The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Note 1 Organization
New York REIT, Inc. (the Company) was incorporated on October 6, 2009 as a Maryland corporation that qualified as a
real estate investment trust for U.S. federal income tax purposes (REIT) beginning with its taxable year ended December 31, 2010. On April 15, 2014, the Company listed its common stock on the New York Stock Exchange
(NYSE) under the symbol NYRT.
The Company purchased its first property and commenced active operations in June
2010. As of March 31, 2017, the Company owned 19 properties, aggregating 3.3 million rentable square feet, with an average occupancy of 91.6%. The Companys portfolio primarily consists of office and retail properties, representing
83% and 9%, respectively, of rentable square feet as of March 31, 2017. The Company has acquired hotel and other types of real properties to add diversity to its portfolio. Properties other than office and retail spaces represent 8% of rentable
square feet.
Substantially all of the Companys business is conducted through its operating partnership, New York Recovery Operating
Partnership, L.P., a Delaware limited partnership (the OP). The Companys only significant asset is the general partnership interests it owns in the OP and assets held by the Company for the use and benefit of the OP.
On August 22, 2016, the Companys Board of Directors (the Board) approved a plan of liquidation to sell in an orderly
manner all or substantially all of the assets of the Company and its OP and to liquidate and dissolve the Company and the OP (the Liquidation Plan), subject to stockholder approval. The Liquidation Plan was approved at a special meeting
of stockholders on January 3, 2017.
The Company has no employees. Prior to March 8, 2017, the Company retained (i) New
York Recovery Advisors, LLC (the Former Advisor) to manage its affairs on a
day-to-day
basis and (ii) New York Recovery Properties, LLC (the ARG
Property Manager) to serve as the Companys property manager, unless services were performed by a third party for specific properties. The Former Advisor and ARG Property Manager are under common control with AR Global Investments, LLC
(the successor business to AR Capital, LLC, AR Global), (the Sponsor).
On March 8, 2017, the Company
transferred all advisory duties from the Former Advisor to Winthrop REIT Advisors, LLC (the Winthrop Advisor) and property management services with respect to properties managed by ARG Property Manager were transferred to Winthrop
Management, L.P. (the Winthrop Property Manager).
Note 2 Liquidation Plan
The Liquidation Plan provides for an orderly sale of the Companys assets, payment of the Companys liabilities and other obligations
and the winding up of operations and final dissolution of the Company. The Company is not permitted to make any new investments except to exercise its option (the WWP Option) to purchase additional equity interests in its WWP Holdings,
LLC venture (Worldwide Plaza) or to make protective acquisitions or advances with respect to its existing assets (see Note 7). The Company is permitted to satisfy any existing contractual obligations and fund required tenant improvements
and capital expenditures at its real estate properties, including real estate properties owned by joint ventures in which the Company owns an interest.
The Liquidation Plan enables the Company to sell any and all of its assets without further approval of the stockholders and provides that
liquidating distributions be made to the stockholders as determined by the Board. Pursuant to applicable REIT rules, the Company must complete the disposition of its assets by January 3, 2019, two years after the date the Liquidation Plan was
approved by the stockholders, in order to deduct liquidating distributions as dividends. To the extent that all of the Companys assets are not sold by such date, the Company intends to satisfy the requirement by distributing its remaining
assets and liabilities to a liquidating trust.
9
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The dissolution process and the amount and timing of distributions to stockholders involves
risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will be ultimately distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate of net
assets presented in the Consolidated Statement of Net Assets.
The Company expects to continue to qualify as a REIT throughout the
liquidation until such time as any remaining assets, if any, are transferred into a liquidating trust. The Board shall use commercially reasonable efforts to continue to cause the Company to maintain its REIT status, provided however, the Board may
elect to terminate the Companys status as a REIT if it determines that such termination would be in the best interest of the stockholders.
The Board may terminate the Liquidation Plan without stockholder approval only (i) if the Board approves the Company entering into an
agreement involving the sale or other disposition of all or substantially all of the assets or common stock by merger, consolidation, share exchange, business combination, sale or other transaction involving the Company or (ii) if the Board
determines, in exercise of its duties under Maryland law, after consultation with its advisor and its financial advisor, if applicable, or other third party experts familiar with the market for Manhattan office properties, that an adverse change in
the market for Manhattan office properties has occurred and reasonably would expect it to adversely affect continuing with the Liquidation Plan. Notwithstanding approval of the Liquidation Plan by the stockholders, the Board may amend the
Liquidation Plan without further action by our stockholders to the extent permitted under the current law.
Note 3 Summary of Significant
Accounting Policies
Basis of Presentation
Pre
Plan of Liquidation
The accompanying unaudited consolidated interim 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 the Quarterly Report on Form
10-Q
and Article 10 of Regulation
S-X
of the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial
statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. All intercompany accounts and
transactions have been eliminated in consolidation.
These consolidated financial statements should be read in conjunction with the
historical comparative audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, which are included in the Companys Annual Report on Form
10-K
filed
with the SEC on March 1, 2017.
Post Plan of Liquidation
Liquidation Basis of Accounting
As a
result of the approval of the Liquidation Plan by the stockholders, the Company adopted the liquidation basis of accounting as of January 1, 2017 and for the periods subsequent to December 31, 2016 in accordance with GAAP. Accordingly, on
January 1, 2017, the carrying value of the Companys assets were adjusted to their liquidation value, which represents the estimated amount of cash that the Company will collect on disposal of assets as it carries out its Liquidation Plan.
The liquidation value of the Companys operating properties is presented on an undiscounted basis. Estimated costs to dispose of assets have been presented separately from the related assets. Liabilities are carried at their contractual amounts
due or estimated settlement amounts.
10
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The Company accrues costs and income that it expects to incur and earn through the end of
liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statement of Net Assets. Actual costs and
income may differ from amounts reflected in the financial statements due to the inherent uncertainty in estimating future events. These differences may be material. See Note 4 for further discussion. Actual costs incurred but unpaid as of
March 31, 2017 are included in accounts payable, accrued liabilities and other liabilities on the Consolidated Statement of Net Assets.
Net assets in liquidation represents the estimated liquidation value available to stockholders upon liquidation. Due to the uncertainty in the
timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.
As a result of the change to the liquidation basis of accounting, the Company no longer presents a Consolidated Balance Sheet, a Consolidated
Statement of Operations and Comprehensive Income, a Consolidated Statement of Changes in Equity or a Consolidated Statement of Cash Flows. These statements are only presented for prior year periods.
Recent Accounting Pronouncement
There are no new accounting pronouncements that are applicable or relevant to the Company under the liquidation basis of accounting.
Note 4 - Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation
The liquidation basis of accounting requires the Company to estimate net cash flows from operations and to accrue all costs associated with
implementing and completing the plan of liquidation. The Company currently estimates that it will have costs in excess of estimated receipts during the liquidation. These amounts can vary significantly due to, among other things, the timing and
estimates for executing and renewing leases, estimates of tenant improvement costs, the timing of property sales, direct costs incurred to complete the sales, the timing and amounts associated with discharging known and contingent liabilities and
the costs associated with the winding up of operations. These costs are estimated and are anticipated to be paid out over the liquidation period.
