consisting of CMBS and may include unsecured REIT debt, CDO notes and other securities.

Through June 30, 2013, all of the Company’s revenues and expenses have been in the real estate debt segment. As the portfolio expands to include real estate securities, the Company will report the results of both reportable segments.


Note 3 — Loan Receivable

The following is a summary of the Company's loans receivable by class (in thousands):
 
June 30, 2013
 
December 31, 2012
Mezzanine loan
$
3,979

 
$

    Total gross carrying value of loan
3,979

 

Allowance for loan losses

 

Total loan receivable, net
$
3,979

 
$


During the three months ended June 30, 2013, the Company acquired a $4.0 million loan and received scheduled principal repayments of $6,179 on the loan. The Company did not record a general or specific allowance for loan losses as of June 30, 2013 because the portfolio consisted of a single performing loan.

The Company's loan receivable portfolio was comprised of the following at June 30, 2013 (in thousands):
Description
 
Date of Investment
 
Maturity Date
 
Original Face Amount
 
Current Face Amount
 
Discount*
 
Carrying Value
 
Coupon
Hotel - Minneapolis
 
May 2013
 
May 2023
 
$
6,500

 
$
6,494

 
$
2,515

 
$
3,979

 
Fixed

* Amount includes $0.06 million in acquisition fees and expenses.

Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. The loans are scored on a scale of 1 to 5 as follows:

Investment Rating
Summary Description
1
Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time investment are favorable
2
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable
3
Performing investments requiring closer monitoring. Trends and risk factors show some deterioration
4
Underperforming investment - some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative
5
Underperforming investment with expected loss of interest and some principal

All investments are assigned an initial risk rating of 2.

As of June 30, 2013, the weighted average risk rating of loans was 2.0. As of June 30, 2013, the Company had no non-performing, non-accrual or impaired loans.


11

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


Note 4 — Revolving Line of Credit with Affiliate

On May 15, 2013, the Company entered into a credit agreement for an unsecured $5.0 million revolving line of credit with AR Capital, LLC, the parent of the Sponsor (the “Revolver”). The Revolver bears interest at a per annum fixed rate of 3.25% and provides for quarterly interest payments. The Revolver matures in one year, subject to two successive extension terms of one year each. Principal may be drawn or repaid from time-to-time, in whole or in part, without premium or penalty and there are no unused facility fees.

On May 15, 2013, the Company borrowed $2.0 million under the Revolver. As of June 30, 2013, $2.0 million was outstanding under the Revolver, and $3.0 million was available to be borrowed.

Note 5 — Net Loss Per Share

The following is a summary of the basic and diluted net loss per share computation for the three and six months ended June 30, 2013:
 
Three Months Ended 
 June 30, 2013
 
Six Months Ended 
 June 30, 2013
Net loss
$
(140,132
)
 
$
(145,151
)
Basic and diluted weighted-average shares outstanding
101,990

 
101,990

Basic and diluted net loss per share
$
(1.37
)
 
$
(1.42
)

The basic and diluted weighted-average shares outstanding assume no shares were outstanding prior to the release of equity proceeds from escrow on May 14, 2013.     
    
The Company had 4,089 common share equivalents as of June 30, 2013, which were excluded from the calculation of diluted net loss per share attributable to stockholders as the effect would have been antidilutive. The common share equivalents were comprised of 3,999 unvested restricted shares and 90 OP units as of June 30, 2013.

Note 6 — Common Stock

As of June 30, 2013, the Company had 114,609 shares of common stock outstanding, including shares issued pursuant to the DRIP and unvested restricted shares, and had received total proceeds of $2.5 million.

Distributions—In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income, without regard to the deduction for dividends paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate federal income taxes.

On May 13, 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 at a rate of $0.00565068493 per day, based on a price of $25.00 per share of common stock. The Company's 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 first distribution payment was made on June 3, 2013, relating to the period from May 30, 2013 (15 days after the date of the first asset acquisition) through May 31, 2013. Distributions 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.

The below table shows the distributions paid during the six months ended June 30, 2013.
Payment Date
 
Weighted Average Shares Outstanding (1)
 
Amount (2)
June 3, 2013
 
99,897

 
$1,034

(1) This represents the weighted average shares outstanding for the period related to the respective payment date.
(2) This includes the dollar amount associated with the shares issued pursuant to the DRIP.

12

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)



Note 7 — Commitments and Contingencies

Litigation

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

Note 8 — Related Party Transactions and Arrangements

As of June 30, 2013, an entity wholly owned by the Sponsor owned 8,888 shares of the Company’s outstanding common stock.

The Advisor and its affiliates may incur and pay costs and fees on behalf of the Company. As of June 30, 2013, the Company had a payable of $1.3 million to affiliated entities for advances received to fund costs incurred by the Company.
 
The Company entered into the Revolver with an affiliate on May 15, 2013 (See Note 4 — Revolving line of credit with affiliate).
 
Fees Paid in Connection with the Offering
    
The Dealer Manager will receive fees and compensation in connection with the sale of the Company’s common stock. The Dealer Manager will receive a selling commission of up to 7.0% of the per share purchase price of the Company's offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, it is expected that the Dealer Manager will receive up to 3.0% of the gross proceeds from the sale of shares, before reallowance to participating broker-dealers, as a dealer-manager fee. The Dealer Manager may reallow its dealer-manager fee to such participating broker-dealers. A participating broker-dealer may elect to receive a fee equal to 7.5% of the gross proceeds from the sale of shares (not including selling commissions and dealer manager fees) by such participating broker-dealer, with 2.5% thereof paid at the time of such sale and 1.0% thereof paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale. If this option is elected, it is expected that the dealer manager fee will be reduced to 2.5% of gross proceeds (not including selling commissions and dealer manager fees).

The table below shows the fees incurred from the Dealer Manager during the three and six months ended June 30, 2013 and the associated payable as of June 30, 2013.     
(in thousands)
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Payable as of June 30, 2013
Total commissions and fees incurred from the Dealer Manager
 
$
20

 
$
20

 
$


The table below shows compensation and reimbursement the Advisor and its affiliates incurred for services relating to the Offering.

(in thousands)
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Payable as of June 30, 2013
Total compensation and reimbursement for services provided by the Advisor and affiliates
 
$
191

 
$
635

 
$
634


The payable as of June 30, 2013 in the table above is included in accounts payable and accrued expenses on the Company's consolidated balance sheets.

The Company is responsible for organizational and offering costs from the ongoing offering, excluding commissions and dealer manager fees, up to a maximum of 2.0% of gross proceeds received from its ongoing Offering of common stock, measured at the end of the Offering. Organizational and offering costs in excess of the 2.0% cap as of the end of the offering are the Advisor's responsibility. As of June 30, 2013, organizational and offering costs exceeded 2.0% of gross proceeds received

13

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


from the Offering by $2.5 million, due to the on-going nature of the offering process and that many expenses were paid before the offering commenced.

Fees Paid in Connection with the Operations of the Company

The Advisor will receive an acquisition fee of 1.0% of the principal amount funded by the Company to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments. The Advisor may be also be reimbursed for acquisition expenses incurred related to selecting, evaluating, originating and acquiring investments on the Company's behalf and the Company may incur third party acquisition expenses. In no event will the total of all acquisition fees and acquisition expenses payable with respect to a particular investment exceed 4.5% of the principal amount funded by the Company to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments. Once the proceeds from the Offering have been fully invested, the aggregate amount of acquisition fees shall not exceed 1.5% of the principal amount funded by the Company to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments, as applicable, for all of the assets acquired. During the three and six months ended June 30, 2013, the Company has incurred $0.04 million of acquisition fees and $0.02 million of acquisition expenses payable to the Advisor.

The Company will pay the Advisor an annual asset management fee equal to 0.75% of the cost of the Company's assets. Once the Company begins to calculate NAV, the asset management fee will be based on the lower of 0.75% of the costs of the Company's assets and 0.75% of the quarterly NAV. The amount of the asset management fee will be reduced to the extent that the amount of dividends declared during the six month period ending on the last day of the calendar quarter immediately preceding the date such asset management fee is payable, exceeds the funds from operations (“FFO”), as adjusted, for the same period. For purposes of this determination, FFO, as adjusted, is FFO before deducting (i) acquisition fees and related expenses; (ii) non-cash restricted stock grant amortization, if any; and (iii) impairments of real estate related investments, if any (including properties, loans receivable and equity and debt investments). FFO, as adjusted, is not the same as FFO. As of June 30, 2013, no asset management fees were incurred or waived for any period in connection with the operations of the Company.
    
Effective June 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 are
included in other expenses in the Company's consolidated statement of operations and comprehensive loss.

The table below depicts related party fees and reimbursements in connection with the operations of the Company for the three and six months ended June 30, 2013 and the associated payable as of June 30, 2013.
(in thousands)
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Payable as of June 30, 2013
Acquisition fees and related expense reimbursements
 
$
59

 
$
59

 
$
59

Advisory fee
 
28

 
28

 
28

Transfer agent fees
 
10

 
10

 
10

Total related party fees and reimbursements
 
$
97

 
$
97

 
$
97

    
The payables as of June 30, 2013 in the table above are included in accounts payable and accrued expenses on the Company's consolidated balance sheets.
    
The Company will reimburse 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 (including the asset management fee) 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 reserves and excluding any gain from the sale of assets for that period. Additionally, the Company will reimburse the Advisor for personnel costs in connection with other services during the operational stage, in addition to paying an asset management fee; however,

14

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


the Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees or real estate commissions. As of June 30, 2013, no administrative costs of the Advisor were reimbursed for any period in connection with the operations of the Company.

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 flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that may be forgiven are not deferrals and accordingly, will not be paid to the Advisor in cash. 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. The Advisor did not waive or absorb any fees for the three and six months ended June 30, 2013.

The Advisor at its election may also contribute capital to enhance the Company’s cash position for working capital and distribution purposes. Any contributed capital amounts are not reimbursable to the Advisor. Further, any capital contributions are made without any corresponding issuance of common or preferred shares. The Advisor did not contribute capital to enhance the Company's cash position for working capital or distribution purposes as of June 30, 2013.
    
Fees Paid in Connection with the Liquidation of Assets or Listing of the Company's Common Stock or Termination of the Advisory Agreement

The Company will pay a disposition fee of 1.0% of the contract sales price of each commercial real estate loan or other investment sold, including mortgage-backed securities or collateralized debt obligations issued by a subsidiary of the Company as part of a securitization transaction. The Company will not be obligated to pay a disposition fee upon the maturity, prepayment, workout, modification or extension of commercial real estate debt unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of: (i) 1.0% of the principal amount of the debt prior to such transaction; or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, it will pay a disposition fee upon the sale of such property.

The Company may pay the Advisor an annual subordinated performance fee of 15.0% of the excess of the Company's total return to stockholders in any year, which such total return exceeds 6.0% per annum, provided that in no event will the annual subordinated performance fee 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.

If the Company is not listed on an exchange, the Company intends to pay a subordinated participation in the net sale proceeds of the sale of real estate assets of 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 6.0% cumulative, pre-tax non-compounded return on the capital contributed by investors.

If the Company is listed on an exchange, the Company will pay a subordinated incentive listing distribution of 15.0% of the amount by which the adjusted market value of real estate assets plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax, non-compounded annual return to investors. Neither the Advisor nor any of its affiliates can earn both the subordinated participation in the net sale proceeds and the subordinated listing distribution.

Upon termination or non-renewal of the advisory agreement, the Company's Advisor shall be entitled to receive distributions from the OP, pursuant to a special limited partnership interest, equal to 15.0% of the amount by which the sum of the Company's adjusted market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6.0% cumulative, pre-tax non-compounded return to investors. In addition, the Company's 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.

As of June 30, 2013, no fees were paid for any period in connection with the liquidation of assets, listing of the Company's common stock or termination of the advisory agreement.


15

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


The Company cannot assure that it will provide the 6.0% return specified in the above agreements but the Advisor will not be entitled to the subordinated performance fee, subordinated participation in net sale proceeds, subordinated incentive listing distribution or subordinated distribution upon termination of the advisory agreement unless investors have received a 6.0% cumulative, pre-tax non-compounded return on their capital contributions

The Company will also establish a restricted stock award plan for the benefit of employees (if the Company ever has employees), directors, employees of the Advisor and its affiliates (See Note 10 — Share-Based Compensation).

Note 9 — Economic Dependency

Under various agreements, the Company has engaged or will engage the Advisor and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issue, as well as other administrative responsibilities for the Company including accounting 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 entities are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.

Note 10 — Share-Based Compensation

Restricted Share Plan

The Company has an employee and director incentive restricted share plan (the “RSP”), which 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 or certain consultants to the Company and the Advisor and its affiliates. The total number of common shares granted under the RSP shall not exceed 5.0% of the Company’s authorized common shares pursuant to the Offering and in any event will not exceed 4.0 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 common shares from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. 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 common shares shall be subject to the same restrictions as the underlying restricted shares. The fair value of the restricted shares will be expensed over the vesting period of five years.

The RSP also 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 stockholder’s meeting. Restricted stock issued to independent directors will vest over a five-year period following the first anniversary of the date of grant in increments of 20.0% per annum.

As of June 30, 2013, the Company had granted 3,999 restricted shares to its board of directors. Based on a share price of $22.50, the compensation expense associated with the restricted share grant was $6,804 for the three and six months ended June 30, 2013.

Note 11 — Subsequent Events

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



16

ARC REALTY FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)


Sales of Common Stock

As of July 31, 2013, the Company had 203,560 shares of common stock outstanding, including unvested restricted shares, from total proceeds from the Offering of $4.5 million. As of July 31, 2013, the aggregate value of all share issuances was $5.0 million based on a per share value of $25.00 (or $23.75 per share for shares issued under the DRIP).

Total capital raised to date, including shares issued under the DRIP, is as follows:
Source of Capital (in thousands)
 
Inception to June 30, 2013
 
July 1 to July 31, 2013
 
Total
Common stock
 
$
2,502

 
$
1,975

 
$
4,477


Dividends Paid

On July 1, 2013, we paid a distribution of $16,148 to stockholders of record during the month of June 2013. Approximately $7,952 of the distribution was paid in cash, while $8,196 was used to purchase 345 shares for those stockholders that chose to reinvest dividends through our DRIP. After the July 1, 2013 dividend payment, the Company had a dividend payable of $1,607 that relates to dividends declared on the 8,888 shares issued to the Special Limited Partner.

Debt Obligations

On July 17, 2013, the Company entered into an amendment to its Revolver. The amendment increased the aggregate financing available under the line of credit from $5.0 million to $10.0 million. The amendment did not change any of the other terms of the Revolver.





17



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

The following discussion should be read in conjunction with the accompanying unaudited financial statements of ARC Realty Finance Trust, Inc. and the notes thereto, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. As used herein, the terms “we,” “our” and “us” refer to ARC Realty Finance Trust, Inc., a Maryland corporation, and, as required by context, to ARC Realty Finance Advisors, LLC (the “Advisor”) and its subsidiaries. ARC Realty Finance Trust, Inc. is externally managed by the Advisor.

The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:
our use of the proceeds of the offering;
our business and investment strategy;
our ability to make investments in a timely manner or on acceptable terms;
current credit market conditions and our ability to obtain long-term financing for our property investments in a timely manner and on terms that are consistent with what we project when we invest in the property;
the effect of general market, real estate market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
our ability to make scheduled payments on our debt obligations;
our ability to generate sufficient cash flows to make distributions to our stockholders;
the degree and nature of our competition;
the availability of qualified personnel;
our ability to qualify and maintain our qualification as a REIT; and
other factors set forth under the caption ‘‘Risk Factors’’ in our registration statement on Form S-11 (File No. 333-186111).

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.


