UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________
Commission file number: 000-55201
American Realty Capital Healthcare Trust II, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
38-3888962
(State or other  jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
405 Park Ave., 15 th  Floor, New York, NY       
  
10022
(Address of principal executive offices)
  
(Zip Code)
(212) 415-6500
(Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
Smaller reporting company o

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

As of July 31, 2014 , the registrant had 71,121,993 shares of common stock outstanding.


AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

INDEX TO FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

Part I — FINANCIAL INFORMATION
Item 1. Financial Statements.

AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

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



 
 
June 30,
2014
 
December 31,
2013
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
19,200

 
$
3,220

Buildings, fixtures and improvements
 
146,844

 
37,114

Acquired intangible lease assets
 
20,148

 
5,952

Total real estate investments, at cost
 
186,192

 
46,286

Less: accumulated depreciation and amortization
 
(4,378
)
 
(1,094
)
Total real estate investments, net
 
181,814

 
45,192

Cash and cash equivalents
 
964,327

 
111,833

Restricted cash
 
1,900

 
—

Receivable for sale of common stock
 
26,342

 
1,286

Prepaid expenses and other assets
 
14,531

 
1,888

Deferred costs
 
4,702

 
7

Total assets
 
$
1,193,616

 
$
160,206

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Mortgage notes payable
 
$
59,325

 
$
—

Mortgage premiums, net
 
2,970

 
—

Below-market lease liabilities, net
 
352

 
57

Accounts payable and accrued expenses
 
6,168

 
962

Deferred rent and other liabilities
 
466

 
46

Distributions payable
 
6,498

 
992

Total liabilities
 
75,779

 
2,057

 
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding at June 30, 2014 and December 31, 2013
 
—

 
—

Common stock, $0.01 par value, 300,000,000 shares authorized, 52,057,557 and 7,529,789 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
 
521

 
75

Additional paid-in capital
 
1,146,943

 
161,952

Accumulated deficit
 
(29,627
)
 
(3,878
)
Total stockholders' equity
 
1,117,837

 
158,149

Total liabilities and stockholders' equity
 
$
1,193,616

 
$
160,206


The accompanying notes are an integral part of these statements.



3
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

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



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
2,314

 
$
26

 
$
3,441

 
$
26

Operating expense reimbursements
 
555

 
1

 
815

 
1

Total revenues
 
2,869

 
27

 
4,256

 
27

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Property operating
 
735

 
1

 
1,029

 
1

Acquisition and transaction related
 
2,599

 
118

 
3,003

 
118

General and administrative
 
579

 
8

 
991

 
55

Depreciation and amortization
 
2,381

 
16

 
3,238

 
16

Total expenses
 
6,294

 
143

 
8,261

 
190

Operating loss
 
(3,425
)
 
(116
)
 
(4,005
)
 
(163
)
Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(742
)
 
—

 
(745
)
 
—

Other income
 
20

 
—

 
21

 
—

Total other expense
 
(722
)
 
—

 
(724
)
 
—

Net loss
 
$
(4,147
)
 
$
(116
)
 
$
(4,729
)
 
$
(163
)
Comprehensive loss
 
$
(4,147
)
 
$
(116
)
 
$
(4,729
)
 
$
(163
)
 
 
 
 
 
 
 
 
 
Basic and diluted weighted-average shares outstanding
 
35,127,969

 
379,911

 
24,435,162

 
195,425

Basic and diluted net loss per share
 
$
(0.12
)
 
$
(0.31
)
 
$
(0.19
)
 
$
(0.83
)

The accompanying notes are an integral part of these statements.

4
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2014
(In thousands, except for share data)
(Unaudited)



 
Common Stock
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2013
7,529,789

 
$
75

 
$
161,952

 
$
(3,878
)
 
$
158,149

Issuance of common stock
44,189,838

 
443

 
1,099,041

 
—

 
1,099,484

Common stock offering costs, commissions and dealer manager fees
—

 
—

 
(121,978
)
 
—

 
(121,978
)
Common stock issued through distribution reinvestment plan
341,341

 
3

 
8,104

 
—

 
8,107

Common stock repurchases
(8,014
)
 
—

 
(200
)
 
—

 
(200
)
Equity-based compensation
4,603

 
—

 
24

 
—

 
24

Distributions declared
—

 
—

 
—

 
(21,020
)
 
(21,020
)
Net loss
—

 
—

 
—

 
(4,729
)
 
(4,729
)
Balance, June 30, 2014
52,057,557

 
$
521

 
$
1,146,943

 
$
(29,627
)
 
$
1,117,837


The accompanying notes are an integral part of this statement.



5
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(4,729
)
 
$
(163
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
2,286

 
13

Amortization of intangibles
952

 
3

Amortization of deferred financing costs
382

 
—

Amortization of mortgage premiums
(106
)
 
—

Accretion of below-market lease liability and amortization of above-market lease assets, net
37

 
—

Share-based compensation
24

 
7

Changes in assets and liabilities:
 
 
 
Prepaid expenses and other assets
32

 
(40
)
Accounts payable and accrued expenses
1,840

 
100

Deferred rent and other liabilities
420

 
48

Net cash provided by (used in) operating activities
1,138

 
(32
)
Cash flows from investing activities:
 
 
 
Investment in real estate and other assets
(76,762
)
 
(7,366
)
Deposits for real estate acquisitions
(12,060
)
 
—

Net cash used in investing activities
(88,822
)
 
(7,366
)
Cash flows from financing activities:
 
 
 

Payments of mortgage notes payable
(70
)
 
—

Payments of deferred financing costs
(5,060
)
 
—

Proceeds from issuance of common stock
1,074,428

 
28,182

Common stock repurchases
(40
)
 
—

Payments of offering costs and fees related to common stock issuances
(119,141
)
 
(3,633
)
Distributions paid
(7,407
)
 
(7
)
Payments to affiliate
(632
)
 
(97
)
Restricted cash
(1,900
)
 
—

Net cash provided by financing activities
940,178

 
24,445

Net change in cash
852,494

 
17,047

Cash, beginning of period
111,833

 
3

Cash, end of period
$
964,327

 
$
17,050


6
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2014
 
2013
Supplemental Disclosures:
 
 
 
Cash paid for interest
$
99

 
$
—

Cash paid for taxes
161

 
1

 
 
 
 
Non-Cash Financing Activities:
 
 
 
Proceeds from mortgage notes payable used to acquire investments in real estate
$
59,395

 
$
—

Premiums on assumed mortgage notes payable
3,076

 
—

Liabilities assumed in real estate acquisitions
369

 
—

Common stock issued through distribution reinvestment plan
8,107

 
9

Reclassification of deferred offering costs to equity
—

 
807


The accompanying notes are an integral part of these statements.

7
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)


Note 1 — Organization
American Realty Capital Healthcare Trust II, Inc. (the "Company") was incorporated on October 15, 2012 as a Maryland corporation that intends to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013. On February 14, 2013, the Company commenced its ongoing initial public offering (the "IPO") on a "reasonable best efforts" basis of up to $1.7 billion of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form S-11, as amended (File No. 333-184677) (the "Registration Statement"), filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. The Registration Statement also covers up to 14.7 million shares of common stock available pursuant to a distribution reinvestment plan (the "DRIP") under which common stockholders may elect to have their distributions reinvested in additional shares of common stock. The Company reserves the right to reallocate shares covered in the Registration Statement between the IPO and the DRIP. On July 23, 2014, the Company announced the reallocation of 13.9 million shares of the 14.2 million remaining unsold shares available pursuant to the DRIP. On August 1, 2014, the Company registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3 (File No. 333- 197802 ).
As of June 30, 2014 , the Company had 52.1 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and the DRIP of $1.3 billion . As of June 30, 2014 , the aggregate value of all share issuances and subscriptions of common stock outstanding was $1.3 billion based on a per share value of $25.00 (or $23.75 for shares issued under the DRIP). Until the filing of the Company's second quarterly financial filing with the SEC pursuant to the Securities Act of 1934, as amended, following February 14, 2015, which is two years from the effective date of the IPO, the per share purchase price in the IPO will be up to $25.00 per share (including the maximum allowed to be charged for commissions and fees) and shares issued under the DRIP will be $23.75 per share, which is equal to 95% of the per share offering price in the IPO. Thereafter, the per share purchase price will vary quarterly and will be equal to the net asset value ("NAV") per share, as determined by American Realty Capital Healthcare II Advisors, LLC (the "Advisor"), plus applicable commissions and fees and the per share purchase price in the DRIP will be equal to the NAV per share.
The Company was formed to acquire a diversified portfolio of healthcare-related real estate assets, including medical office buildings, seniors housing communities and other healthcare-related facilities. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire first mortgage loans secured by real estate. The Company purchased its first property and commenced real estate operations in May 2013. As of June 30, 2014 , the Company owned 24 properties consisting of 0.7 million rentable square feet, which were 93.9% leased, with a weighted-average remaining lease term of 6.6 years .
Substantially all of the Company's business is conducted through American Realty Capital Healthcare Trust II Operating Partnership, L.P. (the "OP"), a Delaware limited partnership. The Company is the sole general partner and holds substantially all of the units of limited partner interests in the OP ("OP units"). American Realty Capital Healthcare II Special Limited Partnership, LLC (the "Special Limited Partner"), an entity controlled by the Company's sponsor, American Realty Capital VII, LLC (the "Sponsor"), contributed $2,020 to the OP in exchange for 90 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP, provided, however, that such OP units must have been outstanding for at least one year. The remaining rights of the limited partners in the OP are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
The Company has no direct employees. The Advisor has been retained by the Company to manage the Company's affairs on a day-to-day basis. The Company has retained American Realty Capital Healthcare II Properties, LLC (the "Property Manager") to serve as the Company's property manager. Realty Capital Securities, LLC (the "Dealer Manager") serves as the dealer manager of the IPO. The Advisor, the Property Manager and the Dealer Manager are under common control with the parent of the Sponsor, as a result of which, they are related parties, and each of which have or will receive compensation, fees and expense reimbursements for services related to the IPO and the investment and management of the Company's assets. The Advisor, Property Manager and Dealer Manager have or will also receive compensation, fees and expense reimbursements during the Company's offering, acquisition, operational and liquidation stages.

