NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(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.” In October 2018, the Company announced the withdrawal of its common stock from listing on the NYSE in connection with the conversion of the Company from a Maryland corporation to a Delaware
limited liability company to be known as New York REIT Liquidating LLC (the “LLC”). November 2, 2018 will be the last day on which shares of the Company’s common stock are traded on the NYSE and the Company’s stock transfer
books will be closed as of such date. The conversion of the Company to the LLC is expected to become effective November 7, 2018. See Note 2 for further details.
Substantially all of the Company’s business is conducted through its operating partnership, New York Recovery Operating Partnership,
L.P., a Delaware limited partnership (the “OP”). The Company’s 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 Company’s 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.
As of September 30, 2018, the Company owned two investments, the Viceroy Hotel and the
Company’s equity interest in WWP Holdings, LLC (Worldwide Plaza). The Company’s share of Worldwide Plaza has an aggregate of 1.1 million rentable square feet, with an average occupancy of 98.2%. At September 30, 2018, office,
hotel and retail space represent 78%, 17% and 5%, respectively, of rentable square feet including Worldwide Plaza. The Viceroy Hotel was sold on October 4, 2018. Details of the sale are included in Note 6.
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
Company’s 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”).
In March 2018 the Company effected a
1-for-10
reverse stock split (the “Reverse Split”) of its common stock (“Common Shares”) pursuant to which each of ten Common Shares issued and
outstanding as of the close of market on March 15, 2018 were automatically combined into one Common Share, subject to the elimination of fractional shares. All references to Common Shares outstanding and per Common Share amounts have been
restated to reflect the effect of the Reverse Split for all periods presented.
Any fractional shares resulting from the Reverse Split
have been redeemed for cash in lieu of shares.
Note 2 — Liquidation Plan
The Liquidation Plan, as amended by the Board in accordance with the terms of the Liquidation Plan, provides for an orderly sale of the
Company’s assets, payment of the Company’s liabilities and other obligations and the winding down of operations and final dissolution of the Company. The Company is no longer permitted to make any new investments other than to make
protective acquisitions or advances with respect to its existing assets. 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.
5
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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. As all of the Company’s assets will not be sold by such date, the Company will satisfy the requirement by
converting the Company from a Maryland corporation to the LLC which is expected to occur on November 7, 2018. The conversion was approved at a special meeting of stockholders on Friday, September 7, 2018. In connection with the conversion
to the LLC, the Company’s shares of common stock will be withdrawn from trading on the NYSE. The last day of trading of the Company’s common stock will be November 2, 2018.
At the effective time of the conversion, each outstanding share of common stock will be converted into one unit of common membership interest
in the LLC (a “unit”) and holders of the Company’s common stock will automatically receive one unit (which unit will be in book entry form) for each share of the Company’s common stock held by such stockholder. Holders of shares
of the Company’s common stock should note that unlike shares of the Company’s common stock, which in addition to being listed on the NYSE, are freely transferable, units will not be listed for trading and generally will not be transferable
except by will intestate succession or operation of law. Therefore, the recipients of units in the LLC will not have the ability to realize any value from these interests except from distributions made by the LLC, the timing of which will be solely
in the discretion of the board of managers of the LLC (the “Board of Managers”).
The business of the LLC will be the same as
the business of the Company immediately preceding the conversion, which will, consistent with the Liquidation Plan, consist of the continued ownership of the Company’s interest in Worldwide Plaza, the Company’s only remaining
property-related asset. Under its operating agreement, the business and affairs of the LLC will be managed by or under the direction of its Board of Managers, and the LLC’s sole purpose is winding up the affairs of the LLC and liquidation of
its remaining assets. The LLC will remain in existence until the earlier of (i) the distribution of all its assets pursuant to liquidation or (ii) four years from the effective time of the conversion. The LLC’s term may be extended to
such later date as the Board of Managers determines is reasonably necessary to fulfill the purposes of the LLC.
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 Statements of Net Assets.
The
Company expects to continue to qualify as a REIT throughout the liquidation until such time as the Company converts to the LLC.
6
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Note 3 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying
consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been eliminated in
consolidation.
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 Company’s 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 activities under the Liquidation Plan. The current estimate of net assets in liquidation has been calculated based on undiscounted
cash flow projections. The actual timing of the sale of the Company’s remaining interest in Worldwide Plaza has not yet been determined and is subject to future events and uncertainties. These estimates are subject to change based on the actual
timing of future asset sales.
The liquidation value of the Company’s investments in real estate is based on expected sales proceeds
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 as adjusted for the timing and other assumptions related to the
liquidation process.
The Company accrues costs and revenues that it expects to incur and earn as it carries out its liquidation
activities through the end of the projected liquidation period to the extent it has a reasonable basis for estimation. Estimated costs expected to be incurred through the end of the liquidation period include budgeted property expenses and corporate
overhead, costs to dispose of the properties, mortgage interest expense, costs associated with satisfying known and contingent liabilities and other costs associated with the winding down and dissolution of the Company. Revenues are based on
in-place
leases plus management’s estimates of revenue upon
re-lease
based on current market assumptions. These amounts are classified as a liability for estimated costs
in excess of estimated receipts during liquidation on the Consolidated Statements of Net Assets. Actual costs and revenues may differ from amounts reflected in the consolidated 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 September 30, 2018 and December 31, 2017 are included in accounts payable, accrued expenses and other liabilities
on the Consolidated Statements of Net Assets.