18



Overview

We were incorporated on November 15, 2012, as a Maryland corporation that intends to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2013. We are offering for sale a maximum of $2.0 billion of common stock, $0.01 par value per share, on a “reasonable best efforts” basis, pursuant to a registration statement on Form S-11 (the “Offering”) filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the "Securities Act"). The Offering also covers the offer and sale of up to $400 million in shares of common stock pursuant to a distribution reinvestment plan (the “DRIP”) under which common stockholders may elect to have their distributions reinvested in additional shares of our common stock. On May 14, 2013, we commenced business operations after raising in excess of $2 million of equity, the amount required for us to release equity proceeds from escrow

For at least until February 12, 2015, the per share purchase price in the Offering will be up to $25.00 per share (including the maximum allowed to be charged for commissions and fees) and shares issued under the DRIP will be based on the greater of $23.75 per share or 95% of the estimated value of a share of common stock. As of June 30, 2013, the aggregate value of all the common stock outstanding was $2,765,232 based on a per share value of $25.00 (or $23.75 for shares issued under DRIP). Within six months after February 12, 2015, or the NAV pricing date, we will begin offering shares in the Offering at a per share purchase price that will vary quarterly and will be equal to the net asset value (“NAV”) divided by the number of shares outstanding as of the end of business on the first day of each fiscal quarter after giving effect to any share purchases or repurchases effected in the immediately preceding quarter (“per share NAV”). Applicable selling commissions and dealer manager fees will be added to the per share price for shares in our primary offering but not for the DRIP.

We have sold 8,888 shares of common stock to ARC Realty Finance Special Limited Partnership, LLC (the “Special Limited Partner”), an entity wholly owned by American Realty Capital VIII, LLC (the “Sponsor”) for $22.50 per share or a total of $0.2 million. Substantially all of our business will be conducted through ARC Realty Finance Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The Advisor is our affiliate. We are the sole general partner and hold substantially all of the units of limited partner interests in the OP (“OP units”). Additionally, the Special Limited Partner, through the Advisor, expects to contribute $2,020 to the OP in exchange for 90 units of limited partner interest in the aggregate OP ownership, which will represent a nominal percentage of the aggregate OP ownership. The limited partner interests have the right to convert OP units for the cash value of a corresponding number of shares of common stock or, at the option of the OP, a corresponding number of shares of common stock, as allowed by 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.

We were formed to primarily acquire, originate and manage a diversified portfolio of commercial real estate debt secured by properties located both within and outside the United States. We may also invest in commercial real estate securities and commercial real estate properties. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Commercial real estate securities may include commercial mortgage-backed securities (“CMBS”), senior unsecured debt of publicly traded REITs and other publicly traded real estate companies and collateralized debt obligations (“CDOs”).

We have no paid employees. We have retained the Advisor to manage our affairs on a day-to-day basis. Realty Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, serves as the dealer manager of the Offering. The Advisor and Dealer Manager are related parties and will receive compensation and fees for services related to the Offering and the investment and management of our assets. The Advisor and Dealer Manager will receive fees during the offering, acquisition, operational and liquidation stages.

Significant Accounting Estimates and Critical Accounting Policies

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available

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information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating plans occur, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

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 include:

Real Estate Debt Investments

Commercial real estate debt investments are intended to be held until maturity and, accordingly, are carried at cost, net of unamortized origination fees, acquisition fees and expenses, discounts or premiums and unfunded commitments. Real estate debt investments that are deemed to be impaired will be carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums, origination costs and fees on investments are amortized over the life of the investment using the effective interest method. The amortization will be reflected as an adjustment to interest income in our consolidated statements of operations.

Allowance for Loan Losses

The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through the "Provision for loan losses" on our Consolidated Statements of Operations and is decreased by charge-offs when losses are confirmed through the receipt of assets such as cash in a pre-foreclosure sale or via ownership control of the underlying collateral in full satisfaction of the loan upon foreclosure or when significant collection efforts have ceased. We use a uniform process for determining the allowance for loan losses, which includes a general, formula-based component and an asset-specific component.

The general reserve component covers performing loans. General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. We consider, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss. We currently estimate loss rates based on historical realized losses experienced in the industry and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.

The asset-specific reserve component relates to reserves for losses on individual impaired loans. We consider a loan to be impaired when, based upon current information and events, we believe that it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the balance sheet date.

For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. We generally will use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, we will obtain external "as is" appraisals for loan collateral,

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generally when third party participations exist. Valuations will be performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they will be updated if circumstances indicate that a significant change in value has occurred

A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when we have granted a concession and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan.

Income recognition will be suspended for loans at the earlier of the date at which payments become 90-days past due or when, in our opinion, a full recovery of income and principal becomes doubtful. Income recognition will be resumed when the suspended loan becomes contractually current and performance is demonstrated to be resumed. A loan will be written off when it is no longer realizable and legally discharged.

Real Estate Securities

On the acquisition date, all of our commercial real estate securities will be classified as available for sale, and will be carried at fair value, with any unrealized gains (losses) reported as a component of accumulated other comprehensive income (loss) in our consolidated statement of stockholders' equity. However, we may elect the fair value option for certain of its available for sale securities, and as a result, any unrealized gains (losses) on such securities will be recorded in unrealized gains (losses) on investments in our consolidated statement of operations and comprehensive loss. Interest income on commercial real estate securities will be recognized using the effective interest method with any purchased premium or discount recorded as an adjustment to interest income.

Impairment Analysis of Securities

Commercial real estate securities for which the fair value option has not been elected will be periodically evaluated for other-than-temporary impairment. A security where the fair value is less than amortized cost will be considered impaired. Impairment of a security will be considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. If we determine that an other-than-temporary impairment exists and a sale is likely to occur, the impairment charge will be recognized as an “Impairment of assets” on our consolidated statement of operations and comprehensive loss. If a sale is not expected to occur, the portion of the impairment charge related to credit factors will be recorded as an “Impairment of assets” on our statement of operations and comprehensive loss and with the remainder recorded as an unrealized gain or loss on investments reported as a component of accumulated other comprehensive income or loss.
 
Commercial real estate securities for which the fair value option has been elected will not be evaluated for other-than-temporary impairment as changes in fair value are recorded in our consolidated statement of operations and comprehensive loss.

Derivative Instruments

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with its borrowings. Certain of the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.

We will record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that

21



are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment. If we elect not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments will be recognized immediately in gains (losses) on derivative instruments in our consolidated statement of operations and comprehensive loss. If the derivative is designated and qualifies for hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.

Income Taxes

We intend to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ending December 31, 2013. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax as long as we distribute at least 90% of our REIT taxable income to our stockholders. 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 property, and federal income and excise taxes on our undistributed income.

Results of Operations

On May 14, 2013, we commenced business operations after raising in excess of $2 million of equity, the amount required for us to release equity proceeds from escrow. Prior to May 14, 2013, we did not generate operating income and therefore do not have comparative periods to present.

On May 15, 2013, we acquired a mezzanine loan in the amount of $6.5 million (the “Loan”) secured by the pledge of certain ownership interests in the owner and subtenant of the W Minneapolis - The Foshay hotel (the “Property”) located in Minneapolis, Minnesota. The Property contains 229 rooms, 32 stories and certain amenities, including 6,761 square feet of meeting and event space. The Loan was originated by an unrelated third party in connection with a $51.0 million senior loan (the “Senior Loan”) which is secured by the fee simple interest in the Property. The Loan and Senior Loan total a 77% loan-to-appraised value ratio in relationship to the Property and were made to allow the owner of the Property to refinance certain other borrowings.
The Loan bears interest at a fixed rate of 5.462% per annum, subject to an interest rate increase in the case of a default. The Loan has an initial term of 10 years and requires amortizing monthly payments of principal and interest. The Loan may be prepaid in whole, but not in part, on any monthly payment date, beginning on the monthly payment date in February 2023. For the three and six months ended June 30, 2013, our assets generated $66,076 of interest income.
We purchased the Loan at a discounted price of $4.0 million with: (i) proceeds from our ongoing offering in the amount of $2.0 million; and (ii) borrowings under a line of credit made available to us by the parent of our Sponsor in the amount of $2.0 million. Interest expense on our line of credit for the three and six months ended June 30, 2013 was $8,756.
During the three and six months ended June 30, 2013, we incurred total operating expenses of $197,452 and $202,472, respectively, primarily related to board of directors expenses for meetings during the period, ongoing directors and officers insurance expenses and transaction management services, accounting and other professional expenses. We did not incur asset management fees for the three and six month periods because adjusted funds from operations did not exceed our distributions.

Liquidity and Capital Resources

We are offering and selling to the public in our primary offering up to 80,000,000 shares of our common stock, $0.01 par value per share, at $25.00 per share (subject to certain volume discounts). We also are offering up to 16,842,105 shares of common stock under our DRIP initially at $23.75 per share, which is 95% of the primary offering price. Commencing on the NAV pricing date, we will offer our shares in our primary offering at a price equal to our per share NAV, plus applicable selling commissions and dealer manager fees. We reserve the right to reallocate the shares of common stock we are offering between our primary offering and the DRIP.

Our principal demands for cash will be for acquisition costs, including the purchase price of any commercial real

22



estate investments we acquire, the payment of our operating and administrative expenses, continuing debt service obligations and distributions to our stockholders. Generally, we will fund our acquisitions from the net proceeds of the Offering. We intend to acquire our assets with cash and mortgage or other debt, but we also may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in OP units.
On May 15, 2013, we entered into an unsecured $5.0 million revolving line of credit with the parent of our Sponsor, the line of credit bears interest at a per annum fixed rate of 3.25%. The line of credit matures in one year, subject to two successive extension terms of one year each and provides for quarterly interest-only payments, with all principal and interest outstanding being due on the maturity date. The line of credit may be prepaid from time to time and at any time, in whole or in part, without premium or penalty. We entered into the line of credit in connection with the acquisition of the Loan and with such other investments which may become available to us.    As of June 30, 2013, there was $2.0 million of principal outstanding on the Loan.
We expect to use additional debt financing as a source of capital. Under our charter, the maximum amount of our total indebtedness shall not exceed 300% of our total ‘‘net assets’’ (as defined by the NASAA REIT Guidelines) as of the date of any borrowing, which is generally expected to be approximately 75% of the cost of our investments; however, 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 (calculated after the close of this offering and once we have invested substantially all the proceeds of this offering), 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, however, will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to satisfy our requirements under the NASAA REIT Guidelines. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. We anticipate that adequate cash will be generated from operations to fund our operating and administrative expenses, continuing debt service obligations and the payment of distributions.

Potential future sources of capital include secured or unsecured financings from banks or other lenders, establishing additional lines of credit, proceeds from the sale of properties and undistributed cash flow. Note that, currently, we have not identified any additional sources of financing and there is no assurance that such sources of financings will be available on favorable terms or at all.

Distributions
On May 13, 2013, our board of directors authorized, and we declared, a distribution rate, which will be calculated based on stockholders of record each day during the applicable period at a rate of $0.00565068493 per day based on a price of $25.00 per share of common stock. The distributions began to accrue on May 30, 2013 and will be payable by the fifth day following the end of each month to stockholders of record at the close of business each day during the prior month.
On June 3, 2013, we paid a distribution of $1,034 to stockholders of record during the month of May 2013. Approximately $507 of the distribution was paid in cash, while $526 was used to purchase 22 shares for those stockholders that chose to reinvest dividends through our DRIP.
For the month of June 2013, we have accrued $17,755 of distributions payable to stockholders in July 2013.
We intend to fund our distributions from cash flow from operations, however, we may have insufficient cash flow from operations available for distribution until we make substantial investments and we can give no assurance that we will pay distributions solely from our cash flow from operations during the early stages of our operations or at any point in the future. In the event that our cash flow from operations is not sufficient to fully fund our distributions, our organizational documents permit us to pay distributions from any source, including loans, offering proceeds and our advisor’s advances and deferral of fees and expenses reimbursements. We have not established a limit on the amount of proceeds we may use from the Offering to fund distributions. Our board of directors will determine the amount of the distributions to our stockholders. The board’s determination will be based on a number of factors, including funds available from operations, our capital expenditure requirements, requirements of Maryland law and the annual distribution requirements necessary to maintain our REIT status under the Code. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT, we must annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gains.

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Cash Flows

Net cash used in operating activities for the six months ended June 30, 2013 was $0.1 million. During our first six months of operations, net cash outflows included a net loss adjusted for non-cash items of $0.2 million (net loss of $0.1 million adjusted for non-cash items including discount accretion $19,733 and share-based compensation of $6,804) and a increase in prepaid expenses and other assets of $33,153. These cash outflows were partially offset by cash inflows that consisted of an increase in accounts payable and accrued expenses of $0.1 million.

Net cash used in investing activities for the six months ended June 30, 2013 was $4.0 million representing the investment made during the second quarter of 2013.

Net cash provided by financing activities for the six months ended June 30, 2013 was $4.2 million. Cash inflows for the period of $2.3 million from the issuance of common stock, $2.0 million from borrowings on our revolving line of credit and $1.1 million in advances from our affiliates were partially offset by the payment of $1.1 million of offering costs.

Off Balance Sheet Arrangements

We currently have no off balance sheet arrangements.

Related Party Arrangements
ARC Realty Finance Advisors, LLC
Subject to certain restrictions and limitations, our Advisor is responsible for managing our affairs on a day-to-day basis and for identifying, originating, acquiring and asset managing investments on our behalf. For such services, to the extent permitted by law and regulations, our Advisor receives fees and reimbursements from us. Below is a description and table of the fees and reimbursements incurred to our Advisor.
Organization and Offering Costs
Our Advisor, or its affiliates, is entitled to receive reimbursement for costs paid on our behalf in connection with our Offering. We are obligated to reimburse our Advisor, or its affiliates, as applicable, for organization and offering costs to the extent the organization and offering costs do not exceed 2.0% of gross proceeds from our Primary Offering. Our Advisor does not expect reimbursable organization and offering costs, excluding selling commissions and dealer manager fees, to exceed $40.0 million, or 2.0% of the total proceeds available to be raised from our Primary Offering. We shall not reimburse our Advisor for any organization and offering costs that our independent directors determine are not fair and commercially reasonable to us.
Operating Costs
We will reimburse our Advisor’s costs of providing administrative services, subject to the limitation that we will not reimburse the Advisor for any amount by which our operating expenses (including the asset management fee) 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 reserves and excluding any gain from the sale of assets for that period. Additionally, we will reimburse our Advisor for personnel costs in connection with other services during the operational stage, in addition to paying an asset management fee; however, we will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees or real estate commissions.
Asset Management Fee
Our Advisor, or its affiliates, receives a monthly asset management fee equal to one-twelfth of 0.75% of the cost of our assets. The amount of the asset management fee will be reduced to the extent that the amount of dividends declared during the six month period ending on the last day of the calendar quarter immediately preceding the date such asset management fee is payable, exceeds the funds from operations (“FFO”), as adjusted, for the same period.
Asset Acquisition Fee
Our Advisor, or its affiliates, also receives an acquisition fee equal to 1.0% of the principal amount funded by us to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments. Acquisition fees paid to our Advisor related to the origination or acquisition of CRE debt investments are included in CRE debt investments, net on our consolidated balance sheets and amortized to interest income over the life of the investment using the effective interest method.


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Asset Acquisition Expense
From time to time, our Advisor, or its affiliates, may receive reimbursements for acquisition expenses incurred related to selecting, evaluating, originating and acquiring investments on our behalf. Acquisition expenses paid to our Advisor related to the origination or acquisition of CRE debt investments are included in loan receivable, net on our consolidated balance sheets and amortized to interest income over the life of the investment using the effective interest method.
Asset Disposition Fee
We will pay a disposition fee of 1.0% of the contract sales price of each commercial real estate loan or other investment sold, including mortgage-backed securities or collateralized debt obligations issued by our subsidiary as part of a securitization transaction. We will not be obligated to pay a disposition fee upon the maturity, prepayment, workout, modification or extension of commercial real estate debt unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of: (i) 1.0% of the principal amount of the debt prior to such transaction; or (ii) the amount of the fee paid by the borrower in connection with such transaction. If we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property.