Upon transition to the liquidation basis of accounting on January 1, 2017, the Company accrued the following revenues and expenses
expected to be earned or incurred during liquidation (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Rents and reimbursements
|
|
$
|
102,309
|
|
Hotel revenues
|
|
|
25,261
|
|
Property operating expenses
|
|
|
(27,006
|
)
|
Hotel operating expense
|
|
|
(21,467
|
)
|
Interest expense
|
|
|
(39,756
|
)
|
General and administrative expenses
|
|
|
(40,124
|
)
|
Capital expenditures
|
|
|
(8,274
|
)
|
Sales costs
|
|
|
(69,524
|
)
|
|
|
|
|
|
Liability for estimated costs in excess of estimated receipts during liquidation
|
|
$
|
(78,581
|
)
|
|
|
|
|
|
11
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The change in the liability for estimated costs in excess of estimated receipts during
liquidation as of March 31, 2017 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
Net
Change in
Working
Capital
|
|
|
Remeasurement
of Assets and
Liabilities
|
|
|
March 31, 2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net inflows from investments in real estate
|
|
$
|
58,303
|
|
|
$
|
(22,209
|
)
|
|
$
|
309
|
|
|
$
|
36,403
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales costs
|
|
|
(69,524
|
)
|
|
|
|
|
|
|
|
|
|
|
(69,524
|
)
|
Corporate expenditures
|
|
|
(67,360
|
)
|
|
|
17,795
|
|
|
|
(188
|
)
|
|
|
(49,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136,884
|
)
|
|
|
17,795
|
|
|
|
(188
|
)
|
|
|
(119,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability for estimated costs in excess of estimated receipts during liquidation
|
|
$
|
(78,581
|
)
|
|
$
|
(4,414
|
)
|
|
$
|
121
|
|
|
$
|
(82,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 Net Assets in Liquidation
The following is a reconciliation of Total Equity under the going concern basis of accounting as of December 31, 2016 to net assets in liquidation under
the liquidation basis of accounting as of January 1, 2017 (in thousands):
|
|
|
|
|
Total Equity as of December 31, 2016
|
|
$
|
941,669
|
|
Increase due to estimated net realizable value of investments in real estate
|
|
|
382,985
|
|
Increase due to estimated net realizable value of investments in unconsolidated joint
venture
|
|
|
319,548
|
|
Decrease due to write off of unbilled rent receivables
|
|
|
(52,620
|
)
|
Increase due to write off of market lease intangibles
|
|
|
65,187
|
|
Decrease due to
write-off
of assets and
liabilities
|
|
|
(25,262
|
)
|
Liability for estimated costs in excess of estimated receipts during liquidation
|
|
|
(78,581
|
)
|
|
|
|
|
|
Adjustment to reflect the change to the liquidation basis of accounting
|
|
|
611,257
|
|
|
|
|
|
|
Estimated value of net assets in liquidation as of January 1, 2017
|
|
$
|
1,552,926
|
|
|
|
|
|
|
Net assets in liquidation increased by $121,000 during the three months ended March 31, 2017. The primary reason for the
increase in net assets was due to a remeasurement of expected cash flows from various properties.
The net assets in liquidation at March 31, 2017
would result in liquidating distributions of approximately $9.25 per common share. This estimate of liquidating distributions includes projections of costs and expenses to be incurred during the period required to complete the Liquidation Plan.
There is inherent uncertainty with these projections, and they could change materially based on the timing of the sales, the performance of the underlying assets and any changes in the underlying assumptions of the projected cash flows.
12
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Note 6 Real Estate Investments
There were no real estate assets acquired or liabilities assumed during the three months ended March 31, 2017 or 2016.
The following table presents future minimum base cash rental payments due to the Company, excluding future minimum base cash rental payments
related to the Companys unconsolidated joint venture, subsequent to March 31, 2017. These amounts exclude contingent rental 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.
|
|
|
|
|
|
|
Future Minimum
|
|
|
|
Base Cash Rental
|
|
(In thousands)
|
|
Payments
|
|
April 1, 2017 - December 31, 2017
|
|
$
|
82,634
|
|
2018
|
|
|
108,330
|
|
2019
|
|
|
101,236
|
|
2020
|
|
|
102,247
|
|
2021
|
|
|
97,958
|
|
Thereafter
|
|
|
468,871
|
|
|
|
|
|
|
Total
|
|
$
|
961,276
|
|
|
|
|
|
|
The following table lists the tenants whose annualized cash rent represented greater than 10% of total
annualized cash rent as of March 31, 2017 and 2016, including annualized cash rent related to the Companys unconsolidated joint venture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Property Portfolio
|
|
Tenant
|
|
2017
|
|
|
2016
|
|
Worldwide Plaza
|
|
Cravath, Swaine & Moore, LLP
|
|
|
16
|
%
|
|
|
16
|
%
|
Worldwide Plaza
|
|
Nomura Holdings America, Inc.
|
|
|
11
|
%
|
|
|
11
|
%
|
The termination, delinquency or
non-renewal
of any of the above
tenants may have a material adverse effect on the Companys operations.
13
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Intangible Assets and Liabilities
Under the liquidation basis of accounting, intangible assets and liabilities are considered in the liquidation value of investments in real
estate and are no longer amortized. Acquired intangible assets and liabilities as of December 31, 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(In thousands)
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place
leases
|
|
$
|
108,253
|
|
|
$
|
36,645
|
|
|
$
|
71,608
|
|
Other intangibles
|
|
|
3,804
|
|
|
|
750
|
|
|
|
3,054
|
|
Above-market leases
|
|
|
20,291
|
|
|
|
5,036
|
|
|
|
15,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired intangible assets
|
|
$
|
132,348
|
|
|
$
|
42,431
|
|
|
$
|
89,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market leases
|
|
$
|
75,484
|
|
|
$
|
26,864
|
|
|
$
|
48,620
|
|
Above-market ground lease liability
|
|
|
17,968
|
|
|
|
1,401
|
|
|
|
16,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market lease intangibles
|
|
$
|
93,452
|
|
|
$
|
28,265
|
|
|
$
|
65,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table discloses amounts recognized within the consolidated statement of operations and
comprehensive loss for the three months ended March 31, 2016 (on a going concern basis) related to amortization of
in-place
leases and other intangibles, amortization and accretion of above- and
below-market lease assets and liabilities, net and the amortization of above-market ground lease, for the period presented:
|
|
|
|
|
|
|
Three Months Ended
|
|
(In thousands)
|
|
March 31, 2016
|
|
Amortization of
in-place
leases and other intangibles
(1)
|
|
$
|
3,040
|
|
|
|
|
|
|
Amortization and (accretion) of above- and below-market leases, net (2)
|
|
$
|
(1,612
|
)
|
|
|
|
|
|
Amortization of above-market ground lease (3)
|
|
$
|
(112
|
)
|
|
|
|
|
|
(1)
|
Reflected within depreciation and amortization expense.
|
(2)
|
Reflected within rental income.
|
(3)
|
Reflected within hotel expenses.