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 (Loss), a Consolidated Statement of Changes in Equity or a Consolidated Statement of Cash Flows.
Use of Estimates
Certain of the
Company’s accounting estimates are particularly important for an understanding of the Company’s financial position and results of operations and require the application of significant judgment by management. As a result, these estimates
are subject to a degree of uncertainty. The Company is required to estimate all costs and revenue it expects to incur and earn through the end of liquidation including the estimated amount of cash it expects to collect on the disposal of its assets
and the estimated costs to dispose of its assets. All of the estimates and evaluations are susceptible to change and actual results could differ materially from the estimates and evaluations.
7
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Revenue Recognition
Under liquidation basis of accounting, the Company has accrued all revenue that it expects to earn through the end of liquidation to the extent
it has a reasonable basis for estimation. Revenues are accrued based on contractual amounts due under the leases in place over the estimated hold period of each asset. These amounts are classified within liability for estimated costs in excess of
estimated receipts during liquidation on the Consolidated Statement of Net Assets.
In accordance with liquidation accounting, as of
January 1, 2017, tenant and other receivables were adjusted to their net realizable values. Management continually reviews tenant and other receivables to determine collectability. Any changes in the collectability of the receivables is
reflected in the net realizable value of the receivable.
The Company owns 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. Contingent rental income is not contemplated
under liquidation accounting unless there is a reasonable basis to estimate future receipts.
Investments in Real Estate
As of January 1, 2017, the investments in real estate were adjusted to their estimated net realizable value upon sale, or liquidation
value, to reflect the change to the liquidation basis of accounting. The liquidation value represents the estimated amount of cash the Company expects to collect on the disposal of its assets as it carries out the liquidation activities of its
Liquidation Plan. The liquidation value of the Company’s investments in real estate are presented on an undiscounted basis. Estimated revenue during the period following the commencement of liquidation and prior to the expected sale date and
costs to dispose of these assets are presented separately from the related assets. Subsequent to January 1, 2017, all changes in the estimated liquidation value of the investments in real estate are reflected as a change in the Company’s
net assets in liquidation presented on an undiscounted basis.
The liquidation value of investments in real estate was based on a number
of factors including discounted cash flow and direct capitalization analyses, detailed analysis of current market comparables and broker opinions of value, and binding purchase offers to the extent available.
Investment in Unconsolidated Joint Venture
The Company accounts for its investment in unconsolidated joint venture under the equity method of accounting because the Company exercises
significant influence over, but does not control the entity and is not considered to be the primary beneficiary. Under liquidation accounting, the investment in unconsolidated joint venture is recorded at its net realizable value. The Company
evaluates the net realizable value of its unconsolidated joint venture at each reporting period. Any changes in net realizable value will be reflected as a change in the Company’s net assets in liquidation. The liquidation value of the
Company’s remaining investment in Worldwide Plaza as of September 30, 2018 is based on the value of the property as a result of the Company’s sale of its 48.7% interest in Worldwide Plaza (See Note 7).
Amortization
Under liquidation
accounting, intangible assets and liabilities are included in the liquidation value of investments in real estate and are no longer amortized.
Restricted Cash
Restricted cash
primarily consists of the $90.7 million capital improvement reserve for Worldwide Plaza with the balance representing maintenance, real estate tax, structural and debt service reserves.
8
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 down of operations. These costs are estimated and are anticipated to be paid out over the liquidation period.
