10-Q 1 afin630201610-q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 000-55197


American Finance Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
90-0929989
(State or other  jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
405 Park Ave., 14th Floor, New York, New York
  
10022
(Address of principal executive offices)
  
(Zip Code)
(212) 415-6500
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of July 31, 2016, the registrant had 65,639,969 shares of common stock outstanding.


AMERICAN FINANCE TRUST, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.
AMERICAN FINANCE TRUST, INC.

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

 
June 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate investments, at cost:
 
 
 
Land
$
345,312

 
$
358,278

Buildings, fixtures and improvements
1,556,185

 
1,540,821

Acquired intangible lease assets
319,380

 
319,028

Total real estate investments, at cost
2,220,877

 
2,218,127

Less: accumulated depreciation and amortization
(265,183
)
 
(215,427
)
Total real estate investments, net
1,955,694

 
2,002,700

Cash and cash equivalents
148,993

 
130,500

Restricted cash
7,889

 
7,887

Commercial mortgage loan, held for investment, net
17,150

 
17,135

Prepaid expenses and other assets
24,980

 
21,982

Deferred costs, net
1,283

 

Assets held for sale

 
56,884

Total assets
$
2,155,989

 
$
2,237,088

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Mortgage notes payable, net of deferred financing costs
$
1,022,031

 
$
1,033,582

Mortgage premiums, net
12,651

 
14,892

Market lease liabilities, net
16,212

 
18,133

Accounts payable and accrued expenses (including $1,279 and $541 due to related parties as of June 30, 2016 and December 31, 2015, respectively)
11,409

 
24,964

Deferred rent and other liabilities
9,005

 
9,569

Distributions payable
8,860

 
9,199

Total liabilities
1,080,168

 
1,110,339

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

 

Common stock, $0.01 par value per share, 300,000,000 shares authorized, 65,475,650 and 64,961,256 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
655

 
650

Additional paid-in capital
1,441,724

 
1,429,294

Accumulated deficit
(366,558
)
 
(303,195
)
Total stockholders' equity
1,075,821

 
1,126,749

Total liabilities and stockholders' equity
$
2,155,989

 
$
2,237,088


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

3

AMERICAN FINANCE TRUST, INC.

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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rental income
$
41,176

 
$
40,216

 
$
81,676

 
$
80,431

Operating expense reimbursements
2,871

 
3,053

 
5,817

 
5,704

Interest income from debt investments
230

 

 
570

 

Total revenues
44,277

 
43,269

 
88,063

 
86,135

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Asset management fees to related party
4,500

 
4,096

 
9,000

 
4,096

Property operating
3,283

 
3,439

 
6,620

 
6,526

Acquisition and transaction related
734

 
377

 
1,077

 
506

General and administrative
2,464

 
3,552

 
5,842

 
5,499

Depreciation and amortization
25,538

 
25,386

 
51,031

 
50,773

Total operating expenses
36,519

 
36,850

 
73,570

 
67,400

Operating income
7,758

 
6,419

 
14,493

 
18,735

Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(12,328
)
 
(8,239
)
 
(24,959
)
 
(16,399
)
Distribution income from other real estate securities

 
169

 

 
338

Gain on sale of other real estate securities

 

 

 
546

Gain on sale of real estate investments
454

 

 
454

 

Other income
39

 
27

 
81

 
57

Total other expense, net
(11,835
)
 
(8,043
)
 
(24,424
)
 
(15,458
)
Net (loss) income
$
(4,077
)
 
$
(1,624
)
 
$
(9,931
)
 
$
3,277

 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Change in unrealized income on investment securities

 
(7
)
 

 
(184
)
Comprehensive (loss) income
$
(4,077
)
 
$
(1,631
)
 
$
(9,931
)
 
$
3,093

 
 
 
 
 
 
 
 
Basic net (loss) income per share
$
(0.06
)
 
$
(0.02
)
 
$
(0.15
)
 
$
0.05

Diluted net (loss) income per share
$
(0.06
)
 
$
(0.02
)
 
$
(0.15
)
 
$
0.05

 

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

4

AMERICAN FINANCE TRUST, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2016
(In thousands, except share data)
(Unaudited)

 
Common Stock
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional Paid-in
Capital
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2015
64,961,256

 
$
650

 
$
1,429,294

 
$
(303,195
)
 
$
1,126,749

Common stock issued through distribution reinvestment plan
522,248

 
5

 
12,600

 

 
12,605

Common stock repurchases
(7,854
)
 

 
(190
)
 

 
(190
)
Share-based compensation

 

 
20

 

 
20

Distributions declared

 

 

 
(53,432
)
 
(53,432
)
Net loss

 

 

 
(9,931
)
 
(9,931
)
Balance, June 30, 2016
65,475,650

 
$
655

 
$
1,441,724

 
$
(366,558
)
 
$
1,075,821


The accompanying notes are an integral part of this unaudited consolidated financial statement.



5

AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(9,931
)
 
$
3,277

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation
33,723

 
33,473

Amortization of in-place lease assets
17,291

 
17,300

Amortization (including accelerated write-off) of deferred costs
2,267

 
2,608

Amortization of mortgage premiums on borrowings
(2,241
)
 
(3,734
)
Discount accretion and premium amortization on investments, net
(15
)
 

Amortization of market lease intangibles, net
534

 
833

Share-based compensation
20

 
14

Gain on sale of real estate investments
(454
)
 

Gain on sale of other real estate securities

 
(546
)
Changes in assets and liabilities:
 
 
 
Prepaid expenses and other assets
(4,344
)
 
(4,120
)
Accounts payable and accrued expenses
1,929

 
1,115

Deferred rent and other liabilities
(564
)
 
(178
)
Net cash provided by operating activities
38,215

 
50,042

Cash flows from investing activities:
 
 
 
Proceeds from sale of commercial mortgage loans
56,884

 

Investments in real estate and other assets
(34,244
)
 

Proceeds from sale of real estate investments
15,471

 

Proceeds from sale of other real estate securities

 
9,253

Net cash provided by investing activities
38,111

 
9,253

Cash flows from financing activities:
 
 
 

Payments on mortgage notes payable
(500
)
 
(478
)
Payments of deferred financing costs

 
(2,000
)
Refunds of deferred financing costs
88

 

Common stock repurchases
(16,253
)
 
(11,649
)
Distributions paid
(41,166
)
 
(24,195
)
Restricted cash
(2
)
 

Net cash used in financing activities
(57,833
)
 
(38,322
)
Net change in cash and cash equivalents
18,493

 
20,973

Cash and cash equivalents, beginning of period
130,500

 
74,760

Cash and cash equivalents, end of period
$
148,993

 
$
95,733

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest
$
23,857

 
$
17,137

Cash paid for income taxes
$
670

 
$
787

 
 
 
 
Non-Cash Financing Activities:
 
 
 
Mortgage notes payable released in connection with disposition of real estate
$
13,389

 
$

Common stock issued through distribution reinvestment plan
$
12,605

 
$
29,902


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

6

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)