8
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Note 2 — Summary of Significant Accounting Policies
The accompanying consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to this Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results for the entire year or any subsequent interim period.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2013 , which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 6, 2014 . There have been no significant changes to Company's significant accounting policies during the six months ended June 30, 2014 other than the updates described below.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In April 2014, the FASB amended the requirements for reporting discontinued operations. Under the revised guidance, in addition to other disclosure requirements, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale, disposed of by sale or other than by sale. The Company has adopted the provisions of this guidance effective January 1, 2014, and have applied the provisions prospectively. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact of the new guidance.

9
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Note 3 — Real Estate Investments
The following table presents the allocation of the assets acquired during the six months ended June 30, 2014 and 2013 :
 
 
Six Months Ended June 30,
(Dollar amounts in thousands)
 
2014
 
2013
Real estate investments, at cost:
 
 
 
 
Land
 
$
15,980

 
$
409

Buildings, fixtures and improvements
 
109,729

 
6,047

Total tangible assets
 
125,709

 
6,456

Acquired intangibles:
 
 
 
 
In-place leases
 
13,989

 
910

Above-market lease assets
 
207

 
—

Below-market lease liabilities
 
(303
)
 
—

Total assets acquired, net
 
139,602

 
7,366

Mortgage notes payable assumed to acquire real estate investments
 
(59,395
)
 
—

Premiums on mortgages assumed
 
(3,076
)
 
—

Other liabilities assumed
 
(369
)
 
—

Cash paid for acquired real estate investments
 
$
76,762

 
$
7,366

Number of properties purchased
 
17

 
2

The allocation to land, buildings, fixtures and improvements have been provisionally assigned to each class, pending receipt of additional information. The following table presents unaudited pro forma information as if the acquisitions during the six months ended June 30, 2014 , had been consummated on January 1, 2013. Additionally, the unaudited pro forma net loss was adjusted to exclude acquisition and transaction related expense of $3.0 million from the six months ended June 30, 2014 .
 
 
Six Months Ended June 30,
(In thousands)
 
2014
 
2013
Pro forma revenues
 
$
9,380

 
$
8,854

Pro forma net loss
 
$
(2,785
)
 
$
(1,849
)
The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter.  These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items.
(In thousands)
 
Future Minimum
Base Rent Payments
July 1, 2014 — December 31, 2014
 
$
7,181

2015
 
13,853

2016
 
12,171

2017
 
11,582

2018
 
9,977

Thereafter
 
40,730

 
 
$
95,494


10
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

The following table lists the tenants (including for this purpose, all affiliates of such tenants) whose annualized rental income on a straight-line basis represented 10% or more of total annualized rental income for all properties on a straight-line basis as of June 30, 2014 and 2013 :
 
 
June 30,
Tenant
 
2014
 
2013
Adena Health System
 
*
 
72.6%
Fresenius Medical Care AG & Co. KGaA
 
*
 
27.4%
_______________________________
* Tenant's annualized rental income on a straight-line bases was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified
The following table lists the states where the Company has concentrations of properties where annualized rental income on a straight-line basis represented greater than 10% of consolidated annualized rental income on a straight-line basis for all properties as of June 30, 2014 and 2013 :
 
 
June 30,
State
 
2014
 
2013
Alabama
 
*
 
27.4%
Florida
 
14.0%
 
*
Georgia
 
10.0%
 
*
Illinois
 
11.7%
 
*
New York
 
26.8%
 
*
Ohio
 
*
 
72.6%
_______________________________
* State's annualized rental income on a straight-line bases was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified
Note 4 — Revolving Credit Facility
On March 21, 2014, the Company entered into a senior secured credit facility in the amount of $50.0 million (the "Credit Facility"). On April 15, 2014, the Company entered into an increase letter, increasing the amount available under the Credit Facility to $200.0 million . The Credit Facility contains an "accordion" feature to allow the Company, under certain circumstances, to increase the aggregate commitments under the Credit Facility to a maximum of $450.0 million .
The Company has the option, based upon its leverage, to have the Credit Facility priced at either: (a) LIBOR, plus an applicable margin that ranges from 1.60% to 2.20% ; or (b) the Base Rate, plus an applicable margin that ranges from 0.35% to 0.95% . Base Rate is defined in the Credit Facility as the greatest of (i) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate,” (ii) 0.5% above the federal funds effective rate or (iii) the applicable one-month LIBOR plus 1.0% .
The Credit Facility provides for monthly interest payments for each Base Rate loan and periodic payments for each LIBOR loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date on March 21, 2017, subject to two one -year extension options. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty (subject to standard breakage costs). In the event of a default, the lender has the right to terminate its obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
Availability of borrowings is based on a pool of eligible unencumbered real estate assets. The Company did not have any borrowing capacity as of June 30, 2014 , as there were no assets assigned to the borrowing base of the Credit Facility as of June 30, 2014 . There were no advances outstanding as of June 30, 2014 .
The Credit Facility requires the Company to meet certain financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. As of June 30, 2014 , the Company was in compliance with the financial covenants under the Credit Facility agreement.

11
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Note 5 — Mortgage Notes Payable
The following table reflects the Company's mortgage notes payable as of June 30, 2014 . The Company had no mortgage notes payable as of December 31, 2013 .
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate
 
 
 
 
Portfolio
 
Encumbered Properties
 
June 30, 2014
 
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
 
 
 
 
 
Creekside Medical Office Building - Douglasville, GA
 
1
 
$
5,218

 
5.32
%
 
Fixed
 
Sep. 2015
Bowie Gateway Medical Center - Bowie, MD
 
1
 
6,096

 
6.18
%
 
Fixed
 
Sep. 2016
Medical Center of New Windsor - New Windsor, NY
 
1
 
8,885

 
6.39
%
 
Fixed
 
Sep. 2017
Plank Medical Center - Clifton Park, NY
 
1
 
3,526

 
6.39
%
 
Fixed
 
Sep. 2017
Cushing Center - Schenectady, NY
 
1
 
4,336

 
5.71
%
 
Fixed
 
Feb. 2016
Countryside Medical Arts - Safety Harbor, FL
 
1
 
6,116

 
6.07
%
 
Fixed
(1)  
Apr. 2019
St. Andrews Medical Park, Venice, FL
 
3
 
6,760

 
6.07
%
 
Fixed
(1)  
Apr. 2019
Campus at Crooks & Auburn Building C - Rochester Hills, MI
 
1
 
3,659

 
5.91
%
 
Fixed
 
Apr. 2016
Slingerlands Crossing Phase I - Bethlehem, NY
 
1
 
6,806

 
6.39
%
 
Fixed
 
Sep. 2017
Slingerlands Crossing Phase II - Bethlehem, NY
 
1
 
7,923

 
6.39
%
 
Fixed
 
Sep. 2017
Total
 
12
 
$
59,325

 
6.12
%
 
 
 
 
_______________________________
(1) Fixed interest rate through May 10, 2017. Interest rate changes to variable rate starting May 11, 2017.
The following table summarizes the scheduled aggregate principal payments on mortgage notes payable for the five years subsequent to June 30, 2014 :
(In thousands)
 
Future Principal
Payments
July 1, 2014 — December 31, 2014
 
$
430

2015
 
5,933

2016
 
14,255

2017
 
26,477

2018
 
212

Thereafter
 
12,018

 
 
$
59,325

Some of the Company's mortgage notes payable agreements require the compliance of certain property-level financial covenants including debt service coverage ratios. As of June 30, 2014 , the Company was in compliance with financial covenants under its mortgage notes payable agreements.
Note 6 — Fair Value of Financial Instruments
The Company determines fair value 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 investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. 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.
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.