Realty Capital Securities, LLC
Selling Commissions and Dealer Manager Fees
Pursuant to a dealer manager agreement, we pay our Dealer Manager selling commissions of up to 7.0% of gross proceeds from our Primary Offering, all of which are reallowed to participating broker-dealers. In addition, we pay our Dealer Manager a dealer manager fee of 3.0% of gross proceeds from our Primary Offering, a portion of which may be reallowed to participating broker-dealers. No selling commissions or dealer manager fees are paid for sales under our DRP.
The table below presents related party fees and reimbursements for the three and six months ended June 30, 2013 and the associated payable as of June 30, 2013.

(in thousands)
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Payable as of June 30, 2013
Total commissions and fees incurred from the Dealer Manager
 
$
20

 
$
20

 
$

Total compensation, fees or reimbursement for services provided by the Advisor and affiliates
 
288
 
732
 
731

Total related party fees and reimbursements
 
308

 
752

 
731



Non-GAAP Financial Measures

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, or NAREIT, and the Investment Program Association, or IPA, industry trade groups, have each promulgated measures respectively known as funds from operations, or FFO, and modified funds from operations, or MFFO, which we believe to be appropriate supplemental measures to reflect the operating performance of a real estate investment trust, or REIT. The use of FFO and MFFO is recommended by the REIT industry as supplemental performance measures. FFO and MFFO are not equivalents to our 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, or 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 write-downs, 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. 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 operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

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Changes in the accounting and reporting rules under U.S. GAAP that have been put into effect since the establishment of NAREIT's definition of FFO have prompted an increase in the non-cash and non-operating items included in FFO. For instance, the accounting treatment for acquisition fees related to business combinations has changed from being capitalized to being expensed. Additionally, publicly registered, non-listed REITs are typically different from traded REITs because they generally have a limited life followed by a liquidity event or other targeted exit strategy. Non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation as compared to later years when the proceeds from their continuous public offering have been fully invested and when the Company is seeking to implement a liquidity event or other exit strategy. However, it is likely that we will make investments past the acquisition stage, albeit at a substantially lower pace.
The origination and acquisition of debt investments and the corresponding acquisition fees paid to our advisor (and any offsetting origination fees received from our borrowers) associated with such activity is a key operating feature of our business plan that results in generating income and cash flow in order to make distributions to stockholders. Therefore, the exclusion for acquisition fees may be of limited value in calculating operating performance because acquisition fees affect our overall long-term operating performance and may be recurring in nature as part of net income (loss) and income (loss) from operations over the life of our company. Acquisition fees paid to our advisor in connection with the origination and acquisition of debt investments are amortized over the life of the investment as an adjustment to interest income under U.S. GAAP and are therefore, included in the computation of net income (loss) and income (loss) from operations, both of which are performance measures under U.S. GAAP. Acquisition fees paid to our advisor in connection with the acquisition of properties are characterized as operating expenses in determining operating net income. All such acquisition fees are paid in cash that would otherwise be available to distribute to our stockholders. In the event that proceeds from our offering are not sufficient to fund the payment or reimbursement of acquisition fees and expenses to our advisor, such fees would be paid from other sources, including new financing, operating cash flow, net proceeds from the sale of investments or from other cash flows. We believe that acquisition fees incurred by us negatively impact our operating performance during the period in which such investments are originated or acquired by reducing cash flows and therefore the potential distributions to stockholders.
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, or 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 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; fair value adjustments on real estate related investments such as commercial real estate securities or derivative investments included in net income; impairments of real estate related investments, 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 from fair value adjustments on real estate securities, including commercial mortgage backed securities and other securities, interest rate swaps and other derivatives not deemed to be hedges and foreign exchanges holdings; 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, unrealized 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. While we will be responsible for managing interest rate, hedge and foreign exchange risk, we expect to 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 our core operations.
Our MFFO calculation excludes impairments of real estate related investments, including loans. We assess the credit quality of our investments and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. For loans classified as held-for-investment, we establish and maintain a general allowance for loan losses inherent in our portfolio at the reporting date and, where appropriate, a specific allowance for loan losses for loans we have determined to be impaired at the reporting date. An individual loan is considered impaired when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. Real estate related securities are evaluated for other-than-temporary impairment when the fair value of a security falls below its net amortized cost. Significant judgment is required in this analysis. We consider the estimated net recoverable value of the loan or security as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business. Fair value is typically estimated based upon discounting the expected future cash flows of the underlying collateral taking into consideration the discount rate, capitalization rate, occupancy,

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creditworthiness of major tenants and many other factors. This requires significant judgment and because it is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a specific allowance for loan losses is recorded. In the case of securities, all or a portion of a deemed impairment may be recorded. Due to our limited life, any allowance for loan losses or impairment of securities recorded may be difficult to recover.
MFFO is a metric used by management to evaluate our performance against other non-traded REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter and is not intended to be used as a liquidity measure. Although management uses the MFFO metric to evaluate future operating performance, this metric excludes certain key operating items and other adjustments that may affect our overall operating performance. MFFO is not equivalent to net income (loss) as determined under U.S. GAAP. 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, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisitions costs are funded from the proceeds of this offering and other financing sources and not from operations. By excluding impairments for real estate related investment and amortized or expensed acquisition costs, the use of MFFO provides information consistent with management's analysis of the operating performance of our investments. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates for the collateral securing our debt investments, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
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 investments 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 making our investments and once our portfolio is in place. 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 offering has been completed and our investments have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisition stages are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and investments have been made, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which investments are made.
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, so 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 other GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is initially a stated value and there will not be a per share NAV determination for at least two years after the commencement of this offering. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after our per share NAV is disclosed, as well as after our offering and acquisition stages are completed. FFO and MFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO or MFFO.
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-traded REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.




27



 
The table below reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the three and six months ended June 30, 2013.
 
 
Three Months Ended 
 June 30, 2013
 
Six Months Ended 
 June 30, 2013
 
 
 
 
 
Funds From Operations:
 
 
 
 
Net Loss
 
$
(140,132
)
 
$
(145,151
)
Funds from operations
 
$
(140,132
)
 
$
(145,151
)
Modified Funds From Operations:
 
 
 
 
Funds from operations
 
$
(140,132
)
 
$
(145,151
)
Amortization of premiums, discounts and fees on investments and borrowings, net
 
(19,433
)
 
(19,433
)
Acquisition fees and expenses
 
58,610

 
58,610

Modified funds from operations
 
$
(100,955
)
 
$
(105,974
)
 
 
 
 
 



28


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 market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in 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. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this report, we did not engage in interest rate hedging activities. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign denominated investments and thus we are not exposed to foreign currency fluctuations.

As of June 30, 2013, we had only fixed rate assets and borrowings. Therefore, changes in market interest rates would not impact the interest income or expense from these assets and liabilities.


Item 4. Controls and Procedures.

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 and determined that our disclosure controls and procedures are effective as of the end of the period covered by the Quarterly Report on Form 10-Q.




29


PART II

Item 1. Legal Proceedings.

We currently are not subject to any material legal proceedings.

Item 1A. Risk Factors.

Not applicable.

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

We did not sell any equity securities that were not registered under the Securities Act during the three months ended June 30, 2013.

On February 12, 2013, the SEC declared effective our Registration Statement on Form S-11 (File No. 333-186111) filed under the Securities Act (the “Registration Statement”), and we commenced our Offering on a “reasonable best efforts” basis of up to a maximum of $2.0 billion of common stock, consisting of up to 80.0 million shares. The Registration Statement also registers approximately 16.8 million shares of common stock pursuant the DRIP under which common stockholders may elect to have their distributions reinvested in additional shares of common stock. As of June 30, 2013, we have issued 110,610 shares of our common stock, including shares issued pursuant to the DRIP, and have raised $2.5 million of offering proceeds.

The following table reflects the offering costs associated with the issuance of common stock:
(in thousands)
As of June 30, 2013
Selling commissions and dealer manager fees
$
20

Other offering expenses
2,269

Total offering expenses
$
2,289


The Dealer Manager may reallow the selling commissions and a portion of the dealer manager fees to participating broker dealers.

We are responsible for the organizational and offering costs of the Offering, excluding commissions and dealer manager fees, up to a maximum of 2.0% of the gross proceeds received from the Offering, measured at the end of the Offering. Organizational and offering costs in excess of the 2.0% cap as of the end of the Offering are our Advisor's responsibility. As of June 30, 2013, organizational and offering costs exceeded 2.0% of gross proceeds received from the Offering by $2.5 million, due to the ongoing nature of the offering process and because many expenses were paid before the Offering commenced.

As of June 30, 2013, our net offering proceeds, after deducting the total expenses outlined above, were approximately $0.2 million. On May 15, 2013, we acquired the Loan at a discounted price of $4.0 million with (i) proceeds from our ongoing offering in the amount of $2.0 million and (ii) borrowings under a line of credit made available to us by the parent of our Sponsor in the amount of $2.0 million.

We had not repurchased any of our securities as of June 30, 2013.

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

30


Item 6. Exhibits.

EXHIBITS INDEX

The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
 
Description
10.1*
 
Second Amended and Restated Subscription Escrow Agreement, dated as of July 26, 2013, among Realty Capital Securities, LLC, the Company and UMB Bank, N.A.
10.7*
 
Revolving Line of Credit, dated as of May 15, 2013, by and between AR Capital, LLC and ARC Realty Finance Trust, Inc.
10.8*
 
First Amendment to Revolving Line of Credit, dated as of July 17, 2013, by and between AR Capital, LLC and ARC Realty Finance Trust, Inc.
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 ARC Realty Finance Trust, Inc.'s Quarterly Report on Form 10-Q for the three months ended June 30, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information in furnished and not filed for purpose of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934
_________________________
*
Filed herewith


31


ARC REALTY FINANCE TRUST, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
ARC REALTY FINANCE TRUST, INC.
 
By: /s/ Nicholas S. Schorsch
Name: Nicholas S. Schorsch
Title: Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: August 13, 2013
By: /s/ Nicholas Radesca
Name: Nicholas Radesca
Title: Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)


32
EX-10.1 2 secondamendedandrestatedsu.htm EXHIBIT SECOND AMENDED AND RESTATED SUBSCRIPTION ESCROW AGREEMENT


SECOND AMENDED AND RESTATED SUBSCRIPTION ESCROW AGREEMENT
 
THIS SECOND AMENDED AND RESTATED SUBSCRIPTION ESCROW AGREEMENT dated as of July 26, 2013 (this “Agreement”), is entered into among Realty Capital Securities, LLC (the “Dealer Manager”), ARC Realty Finance Trust, Inc. (the “Company”) and UMB Bank, N.A., as escrow agent (the “Escrow Agent”).
 
WHEREAS, the Company intends to raise funds from Investors (as defined below) pursuant to a public offering (the “Offering”) for gross proceeds of not less than $2,000,000 (the “Minimum Amount”) from the sale of shares of common stock, par value $0.01 per share of the Company (the “Securities”), pursuant to the registration statement on Form S-11 of the Company (No. 333-186111) (as amended, the “Offering Document”) a copy of which is attached as Exhibit A hereto.
 
WHEREAS, the Company desires to establish an escrow account with the Escrow Agent for funds contributed by the Investors with the Escrow Agent in accordance with the Offering Document, to be held for the benefit of the Investors and the Company until such time as (i) in the case of subscriptions received from residents of Pennsylvania (“Pennsylvania Investors”), Securities sold in the Offering to all Investors equal, in the aggregate, to $100,000,000 (the “Pennsylvania Minimum Amount”), (ii) in the case of subscriptions received from residents of Washington (“Washington Investors”), Securities sold in the Offering to all Investors equal, in the aggregate, to $10,000,000 (the “Washington Minimum Amount”), (iii) in the case of subscriptions received from residents of Ohio (“Ohio Investors”), Securities sold in the Offering to all Investors equal, in the aggregate, to $20,000,000 (the “Ohio Minimum Amount”) and (iv) in the case of subscriptions received from all other Investors, Securities sold in the Offering equal the Minimum amount, in each case in accordance with the terms and subject to the conditions of this Agreement.
 
WHEREAS, the Escrow Agent is willing to accept appointment as escrow agent only for the express duties set forth herein.
 
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:
 
1.          Proceeds to be Escrowed. On or before the first date of the Offering, the Company shall establish an escrow account with the Escrow Agent to be invested in accordance with Section 10 hereof (including such abbreviations as are required for the Escrow Agent's systems) (the “Escrow Account”). All checks, wire transfers and other funds received from subscribers of Securities (“Investors”, which term shall also include Ohio Investors, Pennsylvania Investors and Washington Investors unless the context otherwise requires) in payment for the Securities (“Investor Funds”) will be delivered to the Escrow Agent within one (1) business day following the day upon which such Investor Funds are received by the Company or its agents, and shall, upon receipt by the Escrow Agent, be retained in escrow by the Escrow Agent and invested as stated herein. During the term of this Agreement, the Company or its agents shall cause all checks received by and made payable to it in payment for the Securities to be endorsed for favor of the Escrow Agent and delivered to the Escrow Agent for deposit in the Escrow Account.
 
The Company shall, and shall cause its agents to, cooperate with the Escrow Agent in separately accounting for Investor Funds from Ohio Investors, Pennsylvania Investors and Washington Investors in the Escrow Account, and the Escrow Agent shall be entitled to rely upon information provided by the Company or its agents in this regard.
 
The Escrow Agent shall have no duty to make any disbursement, investment or other use of Investor Funds until and unless it has good and collected funds. If any checks deposited in the Escrow Account are returned or prove uncollectible after the funds represented thereby have been released by the Escrow Agent, then the Company shall promptly reimburse the Escrow Agent for any and all costs incurred for such, upon request, and the Escrow Agent shall deliver the returned checks to the Company. The Escrow Agent shall be under no duty or responsibility to enforce collection of any check delivered to it hereunder. The Escrow Agent reserves the right to deny, suspend or terminate participation by an Investor to the extent the Escrow Agent deems it advisable or necessary to comply with applicable laws or to eliminate practices that are not consistent with the purposes of the Offering.

2.          Investors. Investors will be instructed by the Dealer Manager or any soliciting dealers retained by the Dealer Manager in connection with the Offering (the “Soliciting Dealers”) to remit the purchase price in the form of checks (hereinafter “instruments of payment”) payable to the order of, or funds wired in favor of, “UMB BANK, N.A., ESCROW AGENT FOR ARC REALTY FINANCE TRUST, INC.” Any checks made payable to a party other than the Escrow Agent shall be returned to the Dealer Manager or Soliciting Dealer that submitted the check. By 12:00 p.m. (EST) the next business day after receipt of instruments of payment from the Offering, the Company or the Dealer Manager shall furnish the Escrow Agent with a list of the Investors who have paid for the Securities showing the name, address, tax identification number, the amount of Securities subscribed for purchase, the amount paid and whether such Investors are Ohio Investors, Pennsylvania Investors or Washington Investors. The information comprising the identity of Investors shall be provided to the Escrow Agent in substantially the format set forth in the





list of investors attached hereto as Exhibit B (the “List of Investors”). The Escrow Agent shall be entitled to conclusively rely upon the List of Investors in determining whether Investors are Ohio Investors, Pennsylvania Investors or Washington Investors and shall have no duty to independently determine or verify the same.
 
When a Soliciting Dealer's internal supervisory procedures are conducted at the site at which the subscription agreement and the check for the purchase of Securities were initially received by Soliciting Dealer from the subscriber, such Soliciting Dealer shall transmit the subscription agreement and such check to the Escrow Agent by the end of the next business day following receipt of the check for the purchase of Securities and subscription agreement. When, pursuant to such Soliciting Dealer's internal supervisory procedures, such Soliciting Dealer's final internal supervisory procedures are conducted at a different location (the “Final Review Office”), such Soliciting Dealer shall transmit the check for the purchase of Securities and subscription agreement to the Final Review Office by the end of the next business day following Soliciting Dealer's receipt of the subscription agreement and the check for the purchase of Securities. The Final Review Office will, by the end of the next business day following its receipt of the subscription agreement and the check for the purchase of Securities, forward both the subscription agreement and such check to the Escrow Agent. If any subscription agreement solicited by a Soliciting Dealer is rejected by the Dealer Manager or the Company, then the subscription agreement and check for the purchase of Securities will be returned to the rejected subscriber within ten (10) business days from the date of rejection.
 