Note 1 — Organization
American Finance Trust, Inc. (the "Company"), formerly known as American Realty Capital Trust V, Inc., has acquired a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants. The Company manages and optimizes its investments in its existing portfolio of net leased commercial real estate properties (the "Net Lease Portfolio") and selectively invests in additional net lease properties. As of June 30, 2016, the Company owned 459 properties with an aggregate purchase price of $2.2 billion, comprised of 13.3 million rentable square feet, which were 100.0% leased. In addition, the Company invests in commercial real estate mortgage loans and other commercial real estate-related debt investments (such investments collectively, "CRE Debt Investments"). The Company has financed its CRE Debt Investments primarily through mortgage financing secured by its Net Lease Portfolio, and it may use mortgage specific repurchase agreement facilities and collateralized debt obligations to finance future CRE Debt Investments.
The Company, incorporated on January 22, 2013, is a Maryland corporation that elected and qualified to be taxed as a real estate investment trust for U.S. federal income tax purposes ("REIT") beginning with the taxable year ended December 31, 2013. Substantially all of the Company's business is conducted through American Finance Operating Partnership, L.P. (the "OP"), a Delaware limited partnership, and its wholly-owned subsidiaries.
On April 4, 2013, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 68.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts. The IPO closed in October 2013.
Pursuant to the distribution reinvestment plan (the "DRIP"), the Company's stockholders can elect to reinvest distributions by purchasing shares of the Company's common stock at a price equal to the then-current estimated net asset value per share of the Company's common stock, approved by the Company's board of directors ("Estimated Per-Share NAV"). See Note 8 — Common Stock.
The Company has no employees. The Company has retained American Finance Advisors, LLC (the "Advisor") to manage the Company's affairs on a day-to-day basis. American Finance Properties, LLC (the "Property Manager") serves as the Company's property manager. The Advisor and the Property Manager are wholly owned subsidiaries of AR Global Investments, LLC (the successor business to AR Capital, LLC, the "Sponsor"), as a result of which, they are related parties of the Company, and each have received or may receive, as applicable, compensation, fees and expense reimbursements for services related to managing the Company's business.
The Company previously announced its intention to list on the New York Stock Exchange ("NYSE") under the symbol "AFIN" (the "Listing") during the third quarter of 2015. In September 2015, the Company announced that in light of market conditions, the Company's board of directors, in consultation with the Advisor, determined it was in the best interest of the Company to not pursue the Listing during the third quarter of 2015. The Company's board of directors continues to monitor market conditions and other factors with a view toward reevaluating the decision when market conditions are more favorable for a successful liquidity event. There can be no assurance that the Company's shares of common stock will be listed.
On June 30, 2016, the Company announced that a special committee comprised entirely of independent directors (the "Special Committee") has initiated a strategic review process to identify, examine and consider a range of strategic alternatives available to the Company with the objective of maximizing shareholder value, including potential strategic transactions involving the Company and one or more entities sponsored by affiliates of the Sponsor. The Company has engaged financial advisors, and the Special Committee has retained Pepper Hamilton LLP as its special independent legal counsel.
The Special Committee and the Company's advisors have engaged in discussions with various entities’ special committees and their respective financial advisors in regards to potential strategic transactions. Although certain of these discussions have progressed, none has resulted in a definitive agreement. The Special Committee has not made a decision whether to recommend to the board of directors that the Company enter into any proposed transaction, and there can be no assurance that any of these preliminary discussions will result in a definitive agreement or that any such transactions would be approved by stockholders.

7

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The interim data includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results for the entire year or any subsequent interim periods.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2015, which are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 16, 2016. There have been no significant changes to the Company's significant accounting policies during the six months ended June 30, 2016, other than the updates described below.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All inter-company accounts and transactions are 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 ("VIE") for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
Deferred Costs, Net
Deferred costs, net consists of deferred leasing costs net of accumulated amortization. Deferred leasing costs, consisting primarily of lease commissions and payments made to execute new leases, are deferred and amortized over the term of the lease.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact of the new guidance.
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are VIEs or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period. The Company elected to adopt this guidance effective January 1, 2016. The Company has evaluated the impact of the adoption of the new guidance on its consolidated financial statements and has determined the OP is considered a VIE. However, the Company meets the disclosure exemption criteria as the Company is the primary beneficiary of the VIE and the Company's partnership interest is considered a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. As such, the new guidance did not have a material impact on the Company's consolidated financial statements.

8

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted for financial statements that have not previously been issued. The Company elected to adopt this guidance effective January 1, 2016. As a result, the Company reclassified $17.7 million and $20.1 million of deferred issuance costs related to the Company's mortgage notes payable from deferred costs, net to mortgage notes payable in the Company's consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity's accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued an update which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance supersedes previous leasing standards and is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2016, electing to account for forfeitures when they occur, and determined that there is no impact to the Company’s consolidated financial position, results of operations and cash flows.
In June 2016, the FASB issued guidance that changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. The company is currently evaluating the impact of this new guidance.

9

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 3 — Real Estate Investments
The Company owned 459 properties, which were acquired for investment purposes, as of June 30, 2016. The following table presents the allocation of real estate assets acquired and liabilities assumed during the six months ended June 30, 2016. There were no real estate assets acquired or liabilities assumed during the six months ended June 30, 2015:
 
 
Six Months Ended
(Dollar amounts in thousands)
 
June 30, 2016
Real estate investments, at cost:
 
 
Land
 
$
1,729

Buildings, fixtures and improvements
 
29,664

Total tangible assets
 
31,393

Acquired intangibles:
 
 
In-place leases (1)
 
3,162

Above-market lease assets (1)
 
548

Above-market ground lease liability (1)
 
(85
)
Below-market lease liabilities (1)
 
(774
)
Total intangible assets, net
 
2,851

Cash paid for acquired real estate investments
 
$
34,244

Number of properties purchased
 
4

_____________________________________
(1)
Weighted-average remaining amortization periods for in-place leases, above-market lease assets, above-market ground lease liability and below-market lease liabilities acquired during the six months ended June 30, 2016 were 9.5 years, 9.6 years, 48.6 years and 9.5 years, respectively, as of each property's respective acquisition date.
Total acquired intangible lease assets and liabilities consist of the following as of the dates presented:
 
 
June 30, 2016
 
December 31, 2015
(In thousands)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
305,651

 
$
84,011

 
$
221,640

 
$
305,245

 
$
68,278

 
$
236,967

Above-market lease assets
 
13,729

 
6,711

 
7,018

 
13,783

 
5,555

 
8,228

Total acquired intangible lease assets
 
$
319,380

 
$
90,722

 
$
228,658

 
$
319,028

 
$
73,833

 
$
245,195

Intangible liabilities:
 
 

 
 

 
 
 
 
 
 
 
 
Above-market ground lease liability
 
$
85

 
$
1

 
$
84

 
$

 
$

 
$

Below-market lease liabilities
 
19,241

 
3,113

 
16,128

 
20,623

 
2,490

 
18,133

Total acquired intangible lease liabilities
 
$
19,326

 
$
3,114

 
$
16,212

 
$
20,623

 
$
2,490

 
$
18,133


10

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The following table presents amortization expense and adjustments to revenue and property operating expense for intangible assets and liabilities for the three and six months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2016
 
2015
 
2016
 
2015
In-place leases
 
$
8,613

 
$
8,650

 
$
17,291

 
$
17,300

Total added to depreciation and amortization
 
$
8,613

 
$
8,650

 
$
17,291

 
$
17,300

 
 
 
 
 
 
 
 
 
Above-market leases
 
$
(740
)
 
$
(752
)
 
$
(1,496
)
 
$
(1,503
)
Below-market lease liabilities
 
620

 
335

 
961

 
670

Total deducted from rental income
 
$
(120
)
 
$
(417
)
 
$
(535
)
 
$
(833
)
 
 
 
 
 
 
 
 
 
Above-market ground lease liability
 
$
(1
)
 
$

 
$
(1
)
 
$

Total deducted from property operating expense
 
$
(1
)
 
$

 
$
(1
)
 
$

The following table provides the projected amortization expense and adjustments to revenue and property operating expense for intangible assets and liabilities for the next five years:
(In thousands)
 
July 1, 2016 to December 31, 2016
 
2017
 
2018
 
2019
 
2020
In-place leases
 
$
17,106

 
$
34,212

 
$
24,207

 
$
24,187

 
$
22,569

Total to be added to depreciation and amortization
 
$
17,106

 
$
34,212

 
$
24,207

 
$
24,187

 
$
22,569

 
 
 
 
 
 
 
 
 
 
 
Above-market leases
 
$
(1,453
)
 
$
(2,906
)
 
$
(526
)
 
$
(526
)
 
$
(526
)
Below-market lease liabilities
 
1,504

 
3,009

 
974

 
974

 
974

Total to be added to rental income
 
$
51

 
$
103

 
$
448

 
$
448

 
$
448

 
 
 
 
 
 
 
 
 
 
 
Above-market ground lease liability
 
$
(1
)
 
$
(2
)
 
$
(2
)
 
$
(2
)
 
$
(2
)
Total to be deducted from property operating expense
 
$
(1
)
 
$
(2
)
 
$
(2
)
 
$
(2
)
 
$
(2
)
The following table presents unaudited pro forma information as if the acquisitions during the six months ended June 30, 2016 had been consummated on January 1, 2015:
 
 
Six Months Ended June 30,
(In thousands, except per share data)
 
2016 (1)
 
2015
Pro forma revenues
 
$
88,427

 
$
87,465

Pro forma net (loss) income
 
$
(9,803
)
 
$
3,886

Basic pro forma net (loss) income per share
 
$
(0.15
)
 
$
0.06

Diluted pro forma net (loss) income per share
 
$
(0.15
)
 
$
0.06

_____________________
(1)
For the six months ended June 30, 2016, aggregate revenues and net income derived from the Company's 2016 acquisitions (for the Company's period of ownership) were $1.0 million and $0.5 million, respectively.