12
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Level 3 — Unobservable inputs that reflect the entity's 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 falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, other receivables, due to affiliates, accounts payable and distributions payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below:
 
 
 
 
Carrying Amount (1)  at
 
Fair Value at
 
Carrying Amount at
 
Fair Value at
(In thousands)
 
Level
 
June 30, 2014
 
June 30, 2014
 
December 31, 2013
 
December 31, 2013
Mortgage notes payable
 
3
 
$
62,295

 
$
62,439

 
$
—

 
$
—

_______________________________
(1) Carrying value includes $59.3 million mortgage notes payable and $3.0 million mortgage premiums, net as of June 30, 2014 .
The fair value of the mortgage notes payable are estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of borrowing arrangements.
Note 7 — Common Stock
The Company had 52.1 million and 7.5 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total proceeds of $1.3 billion and $186.8 million , including proceeds from shares issued pursuant to the DRIP, as of June 30, 2014 and December 31, 2013 , respectively.
On April 9, 2013, the Company's board of directors authorized, and the Company declared, distributions payable to stockholders of record each day during the applicable period at a rate equal to $0.0046575343 per day, or 6.8% per annum, based on a price of $25.00 per share of common stock. Distributions began to accrue on May 24, 2013, 15 days following the Company's initial property acquisition. Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distributions payments are not assured.
The Company has a Share Repurchase Program ("SRP") that enables stockholders, subject to certain conditions and limitations, to sell their shares to the Company. Under the SRP, stockholders may request that the Company repurchase all or any portion of their shares of common stock, if such repurchase does not impair the Company's capital or operations. The Company will fund repurchases from proceeds from the sale of common stock pursuant to the DRIP. The following table summarizes the number of shares repurchased under the SRP cumulatively through June 30, 2014 :
 
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2013
 
2

 
1,600

 
$
25.00

Six months ended June 30, 2014 (1)
 
5

 
8,014

 
24.98

Cumulative repurchases as of June 30, 2014 (1)
 
7

 
9,614

 
$
24.99

_____________________________
(1)
Includes five unfulfilled repurchase requests consisting of 8,014 shares at an average price per share of $24.98 , which were approved for repurchase as of June 30, 2014 and completed in August 2014 .

13
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Note 8 — Commitments and Contingencies
Future Minimum Lease Payments
The Company has entered into lease agreements related to certain acquisitions under leasehold interests arrangements. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter.  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.
(In thousands)
 
Future Minimum
Base Rent Payments
July 1, 2014 — December 31, 2014
 
$
54

2015
 
109

2016
 
111

2017
 
113

2018
 
116

Thereafter
 
5,035

 
 
$
5,538

Litigation
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.
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. As of June 30, 2014 , 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 results of operations.
Note 9 — Related Party Transactions and Arrangements
As of June 30, 2014 and December 31, 2013 , the Special Limited Partner owned 8,888 shares of the Company's outstanding common stock. The Advisor and its affiliates may incur and pay costs and fees on behalf of the Company. As of December 31, 2013 , the Company had $0.5 million payable to the Sponsor primarily related to funding the payment of third party professional fees and offering costs. There were no such amounts payable as of June 30, 2014 .

14
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Fees Paid in Connection with the IPO
The Dealer Manager is paid fees in connection with the sale of the Company's common stock in the IPO. The Dealer Manager is paid a selling commission of up to 7.0% of the per share purchase price of offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Dealer Manager is paid up to 3.0% of the gross proceeds from the sale of shares, before reallowance to participating broker-dealers, as a dealer-manager fee. The Dealer Manager may reallow its dealer-manager fee to participating broker-dealers. A participating broker dealer may elect to receive a fee equal to 7.5% of the gross proceeds from the sale of shares by such participating broker dealer, with 2.5% thereof paid at the time of such sale and 1.0% thereof paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale. If this option is elected, the dealer manager fee will be reduced to 2.5% of gross proceeds. The following table details total selling commissions and dealer manager fees incurred from and due to the Dealer Manager as of and for the periods presented:
 
 
 
 
 
 
 
 
 
 
Payable as of
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
June 30,
 
December 31,
(In thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Total commissions and fees incurred from the Dealer Manager
 
$
70,722

 
$
2,745

 
$
105,197

 
$
2,745

 
$
2,475

 
$
127

The Advisor and its affiliates receive compensation and reimbursement for services relating to the IPO, including transfer agent services provided by an affiliate of the Dealer Manager. All offering costs incurred by the Company or its affiliated entities on behalf of the Company are charged to additional paid-in capital on the accompanying balance during the IPO. The following table details offering costs and reimbursements incurred from and due to the Advisor and Dealer Manager as of and for the periods presented:
 
 
 
 
 
 
 
 
 
 
Payable as of
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
June 30,
 
December 31,
(In thousands)
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Fees and expense reimbursements from the Advisor and Dealer Manager
 
$
9,071

 
$
715

 
$
15,329

 
$
715

 
$
378

 
$
192

The Company is responsible for offering and related costs from the IPO, excluding commissions and dealer manager fees, up to a maximum of 2.0% of gross proceeds received from the IPO, measured at the end of the IPO. Offering costs in excess of the 2.0% cap as of the end of the IPO are the Advisor's responsibility. As of June 30, 2014 , offering and related costs, excluding commissions and dealer manager fees, were lower than 2.0% of gross proceeds received from the IPO by $1.8 million .
After the general escrow break, the Advisor and the Dealer Manager elected to cap cumulative offering costs for the IPO, including selling commissions and dealer manager fees, incurred by the Company, net of unpaid amounts, to 15% of gross common stock proceeds during the offering period of the IPO. As of June 30, 2014 , cumulative offering costs were $146.8 million . Cumulative offering costs net of unpaid amounts, were less than the 15% threshold as of June 30, 2014 .
Fees Paid in Connection With the Operations of the Company
The Advisor is paid an acquisition fee equal to 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. The Advisor is also reimbursed for services provided for which they incur investment-related expenses, or insourced expenses. Such insourced expenses may not exceed, 0.5% of the contract purchase price of each acquired property and 0.5% of the amount advanced for a loan or other investment. Additionally, the Company reimburses the Advisor for third party acquisition expenses. Once the proceeds from the IPO have been fully invested, the aggregate amount of acquisition fees and financing coordination fees (as described below) may not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees payable with respect to the Company's portfolio of investments or reinvestments exceed 4.5% of the contract purchase price of the Company's portfolio to be measured at the close of the acquisition phase or 4.5% of the amount advanced for all loans or other investments.

15
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations.
For its asset management services, the Company causes the OP to issue (subject to periodic approval by the board of directors) to the Advisor performance-based restricted partnership units of the OP designated as "Class B units," which are intended to be profit interests and will vest, and no longer be subject to forfeiture, at such time as: (x) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 6% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) a listing; (2) ; another liquidity event or (3) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). Such Class B units will be forfeited immediately if: (a) the advisory agreement is terminated for any reason other than a termination without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company's independent directors without cause before the economic hurdle has been met.
The asset management subordination is an amount equal to: (i) the excess of (A) the product of (y) the cost of assets (or the lower of the cost of assets and the applicable quarterly NAV multiplied by 0.1875% once we begin calculating NAV) multiplied by (z) 0.1875% over (B) any amounts payable as an oversight fee (as described below) for such calendar quarter; divided by (ii) the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the IPO price minus the selling commissions and dealer manager fees). When and if approved by the board of directors, the Class B units are expected to be issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. As of June 30, 2014 , the Company cannot determine the probability of achieving the performance condition. The value of issued Class B units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. The Advisor receives distributions on vested and unvested Class B units equal to the distribution rate received on the Company's common stock. Such distributions on issued Class B units are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss until the performance condition is considered probable to occur. As of June 30, 2014 , the Company's board of directors approved the issuance of 12,940 Class B Units to the Advisor in connection with this arrangement.
Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee of 1.5% of gross revenues from the Company's stand-alone single-tenant net leased properties and 2.5% of gross revenues from all other types of properties, respectively. The Company also reimburses the affiliate for property level expenses. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and will pay the Property Manager an oversight fee of up to 1.0% of the gross revenues of the property managed. In no event will the Company pay the Property Manager or any affiliate both a property management fee and an oversight fee with respect to any particular property.
Effective June 1, 2013, the Company entered into an agreement with the Dealer Manager to provide strategic advisory services and investment banking services required in the ordinary course of the Company's business, such as performing financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition strategy, a capitalization structure to optimize future liquidity options and structuring operations.  Strategic advisory fees are amortized over approximately 20.5 months, the estimated remaining term of the IPO and are included in general and administrative expenses in the accompanying consolidated statement of operations and comprehensive loss.

16
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

The following table details amounts incurred, forgiven and payable in connection with the Company's operations-related services described above as of and for the periods presented:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable (Receivable) as of
 
 
2014
 
2013
 
2014
 
2013
 
June 30,
 
December 31,
(In thousands)
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
2014
 
2013
One-time fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees and related cost reimbursements
 
$
1,777

 
$
—

 
$
84

 
$
—

 
$
2,053

 
$
—

 
$
84

 
$
—

 
$
—

 
$
—

Financing coordination fees
 
1,570

 
—

 
—

 
—

 
1,945

 
—

 
—

 
—

 
(148
)
 
—

Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property management and leasing fees
 
—

 
31

 
—

 
—

 
—

 
47

 
—

 
—

 
—

 
—

Strategic advisory fees
 
135

 
—

 
28

 
—

 
270

 
—

 
28

 
—

 
—

 
—

Distributions on Class B Units
 
5

 
—

 
—

 
—

 
7

 
—

 
—

 
—

 
—

 
1

Total related party operation fees and reimbursements
 
$
3,487

 
$
31

 
$
112

 
$
—

 
$
4,275

 
$
47

 
$
112

 
$
—

 
$
(148
)
 