The Company accrued the following revenues and expenses expected to be earned or incurred during liquidation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
Rents and reimbursements
|
|
$
|
—
|
|
|
$
|
1,956
|
|
|
Hotel revenues and reimbursements
|
|
|
1,175
|
|
|
|
11,769
|
|
|
Release of liability
|
|
|
4,199
|
|
|
|
—
|
|
|
Property operating expenses
|
|
|
—
|
|
|
|
1,930
|
|
|
Hotel operating expense
|
|
|
(372
|
)
|
|
|
(10,487
|
)
|
|
Interest expense
|
|
|
—
|
|
|
|
(1,780
|
)
|
|
General and administrative expenses
|
|
|
(3,817
|
)
|
|
|
(11,137
|
)
|
|
Capital expenditures
|
|
|
(212
|
)
|
|
|
(920
|
)
|
|
Sales costs
|
|
|
(1,435
|
)
|
|
|
(18,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Liability for estimated costs in excess of estimated receipts during liquidation
|
|
$
|
(462
|
)
|
|
$
|
(27,228
|
)
|
|
|
|
|
|
|
|
|
|
|
9
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The change in the liability for estimated costs in excess of estimated receipts during
liquidation for the nine-month period ended September 30, 2018 and 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2018
|
|
|
Net Change
in Working
Capital (1)
|
|
|
Remeasurement
of Assets and
Liabilities
|
|
|
September 30, 2018
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net inflows from investments in real estate
|
|
$
|
3,920
|
|
|
$
|
(3,851
|
)
|
|
$
|
4,721
|
|
|
$
|
4,790
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales costs
|
|
|
(18,559
|
)
|
|
|
16,721
|
|
|
|
403
|
|
|
|
(1,435
|
)
|
|
Corporate expenditures
|
|
|
(12,589
|
)
|
|
|
10,262
|
|
|
|
(1,490
|
)
|
|
|
(3,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,148
|
)
|
|
|
26,983
|
|
|
|
(1,087
|
)
|
|
|
(5,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability for estimated costs in excess of estimated receipts during liquidation
|
|
$
|
(27,228
|
)
|
|
$
|
23,132
|
|
|
$
|
3,634
|
|
|
$
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents changes in cash, restricted cash, accounts receivable, accounts payable and accrued expenses as a
result of the Company’s operating activities for the nine-month period ended September 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
Net Change
in Working
Capital (1)
|
|
|
Remeasurement
of Assets and
Liabilities
|
|
|
Consolidation (2)
|
|
|
September 30, 2017
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net inflows from investments in real estate
|
|
$
|
58,303
|
|
|
$
|
(73,071
|
)
|
|
$
|
(77,736
|
)
|
|
$
|
(1,572
|
)
|
|
$
|
(94,076
|
)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales costs
|
|
|
(69,524
|
)
|
|
|
4,708
|
|
|
|
3,972
|
|
|
|
(57,334
|
)
|
|
|
(118,178
|
)
|
|
Corporate expenditures
|
|
|
(67,360
|
)
|
|
|
48,413
|
|
|
|
(3,519
|
)
|
|
|
—
|
|
|
|
(22,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136,884
|
)
|
|
|
53,121
|
|
|
|
453
|
|
|
|
(57,334
|
)
|
|
|
(140,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability for estimated costs in excess of estimated receipts during liquidation
|
|
$
|
(78,581
|
)
|
|
$
|
(19,950
|
)
|
|
$
|
(77,283
|
)
|
|
$
|
(58,906
|
)
|
|
$
|
(234,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents changes in cash, restricted cash, accounts receivable, accounts payable and accrued expenses as a
result of the Company’s operating activity for the nine-month period ended September 30, 2017.
|
|
(2)
|
Represents adjustments necessary to reflect the consolidation of Worldwide Plaza (See Note 7).
|
Note 5 — Net Assets in Liquidation
Net assets in liquidation increased by $6.0 million during the three months ended September 30, 2018 and, as a result of property
sales and corresponding liquidating distributions to holders of the Company’s Common Shares, was reduced by $405.7 million during the nine months ended September 30, 2018. During the three months ended September 30, 2018, there
was a $5.1 million increase in the estimated liquidation value of the Company’s investment in Worldwide Plaza primarily related to its extended estimated hold period and a $0.9 million increase due to the remeasurement of estimated
receipts primarily related to the operations of the Viceroy Hotel.
The reduction during the nine months ended September 30, 2018 is
primarily due to liquidating distributions to common stockholders totaling $417.3 million, a $9.0 million decrease in the estimated liquidation value of the Viceroy Hotel property based on the contract for sale, which was directly offset
by a release of liability of $4.2 million associated with the termination of the Viceroy Hotel management agreement and a $0.5 million decrease due to a remeasurement of estimated receipts. The reduction in net assets was offset by a net
increase of $16.9 million in the estimated liquidation value of the Company’s investment in Worldwide Plaza primarily related to the extended estimated hold period.
10
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Net assets in liquidation decreased by $215.4 million and $221.3 million during the
three and nine months ended September 30, 2017, respectively. The decrease during the three months ended September 30, 2017 was primarily the result of (i) a $75.5 million net decrease in liquidation values due to the realized
sales of
245-249
West 17
th
Street (“Twitter”), 218 West 18
th
Street (“Red Bull”),
229 West 36
th
Street and 256 West 38
th
Street and a signed contract for sale for 1440 Broadway, (ii) a $63.7 million net decrease in
estimated liquidation values of the remaining portfolio, (iii) a $75.5 million decrease in the Company’s investment in Worldwide Plaza which includes estimated debt defeasance costs of $108.3 million, net of mortgage debt premium
amortization of $22.0 million and changes in estimated cash flows during the holding period of $10.8 million, and (iv) a net decrease of $0.7 million due to other cumulative adjustments related to changes in debt costs and
adjustments to estimated holding periods.
The decrease during the nine months ended September 30, 2017 was primarily the result of
(i) a $78.0 million net decrease in liquidation values due to the realized sales of 50 Varick Street,
245-249
West 17
th
Street (Twitter), 218 West
18
th
Street (Red Bull), 229 West 36
th
Street and 256 West 38
th
Street and a signed
contract for sale for 1440 Broadway, (ii) a $63.7 million net decrease in estimated liquidation values of the remaining portfolio, (iii) a $75.5 million decrease in the Company’s investment in Worldwide Plaza which includes
estimated debt defeasance costs of $108.3 million net of mortgage debt premium amortization of $22.0 million and changes in estimated cash flows during the holding period of $10.8 million and, (iv) a net decrease of
$4.1 million due to other cumulative adjustments related to changes in debt costs and adjustments to estimated holding periods.