11

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The following table presents future minimum base rent payments on a cash basis due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items:
(In thousands)
 
Future Minimum
Base Rent Payments
July 1, 2016 to December 31, 2016
 
$
79,234

2017
 
160,078

2018
 
153,784

2019
 
155,875

2020
 
150,703

Thereafter
 
912,235

 
 
$
1,611,909

The following table lists the tenants (including, for this purpose, all affiliates of such tenants) from which the Company derives annualized rental income on a straight-line basis constituting 10.0% or more of the Company's consolidated annualized rental income on a straight-line basis for all portfolio properties as of the dates indicated:
 
 
June 30,
Tenant
 
2016
 
2015
SunTrust Bank
 
17.8%
 
17.9%
Sanofi US
 
11.4%
 
11.6%
C&S Wholesale Grocer
 
10.2%
 
10.4%
The termination, delinquency or non-renewal of leases by one or more of the above tenants may have a material adverse effect on revenues. No other tenant represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of June 30, 2016 and 2015.
The following table lists the states where the Company has concentrations of properties where annualized rental income on a straight-line basis represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of the dates indicated:
 
 
June 30,
State
 
2016
 
2015
New Jersey
 
20.0%
 
20.3%
Georgia
 
11.0%
 
11.2%
The Company did not own properties in any other state that in total represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of June 30, 2016 and 2015.
Real Estate Sales
On May 12, 2016 the Company entered into a purchase and sale agreement with SunTrust Bank, a wholly owned subsidiary of SunTrust Banks, Inc. ("SunTrust"), for, and simultaneously closed on, the sale of eight single-tenant net lease properties operated by SunTrust for an aggregate contract price of $28.9 million, exclusive of closing costs. The sale of the eight properties resulted in a gain of $0.5 million, which is reflected within gain on sale of real estate investments on the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2016. The Company did not sell any properties during the three and six months ended June 30, 2015.
The disposal of the properties referenced above did not represent a strategic shift that had a major effect on the Company's operations and financial results. Accordingly, the operating results of the properties sold remain classified within continuing operations for all periods presented until the date of disposal.

12

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Leasing Activity
On May 12, 2016, the Company amended 160 of its leases for single-tenant net lease properties operated by SunTrust, which in general extended the remaining lease terms of theses leases with no modification to the contractual rent increases as set forth in these leases.
Note 4 — Commercial Mortgage Loans
The following table is a summary of the Company's commercial mortgage loan portfolio:
 
 
 
 
June 30, 2016
 
December 31, 2015
Loan Type
 
Property Type
 
Par Value
 
Percentage
 
Par Value
 
Percentage
 
 
 
 
(In thousands)
 
 
 
 
 
 
Senior
 
Student Housing — Multifamily
 
$
17,200

 
100.0
%
 
$
17,200

 
21.6
%
Senior
 
Retail
 

(1) 
%
 
18,150

(1) 
22.7
%
Senior
 
Hospitality
 

(1) 
%
 
44,500

(1) 
55.7
%
 
 
 
 
$
17,200

 
100.0
%
 
$
79,850

 
100.0
%
_____________________________________
(1)
These loans were classified as held for sale as of December 31, 2015 and were sold during the six months ended June 30, 2016 for $56.9 million.
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 of 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 with some loss of interest 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 commercial mortgage loans are assigned an initial risk rating of 2. As of June 30, 2016, the risk rating of the Company's commercial loan held for investment was 3. As of June 30, 2016, the Company did not have any loans that were past due on their payments, in non-accrual status or impaired. No allowance for loan losses has been recorded as of June 30, 2016 or December 31, 2015.
There were no commercial mortgage loans held for investment during the six months ended June 30, 2015. For the six months ended June 30, 2016, the activity on the Company's commercial mortgage loan, held for investment, was as follows:
(In thousands)
 
Six Months Ended June 30, 2016
Beginning balance
 
$
17,135

Discount accretion and premium amortization (1)
 
15

Ending balance
 
$
17,150

_____________________________________
(1)
Includes amortization of capitalized origination fees and expenses.

13

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 5 — Other Real Estate Securities
The following table details the realized gains on sale of the Company's other real estate securities, which consisted of redeemable preferred stock, during the six months ended June 30, 2015. As of June 30, 2016 and December 31, 2015, the Company had no investments in other real estate securities; as such, there were no other real estate securities sold during the six months ended June 30, 2016:
(In thousands)
 
Aggregate Cost Basis
 
Sale Price
 
Realized Gain
Six Months Ended June 30, 2015
 
$
8,707

 
$
9,253

 
$
546

Note 6 — Mortgage Notes Payable
The Company's mortgage notes payable as of June 30, 2016 and December 31, 2015 consisted of the following:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate as of
 
 
 
 
 
 
Portfolio
 
Encumbered Properties
 
June 30,
2016
 
December 31,
2015
 
June 30,
2016
 
December 31,
2015
 
Interest Rate
 
Maturity
 
Anticipated Repayment
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
SAAB Sensis I
 
1
 
$
8,018

 
$
8,190

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

 
25,000

 
5.50
%
 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
C&S Wholesale Grocer I
 
4
 
82,313

 
82,313

 
5.56
%
 
5.56
%
 
Fixed
 
Apr. 2037
 
Apr. 2017
SunTrust Bank III
 
116
 
90,045

 
99,677

 
5.50
%
 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
SunTrust Bank IV
 
27
 
21,243

 
25,000

 
5.50
%
 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
Sanofi US I
 
1
 
125,000

 
125,000

 
5.16
%
 
5.16
%
 
Fixed
 
Jul. 2026
 
Jan. 2021
Stop & Shop I
 
4
 
38,608

 
38,936

 
5.63
%
 
5.63
%
 
Fixed
 
Jun. 2041
 
Jun. 2021
Multi-Tenant Mortgage Loan
 
268
 
649,532

 
649,532

 
4.36
%
 
4.36
%
 
Fixed
 
Sep. 2020
 
Sep. 2020
Gross mortgage notes payable
 
451
 
1,039,759

 
1,053,648

 
4.76
%
(1) 
4.77
%
(1) 
 
 
 
 
 
Deferred financing costs, net of accumulated amortization
 
 
 
(17,728
)
 
(20,066
)
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable, net of deferred financing costs
 
 
 
$
1,022,031

 
$
1,033,582

 
 
 
 
 
 
 
 
 
 
_____________________________________
(1)
Calculated on a weighted-average basis for all mortgages outstanding as of the dates indicated.
As of June 30, 2016 and December 31, 2015, the Company had pledged $2.0 billion in real estate investments as collateral for its mortgage notes payable. This real estate is not available to satisfy other debts and obligations unless first satisfying the mortgage notes payable on the properties.
During August 2015, certain subsidiaries of the Company entered into a $655.0 million mortgage loan agreement ("Multi-Tenant Mortgage Loan") with Barclays Bank PLC, Column Financial Inc. and UBS Real Estate Securities Inc. (together, the "Lenders"). The Multi-Tenant Mortgage Loan has a stated maturity of September 6, 2020 and a stated annual interest rate of 4.30%. As of June 30, 2016, the Multi-Tenant Mortgage Loan was secured by mortgage interests in 268 of the Company's properties. As of June 30, 2016, the outstanding balance under the Multi-Tenant Mortgage Loan was $649.5 million.
At the closing of the Multi-Tenant Mortgage Loan, the Lenders placed $42.5 million of the proceeds from the Multi-Tenant Mortgage Loan in escrow, to be released to the Company upon certain conditions, including the receipt of ground lease estoppels, performance of certain repairs and receipt of environmental insurance. As of June 30, 2016, the Lenders had released $34.6 million of the amount originally placed in escrow to the Company. As of June 30, 2016, $7.9 million of the proceeds from the Multi-Tenant Mortgage Loan remained in escrow and is included in restricted cash on the unaudited consolidated balance sheet as of June 30, 2016.