All Investor Funds deposited in the Escrow Account shall not be subject to any liens or charges by the Company or the Escrow Agent, or judgments or creditors' claims against the Company, until and unless released to the Company as hereinafter provided. The Company understands and agrees that the Company shall not be entitled to any Investor Funds on deposit in the Escrow Account and no such funds shall become the property of the Company, or any other entity except as released to the Company pursuant to Sections 3,4, 5 or 6 hereto. The Escrow Agent will not use the information provided to it by the Company for any purpose other than to fulfill its obligations as Escrow Agent hereunder. The Company and the Escrow Agent will treat all Investor information as confidential. The Escrow Agent shall not be required to accept any Investor Funds which are not accompanied by the information on the List of Investors.
  
3.          Disbursement of Funds. Once proceeds from the sale of Securities equal the Minimum Amount (excluding Securities sold to Ohio Investors, Pennsylvania Investors and Washington Investors), the Company shall notify the Escrow Agent of the same in writing. Further, if the Minimum Amount has not been sold on or prior to the Termination Date, the Company shall notify the Escrow Agent in writing of such. At the end of the third business day following the Termination Date (as defined in Section 7), the Escrow Agent shall notify the Company of the amount of the Investor Funds received. If the Minimum Amount has been obtained on or before the Termination Date, the Escrow Agent shall promptly notify the Company and, upon receiving acknowledgement of such notice and written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer to disburse the Investor Funds, subject to this Section 3, the Escrow Agent shall disburse to the Company, by check or wire transfer, the funds in the Escrow Account, except for amounts payable by the Company to the Escrow Agent pursuant to Exhibit D to this Agreement that remain outstanding. The Escrow Agent agrees that funds in the Escrow Account shall not be released to the Company until and unless the Escrow Agent receives written instructions to release the funds from the Company's Chief Executive Officer, President or Chief Financial Officer.
 
If the Company notifies the Escrow Agent in writing that the Minimum Amount has not been obtained prior to the Termination Date, the Escrow Agent shall promptly following the Termination Date, but in no event more than ten (10) business days after the Termination Date, refund to each Investor by check, funds deposited in the Escrow Account, or shall return the instruments of payment delivered to Escrow Agent if such instruments have not been processed for collection prior to such time, directly to each Investor at the address provided on the List of Investors. Included in the remittance shall be a proportionate share of the income earned in the account allocable to each Investor's investment in accordance with the terms and conditions specified herein, except that in the case of Investors who have not provided an executed Form W-9 or substitute Form W-9 (or the applicable substitute Form W-8 for foreign investors), the Escrow Agent shall withhold the applicable percentage of the earnings attributable to those Investors in accordance with Internal Revenue Service (“IRS”) regulations. Notwithstanding the foregoing, the Escrow Agent shall not be required to remit any payments until funds represented by such payments have been collected by the Escrow Agent.
 
If the Escrow Agent receives written notice from the Company that the Company intends to reject an Investor's subscription, the Escrow Agent shall pay to the applicable Investor(s), within a reasonable time not to exceed ten (10) business days after receiving notice of the rejection, by first class United States Mail at the address provided on the List of Investors, or at such other address as shall be furnished to the Escrow Agent by the Investor in writing, all collected sums paid by the Investor for Securities and received by the Escrow Agent, together with the interest earned on such Investor Funds (determined in accordance with the terms and conditions specified herein).
 





4.          Disbursement of Proceeds for Pennsylvania Investors. Notwithstanding the foregoing, proceeds from sales of Securities to Pennsylvania Investors will not count towards meeting the Minimum Amount for purposes of Section 3. Proceeds received from sales of Securities to Pennsylvania Investors will not be released from the Escrow Account until the Pennsylvania Minimum Amount is obtained. If the Pennsylvania Minimum Amount is obtained at any time prior to the Termination Date, the Escrow Agent shall promptly notify the Company and, upon receiving acknowledgement of such notice and written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer, the Escrow Agent shall disburse to the Company, by check or wire transfer, the funds in the Escrow Account representing proceeds from Pennsylvania investors, except for amounts payable by the Company to the Escrow Agent pursuant to Exhibit D to this Agreement that remain outstanding. The Escrow Agent agrees that the Pennsylvania Minimum Amount in the Escrow Account shall not be released to the Company until and unless the Escrow Agent receives written instructions to release the funds from the Company's Chief Executive Officer, President or Chief Financial Officer.
  
If the Pennsylvania Minimum Amount has not been obtained prior to the Termination Date, upon written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer, the Escrow Agent shall promptly refund to each Pennsylvania Investor by check funds deposited in the Escrow Account, or shall return the instruments of payment delivered to Escrow Agent if such instruments have not been processed for collection prior to such time, directly to each Pennsylvania Investor at the address provided on the List of Investors. Included in the remittance shall be a proportionate share of the income earned in the account allocable to each Pennsylvania Investor's investment in accordance with the terms and conditions specified herein, except that in the case of Investors who have not provided an executed Form W-9 or substitute Form W-9, the Escrow Agent shall withhold the applicable percentage of the earnings attributable to those Investors in accordance with IRS regulations. Notwithstanding the foregoing, the Escrow Agent shall not be required to remit any payments until funds represented by such payments have been collected by Escrow Agent.
 
If the Escrow Agent is not in receipt of evidence of subscriptions accepted on or before the close of business on such date that is 120 days after the initial effective date of the Offering Document by the Securities and Exchange Commission (the “SEC”) (the “Initial Escrow Period”), and instruments of payment dated not later than that date, for the purchase of Securities providing for total purchase proceeds from all nonaffiliated sources that equal or exceed the Pennsylvania Minimum Amount, the Escrow Agent shall promptly notify the Company. Thereafter, the Company or its agents shall send to each Pennsylvania Investor by certified mail within ten (10) calendar days after the end of the Initial Escrow Period a notification substantially in the form of Exhibit F. If, pursuant to such notification, a Pennsylvania Investor requests the return of his or her Investor Funds within ten (10) calendar days after receipt of the notification (the “Request Period”), the Escrow Agent shall promptly refund directly to each Pennsylvania Investor the collected funds deposited in the Escrow Account on behalf of such Pennsylvania Investor or shall return the instruments of payment delivered, but not yet processed for collection prior to such time, to the address provided on the List of Investors, upon which the Escrow Agent shall be entitled to rely, together with interest income earned as determined in accordance with the terms and conditions specified herein (which interest shall be paid within five business days after the first business day of the succeeding month). Notwithstanding the above, if the Escrow Agent has not received an executed Form W-9 or substitute Form W-9 for such Pennsylvania Investor, the Escrow Agent shall thereupon remit an amount to such Pennsylvania Investor in accordance with the provisions hereof, withholding the applicable percentage for backup withholding in accordance with IRS regulations, as then in effect, from any interest income earned on Investor Funds (determined in accordance with the terms and conditions specified herein) attributable to such Pennsylvania Investor. However, the Escrow Agent shall not be required to remit such payments until the Escrow Agent has collected funds represented by such payments.
 
The Investor Funds of Pennsylvania Investors who do not request the return of their Investor Funds within the Request Period shall remain in the Escrow Account for successive 120-day escrow periods (each a “Successive Escrow Period”), each commencing automatically upon the termination of the prior Successive Escrow Period, and the Company and Escrow Agent shall follow the notification and payment procedure set forth above with respect to the Initial Escrow Period for each Successive Escrow Period until the occurrence of the earliest of (i) the Termination Date, (ii) the receipt and acceptance by the Company of subscriptions for the purchase of Securities with total purchase proceeds that equal or exceed the Pennsylvania Minimum Amount and the disbursement of the Escrow Account on the terms specified herein, and (iii) all funds held in the Escrow Account having been returned to the Pennsylvania Investors in accordance with the provisions hereof.

5.          Disbursement of Proceeds for Washington Investors. Notwithstanding the foregoing, proceeds from sales of Securities to Washington Investors will not count towards meeting the Minimum Amount for purposes of Section 3. Proceeds received from sales of Securities to Washington Investors will not be released from the Escrow Account until the Washington Minimum Amount is obtained. If the Washington Minimum Amount is obtained at any time prior to the Termination Date, the Escrow Agent shall promptly notify the Company and, upon receiving acknowledgement of such notice and written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer, the Escrow Agent shall disburse to the Company, by check or wire transfer, the funds in the Escrow Account representing proceeds from Washington investors, except for amounts payable by the Company to the Escrow Agent pursuant to Exhibit D to this Agreement that remain outstanding. The Escrow Agent





agrees that the Washington Minimum Amount in the Escrow Account shall not be released to the Company until and unless the Escrow Agent receives written instructions to release the funds from the Company's Chief Executive Officer, President or Chief Financial Officer.
  
If the Washington Minimum Amount has not been obtained prior to the Termination Date, upon written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer, the Escrow Agent shall promptly refund to each Washington Investor by check funds deposited in the Escrow Account, or shall return the instruments of payment delivered to Escrow Agent if such instruments have not been processed for collection prior to such time, directly to each Washington Investor at the address provided on the List of Investors. Included in the remittance shall be a proportionate share of the income earned in the account allocable to each Washington Investor's investment in accordance with the terms and conditions specified herein, except that in the case of Investors who have not provided an executed Form W-9 or substitute Form W-9, the Escrow Agent shall withhold the applicable percentage of the earnings attributable to those Investors in accordance with IRS regulations. Notwithstanding the foregoing, the Escrow Agent shall not be required to remit any payments until funds represented by such payments have been collected by Escrow Agent.

6.          Disbursement of Proceeds for Ohio Investors. Notwithstanding the foregoing, proceeds from sales of Securities to Ohio Investors will not count towards meeting the Minimum Amount for purposes of Section 3. Proceeds received from sales of Securities to Ohio Investors will not be released from the Escrow Account until the Ohio Minimum Amount is obtained. If the Ohio Minimum Amount is obtained at any time prior to the Termination Date, the Escrow Agent shall promptly notify the Company and, upon receiving acknowledgement of such notice and written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer, the Escrow Agent shall disburse to the Company, by check or wire transfer, the funds in the Escrow Account representing proceeds from Ohio investors, except for amounts payable by the Company to the Escrow Agent pursuant to Exhibit D to this Agreement that remain outstanding. The Escrow Agent agrees that the Ohio Minimum Amount in the Escrow Account shall not be released to the Company until and unless the Escrow Agent receives written instructions to release the funds from the Company's Chief Executive Officer, President or Chief Financial Officer.
  
If the Ohio Minimum Amount has not been obtained prior to the Termination Date, upon written instructions from the Company's Chief Executive Officer, President or Chief Financial Officer, the Escrow Agent shall promptly refund to each Ohio Investor by check funds deposited in the Escrow Account, or shall return the instruments of payment delivered to Escrow Agent if such instruments have not been processed for collection prior to such time, directly to each Ohio Investor at the address provided on the List of Investors. Included in the remittance shall be a proportionate share of the income earned in the account allocable to each Ohio Investor's investment in accordance with the terms and conditions specified herein, except that in the case of Investors who have not provided an executed Form W-9 or substitute Form W-9, the Escrow Agent shall withhold the applicable percentage of the earnings attributable to those Investors in accordance with IRS regulations. Notwithstanding the foregoing, the Escrow Agent shall not be required to remit any payments until funds represented by such payments have been collected by Escrow Agent.

  
7.          Term of Escrow. The “Termination Date” shall be the earliest of: (i) February 12, 2014, the one year anniversary of the date the Offering Document was initially declared effective by the SEC, if the Minimum Amount has not been obtained prior to such date; (ii) the close of business on February 12, 2015, the two year anniversary of the date the Offering Document was initially declared effective by the SEC; (iii) the date on which all funds held in the Escrow Account are distributed to the Company or to Investors pursuant to Section 3, for Pennsylvania Investors, Section 4, for Washington Investors, Section 5, for Ohio Investors, Section 6, and the Company has informed the Escrow Agent in writing to close the Escrow Account; (iv) the date the Escrow Agent receives written notice from the Company that it is abandoning the sale of the Securities; and (v) the date the Escrow Agent receives notice from the SEC or any other federal regulatory authority that a stop or similar order has been issued with respect to the Offering Document and has remained in effect for at least twenty (20) days. After the Termination Date, the Company and its agents shall not deposit, and the Escrow Agent shall not accept, any additional amounts representing payments by prospective Investors.
 
8.          Duty and Liability of the Escrow Agent. The sole duty of the Escrow Agent shall be to receive Investor Funds and hold them subject to release, in accordance herewith, and the Escrow Agent shall be under no duty to determine whether the Company or the Dealer Manager is complying with requirements of this Agreement, the Offering or applicable securities or other laws in tendering the Investor Funds to the Escrow Agent. No other agreement entered into between the parties, or any of them, shall be considered as adopted or binding, in whole or in part, upon the Escrow Agent notwithstanding that any such other agreement may be referred to herein or deposited with the Escrow Agent or the Escrow Agent may have knowledge thereof, including specifically but without limitation, the Offering Document or any other document relating to the Offering (including the subscription agreement and exhibits thereto), and the Escrow Agent's rights and responsibilities shall be governed solely by this Agreement. The Escrow Agent shall not be responsible for or be required to enforce any of the terms or conditions of the Offering Document or any other document relating to the Offering (including the subscription agreement and exhibits thereto) or other agreement





between the Company and any other party. The Escrow Agent may conclusively rely upon and shall be protected in acting upon any statement, certificate, notice, request, consent, order or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall have no duty or liability to verify any such statement, certificate, notice, request, consent, order or other document, and its sole responsibility shall be to act only as expressly set forth in this Agreement. Concurrent with the execution of this Agreement, the Company and the Dealer Manager shall each deliver to the Escrow Agent an authorized signers form in the form of Exhibit C or Exhibit C-1 to this Agreement, as applicable. The Escrow Agent shall be under no obligation to institute or defend any action, suit or proceeding in connection with this Agreement unless first indemnified to its satisfaction. The Escrow Agent may consult counsel of its own choice with respect to any question arising under this Agreement and the Escrow Agent shall not be liable for any action taken or omitted in good faith upon advice of such counsel. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith except to the extent that a court of competent jurisdiction determines that the Escrow Agent's gross negligence or willful misconduct was the primary cause of loss. The Escrow Agent is acting solely as escrow agent hereunder and owes no duties, covenants or obligations, fiduciary or otherwise, to any other person by reason of this Agreement, except as otherwise stated herein, and no implied duties, covenants or obligations, fiduciary or otherwise, shall be read into this Agreement against the Escrow Agent. If any disagreement between any of the parties to this Agreement, or between any of them and any other person, including any Investor, resulting in adverse claims or demands being made in connection with the matters covered by this Agreement, or if the Escrow Agent is in doubt as to what action it should take hereunder, the Escrow Agent may, at its option, refuse to comply with any claims or demands on it, or refuse to take any other action hereunder, so long as such disagreement continues or such doubt exists, and in any such event, the Escrow Agent shall not be or become liable in any way or to any person for its failure or refusal to act, and the Escrow Agent shall be entitled to continue so to refrain from acting until (i) the rights of all interested parties shall have been fully and finally adjudicated by a court of competent jurisdiction, or (ii) all differences shall have been adjudged and all doubt resolved by agreement among all of the interested persons, and the Escrow Agent shall have been notified thereof in writing signed by all such persons. Notwithstanding the foregoing, the Escrow Agent may in its discretion obey the order, judgment, decree or levy of any court, whether with or without jurisdiction and the Escrow Agent is hereby authorized in its sole discretion to comply with and obey any such orders, judgments, decrees or levies. If any controversy should arise with respect to this Agreement, the Escrow Agent shall have the right, at its option, to institute an interpleader action in any court of competent jurisdiction to determine the rights of the parties. IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL LOSSES OR DAMAGES OF ANY KIND WHATSOEVER (INCLUDING WITHOUT LIMITATION LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION. The parties hereto agree that the Escrow Agent has no role in the preparation of the Offering Document or any other document related to the Offering (including the subscription agreement and exhibits thereto) and makes no representations or warranties with respect to the information contained therein or omitted therefrom. The Escrow Agent shall have no obligation, duty or liability with respect to compliance with any federal or state securities, disclosure or tax laws concerning the Offering Document or any other document related to the Offering (including the subscription agreement and exhibits thereto) or the issuance, offering or sale of the Securities. The Escrow Agent shall have no duty or obligation to monitor the application and use of the Investor Funds once transferred to the Company, that being the sole obligation and responsibility of the Company.
  