|
Real Estate Sales
The Company did not sell any properties during the three months ended March 31, 2017. During the three months ended March 31, 2016,
the Company sold its properties located at
163-30
Cross Bay Boulevard in Queens, New York (Duane Reade), 1623 Kings Highway in Brooklyn, New York (1623 Kings Highway) and 2061-2063 86th
Street in Brooklyn, New York (Foot Locker). The following table summarizes the properties sold during the three months ended March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Borough
|
|
|
Disposition Date
|
|
|
Contract Sales Price
|
|
|
Gain on Sale (1) (2)
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Duane Reade
|
|
|
Queens
|
|
|
|
February 2, 2016
|
|
|
$
|
12,600
|
|
|
$
|
126
|
|
1623 Kings Highway
|
|
|
Brooklyn
|
|
|
|
February 17, 2016
|
|
|
|
17,000
|
|
|
|
4,293
|
|
Foot Locker
|
|
|
Brooklyn
|
|
|
|
March 30, 2016
|
|
|
|
8,400
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,000
|
|
|
$
|
6,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflected within gain on sale of real estate investments, net in the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2016.
|
(2)
|
During the three months ended March 31, 2016, the Company repaid three mortgage notes payable totaling $18.9 million as a result of the sales of Duane Reade, 1623 Kings Highway and Foot Locker.
|
14
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The disposal of Duane Reade, 1623 Kings Highway and Foot Locker did not represent a strategic
shift that had a major effect on the Companys operations and financial results. Accordingly, the results of operations of these properties were classified within continuing operations for the three months ended March 31, 2016.
Note 7 Investment in Unconsolidated Joint Venture
On October 30, 2013, the Company purchased a 48.9% equity interest in Worldwide Plaza for a contract purchase price of
$220.1 million, based on the property value for Worldwide Plaza of $1.3 billion less $875.0 million of debt on the property. As of March 31, 2017, the Companys pro rata portion of debt secured by Worldwide Plaza was
$427.9 million. The debt on the property has a weighted average interest rate of 4.6% and matures in March 2023. The Company accounts for the investment in Worldwide Plaza using the equity method of accounting because the Company exercises
significant influence over, but does not control, the entity.
Pursuant to the Liquidation Plan as approved by the shareholders, the
Company is generally not permitted to engage in any business activities while implementing the Liquidation Plan, except to exercise the WWP Option to acquire the remaining 51.1% interest in Worldwide Plaza. The purchase price required to exercise
the WWP Option equals the product of the percentage interest being acquired and the option price of approximately $1.4 billion, (subject to certain adjustments, including adjustments for any of the Companys preferred return in arrears)
minus the principal balance of the outstanding mortgage and mezzanine debt encumbering the Worldwide Plaza property, which was $875.0 million as of March 31, 2017.
On March 30, 2017, the Company exercised the WWP Option pursuant to the Companys rights under the joint venture agreement for
Worldwide Plaza subject to the Companys joint venture partners rights to retain up to 1.2% of the aggregate membership interest, which the joint venture partner has elected to retain. In connection with the exercise, the Company made a
$30.0 million deposit which is being held in escrow by an independent title company.
The Companys acquisition is subject to
the satisfaction of the conditions relating to the Company as transferee under the mortgage and mezzanine loans encumbering the property. Approval of the Company as transferee requires that the Company have, at the time of transfer, a minimum net
worth of $750.0 million and a minimum value of real estate assets controlled (through ownership or management) of $2.0 billion exclusive of the Companys interest in Worldwide Plaza and cash. The Company believes that it currently
satisfies, and at closing it will satisfy, all requirements necessary to acquire the remaining interests. Upon acquisition, the Company will be required to pay a transfer fee equal to 0.25% of the outstanding principal balance of the mortgage and
mezzanine loans.
If consummated, the closing of the acquisition of the additional 49.9% interest in Worldwide Plaza (51.1% less the 1.2%
the current joint venture partner has elected to retain) is expected to occur five business days after satisfaction of the conditions of the Companys approval as transferee in accordance with the terms of the mortgage and mezzanine loans
encumbering the Worldwide Plaza property. However, the closing must occur no later than June 28, 2017, subject to the right of either the Company or the joint venture partner to independently adjourn the closing date for up to 60 days if the
loan transfer conditions are not satisfied by June 28, 2017.
The Company is a party to litigation related to Worldwide Plaza. See
Note 12 Commitments and Contingencies.
15
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Note 8 Mortgage Notes Payable
Mortgage notes payable are carried at their contractual amounts due under liquidation accounting. The Company had outstanding mortgage notes
payable of $1.13 billion at March 31, 2017 and December 31, 2016. The mortgage notes payable are collateralized, directly or, in the case of the mezzanine note, indirectly, by the real estate held by the Company identified in the
table below.
The Companys mortgage notes payable as of March 31, 2017 and December 31, 2016 consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Loan Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Encumbered
|
|
|
|
|
|
|
|
|
Effective
|
|
|
|
|
|
|
|
Portfolio
|
|
Properties
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
Interest Rate
|
|
|
Interest Rate
|
|
|
Maturity
|
|
Design Center
|
|
|
1
|
|
|
$
|
19,299
|
|
|
$
|
19,380
|
|
|
|
6.3
|
%
|
|
|
Variable
|
(1)
|
|
|
Dec 2021
|
|
1100 Kings Highway
|
|
|
1
|
|
|
|
20,200
|
|
|
|
20,200
|
|
|
|
3.4
|
%
|
|
|
Fixed
|
(2)
|
|
|
Aug 2017
|
|
256 West 38th Street
|
|
|
1
|
|
|
|
24,500
|
|
|
|
24,500
|
|
|
|
3.1
|
%
|
|
|
Fixed
|
(2)
|
|
|
Dec 2017
|
|
1440 Broadway (3)
|
|
|
1
|
|
|
|
305,000
|
|
|
|
305,000
|
|
|
|
4.3
|
%
|
|
|
Variable
|
(4)
|
|
|
Oct 2019
|
|
Mortgage Loan (5)
|
|
|
12
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
3.2
|
%
|
|
|
Variable
|
(4)
|
|
|
Dec 2017
|
|
Mezzanine Loan (5)
|
|
|
12
|
|
|
|
260,000
|
|
|
|
260,000
|
|
|
|
6.5
|
%
|
|
|
Variable
|
(4)
|
|
|
Dec 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, gross principal amount
|
|
|
$
|
1,128,999
|
|
|
|
1,129,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: deferred financing costs, net
|
|
|
|
|
|
|
|
|
|
|
(21,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net of deferred financing costs
|
|
|
|
|
|
|
|
|
|
$
|
1,107,526
|
|
|
|
4.3
|
% (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The variable interest rate reset in December 2016 and will remain fixed at this rate until December 2017.
|
(2)
|
Fixed through an interest rate swap agreement.
|
(3)
|
Total commitments of $325 million; additional $20 million available, subject to lender approval, to fund certain tenant allowances, capital expenditures and leasing costs.
|
(4)
|
LIBOR portion is capped through an interest rate cap agreement.
|
(5)
|
Encumbered properties are
245-249
West 17th Street, 333 West 34th Street,
216-218
West 18th Street, 50 Varick Street, 229 West 36th Street,
122 Greenwich Street, 350 West 42nd Street,
382-384
Bleecker Street, 350 Bleecker Street,
416-425
Washington Street, 33 West 56th Street and 120 West 57th Street (the
POL Loan Properties).
|
(6)
|
Calculated on a weighted average basis for all mortgage outstanding as of March 31, 2017.
|
On December 20, 2016, the Company, through indirect wholly owned subsidiaries of the OP, entered into a mortgage loan (the Mortgage
Loan) in the aggregate amount of $500.0 million and a mezzanine loan (the Mezzanine Loan and, together with the Mortgage Loan, the POL Loans) in the aggregate amount of $260.0 million. The POL Loans
are secured directly, in the case of the mortgage loan, and indirectly in the case of the mezzanine loan, by our properties located in New York, New York at
245-249
West 17th Street, 333 West 34th Street,
216-218
West 18th Street, 50 Varick Street, 229 West 36th Street, 122 Greenwich Street, 350 West 42nd Street,
382-384
Bleecker Street, 350 Bleecker Street,
416-425
Washington Street, 33 West 56th Street and 120 West 57th Street (the POL Loan Properties).