14

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The following table summarizes the scheduled aggregate principal payments on mortgage notes payable based on stated maturity dates for the five years subsequent to June 30, 2016 and thereafter:
(In thousands)
 
Future Principal Payments
July 1, 2016 to December 31, 2016
 
$
514

2017
 
1,080

2018
 
1,143

2019
 
1,211

2020
 
650,808

Thereafter
 
385,003

 
 
$
1,039,759

The Company's mortgage notes payable agreements require the compliance of certain property-level financial covenants including debt service coverage ratios. As of June 30, 2016, the Company was in compliance with financial covenants under its mortgage notes payable agreements.
Note 7 — Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred sources of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
The Company had commercial mortgage loans held for sale, which were carried at fair value on the consolidated balance sheet as of December 31, 2015. Commercial mortgage loans held for sale were valued using the sale price from the term sheet, which is an observable input. As a result, the Company's commercial mortgage loans held for sale were classified in Level 2 of the fair value hierarchy. There were no commercial mortgage loans held for sale as of June 30, 2016.
The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2015, aggregated by the level in the fair value hierarchy within which those instruments fall. There were no financial instruments measured at fair value on a recurring basis as of June 30, 2016. Additionally, there were no financial instruments measured at fair value on a non recurring basis as of June 30, 2016 or December 31, 2015:
(In thousands)
 
Quoted Prices
in Active
Markets
Level 1
 
Significant Other
Observable
Inputs
Level 2
 
Significant
Unobservable
Inputs
Level 3
 
Total
December 31, 2015
 
 
 
 
 
 
 
 
Commercial mortgage-backed securities
 
$

 
$
56,884

 
$

 
$
56,884


15

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets and liabilities. The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the end of the reporting period. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2016 and 2015. There were no transfers into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2016 and 2015.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other assets, accounts payable and accrued expenses and distributions payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the consolidated balance sheets as of June 30, 2016 and December 31, 2015 are reported in the following table:
 
 
 
 
Carrying Amount at
 
Fair Value at
 
Carrying Amount at
 
Fair Value at
(In thousands)
 
Level
 
June 30, 2016
 
June 30, 2016
 
December 31, 2015
 
December 31, 2015
Commercial mortgage loan, held for investment
 
3
 
$
17,150

 
$
16,527

 
$
17,135

 
$
17,200

Gross mortgage notes payable and mortgage premiums, net
 
3
 
$
1,052,410

 
$
1,095,341

 
$
1,068,540

 
$
1,103,352

The fair value of the commercial mortgage loan is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. The fair value of gross mortgage notes payable is based on combinations of independent third party estimates and management's estimates of market interest rates.
Note 8 — Common Stock
As of June 30, 2016 and December 31, 2015, the Company had 65.5 million and 65.0 million shares of common stock outstanding, respectively, including unvested restricted shares and shares issued pursuant to the DRIP.
In April 2013, the Company's board of directors authorized, and the Company declared, a distribution payable on a monthly basis to stockholders of record on each day at a rate equal to $0.00452054795 per day, which is equivalent to $1.65 per annum, per share of common stock. In March 2016, the Company’s board of directors ratified the existing distribution amount equivalent to $1.65 per annum, and, for calendar year 2016, affirmed a change to the daily distribution amount to $0.00450819672 per day per share of common stock, effective January 1, 2016, to reflect that 2016 is a leap year. Distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distributions payments are not assured.
Share Repurchase Program
The Company's board of directors has adopted the share repurchase program (as amended and restated, the "SRP"), which permits investors to sell their shares back to the Company after they have held them for at least one year, subject to certain conditions and limitations. The Company may repurchase shares on a semiannual basis, at each six-month period ending June 30 and December 31.
Under the SRP, the repurchase price per share for requests other than for death or disability are as follows:
after one year from the purchase date — 92.5% of Estimated Per-Share NAV;
after two years from the purchase date — 95.0% of Estimated Per-Share NAV;
after three years from the purchase date — 97.5% of Estimated Per-Share NAV; and
after four years from the purchase date — 100.0% of Estimated Per-Share NAV.
In the case of requests for death or disability, the repurchase price per share will be equal to Estimated Per-Share NAV at the time of repurchase.

16

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Under the SRP, repurchases at each semiannual period are limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Repurchases pursuant to the SRP for any given semiannual period are funded from proceeds received during that same semiannual period through the issuance of common stock pursuant to the DRIP, as well as any reservation of funds the board of directors may, in its sole discretion, make available for this purpose. If the establishment of an Estimated Per-Share NAV occurs during any semiannual period, any repurchase requests received during such semiannual period are paid at a price based on Estimated Per-Share NAV applicable on the last day of the semiannual period, as described above.
On June 28, 2016, in consideration of the strategic review process, the board of directors of the Company determined to amend the SRP to provide for one twelve-month repurchase period for calendar year 2016 instead of two semi-annual periods ending June 30 and December 31. The annual limit on repurchases under the SRP remains unchanged and continues to be limited to a maximum of 5.0% of the weighted average number of shares of common stock of the Company outstanding during its prior fiscal year and is subject to the terms and limitations set forth in the SRP. Following calendar year 2016, the repurchase periods will return to two semi-annual periods and applicable limitations set forth in the SRP.
The Company's board of directors reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase, change the purchase price for repurchases or otherwise amend the terms of, suspend or terminate the SRP pursuant to any applicable notice requirements under the SRP. Due to these limitations, the Company cannot guarantee that it will be able to accommodate all repurchase requests.
When a stockholder requests repurchases and the repurchases are approved, the Company reclassifies such an obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased have the status of authorized but unissued shares.
The following table summarizes the repurchases of shares under the SRP cumulatively through June 30, 2016:
 
 
Number of Shares
 
Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2015
 
2,073,645

 
$
24.12

Six months ended June 30, 2016
 
7,854

 
24.17

Cumulative repurchases as of June 30, 2016
 
2,081,499

 
$
24.12

During the six months ended June 30, 2016, 5.0 million shares have been requested for repurchase and are not yet fulfilled. These shares, and all additional shares requested prior to December 31, 2016 will be considered for repurchase, to the extent the requests are not withdrawn by December 31, 2016. All requested shares will be subject to the annual limitations set forth in the SRP.
Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders can elect to reinvest distributions by purchasing shares of common stock. Until November 14, 2014, the Company offered shares pursuant to the DRIP at $23.75, which was 95.0% of the initial offering price of shares of common stock in the IPO. Effective November 14, 2014, the Company began offering shares pursuant to the DRIP at the then-current Estimated Per-Share NAV. The DRIP was suspended following the payment of the Company's June 2015 distribution on July 1, 2015. On April 1, 2016, the Company reinstated the DRIP and registered an additional 7.7 million shares of common stock, offered at the then-current Estimated Per-Share NAV, for use under the DRIP pursuant to a registration statement on Form S-3 (File No. 333-210532).
No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP. Shares issued pursuant to the DRIP are recorded within stockholders' equity in the accompanying consolidated balance sheets in the period distributions are declared. During the six months ended June 30, 2016, 0.5 million shares of common stock were issued pursuant to the DRIP.

17

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 9 — Commitments and Contingencies
Future Minimum Ground Lease Payments
The Company entered into ground lease agreements related to certain acquisitions under leasehold interest arrangements. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter:
(In thousands)
 
Future Minimum Base Rent Payments
July 1, 2016 to December 31, 2016
 
$
458

2017
 
921

2018
 
903

2019
 
902

2020
 
674

Thereafter
 
4,975

 
 
$
8,833

Unfunded Commitments Under Commercial Mortgage Loans
As of June 30, 2016, the Company had unfunded commitments which will generally be funded to finance capital expenditures by the borrowers under the Company's commercial mortgage loan. The following table reflects the expiration of these commitments over the next five years and thereafter:
(In thousands)
 
Funding Expiration
July 1, 2016 to December 31, 2016
 
$

2017
 
2,450

2018
 

2019
 

2020
 

Thereafter
 

 
 
$
2,450

Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company maintains environmental insurance for its properties that provides coverage for potential environmental liabilities, subject to the policy's coverage conditions and limitations. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on its financial position or results of operations.
Note 10 — Related Party Transactions and Arrangements
As of June 30, 2016 and December 31, 2015, American Finance Special Limited Partner, LLC (the "Special Limited Partner"), an entity controlled by the Sponsor, owned 8,888 shares of the Company's outstanding common stock and 90 units of limited partner interests in the OP ("OP Units"). After holding the OP Units for a period of one year, or upon liquidation of the OP or sale of substantially all of the assets of the OP, holders of OP Units have the right to convert OP Units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.