9.          Escrow Agent's Fee. The Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit D, which compensation shall be paid by the Company. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this Agreement; provided, however, that if (i) the conditions for the disbursement of funds under this Agreement are not fulfilled, (ii) the Escrow Agent renders any material service not contemplated in this Agreement, (iii) there is any assignment of interest in the subject matter of this Agreement, (iv) there is any material modification hereof, (v) if any material controversy arises hereunder, or (vi) the Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from the Company. The Company's obligations under this Section 9 shall survive the resignation or removal of the Escrow Agent and the assignment or termination of this Agreement.
 
10.          Investment of Investor Funds. The Investor Funds shall be deposited in the Escrow Account in accordance with Section 1. The Escrow Agent is hereby directed to invest all funds received under this Agreement, including principal and interest in, the UMB Bank Money Market Deposit Account, as directed in writing in the form of Exhibit E to this Agreement. In the absence of written investment instructions from the Company to the contrary, the Escrow Agent is hereby directed to invest the Investor Funds in the UMB Bank Money Market Deposit Account. Notwithstanding the foregoing, Investor Funds shall not be invested in anything other than “Short Term Investments” in compliance with Rule 15c2-4 of the Securities Exchange Act of 1934, as amended. The following are not permissible investments: (a) money market mutual funds; (b) corporate debt or equity securities; (c) repurchase agreements; (d) banker's acceptance; (e) commercial paper; and (f) municipal securities. Any interest received by the Escrow Agent with respect to the Investor Funds, including reinvested interest shall become part of the Investor Funds, and shall





be disbursed pursuant to Section 3, for Pennsylvania Investors, Section 4, for Washington investors, Section 5 and for Ohio Investors, Section 6.
 
The Escrow Agent shall be entitled to sell or redeem any such investments as necessary to make any payments or distributions required under this Agreement. The Escrow Agent shall have no responsibility or liability for any loss which may result from any investment made pursuant to this Agreement, or for any loss resulting from the sale of such investment. The parties acknowledge that the Escrow Agent is not providing investment supervision, recommendations, or advice.
 
On or prior to the date of this Agreement, the Company shall provide the Escrow Agent with a certified tax identification number by furnishing an appropriate IRS form W-9 or W-8 (or substitute Form W-9 or W-8) and other forms and documents that the Escrow Agent may reasonably request, including without limitation a tax form for each Investor. The Company understands that if such tax reporting documentation is not so certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, to withhold a portion of any interest or other income earned on the Investor Funds pursuant to this Agreement. For tax reporting purposes, all interest and other income from investment of the Investor Funds shall, as of the end of each calendar year and to the extent required by the IRS, be reported as having been earned by the party to whom such interest or other income is distributed, in the year in which it is distributed.
 
The Company agrees to indemnify and hold the Escrow Agent harmless from and against any taxes, additions for late payment, interest, penalties and other expenses that may be assessed against the Escrow Agent on or with respect to any payment or other activities under this Agreement unless any such tax, addition for late payment, interest, penalties and other expenses shall be determined by a court of competent jurisdiction to have been caused by the Escrow Agent's gross negligence or willful misconduct. The terms of this Section shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent.
 
11.          Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of service if served personally on the party to whom notice is to be given, (b) on the day of transmission if sent by facsimile/email transmission bearing an authorized signature to the facsimile number/email address given below, and written confirmation of receipt is obtained promptly after completion of transmission, (c) on the day after delivery to Federal Express or similar overnight courier or the Express Mail service maintained by the United States Postal Service, or (d) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to the party as follows:
  





If to the Company:
ARC Realty Finance Trust, Inc.
405 Park Avenue, 15th Floor
New York, New York 10022
Fax: (212) 421-5799
Attention: Peter M. Budko, President and Secretary
 
with a copy to:
 
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309-3424
Telephone: (404) 881-7000
Fax: (404) 881-7777
Attention: Rosemarie A. Thurston, Esq.
 
If to the Dealer Manager:
 
Realty Capital Securities, LLC
Three Copley Place
Suite 3300
Boston, Massachusetts 02116
Attention: Louisa Quarto, President
 
with a copy to:
 
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309-3424
Telephone: (404) 881-700
Fax: (404) 881-7777
Attention: Rosemarie A. Thurston, Esq.
 
and:
 
ARC Realty Finance Trust, Inc.
405 Park Avenue, 15th Floor
New York, New York 10022
Fax: (212) 421-5799
Attention: Peter M. Budko, President and Secretary
If to Escrow Agent:
 
UMB Bank, N.A.
1010 Grand Blvd., 4th Floor
Mail Stop: 1020409
Kansas City, Missouri 64106
Attention: Lara Stevens, Corporate Trust
Telephone: (816) 860-3017
Facsimile: (816) 860-3029
Email: lara.stevens@umb.com
 
Any party may change its address for purposes of this Section by giving the other party written notice of the new address in the manner set forth above.





 
12.         Indemnification of Escrow Agent. The Company and the Dealer Manager hereby agree to jointly and severally indemnify, defend and hold harmless the Escrow Agent from and against, any and all loss, liability, cost, damage and expense, including, without limitation, reasonable counsel fees and expenses, which the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against the Escrow Agent arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates unless such loss, liability, cost, damage or expense is finally determined by a court of competent jurisdiction to have been primarily caused by the gross negligence or willful misconduct of the Escrow Agent. The terms of this Section shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent.
 
13.         Successors and Assigns. Except as otherwise provided in this Agreement, no party hereto shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other parties hereto and any such attempted assignment without such prior written consent shall be void and of no force and effect. This Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto. Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor Escrow Agent under this Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.
 
14.         Governing Law; Jurisdiction. This Agreement shall be construed, performed, and enforced in accordance with, and governed by, the internal laws of the State of New York, without giving effect to the principles of conflicts of laws thereof.
 
15.         Severability. If any provision of this Agreement is declared by any court or other judicial or administrative body to be null, void, or unenforceable, said provision shall survive to the extent it is not so declared, and all of the other provisions of this Agreement shall remain in full force and effect.
  
16.         Amendments; Waivers. This Agreement may be amended or modified, and any of the terms, covenants, representations, warranties, or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such condition, or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement. The Company and the Dealer Manager agree that any requested waiver, modification or amendment of this Agreement shall be consistent with the terms of the Offering.
 
17.         Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the escrow contemplated hereby and supersedes and replaces all prior and contemporaneous agreements and understandings, oral or written, with regard to such escrow.
 
18.         Section Headings. The section headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
 
19.         Counterparts. This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument.
 
20.         Resignation. The Escrow Agent may resign upon 30 days' advance written notice to the parties hereto. If a successor escrow agent is not appointed by the Company within the 30-day period following such notice, the Escrow Agent may petition any court of competent jurisdiction to name a successor escrow agent, or may interplead the Investor Funds with such court, whereupon the Escrow Agent's duties hereunder shall terminate.
 
21.         References to Escrow Agent. Other than the Offering Document, any of the other documents related to the Offering (including the subscription agreement and exhibits thereto) and any amendments thereof or supplements thereto, no printed or other matter in any language (including, without limitation, notices, reports and promotional material) which mentions the Escrow Agent's name or the rights, powers, or duties of the Escrow Agent shall be issued by the Company or the Dealer Manager, or on the Company's or the Dealer Manager's behalf, unless the Escrow Agent shall first have given its specific written consent thereto. Notwithstanding the foregoing, any amendment or supplement to the Offering Document or any other document related to the Offering (including the subscription agreement and exhibits thereto) that revises, alters, modifies, changes or adds to the description of the Escrow Agent or its rights, powers or duties hereunder shall not be issued by the Company or the Dealer Manager, or on the Company's or Dealer Manager's behalf, unless the Escrow Agent has first given specific written consent thereto.
 





22.         Patriot Act Compliance; OFAC Search Duties. The Company shall provide to the Escrow Agent upon the execution of this Agreement any documentation requested and any information reasonably requested by the Escrow Agent to comply with the USA Patriot Act of 2001, as amended from time to time. The Escrow Agent, or its agent, shall complete a search with the Office of Foreign Assets Control (“OFAC Search”), in compliance with its policy and procedures, of each subscription check for the purchase of Securities and shall inform the Company if a subscription check for the purchase of Securities fails the OFAC Search.
 
 
[Signature page follows]







IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated Escrow Agreement to be executed the date and year first set forth above.
 
ARC REALTY FINANCE TRUST, INC.
 
By:
/s/ Peter M. Budko
 
 
Name:  Peter M. Budko
 
 
Title:  President and Secretary
 
 
REALTY CAPITAL SECURITIES, LLC
 
By:
 /s/ Louisa Quarto
 
 
Name:  Louisa Quarto
 
 
Title:  President
 
 
UMB BANK, N.A., as Escrow Agent
 
 
 
By:
 /s/ Lara L. Stevens
 
 
Name:  Lara L. Stevens
 
 
Title:  Vice President
 
 
 






Exhibit A

Copy of Offering Document
 
 






Exhibit B

List of Investors
 
Pursuant to the Second Amended and Restated Escrow Agreement dated as of July 26, 2013, among Realty Capital Securities, LLC, ARC Realty Finance Trust, Inc. (the “Company”), and UMB Bank, N.A. (the “Escrow Agent”), the Company or its agents hereby certifies that the following Investors have paid money for the purchase of shares of the Company's common stock, par value $0.01 (“Securities”), and the money has been deposited with the Escrow Agent:
 
1.           Name of Investor
Address
Tax Identification Number
Amount of Securities subscribed for
Amount of money paid and deposited with Escrow Agent
Is Investor a resident of Ohio (Yes or No)?
Is Investor a resident of Pennsylvania (Yes or No)?
Is Investor a resident of Washington (Yes or No)? 
2.           Name of Investor
Address
Tax Identification Number
Amount of Securities subscribed for
Amount of money paid and deposited with Escrow Agent
Is Investor a resident of Ohio (Yes or No)?
Is Investor a resident of Pennsylvania (Yes or No)?
  Is Investor a resident of Washington (Yes or No)?


Dated:
 
 
 
REALTY CAPITAL SECURITIES, LLC
 
By:
 
 
 
Name:  Louisa Quarto
 
 
Title:  President
 
 
 






Exhibit C

CERTIFICATE AS TO AUTHORIZED SIGNATURES
 
Account Name:
 
Account Number:
 
The specimen signatures shown below are the specimen signatures of the individuals who have been designated as Authorized Representatives of ARC Realty Finance Trust, Inc. and are authorized to initiate and approve transactions of all types for the above-mentioned account on behalf of ARC Realty Finance Trust, Inc.
 
Name/Title
Specimen Signature
 
 
Nicholas S. Schorsch
Chief Executive Officer
 
Signature
 
 
Peter M. Budko
President and Secretary
 
Signature
 
 
Nicholas Radesca
 
Executive Vice President and Chief Financial Officer
Signature
 
 






Exhibit C-1
 
CERTIFICATE AS TO AUTHORIZED SIGNATURES
 
Account Name:
 
Account Number:
 
The specimen signatures shown below are the specimen signatures of the individuals who have been designated as Authorized Representatives of Realty Capital Securities, LLC and are authorized to initiate and approve transactions of all types for the above-mentioned account on behalf of Realty Capital Securities, LLC.
 
Name/Title
Specimen Signature
 
 
Edward M. Weil, Jr.
Chief Executive Officer
 
Signature
 
 
Louisa Quarto
President
 
Signature
 
 
John H. Grady
 
Chief Operating Officer and Chief Compliance Officer
Signature
 
 






Exhibit D
 
ESCROW FEES AND EXPENSES
 
Acceptance Fee
 
Review escrow agreement, establish account $3,000
DST Agency Engagement (if applicable) $250
 
Annual Fees
 
Annual Escrow Agent $2,500
BAI Files $50 per month
Outgoing Wire Transfer $15 each
Daily Recon File to Transfer Agent $2.50 per Bus. Day
Web Exchange Access $15 per month
Overnight Delivery/Mailings $16.50 each
IRS Tax Reporting $10 per 1099
 
Fees specified are for the regular, routine services contemplated by the Second Amended and Restated Escrow Agreement, and any additional or extraordinary services, including, but not limited to disbursements involving a dispute or arbitration, or administration while a dispute, controversy or adverse claim is in existence, will be charged based upon time required at the then standard hourly rate. In addition to the specified fees, all expenses related to the administration of the Second Amended and Restated Escrow Agreement (other than normal overhead expenses of the regular staff) such as, but not limited to, travel, postage, shipping, courier, telephone, facsimile, supplies, legal fees, accounting fees, etc., will be reimbursable.
 
Acceptance fee and first year Annual Escrow Agent fee will be payable at the initiation of the escrow. Thereafter, the Annual Escrow Agent fees will be billed in advance and transactional fees will be billed in arrears. Other fees and expenses will be billed as incurred.
 
 






Exhibit E

Agency and Custody Account Direction
For Cash Balances
UMB Bank Money Market Deposit Accounts
 
Direction to use the following UMB Bank Money Market Deposit Accounts for Cash Balances for the escrow account (the “Account”) created under the Second Amended and Restated Escrow Agreement to which this Exhibit E is attached.
 
You are hereby directed to deposit, as indicated below, or as we shall direct further in writing from time to time, all cash in the Account in the following money market deposit account of UMB Bank, N.A. (“Bank”):
 
UMB Bank Money Market Deposit Account (“MMDA”)
 
We acknowledge that we have full power to direct investments in the Account.
 
We understand that we may change this direction at any time and that it shall continue in effect until revoked or modified by us by written notice to you.
 
ARC Realty Finance Trust, Inc.
 
By:
 
 
 
Signature
 

Date
 
 
 






Exhibit F

[Form of Notice to Pennsylvania Investors]
 
You have tendered a subscription to purchase shares of common stock of ARC Realty Finance Trust, Inc. (the “Company”). Your subscription is currently being held in escrow. The guidelines of the Pennsylvania Securities Commission do not permit the Company to accept subscriptions from Pennsylvania residents until an aggregate of $100,000,000 of gross offering proceeds have been received by the Company. The Pennsylvania guidelines provide that until this minimum amount of offering proceeds is received by the Company, every 120 days during the offering period Pennsylvania Investors may request that their subscription be returned. If you wish to continue your subscription in escrow until the Pennsylvania minimum subscription amount is received, nothing further is required.
 
If you wish to terminate your subscription for the Company's common stock and have your subscription returned please so indicate below, sign, date, and return to the Escrow Agent, UMB Bank, N.A. at 1010 Grand Blvd., 4th Floor, Mail Stop: 1020409, Kansas City, Missouri 64106, Attn: Lara Stevens, Corporate Trust.
 
I hereby terminate my prior subscription to purchase shares of common stock of ARC Realty Finance Trust, Inc. and request the return of my subscription funds. I certify to ARC Realty Finance Trust, Inc. that I am a resident of Pennsylvania.
 
Signature:
 
 
 
Name:
 
 
(please print)
 
 
Date:
 
 
Please send the subscription refund to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




EX-10.7 3 arcrft-20130630x10qex107.htm EXHIBIT ARCRFT-2013.06.30-10Q EX 10.7

REVOLVING LINE OF CREDIT AGREEMENT

This Revolving Line of Credit Agreement (this “CREDIT AGREEMENT”) is made and entered into as of the 15th day of May, 2013, by and between AR CAPITAL, LLC, a Delaware limited liability company (“LENDER”), and ARC REALTY FINANCE TRUST, INC., a Maryland corporation (“BORROWER”).