At the closing of the POL Loans, a portion of the net proceeds after closing costs was used to repay the $485.0 million principal
amount then outstanding under the Companys credit facility. As of December 31, 2016, the $260.0 million proceeds from the Mezzanine Loan were held in an escrow account by the servicer of the POL Loans and were recorded as a
receivable in the Companys consolidated balance sheet. Subsequently, on January 9, 2017, the $260.0 million proceeds were deposited into an operating account that may be used by the Company to purchase the additional equity
interests in Worldwide Plaza in connection with its exercise of the WWP Option. See Note 7. Prior to the repayment in full of the credit facility, all of the POL Loan Properties were included as part of the borrowing base thereunder.
16
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The Mortgage Loan requires monthly interest payments at an initial weighted average interest
rate of LIBOR plus 2.38% and the Mezzanine Loan requires monthly interest payments at an initial weighted average interest rate of LIBOR plus 5.65%. The LIBOR portions of the interest rates due under the POL Loans are capped
at 3.0% pursuant to interest rate cap agreements.
The POL Loans mature in December 2017. The POL Loans include one option to
extend the maturity date for one year, if certain conditions are met including a debt yield test, and subject to a 0.25% increase in the applicable monthly interest rate payable.
The POL Loans are recourse to the Company and may be accelerated only in the event of a default. The POL Loans may be prepaid, in whole or in
part, without payment of any prepayment premium or spread maintenance premium or any other fee or penalty.
In connection with a sale or
disposition of an individual POL Loan Property to a third party, such POL Loan Property may be released from the collateral securing the Mortgage Loan, subject to certain conditions, by prepayment of a release price (the Release Amount)
as defined in the Mortgage Loan agreements. In certain instances, 110% of the Release Amount will be required to be paid in order to release the property. Concurrently with the payment of the Release Amount, the borrower entity under the Mezzanine
Loan is obligated to prepay a corresponding portion of the Mezzanine Loan, in accordance with the terms of the Mezzanine Loan, for which it will receive a release of a corresponding portion of the collateral under the Mezzanine Loan.
Concurrently with the POL Loans, the Company entered into guaranty agreements with respect to the POL Loans that requires the Company to
maintain, (i) on a consolidated basis, a minimum net worth of $300.0 million, which minimum net worth will be reduced pro rata with any prepayment of the POL Loans once the outstanding principal amount of the POL Loans is less
than $300.0 million, but in no event will the minimum net worth be reduced below $150.0 million, and (ii) liquid assets having a market value of at least $25.0 million, which minimum market value of liquid assets
may be reduced to $15.0 million in the event the outstanding amount under the POL Loans is equal to or less than $100.0 million.
On September 30, 2015, in connection with the mortgage notes payable secured by its property located at 1440 Broadway, the Company
executed guarantees in favor of the lenders with respect to the costs of certain unfunded obligations of the Company related to tenant allowances, capital expenditures and leasing costs, which guarantees are capped at $5.3 million in the
aggregate. The guarantees expire in October 2019, the maturity date of the 1440 Broadway mortgage. As of March 31, 2017, the Company has not been required to perform under the guarantees and has not recognized any assets or liabilities related
to the guarantees.
Some of the Companys mortgage note agreements require compliance with certain property-level financial covenants
including debt service coverage ratios. As of March 31, 2017, the Company was in compliance with the financial covenants under its mortgage note agreements.
Note 9 Fair Value of Financial Instruments
Prior to the adoption of liquidation accounting, the Company determined fair value of its financial instruments based on quoted prices when
available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the instrument. This alternative approach also reflected the
contractual terms of the instruments, as applicable, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities, and unobservable inputs, such as expected volatility. The
guidance defines three levels of inputs that may be used to measure fair value:
|
|
|
Level 1 -
|
|
Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
|
17
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
|
|
|
Level 2 -
|
|
Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or
liability.
|
|
|
Level 3 -
|
|
Unobservable inputs that reflect the entitys own 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 fell in the hierarchy required significant judgment and
considered factors specific to the asset or liability. In instances where the determination of the fair value measurement was 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 fell was based on the lowest level input that was significant to the fair value measurement in its entirety.
The Company determined that the majority of the inputs used to value its derivatives, such as interest rate swaps and caps, fell within
Level 2 of the fair value hierarchy, whereas the credit valuation adjustments associated with those derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and
its counterparties. However, as of December 31, 2016, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation
adjustments were not significant to the overall valuation of the Companys derivatives. As a result, the Company determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. See Note
10 Interest Rate Derivatives and Hedging Activities.
The valuation of derivatives was determined using a discounted cash flow
analysis on the expected cash flows. This analysis reflected the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition,
credit valuation adjustments were incorporated into the fair values to account for the Companys potential nonperformance risk and the performance risk of the counterparties.
The following table presents information about the Companys derivatives that were presented net, measured at fair value on a recurring
basis as of December 31, 2016, aggregated by the level in the fair value hierarchy within which those instruments fell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives, net
|
|
$
|
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between levels of the fair value hierarchy during the year ended December 31,
2016.
Financial instruments not carried at fair value
Under going concern accounting, the Company is required to disclose the fair value of financial instruments for which it is practicable to
estimate the 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 dividends payable approximates their carrying value on the
consolidated balance sheet due to their short-term nature. The carrying amount and fair value of the Companys financial instruments that are not reported at fair value on the consolidated balance sheet are reported below.
18
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(In thousands)
|
|
Level
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
Mortgage notes payable
|
|
|
3
|
|
|
$
|
1,129,080
|
|
|
$
|
1,138,576
|
|
The fair value of mortgage notes payable was estimated using a discounted cash flow analysis based on similar
types of arrangements.
Note 10 Interest Rate Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company uses derivative financial instruments, including interest rate swaps, caps, collars, options, floors and other interest rate
derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and costs associated with the Companys operating and financial
structure as well as to hedge specific anticipated transactions. The Company does not utilize derivatives for speculative purposes or purposes other than interest rate risk management. The use of derivative financial instruments carries certain
risks, including the risk that the counterparties to these contractual arrangements will not perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties that the Company
believes to have high credit ratings and with major financial institutions with which the Company and the Advisor and its affiliates may also have other financial relationships.
Under going concern accounting, the Companys derivative financial instruments were classified as separate assets and liabilities on the
balance sheet. As these instruments will not be converted to cash or other consideration, derivative financial instruments have been valued at $0 as of January 1, 2017 in accordance with liquidation accounting. The financial instruments are
still in place and effective as of March 31, 2017. The Company has accrued the estimated monthly settlement amounts for its swap agreements. The amount is included in the liability for estimated costs in excess of estimated receipts during
liquidation.