18

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO. American National Stock Transfer, LLC ("ANST"), a subsidiary of the parent company of the Former Dealer Manager, provided other general professional services through January 2016. RCS Capital Corporation ("RCAP"), the parent company of the Former Dealer Manager and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was under common control with the Sponsor. In May 2016, RCAP and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.
Fees and Participations Incurred in Connection With the Operations of the Company
On April 29, 2015, the independent directors of the board of directors unanimously approved certain amendments to the Amended and Restated Advisory Agreement, as amended (the "Original A&R Advisory Agreement"), by and among the Company, the OP and the Advisor (the "Second A&R Advisory Agreement"). The Second A&R Advisory Agreement, which superseded the Original A&R Advisory Agreement, took effect on July 20, 2015, the date on which the Company filed certain changes to the Company's Articles of Amendment and Restatement, which were approved by the Company's stockholders on June 23, 2015. The initial term of the Second A&R Advisory Agreement is 20 years beginning on April 29, 2015, and is automatically renewable for another 20-year term upon each 20-year anniversary unless terminated by the board of directors for cause.
Prior to January 16, 2016, the Advisor was paid an acquisition fee equal to 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. The Advisor also has been and may continue to be reimbursed for costs it incurs in providing investment-related services, or "insourced expenses." These insourced expenses may not exceed, 0.5% of the contract purchase price of each acquired property and 0.5% of the amount advanced for a loan or other investment. Additionally, the Company has paid and may continue to pay third party acquisition expenses. The aggregate amount of acquisition fees and financing coordination fees (as described below) were not to exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. The Second A&R Advisory Agreement terminated the acquisition fee and financing coordination fee (both as defined in the Second A&R Advisory Agreement) effective January 16, 2016. As of January 16, 2016, aggregate acquisition fees and financing fees did not exceed the 1.5% threshold. Further, the total of all acquisition fees, acquisition expenses and any financing coordination fees payable was not to exceed 4.5% of the Company's total portfolio contract purchase price or 4.5% of the amount advanced for the Company's total portfolio of loans or other investments. As of January 16, 2016, the total of all cumulative acquisition fees, acquisition expenses and financing coordination fees did not exceed the 4.5% threshold.
Additionally, prior to January 16, 2016, if the Advisor provided services in connection with the origination or refinancing of any debt that the Company obtained and used to acquire properties or to make other permitted investments, or that was assumed, directly or indirectly, in connection with the acquisition of properties, the Company paid the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations.
Prior to April 15, 2015, in connection with asset management services provided by the Advisor, the Company issued to the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the board of directors) to the Advisor performance-based restricted, forfeitable partnership units of the OP designated as "Class B Units." The Class B Units were intended to be profit interests and will vest, and no longer be subject to forfeiture, at such time as: (a) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pretax, non-compounded annual return thereon (the "economic hurdle"); (b) any one of the following events occurs concurrently with or subsequently to the achievement of the economic hurdle described above: (i) a listing; (ii) a transaction to which the Company or the OP is a party, as a result of which OP Units or the Company's common stock are exchanged for, or converted into, the right, or the holders of such securities are otherwise entitled, to receive cash, securities or other property or any combination thereof; or (iii) the termination of the advisory agreement without cause; and (c) the Advisor pursuant to the advisory agreement is providing services to the Company immediately prior to the occurrence of an event of the type described in clause (b) above, unless the failure to provide such services is attributable to the termination without cause of the advisory agreement by an affirmative vote of a majority of the Company's independent directors after the economic hurdle described above has been met. Unvested Class B Units will be forfeited immediately if: (x) the advisory agreement is terminated for any reason other than a termination without cause; or (y) the advisory agreement is terminated without cause by an affirmative vote of a majority of the board of directors before the economic hurdle described above has been met.

19

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The Class B Units were issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The number of Class B Units issued in any quarter was equal to the cost of the Company's assets multiplied by 0.1875%, divided by the value of one share of common stock as of the last day of such calendar quarter, which was initially equal to $22.50 (the initial offering price in the IPO minus selling commissions and dealer manager fees) and, as of the Initial NAV Pricing Date, to Estimated Per-Share NAV. On April 15, 2015, the Company's board of directors approved an amendment (the "Amendment") to the Original A&R Advisory Agreement, which, among other things, provided that, effective as of April 15, 2015 until July 20, 2015:
(i)
for any period commencing on or after April 1, 2015, the Company paid the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets an Asset Management Fee (as defined in the Original A&R Advisory Agreement) equal to 0.75% per annum of the Cost of Assets (as defined in the Original A&R Advisory Agreement);
(ii)
such Asset Management Fee was payable monthly in arrears in cash, in shares of common stock, or a combination of both, the form of payment determined in the sole discretion of the Advisor; and
(iii)
the Company would not cause the OP to issue any Class B Units in respect of periods subsequent to March 31, 2015.
As of June 30, 2016, in aggregate, the Company's board of directors had approved the issuance of 1,052,420 Class B Units to the Advisor in connection with the arrangement described above. As of June 30, 2016, the Company could not determine the probability of achieving the performance condition, as such, no expense was recognized in connection with this arrangement during the three and six months ended June 30, 2016 and 2015. The Advisor receives distributions on unvested Class B Units equal to the distribution amount received on the same number of shares of the Company's common stock. Such distributions on issued Class B Units are included in general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income. As stated above, pursuant to the Amendment, the OP will not issue any further Class B Units. The changes made pursuant to the Amendment were incorporated into the Agreement of Limited Partnership of the OP (the "OP Agreement") through a Third Amendment to the OP Agreement, which was approved by the board of directors and entered into on April 29, 2015.
Effective July 20, 2015, the Second A&R Advisory Agreement requires the Company to pay the Advisor a base management fee. Effective October 1, 2015, the fixed portion of the base management fee, which is equal to $1.5 million per month, is payable on the first business day of each month, while the variable portion of the base management fee, which is equal to 0.375% of the cumulative net proceeds of any equity raised subsequent to the potential Listing, is payable quarterly in arrears. Base management fees are included in asset management fees to related party on the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2016. No base management fees were incurred during the three and six months ended June 30, 2015.
In addition, the Second A&R Advisory Agreement requires the Company to pay the Advisor a variable management fee equal to (x) 15.0% of the applicable quarter's Core Earnings (as defined below) per share in excess of $0.375 per share plus (y) 10.0% of the applicable quarter's Core Earnings per share in excess of $0.50 per share, in each case as adjusted for changes in the number of shares of common stock outstanding. Core Earnings are defined as, for the applicable period, GAAP net income or loss excluding non-cash equity compensation expense, the variable management fee, acquisition and transaction related fees and expenses, financing related fees and expenses, depreciation and amortization, realized gains and losses on the sale of assets, any unrealized gains, losses or other non-cash items recorded in net loss for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income, one-time events pursuant to changes in GAAP and certain non-cash charges, impairment losses on real estate related investments and other than temporary impairment of securities, amortization of deferred financing costs, amortization of tenant inducements, amortization of straight-line rent, amortization of market lease intangibles, provision for loss loans, and other non-recurring revenue and expenses. The Company did not incur a variable management fee during the three and six months ended June 30, 2016 and 2015.
The Company reimburses the Advisor's costs of providing administrative services, but may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, acquisition expenses or real estate commissions. During the three and six months ended June 30, 2016, the Company incurred $0.6 million and $1.4 million of reimbursement expenses from the Advisor for providing administrative services, which is included in general and administrative expense on the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2016. No reimbursement expenses were incurred from the Advisor for providing administrative services during the three and six months ended June 30, 2015.