$
1

The Company reimburses the Advisor's costs of providing administrative services, subject to the limitation that the Company will not reimburse the Advisor for any amount by which the Company's operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash reserves and excluding any gain from the sale of assets for that period. Additionally, the Company reimburses the Advisor for personnel costs in connection with other services during the operational stage; however, the Company may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, acquisition expenses or real estate commissions. No reimbursement was incurred from the Advisor for providing services during the three and six months ended June 30, 2014 or 2013 .
In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to waive certain fees. Because the Advisor may waive certain fees, cash flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that are forgiven are not deferrals and accordingly, will not be paid to the Advisor. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's property operating and general and administrative costs, which the Company will not repay. The following table reflects costs absorbed by the Advisor during the periods presented.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Receivable as of
(In thousands)
 
2014
 
2013
 
2014
 
2013
 
June 30, 2014
 
December 31, 2013
Property operating expenses absorbed
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
150

General and administrative expenses absorbed
 
—

 
177

 
—

 
177

 
—

 
843

Total expenses absorbed
 
$
—

 
$
177

 
$
—

 
$
177

 
$
—

 
$
993

Fees Paid in Connection with the Liquidation or Listing of the Company's Real Estate Assets
The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of the Company's total return to stockholders, payable annually in arrears, such that for any year in which the Company's total return on stockholders' capital exceeds 6.0% per annum, the Advisor will be entitled to 15.0% of the excess total return but not to exceed 10.0% of the aggregate total return for such year. This fee will be paid only upon the sale of assets, distributions or other event which results in the return on stockholders' capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the three and six months ended June 30, 2014 or 2013 .
The Company will pay a brokerage commission on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and 50.0% of the total brokerage commission paid if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 4.5% of the contract sales price and a reasonable, customary and competitive real estate commission, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services are provided in connection with the sale. No such fees were incurred during the three and six months ended June 30, 2014 or 2013 .

17
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

The Company will pay the Special Limited Partner a subordinated participation in the net sales proceeds of the sale of real estate assets of 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 6.0% cumulative, pre-tax non-compounded return on the capital contributed by investors. The Special Limited Partner will not be entitled to the subordinated participation in net sale proceeds unless the Company's investors have received a 6.0% cumulative non-compounded return on their capital contributions. No such fees were incurred during the three and six months ended June 30, 2014 or 2013 .
If the common stock of the Company is listed on a national exchange, the Company will pay the Special Limited Partner a subordinated incentive listing distribution of 15.0% of the amount by which the adjusted market value of real estate assets plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to investors. The Special Limited Partner will not be entitled to the subordinated incentive listing fee unless investors have received a 6.0% cumulative, pre-tax non-compounded return on their capital contributions. No such fees were incurred during the three and six months ended June 30, 2014 or 2013 . Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in the net proceeds and the subordinated listing distribution.
Upon termination or non-renewal of the advisory agreement with the Advisor, with or without cause, the Special Limited Partner, through its controlling interest in the Advisor, will be entitled to receive distributions from the OP equal to 15% of the amount by which the sum of the Company's market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6% cumulative, pre-tax, non-compounded return to investors. The Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.
Note 10 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common ownership with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company's common stock available for issue, transfer agency services, as well as other administrative responsibilities for the Company including accounting services, transaction management services and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that the Advisor and its affiliates are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 11 — Share-Based Compensation
Restricted Share Plan
The Company has an employee and director incentive restricted share plan (the "RSP"), which provides for the automatic grant of 1,333 restricted shares of common stock to each of the independent directors, without any further action by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder's meeting. Restricted stock issued to independent directors will vest over a five -year period following the first anniversary of the date of grant in increments of 20.0% per annum. The 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 Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The total number of common shares granted under the RSP may not exceed 5.0% of the Company's outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 3.4 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

18
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares. The following table reflects restricted share award activity for the six months ended June 30, 2014 :
 
 
Number of Common Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2013
 
3,999

 
$
22.50

Granted
 
3,999

 
22.50

Vested
 
(800
)
 
22.50

Unvested, June 30, 2014
 
7,198

 
$
22.50

As of June 30, 2014 , the Company had $0.2 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company's RSP. That cost is expected to be recognized over a weighted-average period of 4.4 years . The fair value of the restricted shares is being expensed over the vesting period of five years . Compensation expense related to restricted stock was approximately $4,000 during the three months ended June 30, 2014 and 2013 . Compensation expense related to restricted stock was approximately $10,000 and $7,000 during the six months ended June 30, 2014 and 2013 , respectively. Compensation expense related to restricted stock is recorded as general and administrative expense in the accompanying consolidated statements of operations.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. During the three and six months ended June 30, 2014 , the Company issued 404 and 604 shares in lieu of approximately $10,000 and $14,000 in cash, respectively. There were no shares issued in lieu of cash during the three and six months ended June 30, 2013 .
Note 12 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computation for the three and six months ended June 30, 2014 and 2013 :
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Net loss (in thousands)
 
$
(4,147
)
 
$
(116
)
 
$
(4,729
)
 
$
(163
)
Basic and diluted weighted-average shares outstanding
 
35,127,969

 
379,911

 
24,435,162

 
195,425

Basic and diluted net loss per share
 
$
(0.12
)
 
(0.31
)
 
$
(0.19
)
 
$
(0.83
)
The Company had the following common share equivalents as of June 30, 2014 and 2013 , which were excluded from the calculation of diluted loss per share attributable to stockholders as the effect would have been antidilutive:
 
 
June 30,
 
 
2014
 
2013
Unvested restricted stock
 
7,198

 
3,999

OP Units
 
90

 
90

Class B units
 
12,940

 
—

Total common share equivalents
 
20,228

 
4,089


19
Table of Contents
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)

Note 13 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following transactions:
Sales of Common Stock
On July 23, 2014, the Company announced the reallocation of 13.9 million shares of the 14.2 million remaining unsold shares available pursuant to the DRIP. On August 1, 2014, the Company registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3 (File No. 333- 197802 ).
As of July 31, 2014 , the Company had 71.1 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP from total gross proceeds from the IPO and the DRIP of $1.8 billion .
Total capital raised to date, including shares issued under the DRIP, is as follows:
Source of Capital (in thousands)
 
Inception to June 30, 2014
 
July 1, 2014 to July 31, 2014
 
Total
Common stock
 
$
1,294,188

 
$
473,573

 
$
1,767,761

Acquisitions
The following table presents certain information about the properties that the Company acquired from July 1, 2014 to August 6, 2014 :
 
 
Number of Properties
 
Rentable
Square Feet
 
Base
Purchase Price (1)  
 
 
 
 
 
 
(In thousands)
Portfolio, June 30, 2014
 
24

 
728,000

 
$
183,090

Acquisitions
 
13

 
389,441

 
94,056

Portfolio, August 6, 2014
 
37

 
1,117,441

 
$
277,146

________________________
(1)    Contract purchase price, excluding acquisition related costs.

20
Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of American Realty Capital Healthcare Trust II, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to American Realty Capital Healthcare Trust II, Inc., a Maryland corporation, including, as required by context, American Realty Capital Healthcare Trust II Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and its subsidiaries. The Company is externally managed by American Realty Capital Healthcare II Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to those terms in "Part I — Financial Information" included in the notes to the consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•
All of our executive officers are also officers, managers and/or holders of a direct or indirect controlling interest in the Advisor, our dealer manager, Realty Capital Securities, LLC (the "Dealer Manager") and other AR Capital, LLC affiliated entities ("American Realty Capital"). As a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investment programs advised by American Realty Capital affiliates and conflicts in allocating time among these investment programs and us. These conflicts could result in unanticipated actions.
•
Because investment opportunities that are suitable for us may also be suitable for other American Realty Capital advised investment programs, our Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.
•
No public market currently exists, or may ever exist, for shares of our common stock which are, and may continue to be, illiquid.
•
We focus on acquiring a diversified portfolio of healthcare-related assets located in the United States and are subject to risks inherent in concentrating investments in the healthcare industry.
•
The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of tenants to make lease payments to us.
•
If we and our Advisor are unable to find suitable investments, then we may not be able to achieve our investment objectives or pay distributions.
•
We may be unable to pay or maintain cash distributions or increase distributions over time.
•
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates.
•
We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.
•
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions.
•
We are permitted to pay distributions from unlimited amounts of any source. Until substantially all of the proceeds from our initial public offering ("IPO") are invested, we may use proceeds from our IPO and financings to fund distributions until we have sufficient cash flows from operations. There are no established limits on the amount of net proceeds and borrowings that we may use to fund distribution payments, except in accordance with our organizational documents and Maryland law.
•
Any distributions may reduce the amount of capital we ultimately invest in properties and other permitted investments and negatively impact the value of your investment.