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to
interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of
variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the
receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract.
The effective portion of changes in
the fair value of derivatives designated and that qualified as cash flow hedges was recorded in accumulated other comprehensive loss and was subsequently reclassified into earnings in the period that the hedged forecasted transaction affected
earnings. The Company uses such derivatives to hedge the variable cash flows associated with variable-rate debt.
During the three months
ended March 31, 2016, the Company terminated one of its interest rate swaps as the related hedged debts were repaid, which made it probable that the forecasted transactions would not occur and, as a result, accelerated the reclassification of
immaterial amounts in accumulated other comprehensive loss to earnings. The accelerated amounts resulted in a loss of approximately $24,000 for the three months ended March 31, 2016.
19
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Amounts reported in accumulated other comprehensive loss related to derivatives were
reclassified to interest expense as interest payments were made on the Companys variable-rate debt.
As of December 31, 2016,
the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Number of
|
|
|
Notional Amount
|
|
Interest Rate Derivative
|
|
Instruments
|
|
|
(In thousands)
|
|
Interest rate swaps
|
|
|
2
|
|
|
$
|
44,700
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges
Derivatives not designated as hedges are not speculative and are used to manage the Companys exposure to interest rate movements and
other identified risks, but do not meet the strict hedge accounting requirements under GAAP. Changes in the fair value of derivatives not designated in hedging relationships were recorded directly in earnings, which resulted in an expense of
$0.3 million during the three months ended March 31, 2016 and included in loss on derivative instruments on the consolidated statement of operations and comprehensive loss.
As of December 31, 2016, the Company had the following outstanding interest rate derivatives that were not designated as hedges in
qualified hedging relationships.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Number of
|
|
|
Notional Amount
|
|
Interest Rate Derivative
|
|
Instruments
|
|
|
(In thousands)
|
|
Interest rate caps
|
|
|
4
|
|
|
$
|
1,065,000
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
The table below presents the fair value of the Companys derivative financial instruments as well as their classification on the
consolidated balance sheet as of December 31, 2016:
|
|
|
|
|
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
December 31, 2016
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate swaps
|
|
Derivative liablities, at fair value
|
|
$
|
(74
|
)
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments:
|
|
|
|
|
Interest rate caps
|
|
Derivative assets, at fair value
|
|
$
|
165
|
|
|
|
|
|
|
|
|
20
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Derivatives in Cash Flow Hedging Relationships
The table below details the location in the financial statements of the income or loss recognized on interest rate derivatives designated as
cash flow hedges for the three months ended March 31, 2016:
|
|
|
|
|
|
|
Three Months Ended
|
|
(In thousands)
|
|
March 31, 2016
|
|
Amount of loss recognized in accumulated other comprehensive income (loss) from interest rate
derivatives (effective portion)
|
|
$
|
(1,235
|
)
|
|
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive income (loss) into income as
interest expense (effective portion)
|
|
$
|
(356
|
)
|
|
|
|
|
|
Amount of loss recognized in loss on derivative instruments (ineffective portion,
reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)
|
|
$
|
|
|
|
|
|
|
|
Offsetting Derivatives
The Company does not offset its derivatives on the accompanying consolidated balance sheet. The table below presents a gross presentation, the
potential effects of offsetting, and a potential net presentation of the Companys derivatives as of December 31, 2016. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The
tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the accompanying consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Net Amounts
|
|
|
Gross Amounts Not Offset
|
|
|
|
|
|
|
Gross Amounts
|
|
|
Gross Amounts
|
|
|
of Assets (Liabilities)
|
|
|
on the Balance Sheet
|
|
|
|
|
|
|
of Recognized
|
|
|
of Recognized
|
|
|
Presented on the
|
|
|
Financial
|
|
|
Cash Collateral
|
|
|
Net
|
|
Derivatives (In thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
Balance Sheet
|
|
|
Instruments
|
|
|
Posted
|
|
|
Amount
|
|
December 31, 2016
|
|
$
|
165
|
|
|
$
|
(74
|
)
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision whereby if the Company either defaults or is capable of
being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of December 31, 2016, the fair value of derivatives in a net liability position including accrued
interest but excluding any adjustment for nonperformance risk related to these agreements was $0.1 million.
As of December 31,
2016, the Company had not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the
agreements at their aggregate termination value of $0.1 million at December 31, 2016.
21
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Note 11 Common Stock
As of March 31, 2017 and December 31, 2016, the Company had 167.9 million and 167.1 million shares of common stock
outstanding, respectively, including shares of unvested restricted common stock (restricted shares), but not including OP units or Long-term Incentive Plan units (LTIP units) which may in the future be converted into shares
of common stock. On January 3, 2017, the Company issued 841,660 shares of its common stock upon redemption of 841,660 OP units held by certain individuals who are members of the Former Advisor or its affiliates. As of March 31, 2017, there
were no OP units outstanding, other than OP units held by the Company, and no vested LTIP units outstanding. See Note 17
Non-Controlling
Interests.
From April 2014 through October 2016, the Board authorized, and the Company declared, and paid, a monthly dividend at an annualized rate equal
to $0.46 per share per annum. Dividends were paid to stockholders of record on the close of business on the 8th day of each month, payable on the 15th day of such month. In October 2016, the Company announced that, in light of the
Liquidation Plan, which was then subject to stockholder approval, the Board determined that the Company would not pay a regular dividend for the month of November 2016 and did not expect to pay a regular monthly dividend for the month of December
2016 or thereafter. Because the Liquidation Plan was approved by the Companys stockholders, the Company will not resume paying monthly dividends. In lieu of regular monthly dividends, the Company expects to make periodic liquidating
distributions out of net proceeds of asset sales, subject to satisfying its liabilities, obligations and debt covenants. There can be no assurance as to the actual amount or timing of liquidating distributions stockholders will receive.
Note 12 Commitments and Contingencies
Future
Minimum Lease Payments
The Company entered into operating and capital lease agreements primarily related to certain properties under
leasehold interest arrangements. The following table reflects the minimum contractual base cash payments, excluding reimbursements, due from the Company over the next five years and thereafter under these arrangements, including the present value of
the net minimum payments due under capital leases. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other
items.
|
|
|
|
|
|
|
Future Minimum
|
|
|
|
Base Rent Payments
|
|
(In thousands)
|
|
Ground Leases
|
|
April 1, 2017December 31, 2017
|
|
$
|
3,743
|
|
2018
|
|
|
5,175
|
|
2019
|
|
|
5,432
|
|
2020
|
|
|
5,432
|
|
2021
|
|
|
5,633
|
|
Thereater
|
|
|
244,051
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
269,466
|
|
|
|
|
|
|
Of the contractual base cash payments, excluding reimbursements, the Company expects to realize approximately
$58.8 million over the remaining anticipated hold period for all of its properties.
Total rental expense related to operating leases was
$1.9 million for the three months ended March 31, 2016. During the three months ended March 31, 2016, interest expense related to capital leases was approximately $16,000. The following table discloses assets recorded under capital
leases and the accumulated amortization thereon as of December 31, 2016:
22
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
|
|
|
|
|
(In thousands)
|
|
December 31, 2016
|
|
Buildings, fixtures and improvements
|
|
$
|
11,785
|
|
Less accumulated depreciation and amortization
|
|
|
(2,273
|
)
|
|
|
|
|
|
Total real estate investments, net
|
|
$
|
9,512
|
|
|
|
|
|
|
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no legal or
regulatory proceedings pending or known to be contemplated against the Company from which the Company expects to incur a material loss.