In consideration of the mutual covenants and agreements contained herein, the parties agree as follows:

    1. LINE OF CREDIT. Lender hereby establishes for a period extending to May 15, 2014 (provided, however, Borrower shall have the right, upon advance notice to Lender, to two extensions of the period of this Credit Agreement for up to one year each) (such date, as may be extended, the “MATURITY DATE”) a revolving line of credit (the “CREDIT LINE”) for Borrower in the principal amount of Five Million Dollars ($5,000,000.00) (the “CREDIT LIMIT”). In connection herewith, Borrower shall execute and deliver to Lender a Promissory Note in the amount of the Credit Limit and in form and content satisfactory to Lender. All sums advanced on the Credit Line or pursuant to the terms of this Credit Agreement (each an “ADVANCE”) shall become part of the principal of said Promissory Note.

    2. ADVANCES. Any request for an Advance may be made from time to time and in such amounts as Borrower may choose; provided, however, any requested Advance will not, when added to the outstanding principal balance of all previous Advances, exceed the Credit Limit. Requests for Advances may be made orally or in writing by such officer of Borrower authorized by it to request such Advances. Lender may refuse to make any requested Advance if an event of default has occurred and is continuing hereunder either at the time the request is given or the date the Advance is to be made, or if an event has occurred or condition exists which, with the giving of notice or passing of time or both, would constitute an event of default hereunder as of such dates. The funds from the Advances shall be used by Borrower to fund the short-term borrowing needs of Borrower in connection with the acquisition by Borrower of certain commercial real estate debt investments.

    3. INTEREST. All sums advanced pursuant to this Credit Agreement shall bear interest from the date each Advance is made until paid in full at the rate of three and one-quarter percent (3.25%) per annum (the “EFFECTIVE RATE”).

    4. REPAYMENT. Unless sooner accelerated as provided in this Credit Agreement upon the occurrence of an event of default, Borrower shall pay accrued interest on the outstanding principal balance on a quarterly basis commencing on July 1, 2013, and continuing on the first day of each calendar quarter thereafter. The entire unpaid principal balance, together with any accrued interest and other unpaid charges or fees hereunder, shall be due and payable on the Maturity Date. All payments shall be made to Lender at such place as Lender may, from time to time, designate. All payments received hereunder shall be applied, first, to any costs or expenses incurred by Lender in collecting such payment or to any other unpaid charges or expenses due hereunder; second, to accrued interest; and third, to principal. Borrower may prepay principal at any time without penalty.




    5. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Credit Agreement and to make the advances provided for herein, Borrower represents and warrants to Lender as follows:

    a. Borrower (i) is duly organized and subsisting under the laws of the State of Maryland, (ii) has the power and authority and the legal right to own and operate its property, and to conduct the business in which it is currently engaged, and (iii) except where the failure to do so, individually or in the aggregate, could not reasonably be expected to have a material adverse effect, is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership or operation of property or the conduct of its business require such qualification.

    b. Borrower has the authority and power to execute and deliver any document required hereunder and to perform any condition or obligation imposed under the terms of such documents.

    c. The execution, delivery and performance of this Credit Agreement and each document incident hereto will not violate any provision of any applicable law, regulation, order, judgment, decree, article of incorporation, by-law, indenture, contract, agreement, or other undertaking to which Borrower is a party, or which purports to be binding on Borrower or its assets and will not result in the creation or imposition of a lien on any of its assets.

    d. There is no action, suit, investigation, or proceeding pending or, to the knowledge of Borrower, threatened, against or affecting Borrower or any of its assets which, if adversely determined, would have a material adverse effect on the financial condition of Borrower or the operation of its business.

    6. EVENTS OF DEFAULT. An event of default will occur if any of the following events occurs:

    a. Failure to pay any principal or interest hereunder within ten (10) days after the same becomes due.

    b. Any representation or warranty made by Borrower in this Credit Agreement or in connection with any borrowing or request for an Advance hereunder, or in any certificate, financial statement, or other statement furnished by Borrower to Lender is untrue in any material respect at the time when made.

    c. Default by Borrower in the observance or performance of any other covenant or agreement contained in this Credit Agreement, other than a default constituting a separate and distinct event of default under this Paragraph 6.

    d. Filing by Borrower of a voluntary petition in bankruptcy seeking reorganization, arrangement or readjustment of debts, or any other relief under the Bankruptcy Code as amended or under any other insolvency act or law, state or federal, now or hereafter existing.




    e. Filing of an involuntary petition against Borrower in bankruptcy seeking reorganization, arrangement or readjustment of debts, or any other relief under the Bankruptcy Code as amended, or under any other insolvency act or law, state or federal, now or hereafter existing, and the continuance thereof for sixty (60) days undismissed, unbonded, or undischarged.

    7. REMEDIES. Upon the occurrence of an event of default as defined above, Lender may declare the entire unpaid principal balance, together with accrued interest thereon, to be immediately due and payable without presentment, demand, protest, or other notice of any kind. Lender may suspend or terminate any obligation it may have hereunder to make additional Advances. To the extent permitted by law, Borrower waives any rights to presentment, demand, protest, or notice of any kind in connection with this Credit Agreement. No failure or delay on the part of Lender in exercising any right, power, or privilege hereunder will preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided herein are cumulative and not exclusive of any other rights or remedies provided at law or in equity. Borrower agrees to pay all costs of collection incurred by reason of the default, including court costs and reasonable attorney's fees.

    8. NOTICE. Any written notice will be deemed effective on the date such notice is placed, first class, postage prepaid, in the United States mail, addressed to the party to which notice is being given as follows:
 Lender:
AR Capital, LLC
405 Park Avenue, 12th Floor
New York, NY 10022
Attn: Brian S. Block
 
 
Borrower:
ARC Realty Finance Trust, Inc.
405 Park Avenue, 12th Floor
New York, NY 10022
Attn: Donald MacKinnon


    9. GENERAL PROVISIONS. All representations and warranties made in this Credit Agreement and the Promissory Note and in any certificate delivered pursuant thereto shall survive the execution and delivery of this Credit Agreement and the making of any loans hereunder. This Credit Agreement will be binding upon and inure to the benefit of Borrower and Lender, their respective successors and assigns, except that Borrower may not assign or transfer its rights or delegate its duties hereunder without the prior written consent of Lender. This Credit Agreement, the Promissory Note, and all documents and instruments associated herewith will be governed by and construed and interpreted in accordance with the laws of the State of New York. Time is of the essence hereof. This Credit Agreement will be deemed to express, embody, and supersede any previous understanding, agreements, or commitments, whether written or oral, between the parties with respect to the general subject matter hereof. This Credit Agreement may not be amended or modified except in writing signed by the parties.





    EXECUTED as of the day and year first written above.

 
LENDER:
 
AR CAPITAL, LLC
 
By: /s/ Brian S. Block
 
Name: Brian S. Block
Title: Member
 
 
 
BORROWER:
 
ARC REALTY FINANCE TRUST, INC.
 
By: /s/ Nicolas Radesca
 
Name: Nicholas Radesca
Title: Chief Financial Officer & Treasurer







PROMISSORY NOTE

$5,000,000.000
New York, New York
  May 15, 2013

    This Promissory Note (the “NOTE”) is made and executed as of the date set forth above by ARC REALTY FINANCE TRUST, INC., a Maryland corporation (the “BORROWER”). For value received, Borrower promises and agrees to pay to the order of Lender, at 405 Park Avenue, 12th Floor, New York, New York 10022, or at such other place as Lender may designate in writing, the principal sum of Five Million and 00/100 Dollars ($5,000,000.00), or the aggregate unpaid principal amount of all advances made by Lender to Borrower pursuant to the terms of a Revolving Line of Credit Agreement (the “CREDIT AGREEMENT”) of even date herewith, whichever is less, together with interest thereon from the date each advance is made, until paid in full, both before and after judgment, at the rate of three and one-quarter percent (3.25%) per annum.
      
Borrower shall pay accrued interest on the outstanding principal balance on a quarterly basis commencing on July 1, 2013, and continuing on the first day of each calendar quarter thereafter. The entire unpaid principal balance, together with any accrued interest and other unpaid charges or fees hereunder, shall be due and payable on the Maturity Date (as defined in the Credit Agreement).

    Prepayment in whole or part may occur at any time hereunder without penalty; provided that Lender shall be provided with not less than three (3) days’ notice of Borrower's intent to pre-pay; and provided further that any such partial prepayment shall not operate to postpone or suspend the obligation to make, and shall not have the effect of altering the time for payment of the remaining balance of the Note as provided for above, unless and until the entire obligation is paid in full. All payments received hereunder shall be applied, first, to any costs or expenses incurred by Lender in collecting such payment or to any other unpaid charges or expenses due hereunder; second, to accrued interest; and third, to principal.

    An event of default will occur if any of the following events occurs: (a) failure to pay any principal or interest hereunder within ten (10) days after the same becomes due; (b) if any representation or warranty made by Borrower in the Credit Agreement or in connection with any borrowing or request for an advance thereunder, or in any certificate, financial statement, or other statement furnished by Borrower to Lender is untrue in any material respect at the time when made; (c) default by Borrower in the observance or performance of any other covenant or agreement contained in the Credit Agreement, other than a default constituting a separate and distinct event of default under Paragraph 6 of the Credit Agreement; (d) filing by Borrower of a voluntary petition in bankruptcy seeking reorganization, arrangement or readjustment of debts, or any other relief under the Bankruptcy Code as amended or under any other insolvency act or law, state or federal, now or hereafter existing; or (e) filing of an involuntary petition against Borrower in bankruptcy seeking reorganization, arrangement or readjustment of debts, or any other relief under the



Bankruptcy Code as amended, or under any other insolvency act or law, state or federal, now or hereafter existing, and the continuance thereof for sixty (60) days undismissed, unbonded, or undischarged.

    Any notice or demand to be given to the parties hereunder shall be deemed to have been given to and received by them and shall be effective when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage prepaid, and addressed to the party at his or its last known address, or at such other address as the one of the parties may hereafter designate in writing to the other party.

    Borrower hereof waives presentment for payment, protest, demand, notice of protest, notice of dishonor, and notice of nonpayment, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time by Lender without in any way affecting its liability hereunder.

    In the event any payment under this Note is not made at the time and in the manner required, Borrower agrees to pay any and all costs and expenses which may be incurred by Lender hereof in connection with the enforcement of any of its rights under this Note or under any such other instrument, including court costs and reasonable attorneys' fees.

    This Note shall be governed by and construed and enforced in accordance with the laws of the State of New York.

 
BORROWER:
 
ARC REALTY FINANCE TRUST, INC.
 
By: /s/ Nicolas Radesca
 
Name: Nicholas Radesca
Title: Chief Financial Officer & Treasurer



EX-10.8 4 arcrft-20130630x10qex108.htm EXHIBIT ARCRFT-2013.06.30-10Q EX 10.8


FIRST AMENDMENT TO
REVOLVING LINE OF CREDIT AGREEMENT

THIS FIRST AMENDMENT TO REVOLVING LINE OF CREDIT AGREEMENT (this “First Amendment”) is made and entered into as of this 17th day of July, 2013 (the “Effective Date”) by and between AR CAPITAL, LLC, a Delaware limited liability company (“Lender”), and ARC REALTY FINANCE TRUST, INC., a Maryland corporation (“Borrower”).

W I T N E S S E T H:

WHEREAS, Lender and Borrower are parties to a certain Revolving Line of Credit Agreement dated as of May 15, 2013 (together with any modifications and amendments, collectively, the “Credit Agreement”);

WHEREAS, Borrower has requested that Lender amend certain terms and conditions of the Credit Agreement as described herein; and

WHEREAS, Lender has agreed to so amend certain terms and conditions of the Credit Agreement, all on the terms and conditions set forth below in this First Amendment.

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.
Definitions. All capitalized undefined terms used in this First Amendment shall have the meanings ascribed thereto in the Credit Agreement, as amended hereby.
2.
Amendments to Credit Agreement. As of the Effective Date, the Credit Agreement is amended as follows:
a.
Section 1 of the Credit Agreement is hereby amended by deleting the reference to “Five Million Dollars ($5,000,000.00)” contained therein and replacing it with “Ten Million Dollars ($10,000,000.00)”.
3.
Conditions to Effectiveness.    This First Amendment shall not be effective until the Lender has received a counterpart of this First Amendment duly executed and delivered by Borrower and Lender.
4.
Representations and Warranties. The representations and warranties of Borrower contained in Section 5 of the Credit Agreement are true and correct in all material respects (except to the extent that any such representation and warranty is qualified as to “materiality,” “material adverse effect” or similar language, in which case it shall be true and correct in all respects (after giving effect to any such qualification)) on and as of the date hereof; provided, if any such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects (except to the extent that any such representation and warranty is qualified as to “materiality,” “material adverse effect” or similar language, in which case it shall be true and correct in all respects (after giving effect to any such qualification)) as of such earlier date.

        



5.
Limited Amendment; Ratification. Except as specifically amended hereby, the terms and conditions of the Credit Agreement shall remain in full force and effect, and are hereby ratified and affirmed in all respects. This First Amendment shall not be deemed a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Credit Agreement, except as expressly set forth herein.
6.
Governing Law. This First Amendment shall be governed by and construed in accordance with the laws of the State of New York.
7.
Miscellaneous. This First Amendment may be executed in any number of counterparts, which shall together constitute an entire original agreement, and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This First Amendment expresses the entire understanding of the parties with respect to the transactions contemplated hereby. No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof. Any determination that any provision of this First Amendment or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality, or enforceability of any other provisions of this First Amendment. The Borrower represents and warrant that it has consulted with independent legal counsel of its selection in connection herewith and is not relying on any representations or warranties of the Lender or its counsel in entering into this First Amendment.
[remainder of page left intentionally blank]


-2-



IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the Effective Date.


 
LENDER:
 
AR CAPITAL, LLC
 
By: /s/ Brian S. Block
 
Name: Brian S. Block
Title: Member
 
 
 
BORROWER:
 
ARC REALTY FINANCE TRUST, INC.
 
By: /s/ Nicolas Radesca
 
Name: Nicholas Radesca
Title: Chief Financial Officer & Treasurer
   









AMENDED AND RESTATED PROMISSORY NOTE

$10,000,000.000
New York, New York
  July 17, 2013



    This Amended and Restated Promissory Note (the “NOTE”) replaces in its entirety that certain promissory note executed by ARC REALTY FINANCE TRUST, INC., a Maryland corporation (the “BORROWER”) dated May 15, 2013 (the "ORIGINAL NOTE") in favor of AR CAPITAL, LLC (the “LENDER”). Upon execution of this Note by Borrower, Lender will cancel the Original Note and return it to Borrower, and all disbursements under the Original Note will be deemed to be disbursed under this Note.

For value received, Borrower promises and agrees to pay to the order of Lender, at 405 Park Avenue, 12th Floor, New York, New York 10022, or at such other place as Lender may designate in writing, the principal sum of Ten Million and 00/100 Dollars ($10,000,000.00), or the aggregate unpaid principal amount of all advances made by Lender to Borrower pursuant to the terms of a Revolving Line of Credit Agreement dated May 15, 2013, as amended by that certain First Amendment to Revolving Line of Credit Agreement of even date herewith (as amended, the “CREDIT AGREEMENT”), whichever is less, together with interest thereon from the date each advance is made, until paid in full, both before and after judgment, at the rate of three and one-quarter percent (3.25%) per annum.
      
Borrower shall pay accrued interest on the outstanding principal balance on a quarterly basis commencing on July 1, 2013, and continuing on the first day of each calendar quarter thereafter. The entire unpaid principal balance, together with any accrued interest and other unpaid charges or fees hereunder, shall be due and payable on the Maturity Date (as defined in the Credit Agreement).

    Prepayment in whole or part may occur at any time hereunder without penalty; provided that Lender shall be provided with not less than three (3) days’ notice of Borrower's intent to pre-pay; and provided further that any such partial prepayment shall not operate to postpone or suspend the obligation to make, and shall not have the effect of altering the time for payment of the remaining balance of the Note as provided for above, unless and until the entire obligation is paid in full. All payments received hereunder shall be applied, first, to any costs or expenses incurred by Lender in collecting such payment or to any other unpaid charges or expenses due hereunder; second, to accrued interest; and third, to principal.