20

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to forgive certain fees. Because the Advisor may forgive certain fees, cash flows from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that are forgiven are not deferrals and, accordingly, will not be paid to the Advisor. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's general and administrative costs or property operating costs. No such fees were forgiven or costs were absorbed by the Advisor during the three and six months ended June 30, 2016 and 2015.
The following table details amounts incurred and payable to related parties in connection with the operations-related services described above as of and for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable as of
(In thousands)
 
2016
 
2015
 
2016
 
2015
 
June 30,
2016
 
December 31,
2015
Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees
 
$
4,500

 
$
4,096

 
$
9,000

 
$
4,096

 
$

 
$

Professional fees and other reimbursements (1)
 
661

 
913

 
1,523

 
1,548

 
558

 
541

Distributions on Class B Units (1)
 
432

 
411

 
864

 
697

 
142

 

Total related party operation fees and reimbursements
 
$
5,593

 
$
5,420

 
$
11,387

 
$
6,341

 
$
700

 
$
541

_________________________________
(1)
These costs are included in general and administrative expense on the consolidated statements of operations and comprehensive (loss) income.
During the three and six months ended June 30, 2016, the Company incurred $1.3 million of cost reimbursements from the Advisor for lease commissions relating to the execution of new SunTrust leases. The lease commissions are included in deferred costs, net on the consolidated balance sheet as of June 30, 2016, and are amortized over the terms of the respective leases. No such costs were incurred during the three and six months ended June 30, 2015.
The predecessor to the Sponsor was party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager ("RCS Advisory"), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.
The Company was also party to a transfer agency agreement with ANST, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc., a third-party transfer agent ("DST"). The Sponsor received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. On February 26, 2016, the Company entered into a definitive agreement with DST to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services).
Fees Incurred in Connection with the Liquidation or Listing of the Company's Real Estate Assets
In connection with the Listing, the Company, as the general partner of the OP, would cause the OP to issue a note (the "Listing Note") to the Special Limited Partner to evidence the OP's obligation to distribute to the Special Limited Partner an aggregate amount (the "Listing Amount") equal to 15.0% of the difference (to the extent the result is a positive number) between:
the sum of (i) the "market value" (as defined in the Listing Note) of the Company's common stock plus (ii) the sum of all distributions or dividends (from any source) paid by the Company to its stockholders prior to the Listing; and
the sum of (i) the total raised in the Company's initial public offering ("IPO") and under the Company's distribution reinvestment plan ("DRIP") prior to the Listing ("Gross Proceeds") plus (ii) the total amount of cash that, if distributed to those stockholders who purchased shares of common stock in the IPO and under the DRIP, would have provided those stockholders a 6.0% cumulative, non-compounded, pre-tax annual return (based on a 365-day year) on the gross proceeds.

21

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

The "market value" used to calculate the Listing Amount will not be determinable until the end of a measurement period, the period of 30 consecutive trading days, commencing on the 180th day following the Listing, unless another liquidity event, such as a merger, occurs prior to the end of the measurement period. If another liquidity event occurs prior to the end of the measurement period, the Listing Note provides for appropriate adjustment to the calculation of the Listing Amount.
The Special Limited Partner will have the right to receive distributions of "Net Sales Proceeds," as defined in the Listing Note, until the Listing Note is paid in full; provided that, the Special Limited Partner has the right, but not the obligation, to convert the entire Special Limited Partner interest into OP Units. OP Units are convertible into shares of the Company's common stock in accordance with the terms governing conversion of OP Units into shares of common stock and contained in the Second Amended and Restated Agreement of Limited Partnership of the OP by the Company, as general partner of its OP, with the limited partners party thereto (the "Second A&R OP Agreement"), which will be entered into at Listing.
On April 29, 2015, the board of directors authorized the execution, in conjunction with the potential Listing, the Second A&R OP Agreement to conform more closely with agreements of limited partnership of other operating partnerships controlled by real estate investment trusts whose securities are publicly traded and listed, and to add long term incentive plan units ("LTIP Units") as a new class of units of limited partnership in the OP to the existing common units ("OP Units"). The Company may at any time cause the OP to issue LTIP Units pursuant to an outperformance agreement. On April 29, 2015, the board of directors approved the general terms of a Multi-Year Outperformance Agreement to be entered into with the Company, the OP and the Advisor in connection with the Listing.
The Company will pay the Advisor a brokerage commission on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and one-half of the total brokerage commission paid, if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. During the three and six months ended June 30, 2016, the Company incurred $0.6 million of real estate commissions from the Advisor for its services in connection with the sale of real estate investments. The impact of the real estate commissions is included in gain on sale of real estate investments on the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2016, and $0.6 million is included in accounts payable and accrued expenses on the consolidated balance sheet as of June 30, 2016. No such commissions were incurred during the three and six months ended June 30, 2015.
Note 11 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting and legal services, human resources and information technology.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 12 — Share-Based Compensation
Restricted Share Plan
The Company had an employee and director incentive restricted share plan (the "Original RSP"), which provided for the automatic grant of 1,333 restricted shares of common stock to each of the independent directors, without any further action by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholders' meeting. Restricted stock issued to independent directors vests over a five-year period following the date of grant in increments of 20.0% per annum. The Original RSP provided the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to other entities that provide services to the Company. The total number of shares of common stock granted under the Original RSP could not exceed 5.0% of the Company's shares of common stock on a fully diluted basis at any time, and in any event could not exceed 3.4 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

22

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. For restricted share awards granted prior to 2015, such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. Restricted share awards granted during or after 2015 provide for accelerated vesting of the portion of the unvested shares scheduled to vest in the year of the recipient's voluntary termination or the failure to be re-elected to the board. The Company accounts for forfeitures when they occur. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares.
In April 2015, the board of directors adopted an Amended and Restated RSP (the "A&R RSP") that replaces in its entirety the Original RSP. The A&R RSP amends the terms of the Original RSP as follows:
it increases the number of shares of Company capital stock, par value $0.01 per share (the "Capital Stock"), available for awards thereunder from 5.0% of the Company's outstanding shares of Capital Stock on a fully diluted basis at any time, not exceed 3.4 million shares of Capital Stock, to 10.0% of the Company's outstanding shares of Capital Stock on a fully diluted basis at any time;
it removes the fixed amount of shares that were automatically granted to the Company's independent directors; and
it adds restricted stock units (including dividend equivalent rights thereon) as a permitted form of award.
The following table reflects restricted share award activity for the six months ended June 30, 2016:
 
Number of Shares of Common Stock
 
Weighted-Average Issue Price
Unvested, December 31, 2015
7,455

 
$
23.34

Vested
(1,563
)
 
22.50

Unvested, June 30, 2016
5,892

 
$
23.56

As of June 30, 2016, the Company had $0.1 million of unrecognized compensation cost related to unvested restricted share awards granted. That cost is expected to be recognized over a weighted-average period of 2.7 years.
The fair value of the restricted shares is being expensed in accordance with the service period required. Compensation expense related to restricted stock was approximately $11,000 and $7,000 for the three months ended June 30, 2016 and 2015, respectively. Compensation expense related to restricted stock was approximately $21,000 and $14,000 for the six months ended June 30, 2016 and 2015, respectively. Compensation expense related to restricted stock is included in general and administrative expense on the accompanying consolidated statements of operations and comprehensive (loss) income.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at each director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. There were no shares of common stock issued to directors in lieu of cash compensation during the three and six months ended June 30, 2016 and 2015.