RXR Litigation
RXR Realty (RXR) initiated a suit against the Company alleging that it suffered lost profits in connection
with the Companys purchase of its 48.9% interest in Worldwide Plaza in October 2013. On August 12, 2014, the Supreme Court of the State of New York dismissed all of RXRs claims against the seller of Worldwide Plaza and
dismissed RXRs disgorgement claims against the Company, permitting only a limited, immaterial claim against the Company for RXRs cost of producing due diligence-related material to proceed. RXR appealed the ruling and, on
October 13, 2015, the appellate court upheld the previous decisions; however, the appellate court held that the trial courts exclusion of lost profit damages was premature and would have to be considered through a motion for summary
judgment. The Company moved for partial summary judgment to reinstate the damages limitation, and the trial court granted the motion at oral argument on March 24, 2016. On June 16, 2016, RXR appealed, and on December 8, 2016, the
appellate court entered an order denying RXRs appeal and affirming the trial courts damages limitation. On January 9, 2017, RXR filed a motion seeking reargument of the appellate court decision, or, in the alternative, leave to
appeal to the Court of Appeals. On March 21, 2017, RXRs motion for reargument or leave to appeal was denied. The Company has not recognized a liability with respect to RXRs claim because the Company does not believe that it is probable
that it will incur a related material loss.
Harris Derivative Suit
In October 2016, Berney Harris (the Plaintiff) filed a derivative complaint (the Harris Complaint) on behalf of public
stockholders of the Company against the Company, certain current and former members of its board of directors (the director defendants), the Former Advisor, and certain affiliates of the Former Advisor (together with the Former Advisor,
the Former Advisor defendants). The Complaint was filed in New York Supreme Court, New York County on October 13, 2016. The Harris Complaint alleges, among other things, that the director defendants breached their fiduciary duties
to the public stockholders of the Company by putting the interests of the Former Advisor defendants before those of the public stockholders, which breach was aided and abetted by the Former Advisor defendants. The Harris Complaint also asserts
claims of corporate waste against the director defendants and unjust enrichment against certain of the Former Advisor defendants. On December 16, 2016, the defendants filed motions to dismiss on the basis of a provision in the Companys
bylaws providing that the state or federal courts of Maryland are the sole and exclusive forum for claims such as those raised in the Harris Complaint. If the motion is granted and the case is dismissed, the Harris Complaint may be refiled in
Maryland. If the motion is denied, the case will proceed in New York Supreme Court, New York County. In either event, the defendants still have various other grounds on which to move to dismiss, and the Company intends to vigorously defend against
all claims.
23
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to
environmental matters. The Company maintains environmental insurance for its properties that provides coverage for potential environmental liabilities, subject to the policys 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 the
consolidated results of operations.
Note 13 Related Party Transactions and Arrangements
The Former Advisor, individual members of the Former Advisor, and employees or former employees of the Former Advisor held interests in the OP.
See Note 17
Non-Controlling
Interests.
Viceroy Hotel
The following table details revenues from related parties at the Viceroy Hotel. The Company did not have any receivables from related parties
as of March 31, 2017 or December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Hotel revenues
|
|
$
|
3
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
Winthrop Advisor and its Affiliates
On December 19, 2016 the Company entered into an agreement (the Services Agreement) with Winthrop Advisor, pursuant to which
Winthrop Advisor served as the Companys exclusive advisor with respect to all matters primarily related to any plan of liquidation and dissolution of the Company and as a consultant to the Board on certain other matters during the period from
January 3, 2017 through March 7, 2017 and is serving as exclusive advisor to the Company from and after March 8, 2017.
On
each of January 3, 2017 and February 1, 2017, the Company paid Winthrop Advisor a fee of $500,000 in cash as compensation for advisory services and consulting services rendered prior to March 1, 2017.
Beginning on March 1, 2017, the Company pays Winthrop Advisor an asset management fee equal to 0.325% per annum of the cost of assets (as
defined in the Services Agreement) up to $3.0 billion and 0.25% per annum of the cost of assets in excess of $3.0 billion.
In
connection with the payment of (i) any distributions of money or other property by the Company to its stockholders during the term of the Services Agreement and (ii) any other amounts paid to the Companys stockholders on account of
their shares of common stock in connection with a merger or other change in control transaction pursuant to an agreement with the Company entered into after March 8, 2017 (such distributions and payments, the Hurdle Payments), in
excess of $11.00 per share (the Hurdle Amount), when taken together with all other Hurdle Payments, the Company will pay an incentive fee to the Winthrop Advisor in an amount equal to 10.0% of such excess (the Incentive Fee).
The Hurdle Amount will be increased on an annualized basis by an amount equal to the product of (a) the Treasury Rate plus 200 basis points and (b) the Hurdle Amount minus all previous Hurdle Payments. Based on the current estimated net
assets in liquidation, the Winthrop Advisor would not be entitled to receive any such incentive fee.
24
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Effective March 2017, Winthrop Property Manager began providing property management services
to those properties for which the ARG Property Manager had been providing property management services. The Company pays to Winthrop Property Manager 1.75% of gross revenues, inclusive of all third party property management fees, for property
management services provided to the Company by the Winthrop Property Manager or any of its affiliates.
The following table details
amounts incurred by the Company to the Winthrop Advisor and its affiliates in connection with the operations related services described above for the periods presented and any amounts payable to or due from the Winthrop Advisor as of the dates
specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Payable (Receivable) as of
|
|
|
|
2017
|
|
|
2016
|
|
|
March 31,
|
|
|
December 31,
|
|
(In thousands)
|
|
Incurred
|
|
|
Incurred
|
|
|
2017
|
|
|
2016
|
|
Asset management fees
|
|
$
|
1,667
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Property management fees
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total related party operational fees and reimbursements
|
|
$
|
1,713
|
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Advisor and its Affiliates
Prior to March 8, 2017, the Company paid to the Former Advisor an asset management fee equal to 0.50% per annum of the cost of assets up
to $3.0 billion and 0.40% per annum of the cost of assets above $3.0 billion.
Prior to March 8, 2017, unless the Company
contracted with a third party, the Company paid the ARG Property Manager a property management fee equal to: (i) for
non-hotel
properties, 4.0% of gross revenues from properties managed, plus market-based
leasing commissions; and (ii) for hotel properties, a market based fee equal to a percentage of gross revenues. The Company also reimbursed the ARG Property Manager for property-level expenses. The ARG Property Manager was permitted to
subcontract the performance of its property management and leasing services duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracted for these services. If the Company contracted
directly with third parties for such services, the Company paid them customary market fees and paid the ARG Property Manager an oversight fee equal to 1.0% of the gross revenues of the applicable property.
The Company reimbursed the Former Advisor for costs and expenses paid or incurred prior to March 8, 2017 by the Former Advisor and its
affiliates in connection with providing services to the Company (including reasonable salaries and wages, benefits and overhead of all employees directly involved with the performance of such services), although the Company did not reimburse the
Former Advisor for personnel costs in connection with services for which the Former Advisor received a separate fee.