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•
We have not and may not in the future generate cash flows sufficient to pay our distributions to stockholders, as such, we may be forced to borrow at higher rates or depend on our Advisor to waive reimbursement of certain expenses and fees to fund our operations.
•
We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the United States from time to time.
•
We may fail to qualify, or continue to qualify, to be treated as a real estate investment trust ("REIT") for United States federal income tax purposes, which would result in higher taxes, may adversely affect our operations and would reduce our NAV and cash available for distributions.
•
We may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act.
Overview
We were incorporated on October 15, 2012 as a Maryland corporation that intends to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013. On February 14, 2013, we commenced our IPO on a "reasonable best efforts" basis of up to $1.7 billion of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form S-11, as amended (File No. 333-184677) (the "Registration Statement"), filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). The Registration Statement also covers up to 14.7 million shares of common stock available pursuant to a distribution reinvestment plan (the "DRIP") under which common stockholders may elect to have their distributions reinvested in additional shares of common stock. We reserve the right to reallocate shares covered in the Registration Statement between the IPO and the DRIP. On July 23, 2014, we announced the reallocation of 13.9 million shares of the 14.2 million remaining unsold shares available pursuant to the DRIP. On August 1, 2014, we registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3 (File No. 333- 197802 ).
As of June 30, 2014 , we had 52.1 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and the DRIP of $1.3 billion . As of June 30, 2014 , the aggregate value of all share issuances and subscriptions of common stock outstanding was $1.3 billion based on a per share value of $25.00 (or $23.75 for shares issued under the DRIP). Until the filing of our second quarterly financial filing with the SEC pursuant to the Securities Act of 1934, as amended, following February 14, 2015 (the "NAV pricing date"), which is two years from the effective date of the IPO, the per share purchase price in the IPO will be up to $25.00 per share (including the maximum allowed to be charged for commissions and fees) and shares issued under the DRIP will be $23.75 per share, which is equal to 95% of the per share offering price in the IPO. Thereafter, the per share purchase price will vary quarterly and will be equal to the NAV per share, as determined by the Advisor, plus applicable commissions and fees and the per share purchase price in the DRIP will be equal to the NAV per share.
We were formed to acquire a diversified portfolio of healthcare-related assets, including medical office buildings, seniors housing communities and other healthcare-related facilities. All such properties may be acquired and operated by us alone or jointly with another party. We may also originate or acquire first mortgage loans secured by real estate. We purchased our first property and commenced real estate operations in May 2013. As of June 30, 2014 , we owned 24 properties consisting of 0.7 million rentable square feet, which were 93.9% leased, with a remaining lease term of 6.6 years .
Substantially all of our business is conducted through the OP. We are the sole general partner and hold substantially all of the units of limited partner interests in the OP ("OP units"). American Realty Capital Healthcare II Special Limited Partnership, LLC (the "Special Limited Partner"), an entity controlled by American Realty Capital VII, LLC (the "Sponsor"), contributed $2,020 to the OP in exchange for 90 OP units, which represents a nominal percentage of the aggregate OP ownership. A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of our common stock or, at the option of the OP, a corresponding number of shares of our common stock, in accordance with the limited partnership agreement of the OP. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
We have no direct employees. The Advisor is our affiliated external advisor, which we have retained to manage our affairs on a day-to-day basis. We have retained American Realty Capital Healthcare II Properties, LLC (the "Property Manager") to serve as our property manager. The Dealer Manager serves as the dealer manager of the IPO. The Advisor, the Property Manager and the Dealer Manager are under common control with the parent of the Sponsor, as a result of which, they are related parties, and each of which have or will receive compensation, fees and expense reimbursements for services related to the IPO and the investment and management of our assets. The Advisor, Property Manager and Dealer Manager have or will also receive fees during our offering, acquisition, operational and liquidation stages.

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Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Offering and Related Costs
Offering and related costs include all expenses incurred in connection with our IPO. Offering costs (other than selling commissions and the dealer manager fees) include costs that may be paid by the Advisor, the Dealer Manager or their affiliates on our behalf. These costs include but are not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities. We are obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs (excluding selling commissions and the dealer manager fee) incurred by us in our IPO exceed 2.0% of gross offering proceeds in the IPO. As a result, these costs are only our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs do not exceed 12.0% of the gross proceeds determined at the end of our IPO.
Revenue Recognition
Our rental income is primarily related to rent received from tenants, which are recorded in accordance with the terms of each lease on a straight-line basis over the initial term of the lease. Because many of the leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, the terms of existing leases are considered to commence as of the acquisition date for the purposes of this calculation. We defer the revenue related to lease payments received from tenants in advance of their due dates. Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, we will record an increase in the allowance for uncollectible accounts or record a direct write-off of the receivable in the consolidated statements of operations.
Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis. We are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the statement of operations at fair value for all periods presented to the extent the disposal of a component represents a strategic shift that has or will have a major effect on our operations and financial results. Properties that are intended to be sold are to be designated as "held for sale" on the balance sheet.

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Long-lived assets are carried at cost and evaluated for impairment when events or changes in circumstances indicate such an evaluation is warranted or when they are designated as held for sale. Valuation of real estate is considered a "critical accounting estimate" because the evaluation of impairment and the determination of fair values involve a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value, and therefore, the carrying amounts of our real estate. Additionally, decisions regarding when a property should be classified as held for sale are also highly subjective and require significant management judgment.
Events or changes in circumstances that could cause an evaluation for impairment include the following:
•
a significant decrease in the market price of a long-lived asset;
•
a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;
•
a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;
•
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; and
•
a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.
We review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income.
Purchase Price Allocation
We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. We utilize various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in our portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from six to 12 months. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values are amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, we initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

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The aggregate value of intangible assets related to customer relationship is measured based on our evaluation of the specific characteristics of each tenant's lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases, which range primarily from one to 14  years. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Derivative Instruments
We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such agreements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.
We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.
In April 2014, the FASB amended the requirements for reporting discontinued operations. Under the revised guidance, in addition to other disclosure requirements, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale, disposed of by sale or other than by sale. We have adopted the provisions of this guidance effective January 1, 2014, and have applied the provisions prospectively. This adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. We have not yet selected a transition method and are currently evaluating the impact of the new guidance.

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Properties
The following table presents certain additional information about the properties we own as of June 30, 2014 :
Portfolio
 
Acquisition
Date
 
Number
of Properties
 
Rentable
Square Feet
 
Occupancy
 
Remaining
Lease Term  (1)
 
Base Purchase Price  (2)
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Medical Office Buildings:
 
 
 
 
 
 
 
 
 
 
 
 
Fresenius Medical Care - Winfield, AL
 
May 2013
 
1
 
5,564

 
100.0%
 
8.7
 
$
1,920

Adena Health Center - Jackson, OH
 
Jun. 2013
 
1
 
24,924

 
100.0%
 
9.7
 
5,446

Oak Lawn Medical Center - Oak Lawn, IL
 
Aug. 2013
 
1
 
26,324

 
100.0%
 
3.7
 
10,300

Surgery Center of Temple - Temple, TX
 
Aug. 2013
 
1
 
10,400

 
100.0%
 
12.7
 
6,150

Greenville Health System - Greenville, SC
 
Oct. 2013
 
1
 
21,603

 
100.0%
 
5.8
 
4,300

Arrowhead Medical Plaza II - Glendale, AZ
 
Feb. 2014
 
1
 
45,366

 
94.0%
 
3.1
 
11,170

Village Center Parkway - Stockbridge, GA
 
Feb. 2014
 
1
 
25,051

 
72.1%
 
6.1
 
4,100

Stockbridge Family Medical - Stockbridge, GA
 
Feb. 2014
 
1
 
19,822

 
65.7%
 
4.1
 
3,120

Creekside Medical Office Building - Douglasville, GA
 
Apr. 2014
 
1
 
54,899

 
87.6%
 
7.5
 
10,030

Bowie Gateway Medical Center - Bowie, MD
 
May 2014
 
1
 
36,260

 
100.0%
 
6.5
 
12,450

Campus at Crooks & Auburn Building D - Rochester Hills, MI
 
May 2014
 
1
 
24,529

 
88.9%
 
5.6
 
5,000

Medical Center of New Windsor - New Windsor, NY
 
May 2014
 
1
 
48,377

 
86.3%
 
3.6
 
11,590

Plank Medical Center - Clifton Park, NY
 
May 2014
 
1
 
24,835

 
84.4%
 
0.5
 
4,530

Cushing Center - Schenectady, NY
 
May 2014
 
1
 
45,301

 
95.3%
 
5.5
 
13,200

Berwyn Medical Center - Berwyn, IL
 
May 2014
 
1
 
42,779

 
100.0%
 
7.1
 
11,000

Countryside Medical Arts - Safety Harbor, FL
 
May 2014
 
1
 
50,972

 
100.0%
 
10.5
 
9,342

St. Andrews Medical Park - Venice, FL
 
May 2014
 
3
 
60,441

 
95.3%
 
3.8
 
13,308

Campus at Crooks & Auburn Building C - Rochester Hills, MI
 
Jun. 2014
 
1
 
24,224

 
100.0%
 
7.8
 
5,250

Slingerlands Crossing Phase I - Bethlehem, NY
 
Jun. 2014
 
1
 
43,173

 
93.1%
 
6.9
 
10,600

Slingerlands Crossing Phase II - Bethlehem, NY
 
Jun. 2014
 
1
 
47,696

 
100.0%
 
6.8
 
12,175

Total Medical Office Buildings
 
 
 
22
 
682,540

 
93.5%
 
6.0
 
164,981

 
 
 
 
 
 
 
 
 
 
 
 
 
Triple-Net Leased Buildings:
 
 
 
 
 
 
 
 
 
 
 
 
Ouachita Community Hospital - West Monroe, LA
 
Jul. 2013
 
1
 
17,830

 
100.0%
 
9.6
 
6,834

CareMeridian - Littleton, CO
 
Aug. 2013
 
1
 
27,630

 
100.0%
 
13.1
 
11,275

Total Triple-Net Leased Buildings
 
 
 
2
 
45,460

 
100.0%
 
11.8
 
18,109

Portfolio, June 30, 2014
 
 
 
24
 
728,000

 
93.9%
 
6.6
 
$
183,090

_______________________________
(1)
Remaining lease term in years as of June 30, 2014 , calculated on a weighted-average basis, as applicable.
(2)
Contract purchase price, excluding acquisition related costs.
Results of Operations
We purchased our first property and commenced our real estate operations in May 2013. As of June 30, 2014 , we owned 24 properties with an aggregate purchase price of $183.1 million , comprised of 0.7 million rentable square feet. As of June 30, 2013 , we owned two properties with an aggregate purchase price of $7.4 million, comprised of 30,488 rentable square feet. Accordingly, our results of operations for the three and six months ended June 30, 2014 as compared to the three and six months ended June 30, 2013 reflect significant increases in most categories.
Comparison of the Three Months Ended June 30, 2014 to the Three Months Ended June 30, 2013
Rental Income
Rental income was $2.3 million for the three months ended June 30, 2014 , compared to approximately $26,000 for the three months ended June 30, 2013 . The increase in rental income is a result of our acquisition of 24 properties with annualized rental income on a straight line basis of $15.3 million . As of June 30, 2013 , we owned two properties, acquired in May and June 2013, with annualized straight line rental income of $0.6 million.