23

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)

Note 13 — Net (Loss) Income Per Share
The following table sets forth the basic and diluted net (loss) income per share computations for the three and six months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except share and per share amounts)
 
2016
 
2015
 
2016
 
2015
Computation of Basic Net (Loss) Income Per Share:
 
 
 
 
 
 
 
 
Basic net (loss) income
 
$
(4,077
)
 
$
(1,624
)
 
$
(9,931
)
 
$
3,277

Basic weighted-average shares outstanding
 
65,301,764

 
66,045,785

 
65,128,592

 
65,859,933

Basic net (loss) income per share
 
$
(0.06
)
 
$
(0.02
)
 
$
(0.15
)
 
$
0.05

 
 
 
 
 
 
 
 
 
Computation of Diluted Net (Loss) Income Per Share:
 
 
 
 
 
 
 
 
Basic net (loss) income
 
$
(4,077
)
 
$
(1,624
)
 
$
(9,931
)
 
$
3,277

Adjustments to net (loss) income for common share equivalents
 

 

 

 
(108
)
Diluted net (loss) income
 
$
(4,077
)
 
$
(1,624
)
 
$
(9,931
)
 
$
3,169

 
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
65,301,764

 
66,045,785

 
65,128,592

 
65,859,933

Shares of unvested restricted stock (1)
 

 

 

 
5,293

OP Units
 

 

 

 
90

Diluted weighted-average shares outstanding
 
65,301,764

 
66,045,785

 
65,128,592

 
65,865,316

Diluted net (loss) income per share
 
$
(0.06
)
 
$
(0.02
)
 
$
(0.15
)
 
$
0.05

_____________________________________
(1)
Weighted-average number of shares of unvested restricted stock outstanding for the period presented. There were 5,892 and 5,008 shares of unvested restricted stock outstanding as of June 30, 2016 and 2015, respectively.
Diluted net (loss) income per share assumes the conversion of certain common share equivalents into an equivalent number of common shares, unless the effect is antidilutive. The Company considers unvested restricted stock, OP Units and Class B Units to be common share equivalents. The Company had the following common share equivalents on a weighted-average basis that were excluded from the calculation of diluted net loss per share as their effect would have been antidilutive for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended
 
 
2016
 
2015
 
June 30, 2016
Unvested restricted stock
 
6,716

 
5,485

 
7,086

OP Units
 
90

 
90

 
90

Class B Units
 
1,052,420

 
998,786

 
1,052,420

Total weighted-average antidilutive common share equivalents
 
1,059,226

 
1,004,361

 
1,059,596

Note 14 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to, or disclosures in, the consolidated financial statements.

24


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements of American Finance Trust, Inc. and the notes thereto. As used herein, the terms "Company," "we," "our" and "us" refer to American Finance Trust, Inc., a Maryland corporation, including, as required by context, American Finance Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and its subsidiaries. The Company is externally managed by American Finance Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein but not otherwise defined have the meaning ascribed to those terms in "Part I — Financial Information" included in the notes to the unaudited consolidated financial statements contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of American Finance Trust, Inc. (the "Company," "we" "our" or "us"), our Advisor and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
We have announced that a special committee comprised entirely of independent directors (the "Special Committee") has initiated a strategic review process to identify, examine and consider a range of strategic alternatives available to us with the objective of maximizing shareholder value, including potential strategic transactions involving us and one or more entities sponsored by affiliates of AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global" or our "Sponsor"). The Special Committee has not made a decision whether to recommend to our board of directors that we enter into any proposed transaction, and there can be no assurance that any of these preliminary discussions will result in a definitive agreement or that any such transactions would be approved by stockholders.
All of our executive officers are also officers, managers or holders of a direct or indirect controlling interest in American Finance Advisors, LLC (our "Advisor") or other entities under common control with our Sponsor. As a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investment programs advised by affiliates of our Sponsor and conflicts in allocating time among these entities and us, which could negatively impact our operating results.
Although we previously announced our intention to list our shares of common stock on the New York Stock Exchange ("NYSE"), there can be no assurance that our shares of common stock will be listed. No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid.
We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our tenants.
Our tenants may not achieve our rental rate incentives and our expenses could be greater, which may impact our results of operations.
We have not generated, and in the future may not generate, operating cash flows sufficient to cover 100% of our distributions, and, as such, we may be forced to source distributions from borrowings, which may be at unfavorable rates, or depend on our Advisor to waive reimbursement of certain expenses or fees. There is no assurance that our Advisor will waive reimbursement of expenses or fees.
We may be unable to pay or maintain cash distributions at the current rate or increase distributions over time.
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates.
We are subject to risks associated with any dislocation or liquidity disruptions that may exist or occur in the credit markets of the United States of America.
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and our cash available for distributions.

25


We may be deemed by regulators to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act.
Overview
We have acquired a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants. We manage and optimize our investments in our existing portfolio of net leased commercial real estate properties (the "Net Lease Portfolio") and selectively invest in additional net lease properties. As of June 30, 2016, we owned 459 properties with an aggregate purchase price of $2.2 billion, comprised of 13.3 million rentable square feet, which were 100.0% leased. In addition, we invest in commercial real estate mortgage loans and other commercial real estate-related debt investments (such investments collectively, "CRE Debt Investments"). We have financed our CRE Debt Investments primarily through mortgage financing secured by our Net Lease Portfolio, and we may use mortgage specific repurchase agreement facilities and collateralized debt obligations to finance future CRE Debt Investments.
Incorporated on January 22, 2013, we are a Maryland corporation that elected and qualified to be taxed as a REIT beginning with the taxable year ended December 31, 2013. Substantially all of our business is conducted through the OP and its wholly-owned subsidiaries.
On April 4, 2013, we commenced our initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 68.0 million shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts. The IPO closed in October 2013.
Pursuant to the distribution reinvestment plan (the "DRIP"), our stockholders can elect to reinvest distributions by purchasing shares of our common stock at a price equal to the then-current estimated net asset value per share of our common stock, approved by our board of directors ("Estimated Per-Share NAV").
We have no employees. We have retained our Advisor to manage our affairs on a day-to-day basis. American Finance Properties, LLC (the "Property Manager") serves as our property manager. The Advisor and the Property Manager are wholly owned subsidiaries of our Sponsor, as a result of which, they are related parties of ours, and each have received or may receive, as applicable, compensation, fees and expense reimbursements for services related to managing our business.
We previously announced our intention to list on the New York Stock Exchange ("NYSE") under the symbol "AFIN" (the "Listing") during the third quarter of 2015. In September 2015, we announced that in light of market conditions, our board of directors, in consultation with our Advisor, determined it was in our best interest to not pursue the Listing during the third quarter of 2015. Our board of directors continues to monitor market conditions and other factors with a view toward reevaluating the decision when market conditions are more favorable for a successful liquidity event. There can be no assurance that our shares of common stock will be listed.
On June 30, 2016, we announced that the Special Committee has initiated a strategic review process to identify, examine and consider a range of strategic alternatives available to us with the objective of maximizing shareholder value, including potential strategic transactions involving us and one or more entities sponsored by affiliates of our Sponsor. We have engaged financial advisors, and the Special Committee has retained Pepper Hamilton LLP as its special independent legal counsel.
The Special Committee and our financial advisors have engaged in discussions with various entities’ special committees and their respective financial advisors in regards to potential strategic transactions. Although certain of these discussions have progressed, none has resulted in a definitive agreement. The Special Committee has not made a decision whether to recommend to our board of directors that we enter into any proposed transaction, and there can be no assurance that any of these preliminary discussions will result in a definitive agreement or that any such transactions would be approved by stockholders.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Revenue Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, acquisition date is considered to be the commencement date for purposes of this calculation. We defer the revenue related to lease payments received from tenants in advance of their due dates.

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We own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant's sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, we defer the recognition of contingent rental income, until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. Contingent rental income is included in rental income on the consolidated statements of operations and comprehensive (loss) income.
We continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive (loss) income.
Cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive (loss) income in the period the related costs are incurred, as applicable.
Real Estate Investments
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred.
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive (loss) income. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets may include the value of in-place leases and above- and below- market leases. In addition, any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values.
The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease, including any below-market fixed rate renewal options for below-market leases.
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates.
In allocating non-controlling interests, amounts are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including real estate valuations, prepared by independent valuation firms. We also consider information and other factors including: market conditions, the industry that the tenant operates in, characteristics of the real estate, i.e.: location, size, demographics, value and comparative rental rates, tenant credit profile, store profitability and the importance of the location of the real estate to the operations of the tenant's business.
Real estate investments that are intended to be sold are designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on our operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations and comprehensive (loss) income for all applicable periods. There are no real estate investments held for sale as of June 30, 2016 and December 31, 2015.
Depreciation and Amortization
We are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate investments, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

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Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
Commercial Mortgage Loans
Commercial mortgage loans held for investment purposes are anticipated to be held until maturity, and accordingly, are carried at cost, net of unamortized acquisition fees and expenses capitalized, discounts or premiums and unfunded commitments. Commercial mortgage loans 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 and capitalized 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 from debt investments in our consolidated statements of operations and comprehensive (loss) income. Guaranteed loan exit fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method. The accretion of guaranteed loan exit fees is recognized in interest income from debt investments in our consolidated statements of operations and comprehensive (loss) income.
Acquisition fees and expenses incurred in connection with the origination and acquisition of commercial mortgage loan investments are evaluated based on the nature of the expense to determine if they should be expensed in the period incurred or capitalized and amortized over the life of the investment.
Commercial mortgage loans held for sale are carried at the lower of cost or fair value. We evaluate fair value on an individual loan basis. The amount by which cost exceeds fair value is accounted for as a valuation allowance, and changes in the valuation allowance are included in net income. Purchase discounts are no longer amortized during the period the loans are held for sale.
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 loan loss provision on our consolidated statement 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 upon 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 its allowance for loan losses. The allowance for loan losses includes a general, formula-based component and an asset-specific component.