The Company was also
party to a transfer agency agreement with American National Stock Transfer, LLC, a subsidiary of the parent company of the Former Dealer Manager (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 February and would withdraw as the transfer agent effective February 29,
2016. DST continued to provide the Company with transfer agency services and, on March 10, 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). For the three months ended March 31, 2016, fees for these services are included in general and administrative
expenses on the consolidated statement of operations and comprehensive income (loss) during the period in which the service was provided.
25
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The following table details amounts incurred and paid by the Company to, and amounts waived
by, the Former Advisor and its affiliates in connection with the operations related services described above for the periods presented and any amounts payable to or due from the Former Advisor as of the dates specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Payable (Receivable) as of
|
|
|
|
2017
|
|
|
2016
|
|
|
March 31,
|
|
|
December 31,
|
|
(In thousands)
|
|
Incurred
|
|
|
Waived
|
|
|
Incurred
|
|
|
Waived
|
|
|
2017
|
|
|
2016
|
|
To the Former Advisor and affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees
|
|
$
|
2,339
|
|
|
$
|
|
|
|
$
|
3,074
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51
|
|
Transfer agent and other professional fees
|
|
|
414
|
|
|
|
|
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
Property management fees
|
|
|
560
|
|
|
|
|
|
|
|
485
|
|
|
|
485
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total related party operational fees and reimbursements
|
|
$
|
3,313
|
|
|
$
|
|
|
|
$
|
4,252
|
|
|
$
|
485
|
|
|
$
|
|
|
|
$
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Former Advisor agreed to waive certain fees, including property management fees, during the three months
ended March 31, 2016. The fees that were waived were not deferrals and accordingly, were not and will not be paid to the Former Advisor.
In connection with the sale of one or more properties, for which the Former Advisor provided a substantial amount of services as determined by
the Companys independent directors, the Company was required to pay the Former Advisor a property disposition fee not to exceed the lesser of 2.0% of the contract sale price of the property or 50% of the competitive real estate commission paid
if a third party broker was also involved; provided, however that in no event could the property disposition fee paid to the Former Advisor when added to real estate commissions paid to unaffiliated third parties exceed the lesser of 6.0% of the
contract sales price and a competitive real estate commission. For purposes of the foregoing, competitive real estate commission meant a real estate brokerage commission for the purchase or sale of a property which was reasonable,
customary and competitive in light of the size, type and location of the property. The Company incurred and paid $0.2 million in property disposition fees to the Former Advisor during the three months ended March 31, 2016 related to the
sale of certain properties.
Note 14 Economic Dependency
Under various agreements, the Company has engaged or will engage Winthrop Advisor, its affiliates and entities under common control with
Winthrop 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 services, transaction management and investor relations.
As
a result of these relationships, the Company is dependent upon Winthrop 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.
26
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Note 15 Share-Based Compensation
Stock Option Plan
The Company has
a stock option plan (the Plan) which authorizes the grant of nonqualified stock options to the Companys independent directors, officers, advisors, consultants and other personnel, subject to the absolute discretion of the board of
directors and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan is equal to the fair market value of a share on the date of grant. Upon a change in control, unvested options will become fully
vested and any performance conditions imposed with respect to the options will be deemed to be fully achieved. A total of 0.5 million shares have been authorized and reserved for issuance under the Plan. As of March 31, 2017 and
December 31, 2016, no stock options were issued under the Plan.
Restricted Share Plan
The Companys employee and director incentive restricted share plan (RSP) provides the Company with the ability to grant
awards of restricted shares to the Companys directors, officers and employees (if the Company ever has employees), employees of the Former Advisor or the Advisor and its affiliates, employees of entities that provide services to the Company,
directors of the Former Advisor or of entities that provide services to the Company, certain consultants to the Company and the Former Advisor and its affiliates or to entities that provide services to the Company.
Under the RSP, the annual amount granted to the independent directors is determined by the board of directors. The maximum number of shares of
stock granted under the RSP cannot exceed 10% of the Companys outstanding shares of common stock, par value $0.01 per share, on a fully diluted basis at any time. Restricted shares issued to independent directors generally vest over a
three-year period in increments of 33.3% per annum. Generally, such awards provide for accelerated vesting of (i) all unvested restricted shares upon a change in control or a termination without cause and (ii) the portion of the unvested
restricted shares scheduled to vest in the year of voluntary termination or the failure to be reelected to the board. The restricted stock award agreements provide that the shares will vest on the consummation of the sale or disposition by the
Company of all or substantially all of the Companys assets (or any transaction or services of transactions within a period of twelve months), which could occur as a result of the Liquidation Plan.
Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of
restricted shares receive cash dividends and other distributions (including any liquidating distributions made pursuant to the Liquidation Plan) prior to the time that the restrictions on the restricted shares have lapsed. Any dividends payable in
shares of common stock are subject to the same restrictions as the underlying restricted shares.
The following table displays restricted
share award activity during the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted
|
|
|
Weighted-Average Issue
|
|
|
|
Shares
|
|
|
Price per Share
|
|
Unvested, December 31, 2016
|
|
|
268,780
|
|
|
$
|
10.50
|
|
Vested
|
|
|
(125,467
|
)
|
|
$
|
10.41
|
|
Forfeited
|
|
|
(13,521
|
)
|
|
$
|
10.10
|
|
|
|
|
|
|
|
|
|
|
Unvested, March 31, 2017
|
|
|
129,792
|
|
|
$
|
10.43
|
|
|
|
|
|
|
|
|
|
|
Under going concern accounting, the Company measured stock-based compensation expense at each reporting date
for any changes in the fair value and recognized the expense prorated for the portion of the requisite service period completed. Accordingly, the Company recognized $0.1 million in
non-cash
compensation
expense for the three months ended March 31, 2016. Under liquidation accounting, compensation expense is no longer recorded as the vesting of the restricted shares does not result in cash outflow for the Company.
27
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
2014 Multi-Year Outperformance Agreement
On April 15, 2014 (the Effective Date), the Company entered into a multi-year outperformance agreement (the OPP)
with New York Recovery Operating Partnership, L.P., a Delaware limited partnership (the Operating Partnership) and the Former Advisor. Under the OPP, the Former Advisor was issued 8,880,579 LTIP Units in the Operating Partnership with a
maximum award value on the issuance date equal to 5.0% of the Companys market capitalization (the OPP Cap). The LTIP Units are structured as profits interests in the Operating Partnership.
Prior to the OPP Side Letter dated December 19, 2016 (OPP Side Letter), subject to the Former Advisors continued
service through each vesting date, one third of any earned LTIP Units would vest on each of the third, fourth and fifth anniversaries of the Effective Date.
On April 15, 2015 and 2016, in connection with the end of the
One-Year
Period and
Two-Year
Period, 367,059 and 805,679 LTIP Units, respectively, were earned by the Former Advisor under the terms of the OPP. Pursuant to the OPP Side Letter, these LTIP Units immediately vested upon approval by the
Compensation Committee and converted on a
one-for-one
basis into unrestricted share of the Companys common stock.