The
net assets in liquidation at September 30, 2018, presented on an undiscounted basis include the Company’s proportionate share in Worldwide Plaza’s net assets which include a property value at $1.725 billion based on the
Company’s sale of its 48.7% interest in Worldwide Plaza discussed in Note 7. Future increases in the value of Worldwide Plaza, if any, from the agreed additional capital investment will be reflected in the Consolidated Statements of Net Assets
when such capital investments are made and such increases in fair value can be observed.
There were 16,791,769 Common Shares outstanding
at September 30, 2018. The net assets in liquidation as of September 30, 2018, if sold at their net asset value, would result in liquidating distributions of approximately $25.45 per Common Share. On October 5, 2018, the Company,
following approval of the Board, declared a cash liquidating distribution of $3.25 per Common Share payable on October 22, 2018 to stockholders of record on October 15, 2018, reducing the estimate of future liquidating distributions to
$22.20 per Common Share. The net assets in liquidation as of September 30, 2018 of $427.4 million, if sold at their net asset value, plus the cumulative liquidating distributions to common stockholders of $932.8 million ($55.55 per
Common Share) paid prior to September 30, 2018, would result in cumulative liquidating distributions to common stockholders of $81.00 per Common Share. 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.
Note 6
— Real Estate Investments
2018 Activity
333 West 34
th
Street
–
property sale –
On
January 5, 2018, the Company sold to an independent third party the 333 West 34
th
Street office property in Manhattan, New York for a gross sales price of $255.0 million. The property
was part of the collateral for the Company’s $760.0 million POL Loans (defined in Note 8). In connection with the sale, the Company paid down $110.6 million as required under the POL Loans upon the sale of the property. After
satisfaction of debt,
pro-rations
and closing costs, the Company received net proceeds of approximately $134.6 million. The estimated liquidation value of the property was $255.0 million at
December 31, 2017.
11
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
350 West 42nd Street
–
property sale –
On January 10, 2018, the
Company sold to an independent third party the 350 West 42nd Street retail property in Manhattan, New York for a gross sales price of $25.1 million. The property was part of the collateral for the Company’s $760.0 million POL Loans.
In connection with the sale, the Company paid down $11.3 million as required under the POL Loans upon the sale of the property. After satisfaction of debt,
pro-rations
and closing costs, the Company
received net proceeds of approximately $12.6 million. The estimated liquidation value of the property was $25.1 million at December 31, 2017.
One Jackson Square
–
property sale –
On February 6, 2018, the Company sold to an independent third party the One
Jackson Square retail property in Manhattan, New York for a gross sales price of $31.0 million. The property was part of the collateral for the Company’s $760.0 million POL Loans. In connection with the sale, the Company paid down
$13.0 million as required under the POL Loans upon the sale of the property. After satisfaction of debt,
pro-rations
and closing costs, the Company received net proceeds of approximately
$16.5 million. The estimated liquidation value of the property was $31.0 million at December 31, 2017.
2091 Coney
Island Avenue
–
property sale –
On February 14, 2018, the Company sold to an independent third party the 2091 Coney Island Avenue office property in Brooklyn, New York for a gross sales price of $3.8 million. The
property, together with the retail property located at 2067-2073 Coney Island Avenue make up 1100 Kings Highway. The property was part of the collateral for the $20.2 million mortgage note payable on 1100 Kings Highway. In connection with the
sale and as required in the mortgage loan agreement, the Company paid down a portion of the outstanding mortgage loan of $4.4 million. The estimated liquidation value of the property was $3.8 million at December 31, 2017.
306 East 61st Street – property sale –
On February 16, 2018, the Company sold to an independent third party the 306 East
61
st
Street office property in Manhattan, New York for a gross sales price of $47.0 million. The property was encumbered by a $19.0 million mortgage loan which was satisfied in full at
closing. After satisfaction of debt,
pro-rations
and closing costs, the Company received net proceeds of approximately $26.5 million. The estimated liquidation value of the property was $47.0 million
at December 31, 2017.
350 Bleecker Street and
367-387
Bleecker Street – property
sale –
On April 19, 2018, the Company sold to an independent third party the 350 Bleecker Street and
367-387
Bleecker Street properties located in Manhattan, New York for a gross sales price of
$31.5 million. The properties were part of the collateral for the Company’s $760.0 million POL Loans. In connection with the sale, the Company was required to pay down the POL Loans by $21.1 million. After satisfaction of debt,
pro-rations
and closing costs, the Company received net proceeds of approximately $8.8 million. The estimated liquidation value of the properties was $31.5 million at March 31, 2018 and
December 31, 2017.