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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. We currently estimate loss rates based on historical realized losses experienced in the industry and takes into account current collateral and economic conditions affecting the probability and severity of losses when establishing the allowance for loan losses. We perform a comprehensive analysis of our 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 geographic 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 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, it believes 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 an individual 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. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred. 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.
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 loans.
We designate non-performing loans at such time as (i) loan payments become 90-days past due; (ii) the loan has a maturity default; or (iii) in our opinion, it is probable we will be unable to collect all amounts due according to the contractual terms of the loan. Income recognition will be suspended when a loan is designated non-performing and resumed only when the suspended loan becomes contractually current and performance is demonstrated to have resumed. A loan will be written off when it is no longer realizable and legally discharged.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. We have not yet selected a transition method and are currently evaluating the impact of the new guidance.
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIE") or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period. We elected to adopt this guidance effective January 1, 2016. We have evaluated the impact of the adoption of the new guidance on its consolidated financial statements and has determined our OP is considered a VIE. However, we meet the disclosure exemption criteria as we are the primary beneficiary of the VIE and our partnership interest is considered a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. As such, the new guidance did not have a material impact on our consolidated financial statements.

29


In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the Securities and Exchange Commission ("SEC") staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We elected to adopt this guidance effective January 1, 2016. As a result, we reclassified $17.7 million and $20.1 million of deferred issuance costs related to our mortgage notes payable from deferred costs, net to mortgage notes payable in our consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity's accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. We are currently evaluating the impact of the new guidance.
In February 2016, the FASB issued an update which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance supersedes previous leasing standards and is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of adopting the new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We have adopted the provisions of this guidance beginning January 1, 2016, electing to account for forfeitures when they occur, and determined that there is no impact to our consolidated financial position, results of operations and cash flows.
In June 2016, the FASB issued guidance that changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. We are currently evaluating the impact of this new guidance.

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Properties
As of June 30, 2016, we owned 459 properties, which were acquired for investment purposes, comprised of 13.3 million rentable square feet and located in 37 states. All of our properties are freestanding, single-tenant properties, 100.0% leased with a weighted-average remaining lease term of 9.6 years as of June 30, 2016.
The following table represents certain additional information about the properties we own at June 30, 2016:
Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
 
Remaining Lease
Term (1)
Dollar General I
 
Apr. & May 2013
 
2
 
18,126

 
11.8
Walgreens I
 
Jul. 2013
 
1
 
10,500

 
21.3
Dollar General II
 
Jul. 2013
 
2
 
18,052

 
11.9
Auto Zone I
 
Jul. 2013
 
1
 
7,370

 
11.1
Dollar General III
 
Jul. 2013
 
5
 
45,989

 
11.9
BSFS I
 
Jul. 2013
 
1
 
8,934

 
7.6
Dollar General IV
 
Jul. 2013
 
2
 
18,126

 
9.7
Tractor Supply I
 
Aug. 2013
 
1
 
19,097

 
11.4
Dollar General V
 
Aug. 2013
 
1
 
12,480

 
11.6
Mattress Firm I
 
Aug. & Nov. 2013; Feb., Mar. & Apr. 2014
 
5
 
23,612

 
9.2
Family Dollar I
 
Aug. 2013
 
1
 
8,050

 
5.0
Lowe's I
 
Aug. 2013
 
5
 
671,313

 
13.0
O'Reilly Auto Parts I
 
Aug. 2013
 
1
 
10,692

 
14.0
Food Lion I
 
Aug. 2013
 
1
 
44,549

 
13.3
Family Dollar II
 
Aug. 2013
 
1
 
8,028

 
7.0
Walgreens II
 
Aug. 2013
 
1
 
14,490

 
16.8
Dollar General VI
 
Aug. 2013
 
1
 
9,014

 
9.7
Dollar General VII
 
Aug. 2013
 
1
 
9,100

 
11.8
Family Dollar III
 
Aug. 2013
 
1
 
8,000

 
6.3
Chili's I
 
Aug. 2013
 
2
 
12,700

 
9.4
CVS I
 
Aug. 2013
 
1
 
10,055

 
9.6
Joe's Crab Shack I
 
Aug. 2013
 
2
 
16,012

 
10.8
Dollar General VIII
 
Sep. 2013
 
1
 
9,100

 
12.1
Tire Kingdom I
 
Sep. 2013
 
1
 
6,635

 
8.8
Auto Zone II
 
Sep. 2013
 
1
 
7,370

 
6.9
Family Dollar IV
 
Sep. 2013
 
1
 
8,320

 
7.0
Fresenius I
 
Sep. 2013
 
1
 
5,800

 
9.0
Dollar General IX
 
Sep. 2013
 
1
 
9,014

 
8.8
Advance Auto I
 
Sep. 2013
 
1
 
10,500

 
7.0
Walgreens III
 
Sep. 2013
 
1
 
15,120

 
9.8
Walgreens IV
 
Sep. 2013
 
1
 
13,500

 
8.3
CVS II
 
Sep. 2013
 
1
 
13,905

 
20.6
Arby's I
 
Sep. 2013
 
1
 
3,000

 
12.0
Dollar General X
 
Sep. 2013
 
1
 
9,100

 
11.8
AmeriCold I
 
Sep. 2013
 
9
 
1,407,166

 
11.3
Home Depot I
 
Sep. 2013
 
2
 
1,315,200

 
10.6
New Breed Logistics I
 
Sep. 2013
 
1
 
390,486

 
5.4
American Express Travel Related Services I
 
Sep. 2013
 
2
 
785,164

 
3.6
L.A. Fitness I
 
Sep. 2013
 
1
 
45,000

 
7.7
SunTrust Bank I
 
Sep. 2013
 
32
 
182,400

 
7.3
National Tire & Battery I
 
Sep. 2013
 
1
 
10,795

 
7.4
Circle K I
 
Sep. 2013
 
19
 
54,521

 
12.4
Walgreens V
 
Sep. 2013
 
1
 
14,490

 
11.2
Walgreens VI
 
Sep. 2013
 
1
 
14,560

 
12.8
FedEx Ground I
 
Sep. 2013
 
1
 
21,662

 
6.9

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Portfolio
 
Acquisition Date
 
Number of
Properties
 
Rentable Square Feet
 
Remaining Lease
Term (1)
Walgreens VII
 
Sep. 2013
 
10
 
142,140

 
13.3
O'Charley's I
 
Sep. 2013
 
20
 
135,973

 
15.4
Krystal Burgers Corporation I
 
Sep. 2013
 
6
 
12,730

 
13.2
Merrill Lynch, Pierce, Fenner & Smith I
 
Sep. 2013
 
3
 
553,841

 
8.4
1st Constitution Bancorp I
 
Sep. 2013
 
1
 
4,500

 
7.6
American Tire Distributors I
 
Sep. 2013
 
1
 
125,060

 
7.6
Tractor Supply II
 
Oct. 2013
 
1
 
23,500

 
7.3
United Healthcare I
 
Oct. 2013
 
1
 
400,000

 
5.0
National Tire & Battery II
 
Oct. 2013
 
1
 
7,368

 
15.9
Tractor Supply III
 
Oct. 2013
 
1
 
19,097

 
11.8
Mattress Firm II
 
Oct. 2013
 
1
 
4,304

 
7.2
Dollar General XI
 
Oct. 2013
 
1
 
9,026

 
10.8
Academy Sports I
 
Oct. 2013
 
1
 
71,640