    An event of default will occur if any of the following events occurs: (a) failure to pay any principal or interest hereunder within ten (10) days after the same becomes due; (b) if any representation or warranty made by Borrower in the Credit Agreement or in connection with any borrowing or request for an advance thereunder, or in any certificate, financial statement, or other statement furnished by Borrower to Lender is untrue in any material respect at the time when made; (c) default by Borrower in the observance or performance of any other covenant or agreement contained in the Credit Agreement, other than a default constituting a separate and distinct event of default under Paragraph 6 of the Credit Agreement; (d) filing by Borrower of a voluntary petition






in bankruptcy seeking reorganization, arrangement or readjustment of debts, or any other relief under the Bankruptcy Code as amended or under any other insolvency act or law, state or federal, now or hereafter existing; or (e) filing of an involuntary petition against Borrower in bankruptcy seeking reorganization, arrangement or readjustment of debts, or any other relief under the Bankruptcy Code as amended, or under any other insolvency act or law, state or federal, now or hereafter existing, and the continuance thereof for sixty (60) days undismissed, unbonded, or undischarged.

    Any notice or demand to be given to the parties hereunder shall be deemed to have been given to and received by them and shall be effective when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage prepaid, and addressed to the party at his or its last known address, or at such other address as the one of the parties may hereafter designate in writing to the other party.

    Borrower hereof waives presentment for payment, protest, demand, notice of protest, notice of dishonor, and notice of nonpayment, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time by Lender without in any way affecting its liability hereunder.

    In the event any payment under this Note is not made at the time and in the manner required, Borrower agrees to pay any and all costs and expenses which may be incurred by Lender hereof in connection with the enforcement of any of its rights under this Note or under any such other instrument, including court costs and reasonable attorneys' fees.

    This Note shall be governed by and construed and enforced in accordance with the laws of the State of New York.
 
BORROWER:
 
ARC REALTY FINANCE TRUST, INC.
 
By: /s/ Nicolas Radesca
 
Name: Nicholas Radesca
Title: Chief Financial Officer & Treasurer
 
 
 
LENDER:
 
AR CAPITAL, LLC
 
By: /s/ Brian S. Block
 
Name: Brian S. Block
Title: Member






EX-31.1 5 exhibit311.htm EXHIBIT Exhibit 31.1


Exhibit 31.1
I, Nicholas S. Schorsch, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 of ARC Realty Finance Trust, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
[Paragraph intentionally omitted in accordance with SEC Release Nos. 34-47986 and 34-54942];
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


        
Date:
August 13, 2013
 
/s/ Nicholas S. Schorsch

 
 
 
Nicholas S. Schorsch
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)



EX-31.2 6 exhibit312.htm EXHIBIT Exhibit 31.2


Exhibit 31.2
I, Nicholas Radesca, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 of ARC Realty Finance Trust, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
[Paragraph intentionally omitted in accordance with SEC Release Nos. 34-47986 and 34-54942];
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:
August 13, 2013
 
/s/ Nicholas Radesca
 
 
 
Nicholas Radesca
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)





EX-32 7 exhibit32.htm EXHIBIT Exhibit 32


Exhibit 32
SECTION 1350 CERTIFICATIONS
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of Section 18 of the Securities Act of 1934, as amended.
The undersigned, who are the Chief Executive Officer and Chief Financial Officer of ARC Realty Finance Trust Inc. (the “Company”), each hereby certify to his knowledge as follows:
The quarterly report on Form 10-Q of the Company, which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
August 13, 2013
 
/s/ Nicholas S. Schorsch

 
 
 
Nicholas S. Schorsch
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Nicholas Radesca
 
 
 
Nicholas Radesca
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)