416 Washington Street
– property sale –
On April 19, 2018, the Company sold to an
independent third party the 416 Washington Street retail property in Manhattan, New York for a gross sales price of $11.2 million. The property was part of the collateral for the Company’s $760.0 million POL Loans. The Company was
required to pay down $5.5 million under the POL Loans upon the sale of the property. After satisfaction of debt,
pro-rations
and closing costs, the Company received net proceeds of approximately
$5.1 million. The estimated liquidation value of the property was $11.2 million at March 31, 2018 and December 31, 2017.
2067 – 2073 Coney Island Avenue – property sale –
On May 1, 2018, the Company sold to an independent third party
the 2067-2073 Coney Island Avenue retail property in Brooklyn, New York for a gross sales price of $30.5 million. The property was part of the collateral for the $20.2 million mortgage note payable on 1100 Kings Highway. After satisfaction
of debt,
pro-rations
and closing costs, the Company received net proceeds of approximately $13.7 million. The estimated liquidation value of the property was $30.5 million at March 31, 2018 and
December 31, 2017.
Centurion Parking Garage – property sale –
On May 1, 2018, the Company sold to an
independent third party the Centurion Parking Garage property located at 33 West 56
th
Street, Manhattan, New York, for a gross sales price of $3.5 million. After satisfaction of
pro-rations
and closing costs, the Company received net proceeds of approximately $3.3 million. The estimated liquidation value of the property was $3.5 million at March 31, 2018 and December 31,
2017.
12
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
POL Loans
– In April 2018, the POL Loans were fully satisfied using proceeds from
the sales of
382-384
Bleecker Street, 350 Bleecker Street,
416-425
Washington Street and reserves.
Viceroy Hotel – property sale –
On October 4, 2018, the Company sold to an independent third party the Viceroy Hotel
property located in Manhattan, New York for a gross sales price of $41.0 million. After satisfaction of
pro-rations
and closing costs, the Company received net proceeds of approximately
$39.8 million. The estimated liquidation value of the property was $41.0 million at September 30, 2018 and $50.0 million at December 31, 2017.
Significant Tenants
The following table
lists the tenants whose annualized cash rent represented greater than 10% of total annualized cash rent for the nine months ended September 30, 2018 and 2017, including annualized cash rent related to the Company’s unconsolidated joint
venture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Property Portfolio
|
|
Tenant
|
|
2018
|
|
|
2017
|
|
|
Worldwide Plaza
|
|
Cravath, Swaine & Moore, LLP
|
|
|
47
|
%
|
|
|
25
|
%
|
|
Worldwide Plaza
|
|
Nomura Holdings America, Inc.
|
|
|
31
|
%
|
|
|
16
|
%
|
The termination, delinquency or
non-renewal
of any of the above
tenants may have a material adverse effect on the Company’s operations.
Note 7 — Investment in Unconsolidated Joint Venture
The Company initially owned a 48.9% equity interest in Worldwide Plaza. On June 1, 2017, the Company acquired an additional 49.9% equity
interest in Worldwide Plaza on exercise of the Company’s option (the “WWP Option”) to purchase additional equity interests in Worldwide Plaza pursuant to the Company’s rights under the joint venture agreement of Worldwide Plaza
for a contract purchase price of $276.7 million, based on the option price of the property of approximately $1.4 billion less the then outstanding debt balance of $875.0 million on the property. The Company’s joint venture
partner exercised its right to retain 1.2% of the aggregate membership interests in Worldwide Plaza. Following the exercise of the option, the Company owned a total equity interest of 98.8% in Worldwide Plaza.
On October 18, 2017, the Company sold a 48.7% interest in Worldwide Plaza to a joint venture managed by SL Green Realty Corp. and RXR
Realty LLC based on an estimated underlying property value of $1.725 billion. In conjunction with the equity sale, there was a concurrent $1.2 billion refinancing of the existing Worldwide Plaza debt. The Company received cash at closing
of approximately $446.5 million from the sale and excess proceeds from the financing, net of closing costs which included $108.3 million of defeasance and prepayment costs. The new debt on Worldwide Plaza bears interest at a blended rate
of approximately 3.98% per annum, requires monthly payments of interest only and matures in November 2027. The Company has reserved $90.7 million of the proceeds in a separate account to fund future capital improvements to Worldwide Plaza.
Following the sale of its interest, the Company now holds a 50.1% interest in Worldwide Plaza. The Company has determined that this investment is an investment in a variable interest entity (VIE). The Company has determined that it is not the
primary beneficiary of this VIE since the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance. The Company accounts for this investment using the equity method of accounting.
13
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The lease with one of the tenants at the Worldwide Plaza property contains a right of first
offer in the event that Worldwide Plaza sells 100% of the property. The right requires Worldwide Plaza to offer the tenant the option to purchase 100% of the Worldwide Plaza property, at the price, and on other material terms, proposed by Worldwide
Plaza to third parties. If, after a
45-day
period, that tenant does not accept the offer, Worldwide Plaza may then sell the property to a third party, provided that Worldwide Plaza will be required to
re-offer
the property to that tenant if it desires to sell the property for a purchase price (and other economic consideration) less than 92.5% of the initial purchase price contained in the offer to that tenant.