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Operating Expense Reimbursements
Operating expense reimbursements were $0.6 million for the three months ended June 30, 2014 , compared to approximately $1,000 for the three months ended June 30, 2013 . Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. The increase in operating expense reimbursements was directly related to our acquisitions.
Property operating expenses
Property operating expenses were $0.7 million for the three months ended June 30, 2014 , compared to approximately $1,000 for the three months ended June 30, 2013 . These costs primarily relate to the costs associated with maintaining our properties included real estate taxes, utilities, repairs, maintenance and unaffiliated third party property management fees. The increase in property operating expenses was directly related to our acquisitions.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses of $2.6 million for the three months ended June 30, 2014 related to our acquisition of 14 properties with an aggregate purchase price of $118.5 million . Acquisition and transaction related expenses of $0.1 million for the three months ended June 30, 2013 , related to our acquisition of two properties for an aggregate purchase price of $7.4 million .
General and Administrative Expenses
General and administrative expenses were $0.6 million for the three months ended June 30, 2014 , compared to approximately $8,000 for the three months ended June 30, 2013 . Professional fees, state taxes and board member compensation increased $0.4 million in order to support our larger real estate portfolio. In addition, the Advisor's absorbed $0.2 million in general and administrative expenses during the three months ended June 30, 2013 . No general and administrative expense was absorbed by the Advisor during the three months ended June 30, 2014 .
Depreciation and Amortization Expenses
Depreciation and amortization expense was $2.4 million for the three months ended June 30, 2014 , compared to approximately $16,000 for the three months ended June 30, 2013 . The increase in depreciation and amortization expense relates to our acquisitions. The purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over the estimated useful lives.
Interest Expense
Interest expense of $0.7 million for the three months ended June 30, 2014 related to our mortgage notes payable balance of $59.3 million as of June 30, 2014 , as well as non-usage fees on our senior secured credit facility (the "Credit Facility") and the related amortization of deferred financing costs. We did not have any debt and, therefore, did not have interest expense during the three months ended June 30, 2013 .
Other Income
Other income of approximately $20,000 for the three months ended June 30, 2014 relates to interest income earned on from our interest bearing cash and cash equivalents accounts. We did not have any interest bearing accounts during the three months ended June 30, 2013 and, therefore, had no interest income.
Comparison of the Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013
Rental Income
Rental income was $3.4 million for the six months ended June 30, 2014 , compared to $26,000 for the six months ended June 30, 2013 . The increase in rental income is a result of our acquisition of 24 properties with annualized rental income on a straight line basis of $15.3 million . During the six months ended June 30, 2013 we owned only two properties acquired in May and June 2013, with annualized straight line rental income of $0.6 million.
Operating Expense Reimbursements
Operating expense reimbursements were $0.8 million for the six months ended June 30, 2014 , compared to approximately $1,000 for the six months ended June 30, 2013 . Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of property operating expenses, in addition to base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. The increase in operating expense reimbursements was directly related to acquisitions.

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Property operating expenses
Property operating expenses were $1.0 million the for the six months ended June 30, 2014 , compared to approximately $1,000 for the six months ended June 30, 2013 . These costs primarily relate to the costs associated with maintaining our properties included real estate taxes, utilities, repairs, maintenance and unaffiliated third party property management fees. The increase in property operating expenses was directly related to acquisitions.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses of $3.0 million for the six months ended June 30, 2014 , related to our acquisition of 17 properties with an aggregate purchase price of $136.9 million . Acquisition and transaction related expenses of $0.1 million for the six months ended June 30, 2013 , related to our acquisition of two properties for a aggregate purchase price of $7.4 million .
General and Administrative Expenses
General and administrative expenses were $1.0 million for the six months ended June 30, 2014 , compared to $0.1 million for the six months ended June 30, 2013 . Professional fees, state taxes and board member compensation increased $0.7 million in order to support our larger real estate portfolio. In addition, the Advisor's absorbed $0.2 million in general and administrative expenses during the six months ended June 30, 2013 . No general and administrative expense was absorbed by the Advisor during the six months ended June 30, 2014 .
Depreciation and Amortization Expenses
Depreciation and amortization expense was $3.2 million for the six months ended June 30, 2014 , compared to approximately $16,000 for the six months ended June 30, 2013 . The increase in depreciation and amortization expense relates to our acquisitions. The purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over the estimated useful lives.
Interest Expense
Interest expense of $0.7 million for the six months ended June 30, 2014 related to our mortgage notes payable balance of $59.3 million as of June 30, 2014 , as well as non-usage fees on our Credit Facility and the related amortization of deferred financing costs. We did not have any debt and, therefore, did not have interest expense during the six months ended June 30, 2013 .
Other Income
Other income of approximately $21,000 for the six months ended June 30, 2014 relates to interest income earned from our interest bearing cash and cash equivalents accounts. We did not have any interest bearing accounts during the six months ended June 30, 2013 and, therefore, had no interest income.
Cash Flows for the Six Months Ended June 30, 2014
During the six months ended June 30, 2014 , net cash provided by operating activities was $1.1 million . The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of operating expenses. Cash flows provided by operating activities during the six months ended June 30, 2014 includes $3.0 million of acquisition and transaction costs. Cash inflows included an an increase in accounts payable and accrued expenses of $1.8 million primarily related to accrued real estate taxes and $0.4 million in deferred rent. This was partially offset by a cash outflow related to a net loss adjusted for non-cash items of $1.2 million (net loss of $4.7 million adjusted for non-cash items including depreciation and amortization of tangible and intangible real estate assets and mortgage premiums and share based compensation of $3.6 million ).
The net cash used in investing activities during the six months ended June 30, 2014 of $88.8 million related to the acquisition of 17 properties with an aggregate purchase price of $136.9 million , partially funded with assumed debt of $59.4 million and other assumed liabilities. Net cash used in investing activities also includes deposits on pending acquisitions of $12.1 million .
Net cash provided by financing activities of $940.2 million during the six months ended June 30, 2014 related to proceeds, net of receivables, from the issuance of common stock of $1.1 billion , partially offset by payments of deferred financing costs of $5.1 million , payments related to offering costs of $119.1 million , $7.4 million in distributions paid to stockholders, increases in restricted cash of $1.9 million , payments made on mortgage notes payable of $0.1 million and payments to affiliates for advances to fund offering costs of $0.6 million . 