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ck1562528:extension ck1562528:loan xbrli:pure ck1562528:rating xbrli:shares iso4217:USD iso4217:USD xbrli:shares 81429 81429 0.00565068493 526 0.12 P1Y P1Y 1 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Distribution Reinvestment Plan </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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 Offering. 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&#8217; notice to participants. Shares issued under the DRIP are recorded to equity in the balance sheet in the period distributions are declared. There have been </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">22</font><font style="font-family:inherit;font-size:10pt;"> shares issued under the DRIP as of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">. </font></div></div> 400000000 2000000000 60000 6494000 2515000 3979467 0 6500000 0.050 0.05 0.0125 4000000 0.9 0 2 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Offering and Related Costs </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Offering and related costs include all expenses incurred in connection with the Company&#8217;s Offering. Offering costs (other than selling commissions and the dealer manager fee) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company. Offering costs were reclassified from deferred costs to stockholders' equity (deficit) on the day the Company commenced its operations. Offering costs include all expenses incurred by the Company in connection with its Offering as of such date. These costs include but are not limited to: (i) legal, accounting, printing, mailing and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities. The Company is obligated to reimburse the Advisor or its affiliates, as applicable, for organizational and offering costs paid by them on behalf of the Company, not withstanding that the Advisor is obligated to reimburse the Company to the extent organizational and offering costs (excluding selling commissions and the dealer manager fee) incurred by the Company in its offering exceed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">2%</font><font style="font-family:inherit;font-size:10pt;"> of gross offering proceeds. As a result, these costs are only a liability of the Company to the extent aggregate selling commissions, the dealer manager fees and other offering costs do not exceed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">12%</font><font style="font-family:inherit;font-size:10pt;"> of the gross proceeds determined at the end of offering (See Note 8 &#8212; Related Party Transactions and Arrangements). </font></div></div> 0.02 0.02 0.200 0.01 940618 0.02 0.25 0.0075 0.01 0.015 0.045 0.01 0.03 0.075 0.07 0.025 0.025 0.01 0.15 0.06 0.15 0.06 0.15 0.1 0.06 0.15 0.06 P90D 2000000 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The table below depicts related party fees and reimbursements in connection with the operations of the Company for the three and six months ended June 30, 2013 and the associated payable as of June 30, 2013. </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:87.32943469785575%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td width="39%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="20%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="18%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="13%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">(in thousands)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Three Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Six Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Payable as of June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Acquisition fees and related expense reimbursements</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">59</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">59</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">59</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Advisory fee</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Transfer agent fees</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total related party fees and reimbursements</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">97</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">97</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">97</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"> compensation and reimbursement the Advisor and its affiliates incurred for services relating to the Offering. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:94.73684210526315%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td width="47%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="16%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="15%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="12%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">(in thousands)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Three Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Six Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Payable as of June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total compensation and reimbursement for services provided by the Advisor and affiliates </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">191</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">635</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">634</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The table below shows the fees incurred from the Dealer Manager during the three and six months ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;"> and the associated payable as of June 30, 2013. &#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:92.98245614035088%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td width="48%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="15%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="15%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="12%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">(in thousands)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Three Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Six Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Payable as of June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total commissions and fees incurred from the Dealer Manager</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">20</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">20</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#8212;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The below table shows the distributions paid during the six months ended June 30, 2013. </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:54.77582846003899%;border-collapse:collapse;text-align:left;"><tr><td colspan="6" rowspan="1"></td></tr><tr><td width="36%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="36%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="23%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Payment Date</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-align:center;">Weighted Average Shares Outstanding </font><font style="font-family:inherit;font-size:10pt;text-align:center;"><sup style="vertical-align:top;line-height:120%;font-size:7pt">(1)</sup></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-align:center;">Amount 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style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Basis of Accounting </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The accompanying consolidated financial statements and related footnotes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (&#8216;&#8216;GAAP&#8217;&#8217;) for interim financial statements. The consolidated financial statements of the Company are prepared on an accrual basis of accounting. In the opinion of management, the interim data includes all adjustments necessary for a fair statement of the results for the periods presented. Interim period results may not be indicative of full year or future results. The unaudited consolidated financial statements do not include all information and notes required in annual audited financial statements in conformity with GAAP.</font></div></div> 204309 573 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Cash and Cash Equivalents</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Cash includes cash in bank accounts. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit. Cash equivalents include short-term, liquid investments in a money market fund.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Restricted Cash </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Restricted cash may primarily consist of escrow deposits for future debt service payments, taxes, insurance, property maintenance or other amounts collected with mortgage loan originations. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;"></font></div></div> 203736 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Commitments and Contingencies </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Litigation </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.</font></div></div> 0.01 0.01 300000000 300000000 110610 8888 8888 110610 114609 8888 203560 89 1106 5000000 -145151 -140132 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Economic Dependency </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Under various agreements, the Company has engaged or will engage the Advisor and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company&#8217;s common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these entities are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Principles of Consolidation and Basis of Presentation </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary. </font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Revolving Line of Credit with Affiliate</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On May 15, 2013, the Company entered into a credit agreement for an unsecured </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$5.0 million</font><font style="font-family:inherit;font-size:10pt;"> revolving line of credit with AR Capital, LLC, the parent of the Sponsor (the &#8220;Revolver&#8221;). The Revolver bears interest at a per annum fixed rate of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">3.25%</font><font style="font-family:inherit;font-size:10pt;"> and provides for quarterly interest payments. The Revolver matures in </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">one year</font><font style="font-family:inherit;font-size:10pt;">, subject to </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">two</font><font style="font-family:inherit;font-size:10pt;"> successive extension terms of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">one year</font><font style="font-family:inherit;font-size:10pt;"> each. Principal may be drawn or repaid from time-to-time, in whole or in part, without premium or penalty and there are no unused facility fees. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On May 15, 2013, the Company borrowed </font><font style="font-family:inherit;font-size:10pt;">$2.0 million</font><font style="font-family:inherit;font-size:10pt;"> under the Revolver. As of June 30, 2013, $</font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">2.0 million</font><font style="font-family:inherit;font-size:10pt;"> was outstanding under the Revolver, and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$3.0 million</font><font style="font-family:inherit;font-size:10pt;"> was available to be borrowed.</font></div></div> 0.0325 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Deferred Costs </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Deferred costs may consist primarily of deferred financing costs or deferred offering costs. Deferred financing costs represent commitment fees, legal fees, and other costs associated with obtaining commitments for financing. These costs will be amortized over the terms of the respective financing agreements using the straight-line method. Unamortized deferred financing costs will be expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close will be expensed in the period in which it is determined that the financing will not close. </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Deferred offering costs may represent professional fees, fees paid to various regulatory agencies, and other costs incurred in connection with the registration and sale of shares of the Company's common stock. As of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">December&#160;31, 2012</font><font style="font-family:inherit;font-size:10pt;">, such costs totaled </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$0.9 million</font><font style="font-family:inherit;font-size:10pt;">. On February 12, 2013, the day the Company commenced its Offering, deferred offering costs were reclassified to stockholders' equity. </font></div></div> 940618 0 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Derivative Instruments </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with its borrowings. Certain of the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with the Company&#8217;s operating and financial structure as well as to hedge specific anticipated transactions. </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company will record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments will be recognized immediately in gains (losses) on derivative instruments in the Company's consolidated statement of operations and comprehensive loss. If the derivative is designated and qualifies for hedge accounting treatment the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Share-Based Compensation </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Restricted Share Plan </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company has an employee and director incentive restricted share plan (the &#8220;RSP&#8221;), which provides the Company with the ability to grant awards of restricted shares to the Company&#8217;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 or certain consultants to the Company and the Advisor and its affiliates. The total number of common shares granted under the RSP shall not exceed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">5.0%</font><font style="font-family:inherit;font-size:10pt;"> of the Company&#8217;s authorized common shares pursuant to the Offering and in any event will not exceed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">4.0 million</font><font style="font-family:inherit;font-size:10pt;"> shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events). </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Restricted share awards entitle the recipient to receive common shares from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient&#8217;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 common shares shall be subject to the same restrictions as the underlying restricted shares. The fair value of the restricted shares will be expensed over the vesting period of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">five years</font><font style="font-family:inherit;font-size:10pt;">. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The RSP also provides for the automatic grant of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">1,333</font><font style="font-family:inherit;font-size:10pt;"> restricted shares of common stock to each of the independent directors, without any further action by the Company&#8217;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 stockholder&#8217;s meeting. Restricted stock issued to independent directors will vest over a </font><font style="font-family:inherit;font-size:10pt;">five</font><font style="font-family:inherit;font-size:10pt;">-year period following the first anniversary of the date of grant in increments of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">20.0%</font><font style="font-family:inherit;font-size:10pt;"> per annum. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of June 30, 2013, the Company had granted </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">3,999</font><font style="font-family:inherit;font-size:10pt;"> restricted shares to its board of directors. Based on a share price of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$22.50</font><font style="font-family:inherit;font-size:10pt;">, the compensation expense associated with the restricted share grant was </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$6,804</font><font style="font-family:inherit;font-size:10pt;"> for the three and six months ended June 30, 2013.</font></div></div> 18789 18789 7952 0 17755 1607 121500 1255056 0 634000 59000 10000 28000 97000 1300000 -1.37 -1.42 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Per Share Data </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company will calculate basic income per share by dividing net income for the period by weighted-average shares of its common stock outstanding for a respective period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options, unvested restricted stock and other securities which are convertible to common stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Net Loss Per Share</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following is a summary of the basic and diluted net loss per share computation for the three and six months ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">:</font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:84.21052631578947%;border-collapse:collapse;text-align:left;"><tr><td colspan="8" rowspan="1"></td></tr><tr><td width="54%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="21%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="19%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Three Months Ended&#160;<br clear="none"/>&#160;June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Six Months Ended&#160;<br clear="none"/>&#160;June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Net loss</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(140,132</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(145,151</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Basic and diluted weighted-average shares outstanding</font></div></td><td colspan="2" style="vertical-align:top;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">101,990</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:top;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:3px double #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">101,990</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;border-top:3px double #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Basic and diluted net loss per share</font></div></td><td style="vertical-align:top;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:top;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(1.37</font></div></td><td style="vertical-align:top;border-bottom:3px double #000000;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:top;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:top;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">(1.42</font></div></td><td style="vertical-align:top;border-bottom:3px double #000000;background-color:#cceeff;padding-right:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">)</font></div></td></tr></table></div></div><div style="line-height:120%;text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The basic and diluted weighted-average shares outstanding assume no shares were outstanding prior to the release of equity proceeds from escrow on May 14, 2013. &#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company had </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">4,089</font><font style="font-family:inherit;font-size:10pt;"> common share equivalents as of </font><font style="font-family:Times New Roman;font-size:10pt;color:#000000;font-style:normal;font-weight:normal;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, which were excluded from the calculation of diluted net loss per share attributable to stockholders as the effect would have been antidilutive. The common share equivalents were comprised of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">3,999</font><font style="font-family:inherit;font-size:10pt;"> unvested restricted shares and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">90</font><font style="font-family:inherit;font-size:10pt;"> OP units as of June 30, 2013. </font></div></div> 17755 5500 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Fair Value of Financial Instruments</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">value. The fair value of short-term financial instruments such as cash and cash equivalents, accrued interest receivable, due to affiliates and accounts payable and accrued expenses approximate their carrying value on the accompanying consolidated balance sheets due to their short-term nature.</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of June 30, 2013, the Company had acquired one loan. This loan was acquired in May of 2013, and therefore the carrying value approximates the fair value as of June 30, 2013.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of June 30, 2013, the Company had </font><font style="font-family:inherit;font-size:10pt;">$2.0 million</font><font style="font-family:inherit;font-size:10pt;"> outstanding under its revolving line of credit, which bears interest at a fixed rate of </font><font style="font-family:inherit;font-size:10pt;">3.25%</font><font style="font-family:inherit;font-size:10pt;">. As of June 30, 2013, the Company believes the carrying value of its revolving line of credit approximates fair value.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Real Estate Debt Investments </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Commercial real estate debt investments are intended to be held until maturity and, accordingly, are carried at cost, net of unamortized origination fees, acquisition fees and expenses, discounts or premiums and unfunded commitments. Real estate debt investments that are deemed to be impaired will be carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums, origination fees and acquisition fees and expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company&#8217;s consolidated statements of operations. </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Allowance for Loan Losses</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through the "Provision for loan losses" on the Company's consolidated statements of operations and comprehensive loss and is decreased by charge-offs when losses are confirmed through the receipt of assets such as cash in a pre-foreclosure sale or via ownership control of the underlying collateral in full satisfaction of the loan upon foreclosure or when significant collection efforts have ceased. The Company uses a uniform process for determining its allowance for loan losses. The allowance for loan losses includes a general, formula-based component and an asset-specific component.</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The general reserve component covers performing loans. General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon assigned risk ratings for loans with similar risk characteristics during the Company's quarterly loan portfolio assessment. During this assessment, the Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company considers, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from "</font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">1</font><font style="font-family:inherit;font-size:10pt;">" to "</font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">5</font><font style="font-family:inherit;font-size:10pt;">" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss. The Company currently estimates loss rates based on historical realized losses experienced in the industry and takes into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The asset-specific reserve component relates to reserves for losses on individual impaired loans. The Advisor considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. The Advisor generally will use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Advisor will obtain external "as is" appraisals for loan collateral, generally when third party participations exist. Valuations will be performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they will be updated if circumstances indicate that a significant change in value has occurred</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when a concession is granted and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan.</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Income recognition will be suspended for loans at the earlier of the date at which payments become </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">90</font><font style="font-family:inherit;font-size:10pt;">-days past due or when, in the opinion of the Advisor, a full recovery of income and principal becomes doubtful. Income recognition will be resumed when the suspended loan becomes contractually current and performance is demonstrated to be resumed. A loan will be written off when it is no longer realizable and legally discharged. </font></div></div> 55000 55000 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Income Taxes </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ending </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">December&#160;31, 2013</font><font style="font-family:inherit;font-size:10pt;">. If the Company qualifies for taxation as a REIT, it generally will not be subject to federal corporate income tax as long as it distributes at least </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">90%</font><font style="font-family:inherit;font-size:10pt;"> of its REIT taxable income to its stockholders. REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. </font></div></div> 129441 24631 1133556 7987 33153 66076 66077 8756 8756 0 7987 0 24631 756716 4201127 941191 4241560 90 2000000 2000000 5000000 10000000 3000000 0 0 3979467 0 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Loan Receivable</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following is a summary of the Company's loans receivable by class (in thousands):</font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:96.29629629629629%;border-collapse:collapse;text-align:left;"><tr><td colspan="8" rowspan="1"></td></tr><tr><td width="65%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="14%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="16%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">December 31, 2012</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Mezzanine loan</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3,979</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#8212;</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;Total gross carrying value of loan</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3,979</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#8212;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Allowance for loan losses</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#8212;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#8212;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total loan receivable, net</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3,979</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#8212;</font></div></td><td style="vertical-align:bottom;border-bottom:3px double #000000;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">During the three months ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, the Company acquired a </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$4.0 million</font><font style="font-family:inherit;font-size:10pt;"> loan and received scheduled principal repayments of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$6,179</font><font style="font-family:inherit;font-size:10pt;"> on the loan. The Company did not record a general or specific allowance for loan losses as of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;"> because the portfolio consisted of a single performing loan.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company's loan receivable portfolio was comprised of the following at </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;"> (in thousands):</font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:94.34697855750487%;border-collapse:collapse;text-align:left;"><tr><td colspan="23" rowspan="1"></td></tr><tr><td width="14%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="11%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="11%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="12%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="10%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="9%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="9%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="9%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Description</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;text-align:center;">Date of Investment</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Maturity Date</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Original Face Amount</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Current Face Amount</font></div></td><td 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style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">May 2013</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">May 2023</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">6,500</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">6,494</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2,515</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">3,979</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Fixed</font></div></td></tr></table></div><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">* Amount includes </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$0.06 million</font><font style="font-family:inherit;font-size:10pt;"> in acquisition fees and expenses.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Credit Characteristics</font><font style="font-family:inherit;font-size:10pt;">&#8212;As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. The loans are scored on a scale of 1 to 5 as follows:</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:144px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:60px;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;text-decoration:underline;">Investment Rating</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;text-decoration:underline;">Summary Description </font></div></td></tr></table><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:240px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:116px;"><font style="font-family:inherit;font-size:10pt;">1</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time investment are favorable</font><font style="font-family:inherit;font-size:10pt;font-weight:bold;text-decoration:underline;"> </font></div></td></tr></table><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:240px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:116px;"><font style="font-family:inherit;font-size:10pt;">2</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable</font></div></td></tr></table><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:240px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:116px;"><font style="font-family:inherit;font-size:10pt;">3</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Performing investments requiring closer monitoring. Trends and risk factors show some deterioration </font></div></td></tr></table><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:240px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:116px;"><font style="font-family:inherit;font-size:10pt;">4</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Underperforming investment - some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative</font></div></td></tr></table><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman; font-size:10pt;"><tr><td style="width:240px;" rowspan="1" colspan="1"></td><td rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:top" rowspan="1" colspan="1"><div style="line-height:120%;font-size:10pt;padding-left:116px;"><font style="font-family:inherit;font-size:10pt;">5</font></div></td><td style="vertical-align:top;" rowspan="1" colspan="1"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Underperforming investment with expected loss of interest and some principal</font></div></td></tr></table><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">All investments are assigned an initial risk rating of 2.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, the weighted average risk rating of loans was </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">2.0</font><font style="font-family:inherit;font-size:10pt;">. As of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, the Company had </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">no</font><font style="font-family:inherit;font-size:10pt;"> non-performing, non-accrual or impaired loans.</font></div></div> 3979467 0 0 1950000 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Real Estate Securities </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On the acquisition date, all of the Company&#8217;s commercial real estate securities will be classified as available for sale, and will be carried at fair value, with any unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. However, the Company may elect the fair value option for certain of its available for sale securities, and as a result, any unrealized gains or losses on such securities will be recorded as unrealized gains or losses on investments in the Company&#8217;s consolidated and comprehensive loss. Premiums or discounts on commercial real estate securities will be recognized using the effective interest method and recorded as an adjustment to interest income. </font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Impairment Analysis of Securities </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Commercial real estate securities for which the fair value option has not been elected will be periodically evaluated for other-than-temporary impairment. If the fair value of a security is less than its amortized cost, the security will be considered impaired. Impairment of a security will be considered to be other-than-temporary when: (i) the Advisor has the intent to sell the impaired security; (ii) it is more likely than not the Company will be required to sell the security; or (iii) the Advisor does not expect to recover the entire amortized cost of the security. If the Advisor determines that an other-than-temporary impairment exists and a sale is likely to occur, the impairment charge will be recognized as an &#8220;Impairment of assets&#8221; on the Company's consolidated statement of operations and comprehensive loss. If a sale is not expected to occur, the portion of the impairment charge related to credit factors will be recorded as an &#8220;Impairment of assets&#8221; on the Company's consolidated statement of operations and comprehensive loss with the remainder recorded as an unrealized gain or loss on investments reported as a component of accumulated other comprehensive income or loss.</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Commercial real estate securities for which the fair value option has been elected will not be evaluated for other-than-temporary impairment as changes in fair value are recorded in the Company&#8217;s consolidated statement of operations and comprehensive loss. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Fair Value of Financial Instruments</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">value. The fair value of short-term financial instruments such as cash and cash equivalents, accrued interest receivable, due to affiliates and accounts payable and accrued expenses approximate their carrying value on the accompanying consolidated balance sheets due to their short-term nature.</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of June 30, 2013, the Company had acquired one loan. This loan was acquired in May of 2013, and therefore the carrying value approximates the fair value as of June 30, 2013.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of June 30, 2013, the Company had </font><font style="font-family:inherit;font-size:10pt;">$2.0 million</font><font style="font-family:inherit;font-size:10pt;"> outstanding under its revolving line of credit, which bears interest at a fixed rate of </font><font style="font-family:inherit;font-size:10pt;">3.25%</font><font style="font-family:inherit;font-size:10pt;">. As of June 30, 2013, the Company believes the carrying value of its revolving line of credit approximates fair value.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></div> 4241907 -3959735 -78436 -140132 -145151 0 0 -145151 202472 197452 <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Organization and Business Operations </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">ARC Realty Finance Trust, Inc. (the &#8220;Company&#8221;) was incorporated in Maryland on November 15, 2012 and intends to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the taxable year ending </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">December&#160;31, 2013</font><font style="font-family:inherit;font-size:10pt;">. The Company intends to offer for sale a maximum of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$2.0 billion</font><font style="font-family:inherit;font-size:10pt;"> of common stock, </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$0.01</font><font style="font-family:inherit;font-size:10pt;"> par value per share, on a &#8220;reasonable best efforts&#8221; basis, pursuant to a registration statement on Form S-11 (the &#8220;Offering&#8221;) filed with the U.S. Securities and Exchange Commission (the &#8220;SEC&#8221;) under the Securities Act of 1933, as amended (the "Securities Act"). The Offering also covers the offer and sale of up to approximately </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$400.0 million</font><font style="font-family:inherit;font-size:10pt;"> in shares of common stock pursuant to a distribution reinvestment plan (the &#8220;DRIP&#8221;) under which common stockholders may elect to have their distributions reinvested in additional shares of the Company&#8217;s common stock. On May 14, 2013, the Company commenced business operations after raising in excess of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$2 million</font><font style="font-family:inherit;font-size:10pt;"> of equity, the amount required for the Company to release equity proceeds from escrow.</font></div><div style="line-height:120%;text-align:left;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">For at least until February 12, 2015, the per share purchase price in the Offering will be up to </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$25.00</font><font style="font-family:inherit;font-size:10pt;"> per share (including the maximum allowed to be charged for commissions and fees) and shares issued under the DRIP will be based on the greater of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$23.75</font><font style="font-family:inherit;font-size:10pt;"> per share or </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">95%</font><font style="font-family:inherit;font-size:10pt;"> of the estimated value of a share of common stock. 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Substantially all of the Company's business is conducted through ARC Realty Finance Operating Partnership, L.P. (the &#8220;OP&#8221;), a Delaware limited partnership. ARC Realty Finance Advisors, LLC (the &#8220;Advisor&#8221;), is the Company&#8217;s affiliated advisor. The Company is the sole general partner and holds substantially all of the units of limited partner interests in the OP (&#8220;OP units&#8221;). Additionally, the Special Limited Partner, through the Advisor, has contributed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$2,020</font><font style="font-family:inherit;font-size:10pt;"> to the OP in exchange for </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">90</font><font style="font-family:inherit;font-size:10pt;"> units of limited partner interest in the aggregate OP ownership, which represents a nominal percentage of the aggregate OP ownership. The limited partner interests have the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, as allowed by the limited partnership agreement of the OP. The remaining rights of the 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&#8217;s assets. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company was formed primarily to acquire, originate and manage a diversified portfolio of commercial real estate debt secured by properties located both within and outside the United States. 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Realty Capital Securities, LLC (the &#8220;Dealer Manager&#8221;), an affiliate of the Sponsor, serves as the dealer manager of the Offering. The Advisor and Dealer Manager are related parties and will receive compensation and fees for services related to the Offering and the investment and management of the Company's assets. 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The Dealer Manager will receive a selling commission of up to </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">7.0%</font><font style="font-family:inherit;font-size:10pt;"> of the per share purchase price of the Company's offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, it is expected that the Dealer Manager will receive up to </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">3.0%</font><font style="font-family:inherit;font-size:10pt;"> of the gross proceeds from the sale of shares, before reallowance to participating broker-dealers, as a dealer-manager fee. The Dealer Manager may reallow its dealer-manager fee to such participating broker-dealers. 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style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:92.98245614035088%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td width="48%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="15%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="15%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="12%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">(in thousands)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Three Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Six Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Payable as of June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total commissions and fees incurred from the Dealer Manager</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">20</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">20</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid 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style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:94.73684210526315%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td width="47%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="16%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="15%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="12%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">(in thousands)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Three Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Six Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Payable as of June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total compensation and reimbursement for services provided by the Advisor and affiliates </font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">191</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">635</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">634</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The payable as of June 30, 2013 in the table above is included in accounts payable and accrued expenses on the Company's consolidated balance sheets. </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company is responsible for organizational and offering costs from the ongoing offering, excluding commissions and dealer manager fees, up to a maximum of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">2.0%</font><font style="font-family:inherit;font-size:10pt;"> of gross proceeds received from its ongoing Offering of common stock, measured at the end of the Offering. Organizational and offering costs in excess of the </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">2.0%</font><font style="font-family:inherit;font-size:10pt;"> cap as of the end of the offering are the Advisor's responsibility. As of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, organizational and offering costs exceeded </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">2.0%</font><font style="font-family:inherit;font-size:10pt;"> of gross proceeds received from the Offering by </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$2.5 million</font><font style="font-family:inherit;font-size:10pt;">, due to the on-going nature of the offering process and that many expenses were paid before the offering commenced.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Fees Paid in Connection with the Operations of the Company </font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Advisor will receive an acquisition fee of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">1.0%</font><font style="font-family:inherit;font-size:10pt;"> of the principal amount funded by the Company to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments. The Advisor may be also be reimbursed for acquisition expenses incurred related to selecting, evaluating, originating and acquiring investments on the Company's behalf and the Company may incur third party acquisition expenses. In no event will the total of all acquisition fees and acquisition expenses payable with respect to a particular investment exceed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">4.5%</font><font style="font-family:inherit;font-size:10pt;"> of the principal amount funded by the Company to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments. Once the proceeds from the Offering have been fully invested, the aggregate amount of acquisition fees shall not exceed </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">1.5%</font><font style="font-family:inherit;font-size:10pt;"> of the principal amount funded by the Company to acquire or originate commercial real estate debt or the amount invested in the case of other commercial real estate investments, as applicable, for all of the assets acquired. During the three and six months ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, the Company has incurred </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$0.04 million</font><font style="font-family:inherit;font-size:10pt;"> of acquisition fees and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$0.02 million</font><font style="font-family:inherit;font-size:10pt;"> of acquisition expenses payable to the Advisor.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company will pay the Advisor an annual asset management fee equal to </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">0.75%</font><font style="font-family:inherit;font-size:10pt;"> of the cost of the Company's assets. Once the Company begins to calculate NAV, the asset management fee will be based on the lower of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">0.75%</font><font style="font-family:inherit;font-size:10pt;"> of the costs of the Company's assets and </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">0.75%</font><font style="font-family:inherit;font-size:10pt;"> of the quarterly NAV. The amount of the asset management fee will be reduced to the extent that the amount of dividends declared during the six month period ending on the last day of the calendar quarter immediately preceding the date such asset management fee is payable, exceeds the funds from operations (&#8220;FFO&#8221;), as adjusted, for the same period. For purposes of this determination, FFO, as adjusted, is FFO before deducting (i) acquisition fees and related expenses; (ii) non-cash restricted stock grant amortization, if any; and (iii) impairments of real estate related investments, if any (including properties, loans receivable and equity and debt investments). FFO, as adjusted, is not the same as FFO. As of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2013</font><font style="font-family:inherit;font-size:10pt;">, no asset management fees were incurred or waived for any period in connection with the operations of the Company. </font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Effective June 1, 2013, the Company entered into an agreement with the Dealer Manager to provide strategic advisory</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">services and investment banking services required in the ordinary course of the Company's business, such as performing</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">strategy, a capitalization structure to optimize future liquidity options and structuring operations. Strategic advisory fees are</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">included in other expenses in the Company's consolidated statement of operations and comprehensive loss. </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The table below depicts related party fees and reimbursements in connection with the operations of the Company for the three and six months ended June 30, 2013 and the associated payable as of June 30, 2013. </font></div><div style="line-height:120%;text-align:center;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:87.32943469785575%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td width="39%" rowspan="1" colspan="1"></td><td width="2%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="20%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="18%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td><td width="13%" rowspan="1" colspan="1"></td><td width="1%" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">(in thousands)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Three Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Six Months Ended June 30, 2013</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:inherit;font-size:9pt;">Payable as of June 30, 2013</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Acquisition fees and related expense reimbursements</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">59</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">59</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">59</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Advisory fee</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">28</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Transfer agent fees</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Total related party fees and reimbursements</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">97</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">97</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">97</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The payables as of June 30, 2013 in the table above are included in accounts payable and accrued expenses on the Company's consolidated balance sheets. </font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company will reimburse the Advisor&#8217;s costs of providing administrat