The amounts reflected in the following tables are based on the financial information of Worldwide Plaza and are not presented on a
liquidation basis of accounting. Under liquidation accounting, equity investments are carried at net realizable value.
The condensed
balance sheets as of September 30, 2018 and December 31, 2017 for Worldwide Plaza are as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
Real estate assets, at cost
|
|
$
|
825,426
|
|
|
$
|
825,310
|
|
|
Less accumulated depreciation and amortization
|
|
|
(205,801
|
)
|
|
|
(185,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets, net
|
|
|
619,625
|
|
|
|
639,933
|
|
|
Cash and cash equivalents
|
|
|
35,947
|
|
|
|
15,964
|
|
|
Other assets
|
|
|
151,670
|
|
|
|
161,285
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
807,242
|
|
|
$
|
817,182
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
1,222,178
|
|
|
$
|
1,213,193
|
|
|
Other liabilities
|
|
|
135,493
|
|
|
|
126,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,357,671
|
|
|
|
1,339,335
|
|
|
Deficit
|
|
|
(550,429
|
)
|
|
|
(522,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and deficit
|
|
$
|
807,242
|
|
|
$
|
817,182
|
|
|
|
|
|
|
|
|
|
|
|
The condensed statements of operations for the three and nine months ended September 30, 2018 and 2017
for Worldwide Plaza are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
(In thousands)
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
Rental income
|
|
$
|
37,034
|
|
|
$
|
34,289
|
|
|
$
|
106,815
|
|
|
$
|
102,148
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
16,753
|
|
|
|
14,806
|
|
|
|
44,663
|
|
|
|
41,165
|
|
|
Depreciation and amortization
|
|
|
8,032
|
|
|
|
7,003
|
|
|
|
23,345
|
|
|
|
21,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
24,785
|
|
|
|
21,809
|
|
|
|
68,008
|
|
|
|
62,655
|
|
|
Operating income
|
|
|
12,249
|
|
|
|
12,480
|
|
|
|
38,807
|
|
|
|
39,493
|
|
|
Interest expense
|
|
|
(18,598
|
)
|
|
|
(16,362
|
)
|
|
|
(55,205
|
)
|
|
|
(45,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,349
|
)
|
|
$
|
(3,882
|
)
|
|
$
|
(16,398
|
)
|
|
$
|
(5,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(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 $0 at September 30, 2018 and $215.5 million at December 31, 2017. The mortgage notes payable were collateralized directly by the real estate held by the Company identified in the table below.
The Company’s mortgage notes payable as of September 30, 2018 and December 31, 2017 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Loan Amount
|
|
|
Portfolio
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
Mortgage Loan (1)
|
|
$
|
—
|
|
|
$
|
176,246
|
|
|
1100 Kings Highway (2)
|
|
|
—
|
|
|
|
20,200
|
|
|
Design Center (2)
|
|
|
—
|
|
|
|
19,048
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, gross principal amount
|
|
$
|
—
|
|
|
$
|
215,494
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loan was repaid on April 19, 2018. All properties have been released as collateral.
|
|
(2)
|
Loans were paid off in connection with the sale of the property.
|
On August 1, 2017, the Company’s mortgage loan collateralized by the 1100 Kings Highway property was modified to extend the maturity
date to April 1, 2018 and to allow for partial release of the collateral. In April 2018, the loan maturity date was extended to May 29, 2018. The loan was satisfied in full on May 1, 2018.
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 in the aggregate amount of $260.0 million (the “Mezzanine Loan” and, together with the Mortgage Loan, the “POL Loans”). The POL Loans were
initially secured directly, in the case of the Mortgage Loan, and indirectly in the case of the Mezzanine Loan, by 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”). In April 2018, the POL Loans were fully satisfied, and all the POL Loan properties sold during 2017 and
2018 have been released and are no longer collateral for the POL Loans.
Note 9 — Interest Rate Derivatives and Hedging Activities Risk
Management Objective of Using Derivatives
The Company periodically 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 Company’s 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 Former Advisor and its affiliates may also have had other financial relationships.
15
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
As these instruments were not converted to cash or other considerations, derivative financial
instruments were valued at $0 as of January 1, 2017 in accordance with liquidation accounting. The Company was not a party to any derivative financial instruments at September 30, 2018 or December 31, 2017.
Note 10 — Common Stock
In March
2018, the Company effected a
1-for-10
reverse stock split pursuant to which each of ten Common Shares issued and outstanding as of the close of market on March 15,
2018 were automatically combined into one Common Share, subject to elimination of fractional shares.
As of September 30, 2018 and
December 31, 2017 the Company had 16.8 million shares of common stock outstanding, including unvested shares of restricted common stock (“restricted shares”). On January 3, 2017, the Company issued 84,166 shares of its
common stock upon redemption of 841,660 OP units held by certain individuals who were members of the Former Advisor or its affiliates. As of September 30, 2018 and December 31, 2017, there were no OP units outstanding, other than OP units
held by the Company.