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Cash Flows for the Six Months Ended June 30, 2013
During the six months ended June 30, 2013, net cash used in operating activities was approximately $32,000. The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, as well as the receipt of scheduled rent payments and the level of operating expenses. Cash flows used in operating activities during the six months ended June 30, 2013 includes $0.1 million of acquisition and transaction costs. Cash outflows included a net loss adjusted for non-cash items of $0.1 million (net loss of $0.2 million adjusted for non-cash items including depreciation and amortization of tangible and intangible real estate assets and share based compensation of $23,000) and an increase in prepaid expenses of $40,000 related to insurance. These cash outflows were partially offset by cash inflows that consisted of an increase in accounts payable and accrued expenses of $0.1 million related to professional fees and deferred rent of $48,000.
The net cash used in investing activities during the six months ended June 30, 2013 of $7.4 million related to the acquisition of two properties with an aggregate purchase price of $7.4 million.
Net cash provided by financing activities of $24.4 million during the six months ended June 30, 2013 related to proceeds, net of receivables, from the issuance of common stock of $28.2 million, partially offset by net advances from affiliates of $0.1 million, payments related to offering costs of $3.6 million and approximately $7,000 in distributions paid to stockholders.
Liquidity and Capital Resources
Pursuant to the IPO, we are offering and selling up to $1.7 billion in shares of our common stock to the public, until the NAV pricing date, at $25.00 per share (including the maximum allowed to be charged for commissions and fees). We are also offering up to 14.7 million shares of our common stock to be issued pursuant to our DRIP, under which our stockholders may elect to have distributions reinvested in additional shares. We reserve the right to reallocate shares covered in the Registration Statement between the IPO and the DRIP. On July 23, 2014, we announced the reallocation of 13.9 million of our approximately 14.2 million remaining unsold shares available pursuant to the DRIP. On August 1, 2014, we registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3. Commencing with the NAV pricing date, the per share purchase price in the IPO will vary quarterly and will be equal to the NAV per share, as determined by the Advisor, plus applicable commissions and fees and the per share purchase price in the DRIP will be equal to the NAV per share. As of June 30, 2014 , we had 52.1 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total gross proceeds from the IPO and the DRIP of $1.3 billion .
On March 21, 2014, we entered into a Credit Facility in the amount of $50.0 million. On April 15, 2014, the Credit Facility was amended to increase the commitment up to a maximum of $200.0 million. The Credit Facility contains an "accordion" feature to allow us, under certain circumstances, to increase the aggregate commitments under the Credit Facility to a maximum of $450.0 million. The Credit Facility matures on March 21, 2017, subject to two one-year extension options. There were no advances outstanding as of June 30, 2014 . Availability of borrowings is based on a pool of eligible unencumbered real estate assets. The Company plans to add its unencumbered acquisitions to the borrowing base of the Credit Facility during the third quarter of 2014. As of June 30, 2014 , the company had no assets assigned to the Credit Facility.
As of June 30, 2014 , we had cash of $964.3 million , which we expect to use to fund acquisitions. We expect cash flows from operations and the sale of common stock to be used primarily to invest in additional real estate, pay debt service, pay operating expenses and pay stockholder distributions. We expect to continue to raise capital through the sale of our common stock and to utilize the net proceeds from the sale of our common stock and proceeds from our Credit Facility and secured financings to fund future property acquisitions. We acquired our first property and commenced real estate operations in May 2013. As of June 30, 2014 , we owned 24 properties with an aggregate purchase price of $183.1 million .
Generally, we will fund our acquisitions from the net proceeds of our IPO. We intend to acquire our assets with cash advances under our Credit Facility and mortgage or other debt proceeds, but we also may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in OP Units. As of August 6, 2014 , we owned 37 properties with an aggregate purchase price of $277.1 million . We currently have $898.4 million of assets under contract and executed letters of intent. Pursuant to the terms of the purchase and sale agreements and letters of intent, our obligation to close upon these acquisitions is subject to certain conditions customary to closing, including the successful completion of due diligence and fully negotiated binding agreements. We may decide to temporarily invest any unused proceeds from common stock offerings in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.

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We expect to fund our future short-term operating liquidity requirements through a combination of net cash provided by our current property operations and the operations of properties to be acquired in the future, proceeds from the sale of common stock, proceeds from our Credit Facility and secured mortgage financings. Once we have used all the proceeds from the IPO to acquire properties, management expects that cash flow from our properties will be sufficient to fund operating expenses and the payment of our monthly distributions. Other potential future sources of capital include proceeds from secured and unsecured financings from banks or other lenders, proceeds from public and private offerings, proceeds from the sale of properties and undistributed funds from operations.
We expect to use debt financing as a source of capital. Under our charter, the maximum amount of our total indebtedness may not exceed 300% of our total "net assets" (as defined in our charter) as of the date of any borrowing, which is generally expected to be approximately 75% of the cost of our investments. We may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report on Form 10-Q or annual report on Form 10-K, as applicable, following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, it is currently our intention to limit our aggregate borrowings to 45% of the aggregate fair market value of our assets (calculated after the close of our IPO and once we have invested substantially all the proceeds of our IPO), unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation, however, will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to satisfy our requirements under our charter. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits.
Once our NAV exceeds $1.0 billion, in the aggregate, we intend to maintain 5% of the overall value of our portfolio in liquid assets. However, our stockholders should not expect that we will maintain liquid assets at or above this level. To the extent that we maintain borrowing capacity under our Credit Facility, such available amount will be included in calculating our liquid assets. Our Advisor will consider various factors in determining the amount of liquid assets we should maintain, including, but not limited to, our receipt of proceeds from sales of additional shares, our cash flow from operations, available borrowing capacity under our Credit Facility, if any, our receipt of proceeds from any asset sale, and the use of cash to fund repurchases. The board of directors will review the amount and sources of liquid assets on a quarterly basis.
Our board of directors has adopted a Share Repurchase Program ("SRP") that enables our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requests a repurchase, we may, subject to certain conditions, repurchase the shares presented for repurchase for cash to the extent we have sufficient funds available to fund such purchase. There are limits on the number of shares we may repurchase under this program during any 12-month period. Further, we are only authorized to repurchase shares using the proceeds secured from the DRIP in any given quarter. The following table reflects the number of shares repurchased under the Company's SRP cumulatively through June 30, 2014 :
 
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2013
 
2

 
1,600

 
$
25.00

Six months ended June 30, 2014 (1)
 
5

 
8,014

 
24.98

Cumulative repurchases as of June 30, 2014 (1)
 
7

 
9,614

 
$
24.99

_____________________________
(1)
Includes five unfulfilled repurchase requests consisting of 8,014 shares at an average price per share of $24.98 , which were approved for repurchase as of June 30, 2014 and completed in August 2014 .
Acquisitions
As of August 6, 2014 , we owned 37 properties with an aggregate purchase price of $277.1 million . We currently have $898.4 million of assets under contract and executed letters of intent. Pursuant to the terms of the purchase and sale agreements and letters of intent, our obligation to close upon these acquisitions is subject to certain conditions customary to closing, including the successful completion of due diligence and fully negotiated binding agreements. There can be no assurance that we will complete these acquisitions.
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under accounting principles generally accepted in the United States ("GAAP").

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We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT's policy described above.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, because impairments are based on estimated undiscounted future cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.
Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and modified funds from operations ("MFFO"), as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

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There have been changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. We are using the proceeds raised in our offering to, among other things, acquire properties. We intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national stock exchange, a merger or sale or another similar transaction) within three to five years of the completion of the offering. Thus, unless we raise, or recycle, a significant amount of capital after we complete our offering, we will not be continuing to purchase assets at the same rate as during our offering. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association ("IPA"), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to purchase a significant amount of new assets after we complete our offering. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is stabilized. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our IPO has been completed and our portfolios have been stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our IPO and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of our operating performance after our IPO has been completed and our portfolio has been stabilized because it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations ("Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.

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Our MFFO calculation complies with the IPA's Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to non-controlling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and negatively impact the returns earned on an investment in our shares, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to that of non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives as items which are unrealized. We view both gains and losses from dispositions of assets and fair value adjustments of derivatives as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to our investors. Acquisition fees and expenses will not be reimbursed by our Advisor if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.
Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs with similar acquisition periods and targeted exit strategies. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to acquire and manage properties. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as a limited and defined acquisition period. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management's analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure while an offering is ongoing such as our offering where the price of a share of common stock is a stated value and there is no NAV determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and NAV is disclosed. FFO and MFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO or MFFO.
Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

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The table below reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the period indicated:
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
March 31, 2014
 
June 30, 2014
 
June 30, 2014
Net loss (in accordance with GAAP)
 
$
(582
)
 
$
(4,147
)
 
$
(4,729
)
Depreciation and amortization
 
857

 
2,381

 
3,238

FFO
 
275

 
(1,766
)
 
(1,491
)
Acquisition fees and expenses (1)
 
404

 
2,599

 
3,003

Amortization of above or accretion of below market leases and liabilities, net (2)
 
15

 
22

 
37

Straight-line rent (3)
 
(80
)
 
(117
)
 
(197
)
Accretion of discount/amortization of premiums
 
—

 
(106
)
 
(106
)
MFFO
 
$
614

 
$
632

 
$
1,246

______________________________
(1) In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management's analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our Advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.
(2) Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.
(3) Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management's analysis of operating performance.
Distributions
On April 9, 2013, our board of directors authorized, and we declared, distributions payable to stockholders of record each day during the applicable period at a rate equal to $0.0046575343 per day, or 6.8% per annum, based on a price of $25.00 per share of common stock. Distributions began to accrue on May 24, 2013, 15 days following our initial property acquisition. Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.
The amount of distributions payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to qualify and maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Distribution payments are dependent on the availability of funds. Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
During the six months ended June 30, 2014 , distributions paid to common stockholders totaled $15.5 million , inclusive of $8.1 million of distributions reinvested through the DRIP. During the six months ended June 2014 , cash used to pay distributions was generated from proceeds from cash flows from operations and the net proceeds from our offering.