In addition, the OPP Side Letter provided that the number of additional LTIP Units issued under the OPP to the Former Advisor that were
eligible to be earned in the third and final year of the OPP on April 15, 2017 (the Year 3 LTIP Units) will be calculated on April 15, 2017, the final valuation date, in accordance with the terms of the OPP and will be
immediately vested and converted on a
one-for-one
basis into unrestricted shares of common stock on April 15, 2017, except, if a change of control (as defined in
the OPP) occurred prior to April 15, 2017, the number of Year 3 LTIP Units would be calculated as of the day immediately preceding the close of the change of control and the value of the Year 3 LTIP Units would have been paid to the Former
Advisor in cash at the closing. Based on calculations for the Three-Year Period, the Former Advisor earned 43,685 LTIP Units under the terms of the OPP on April 15, 2017. Pursuant to the terms of the OPP Side Letter, these LTIP units were
immediately vested on April 15, 2017, were converted on a one-for-one basis into unrestricted shares of the Companys common stock on May 9, 2017, and issued to the Former Advisor on May 9, 2017.
Under the OPP, the Former Advisors eligibility to earn a number of LTIP Units with a value equal to a portion of the OPP Cap upon the
first, second and third anniversaries of the Effective Date is based on the Companys achievement of certain levels of total return to the Companys stockholders (Total Return), including both share price appreciation and
common stock dividends, as measured against a peer group of companies, as set forth below, for the three-year performance period commencing on the Effective Date (the Three-Year Period); each
12-month
period during the Three-Year Period (the
One-Year
Period); and the initial
24-month
period of the Three-Year
Period (the
Two-Year
Period), as follows:
28
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Period
|
|
Annual
Period
|
|
Interim
Period
|
Absolute Component: 4% of any excess Total Return if total stockholder return attained
above an absolute hurdle measured from the beginning of such period:
|
|
21%
|
|
7%
|
|
14%
|
Relative Component: 4% of any excess Total Return attained above the Total Return for
the performance period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achievement of cumulative Total Return measured from the beginning of such period:
|
|
|
|
|
|
|
100% will be earned if total stockholder return achieved is at least:
|
|
18%
|
|
6%
|
|
12%
|
50% will be earned if total stockholder return achieved is:
|
|
0%
|
|
0%
|
|
0%
|
0% will be earned if total stockholder return achieved is less than:
|
|
0%
|
|
0%
|
|
0%
|
a percentage from 50% to 100% calculated by linear interpolation will be earned
if the cumulative Total Return achieved is between:
|
|
0% - 18%
|
|
0% - 6%
|
|
0% - 12%
|
*
|
The Peer Group is comprised of the companies in the SNL US REIT Office Index as of the Effective Date.
|
The potential outperformance award is calculated at the end of each
One-Year
Period, the
Two-Year
Period and the Three-Year Period. The award earned for the Three-Year Period is based on the formula in the table above less any awards earned for the
Two-Year
Period
and
One-Year
Periods, but not less than zero; the award earned for the
Two-Year
Period is based on the formula in the table above less any award earned for the first and
second
One-Year
Period, but not less than zero. Any LTIP Units that are unearned at the end of any performance period will be forfeited.
The compensation committee administers the OPP and has other powers thereunder, although all of these powers can be exercised by the Board if
the Companys Board so elects. These powers include determining the amount of LTIP Units earned after any performance period, the ability to make equitable or proportionate adjustment in the terms of the LTIP Units to avoid distortion in the
value of the LTIP Units in connection with certain extraordinary events, including a plan of liquidation, and the right to approve transfers of LTIP Units.
After an LTIP Unit is earned, the holder of such LTIP Unit is entitled to a
catch-up
distribution and
thereafter the same distributions as paid to the holder of an OP Unit.
29
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
The following table presents information about the Companys OPP, which was measured at
fair value on a recurring basis as of December 31, 2016, aggregated by the fair value hierarchy within which the instrument falls:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPP
|
|
|
|
|
|
|
|
|
|
$
|
5,457
|
|
|
$
|
5,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 valuations
The following table provides quantitative information about significant Level 3 input used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Valuation
|
|
|
Unobservable
|
|
|
|
|
Financial Instrument
|
|
Fair Value
|
|
|
Technique
|
|
|
Inputs
|
|
|
Input Value
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPP
|
|
$
|
5,457
|
|
|
|
Monte Carlo Simulation
|
|
|
|
Expected volatility
|
|
|
|
28.0
|
%
|
Expected volatility is a measure of the variability in possible returns for an instrument, parameter or market
index given how much the particular instrument, parameter or index changes in value over time. Generally, the higher the expected volatility of the underlying instrument, the wider the range of potential future returns. An increase in expected
volatility, in isolation, would generally result in an increase in the fair value measurement of an instrument. For the relationship described above, the inverse relationship would also generally apply.
Prior to the adoption of the liquidation basis of accounting, share based compensation related to the OPP was recorded as part of general and
administrative expenses and
non-controlling
interest, a component of equity. Under liquidation basis accounting, since no cash outflow is associated with the OPP, the value of the converted OP units is
incorporated in the estimated liquidating distributions per share.
30
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(unaudited)
Note 16 Earnings Per Share
Prior to the adoption of liquidation basis accounting, the Company determined basic earnings per share on the weighted average number of common
shares outstanding during the period. The Company computed diluted earnings per share based on the weighted average number of common shares outstanding combined with the incremental weighted average effect for all outstanding potentially dilutive
instruments.
The following is a summary of the basic and diluted net loss per share computations for the period presented:
|
|
|
|
|
|
|
Three Months Ended
|
|
(In thousands, except share and per share data)
|
|
March 31, 2016
|
|
Net income attributable to stockholders
|
|
$
|
487
|
|
Adjustments to net income attributable to stockholders for common share equivalents
|
|
|
(68
|
)
|
|
|
|
|
|
Diluted net income attributable to stockholders
|
|
$
|
419
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
|
163,872,612
|
|
|
|
|
|
|
Net income per share attributable to stockholders, basic
|
|
$
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
167,926,110
|
|
|
|
|
|
|
Net income per share attributable to stockholders, diluted
|
|
$
|
|
|
|
|
|
|
|
Diluted net income per share assumes the conversion of all common share equivalents into an equivalent number
of common shares, unless the effect is anti-dilutive. The Company considers unvested restricted shares, OP units and LTIP units to be common share equivalents.
Note 17
Non-Controlling
Interests
The Company is the sole general partner of the OP and holds all of the OP units as of March 31, 2017. As of December 31, 2016, the
Former Advisor or members, employees or former employees of the Former Advisor held 841,660 OP units and 7,707,841 unvested LTIP units. On January 3, 2017, the Company issued 841,660 shares of its common stock upon redemption of 841,660 OP
units following which no OP units remained outstanding other than OP units held by the Company corresponding to shares of the Company common stock. There were $0 and $0.4 million of distributions paid to OP unit and LTIP unit holders during the
three months ended March 31, 2017 and 2016, respectively.
A holder of OP units has the right to distributions on the same basis as a
holder of shares of the Companys common stock, and has the right to redeem OP units for the cash value of a corresponding number of shares of the Companys common stock or a corresponding number of shares of the Companys common
stock, at the election of the OP, in accordance with the limited partnership agreement of the OP. The remaining rights of the holders of OP units are limited, however, and do not include the ability to replace the general partner or to approve the
sale, purchase or refinancing of the OPs assets.
Note 18 Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form
10-Q,
and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements.
31
NEW YORK REIT, INC.
March
31, 2017