The Company expects to make periodic liquidating distributions out of net proceeds of asset sales, subject to
satisfying its liabilities and obligations, in lieu of regular monthly dividends. During 2017, the Company paid aggregate liquidating distributions equal to $30.70 per Common Share. On January 26, 2018, the Company paid a cash liquidating
distribution of $20.00 per Common Share. On May 18, 2018, the Company paid a cash liquidating distribution of $4.85 per Common Share. On October 22, 2018 the Company paid a cash liquidating distribution of $3.25 per Common Share. There can
be no assurance as to the actual amount or timing of future liquidating distributions stockholders will receive.
Note 11 — Commitments and
Contingencies
Future Minimum Lease Payments
At September 30, 2018, the Company’s only remaining leasehold interest was related to the Viceroy Hotel. The Company sold the Viceroy
Hotel on October 4, 2018, and its obligation under the ground lease was terminated. The Company paid $43,000 for its proportionate share of October’s rent upon closing.
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.
16
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(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 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 the
consolidated results of operations.
Note 12 — Related Party Transactions and Arrangements
Viceroy Hotel
Revenues from related
parties at the Viceroy Hotel were $0 and $1,000 for the three and nine months ended September 30, 2018, respectively. Revenues for the three and nine months ended September 30, 2017 were $0 and $5,000, respectively. The Company did not
have any receivables from related parties as of September 30, 2018 and 2017.
Winthrop Advisor and its Affiliates
On December 19, 2016 the Company entered into an agreement (the “Advisory Agreement”) with Winthrop Advisor, pursuant to which
Winthrop Advisor served as the Company’s 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.
17
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The Company and the Winthrop Advisor entered into a second amendment to the Advisory
Agreement on June 8, 2018 and a third amendment to the Advisory Agreement on August 7, 2018 and the revised terms on the Advisory Agreement following these amendments are described below.
The term of the Advisory Agreement will end on the earlier of the effective date of the conversion of the Company to a liquidating entity, or
the transfer of the Company’s assets to a liquidating trust (the “Liquidation Date”), or December 6, 2018, six months from the date of the second amendment. The term of the Advisory Agreement will automatically renew for a
one-month
period on the expiration of the term or any renewal term, unless terminated by a majority of the Company’s independent directors or the Winthrop Advisor, upon written notice 45 days before the
expiration of the term or any renewal term and will automatically terminate at the effective time of the dissolution of the Company in accordance with its plan of liquidation or, if the assets of the Company are transferred to a liquidating trust
(or the Company is converted into a liquidating entity), the final disposition of the assets transferred to the liquidating trust or held by the liquidating entity, which is expected to be the LLC. The Advisory Agreement may be terminated upon 15
days written notice by a majority of the Company’s independent directors if the Company’s chief executive officer resigns or is otherwise unavailable to serve as the Company’s chief executive officer for any reason and the Winthrop
Advisor has not proposed a new chief executive officer acceptable to a majority of the Company’s independent directors. On July 12, 2018, the Company’s independent directors voted unanimously to appoint John Garilli as Chief Executive
Officer upon the resignation of Wendy Silverstein from the position and accordingly did not exercise the Company’s right to terminate the Advisory Agreement;
Because the Company expects to convert to the LLC effective November 7, 2018, November 7, 2018 is expected to be the Liquidation Date, and,
accordingly, the current term of the Advisory Agreement is expected to expire on November 7, 2018. Since no notice of termination of the Advisory Agreement has been received by Winthrop Advisor, the Advisory Agreement will automatically renew at the
end of the current term for a term ending December 7, 2018 and will thereafter continue automatically renew for additional on-month terms unless otherwise terminated as described above.
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 Advisory Agreement) up to $3.0 billion and 0.25% per annum of the cost of assets in excess of $3.0 billion.
In determining the Cost of Assets (as defined in the Advisory Agreement) for purposes of calculating the management fee payable to the Winthrop
Advisor, the cost of the Viceroy Hotel will, for each month from and after April 2018, be deemed to equal its then-current book value.
Beginning with the fiscal quarter ending September 30, 2018 and ending on the Liquidation Date, the Company will pay Winthrop Advisor a
supplemental fee of $25,000 per quarter (prorated for any partial quarter) in addition to the base management fee;
Following the
Liquidation Date, the Company will pay to the Winthrop Advisor a monthly fee of $100,000 and a supplemental fee of $50,000 per quarter (prorated for any partial quarter) for any period that the principal executive and financial officers of the
successor entity to the Company are required to certify the financial and other information contained in the successor entity’s quarterly and annual reports pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
From and after March 1, 2018, the Company agreed to reimburse the Winthrop Advisor for the compensation of Wendy Silverstein as the
Company’s chief executive officer or otherwise, in such amounts as agreed to between the Winthrop Advisor and the Company, which provision is no longer applicable following Wendy Silverstein’s resignation.
During the nine months ended September 30, 2018, the Company reimbursed Winthrop Advisor $467,000 for compensation of the Chief Executive
Officer.
In connection with the adoption of liquidation accounting, the Company accrues costs it expects to incur through the end of
liquidation. As of September 30, 2018, the Company has accrued asset management fees and compensation reimbursements totaling $1.5 million payable to Winthrop Advisor representing management’s estimate of future asset management fees
to final liquidation, provided there is no assurance that the contract will continue to be extended at the same terms, if at all. This amount is included in estimated costs in excess of estimated receipts during liquidation.
18
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 Current Advisory Agreement and (ii) any other amounts paid to the Company’s 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 $110.00 per share (adjusted for the Reverse Split the “Hurdle
Amount”), when taken together with all other Hurdle Payments, the Company will pay an incentive fee to 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 undiscounted net assets in liquidation, the
Winthrop Advisor would not be entitled to receive any such incentive fee.
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 paid 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. As of September 30, 2018, none of the Company’s properties are managed by the Winthrop Property Manager.
The following table details amounts incurred by the Company to 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 Winthrop Advisor as of the dates specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable as of
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Asset management fees
|
|
$
|
616
|
|
|
$
|
2,512
|
|
|
$
|
2,171
|
|
|
$
|
6,182
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Property management fees
|
|
|
—
|
|
|
|
166
|
|
|
|
42
|
|
|
|
430
|
|
|
|
—
|
|
|
|
49
|
|
|
Reimbursements
|
|
|
—
|
|
|
|
—
|
|
|
|
467
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total related party operational fees and reimbursements
|
|
$
|
616
|
|
|
$
|
2,678
|
|
|
$
|
2,680
|
|
|
$
|
6,612
|
|
|
$
|
—
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, as
defined, 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.
19
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The following table details amounts incurred and paid by the Company to the Former Advisor
and its affiliates in connection with the operations related services described above for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
Nine Months Ended September 30, 2017
|
|
|
(In thousands)
|
|
Incurred
|
|
|
Incurred
|
|
|
To the Former Advisor and affiliates:
|
|
|
|
|
|
|
|
|
|
Asset management fees
|
|
$
|
—
|
|
|
$
|
2,339
|
|
|
Transfer agent and other professional fees
|
|
|
—
|
|
|
|
414
|
|
|
Property management fees
|
|
|
—
|
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
Total related party operational fees and reimbursements
|
|
$
|
—
|
|
|
$
|
3,313
|
|
|
|
|
|
|
|
|
|
|
|
The Former Advisor, individual members of the Former Advisor, and employees or former employees of the Former
Advisor held interests in the OP. On January 3, 2017, the Company issued 84,166 shares of its common stock upon redemption of 841,660 OP units held by the Former Advisor or members, employees or former employees of the Former Advisor. Following
the issuance, no OP units remained outstanding other than OP units held by the Company corresponding to shares of the Company’s common stock.
Note 13 — Economic Dependency
Under
various agreements, the Company has engaged 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.
Note 14 — 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
Company’s independent directors, officers, advisors, consultants and other personnel, subject to the absolute discretion of the Board and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan
will be 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 50,000 shares have been authorized and reserved for issuance under the Plan. As of September 30, 2018 and December 31, 2017, no stock options were issued under the Plan.
Restricted Share Plan
The Company’s
employee and director incentive restricted share plan (“RSP”) provides the Company with the ability to grant awards of restricted shares to the Company’s directors, officers and employees (if the Company ever has employees), employees
of the Former 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.
20
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 Company’s outstanding shares of common stock 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
re-elected
to the board.
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. On October 5, 2018, the Board released all restrictions on any remaining unvested restricted shares.
The following table displays restricted share award activity during the nine months ended September 30, 2018 as adjusted for the reverse
stock split (see Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Restricted Shares
|
|
|
Weighted-Average
Issue Price
|
|
|
Unvested, December 31, 2017
|
|
|
6,828
|
|
|
$
|
103.20
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
4,853
|
|
|
|
103.57
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, September 30, 2018
|
|
|
1,975
|
|
|
|
102.23
|
|
|
|
|
|
|
|
|
|
|
|
2014 Advisor Multi-Year Outperformance Agreement
On April 15, 2014 (the “Effective Date”), the Company entered into a multi-year outperformance agreement (the “OPP”)
with the OP and the Former Advisor. Under the OPP, the Former Advisor was issued 8,880,579 LTIP Units in the OP with a maximum award value on the issuance date equal to 5.0% of the Company’s market capitalization (the “OPP Cap”). The
LTIP Units were 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 Advisor’s 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 into unrestricted shares of the Company’s common stock.
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 into
unrestricted shares of the Company’s common stock on May 9, 2017 and were issued to the Former Advisor on May 9, 2017. Following the issuance of the shares of common stock on May 9, 2017, the remaining 7,664,156 LTIP Units issued
to the Former Advisor were forfeited.
21
NEW YORK REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Under the OPP, the Former Advisor’s 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 was based on the Company’s achievement of certain levels of total return to the Company’s stockholders (“Total Return”),
including both share price appreciation and common stock dividends, as measured against a peer group of companies, 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”).
Note 15 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form
10-Q
and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements, except as disclosed in Note 1 and Note 6.
22
NEW YORK REIT, INC.
September 30, 2018