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The following table shows the sources for the payment of distributions to common stockholders, excluding distributions on unvested restricted stock, for the period indicated:
 
 
Three Months Ended
 
Six Months Ended
 
 
March 31, 2014
 
June 30, 2014
 
June 30, 2014
(In thousands)
 
 
 
Percentage of Distributions
 
 
 
Percentage of Distributions
 
 
 
Percentage of Distributions
Distributions:
 
 
 
 
 
 
 
 
 
 
 
 
Distributions paid in cash
 
$
1,923

 
 
 
$
5,481

 
 
 
$
7,404

 
 
Distributions reinvested
 
2,047

 
 
 
6,060

 
 
 
8,107

 
 
Total distributions
 
$
3,970

 
 
 
$
11,541

 
 
 
$
15,511

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source of distribution coverage:
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by (used in) operations (1)
 
$
1,301

 
32.8
%
 
$
(163
)
 
(1.4
)%
 
$
1,138

 
7.3
%
Proceeds from issuance of common stock
 
622

 
15.7
%
 
5,644

 
48.9
 %
 
6,266

 
40.4
%
Common stock issued under the DRIP / offering proceeds
 
2,047

 
51.5
%
 
6,060

 
52.5
 %
 
8,107

 
52.3
%
Proceeds from financings
 
—

 
—
%
 
—

 
—
 %
 
—

 
—
%
Total source of distribution coverage
 
$
3,970

 
100.0
%
 
$
11,541

 
100.0
 %
 
$
15,511

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operations (GAAP basis) (1)
 
$
1,301

 
 
 
$
(163
)
 
 
 
$
1,138

 
 
Net loss (in accordance with GAAP)
 
$
(582
)
 
 
 
$
(4,147
)
 
 
 
$
(4,729
)
 
 
______________________________
(1) Cash flows used in operations for the three months ended March 31, 2014 and June 30, 2014 and for the six months ended June 30, 2014 reflect acquisition and transaction related expenses of $0.4 million , $2.6 million and $3.0 million , respectively.
The following table compares cumulative distributions paid to cumulative net loss and cumulative cash flows provided by operations (in accordance with GAAP) for the period from October 15, 2012 (date of inception) through June 30, 2014 :
 
 
For the Period
from October 15, 2012
(date of inception) to
(In thousands)
 
June 30, 2014
Distributions paid:
 
 
Common stockholders in cash
 
$
8,707

Common stockholders pursuant to DRIP/offering proceeds
 
9,452

Total distributions paid
 
$
18,159

 
 
 
Reconciliation of net loss:
 
 
Revenues
 
$
6,073

Acquisition and transaction related
 
(3,733
)
Depreciation and amortization
 
(4,315
)
Other operating expenses
 
(2,266
)
Other non-operating expenses
 
(724
)
Net loss (in accordance with GAAP) (1)
 
$
(4,965
)
 
 
 
Cash flows provided by operations
 
$
374

_____________________
(1) Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization expense as well as costs incurred relating to acquisitions and related transactions.

35
Table of Contents


Loan Obligations
The payment terms of our loan obligations require principal and interest amounts payable monthly with all unpaid principal and interest due at maturity. Our loan agreements stipulate that we comply with specific reporting covenants. As of June 30, 2014 , we were in compliance with the debt covenants under our loan agreements.
Our Advisor may, with approval from our independent board of directors, seek to borrow short-term capital that, combined with secured mortgage financing, exceeds our targeted leverage ratio. Such short-term borrowings may be obtained from third-parties on a case-by-case basis as acquisition opportunities present themselves. We view the use of short-term borrowings, including advances under our credit facility, as an efficient and accretive means of acquiring real estate. Our secured debt leverage ratio (total secured debt, divided by the base purchase price of acquired real estate investments) was approximately 32.4% as of June 30, 2014 .
Contractual Obligations
The following table reflects contractual debt obligations under our mortgage notes payable and minimum base rental cash payments due for leasehold interests over the next five years and thereafter as of June 30, 2014 . These minimum base rental cash payments due for leasehold interests 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. As of June 30, 2014 , the outstanding mortgage notes payable had weighted average effective interest rates of 6.12% . We had no advances outstanding under the Credit Facility.
 
 
 
 
July 1, 2014 — December 31, 2014
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
 
2015 — 2016
 
2017 — 2018
 
Thereafter
Principal on mortgage notes payable
 
$
59,325

 
$
430

 
$
20,188

 
$
26,689

 
$
12,018

Interest on mortgage notes payable
 
11,143

 
1,784

 
6,361

 
2,739

 
259

Lease rental payments due
 
5,538

 
54

 
220

 
229

 
5,035

 
 
$
76,006

 
$
2,268

 
$
26,769

 
$
29,657

 
$
17,312

Election as a REIT  
We intended to elect and qualify to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. We believe that, commencing with such taxable year, we are organized and operate in such a manner as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. In order to qualify and continue to qualify, for taxation as a REIT, we must distribute annually at least 90% of our REIT taxable income. REITs are also subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties as well as federal income and excise taxes on our undistributed income.
Inflation
We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. In addition, we may be required to pay costs for maintenance and operation of properties which may adversely impact our results of operations due to potential increases in costs and operating expenses resulting from inflation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

36
Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The market risk associated with financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings and our Credit Facility (which had no advances outstanding as of June 30, 2014 ), bears interest at fixed rates and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
As of June 30, 2014 , our debt included fixed-rate secured mortgage financings with a carrying value of $62.3 million and a fair value of $62.4 million . Changes in market interest rates on our fixed-rate debt impact the fair value of the notes, but it has no impact on interest due on the notes. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed–rate debt assumes an immediate 100 basis point move in interest rates from their June 30, 2014 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $1.2 million . A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $1.0 million .
These amounts were determined by considering the impact of hypothetical interest rates changes on our borrowing costs, and assuming no other changes in our capital structure. The information presented above includes only those exposures that existed as of June 30, 2014 and does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
Item 4. Controls and Procedures.
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures are effective.
No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
Our potential risks and uncertainties are presented in the section entitled "Risk Factors," contained in the prospectus as supplemented and included in our Registration Statement on Form S-11 (File No. 333-184677 ), as amended from time to time (the "Registration Statement"). The following additional risk factors should be considered regarding our potential risks and uncertainties:
Our stockholder' interest in us may be diluted if the price we pay in respect of shares repurchased under our share repurchase program exceeds the net asset value, at such time as we calculate the NAV of our share.
The prices we may pay for shares repurchased under our share repurchase program may exceed the NAV of such shares at the time of repurchase, which may reduce the NAV of the remaining shares.
Distributions paid from sources other than our cash flows from operations, particularly from proceeds of our IPO, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments and may dilute our stockholders' interests in us, which may adversely affect our ability to fund future distributions with cash flows from operations and may adversely affect our stockholders' overall return.

37
Table of Contents

Our cash flows provided by operations were $1.1 million for the six months ended June 30, 2014 . During the six months ended June 30, 2014 , we paid distributions of $15.5 million , of which $1.1 million , or 7.3% , was funded from cash flows from operations, $6.3 million , or 40.4% , was funded from proceeds from the IPO and $8.1 million , or 52.3% , was funded from proceeds from our IPO which were reinvested in common stock issued under our DRIP. During the six months ended June 30, 2014 cash flow from operations included an increase in accounts payable and accrued expenses of $1.8 million , as reflected on the statement of cash flows. Accordingly, if these accounts payable and accrued expenses had been paid during the six months ended June 30, 2014 , there would have been $1.8 million less in cash flow from operations available to pay distributions. Using offering proceeds to pay distributions, especially if the distributions are not reinvested through our DRIP, reduces cash available for investment in assets or other purposes, and reduces our per share stockholders' equity. We may continue to use net offering proceeds to fund distributions.
We may not generate sufficient cash flows from operations to pay distributions. If we have not generated sufficient cash flows from our operations and other sources, such as from borrowings, the sale of additional securities, advances from our Advisor, and our Advisor's deferral, suspension or waiver of its fees and expense reimbursements, to fund distributions, we may use the proceeds from our IPO. Moreover, our board of directors may change our distribution policy, in its sole discretion, at any time. Distributions made from offering proceeds are a return of capital to stockholders, from which we will have already paid offering expenses in connection with our IPO. We have not established any limit on the amount of proceeds from our IPO that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any; or (3) jeopardize our ability to qualify as a REIT.
Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions with the sale of assets or the proceeds of our IPO may affect our ability to generate additional operating cash flows. Funding distributions from the sale of additional securities could dilute each stockholder's interest in us if we sell shares of our common stock or securities that are convertible or exercisable into shares of our common stock to third-party investors. Payment of distributions from the mentioned sources could restrict our ability to generate sufficient cash flows from operations, affect our profitability or affect the distributions payable to stockholders upon a liquidity event, any or all of which may have an adverse effect on an investment in our shares.
We rely significantly on six major tenants (including, for this purpose, all affiliates of such tenants) and therefore, are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.
As of June 30, 2014 , the following six major tenants represented annualized rental income on a straight-line basis, which represented 5% or more of our total annualized rental income on a straight-line basis including for this purpose, all affiliates of such tenants:
Tenant
 
Percentage of Straight-Line Rental Income
Anne Arundel Health System
 
5.8%
BlueCross BlueShield of Florida
 
5.1%
CHE Trinity Health
 
6.0%
Ellis Hospital
 
5.5%
National Mentor Holdings, Inc.
 
6.3%
Tenet Healthcare Corporation
 
5.8%
Therefore, the financial failure of any of these tenants could have a material adverse effect on our results of operations and our financial condition. In addition, the value of our investment is driven by the credit quality of the underlying tenant, and an adverse change in either tenant's financial condition or a decline in the credit rating of such tenant may result in a decline in the value of our investments.
Our property portfolio has a high concentration of properties located in eight states. Our properties may be adversely affected by economic cycles and risks inherent to those states.
As of June 30, 2014 , annualized rental income on a straight-line basis in excess of 5% included properties located in the following states:

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Table of Contents

State
 
Percentage of Straight-Line Rental Income
Arizona
 
5.9%
Colorado
 
6.3%
Florida
 
14.0%
Georgia
 
10.0%
Illinois
 
11.7%
Maryland
 
6.2%
Michigan
 
5.8%
New York
 
26.8%
Any adverse situation that disproportionately affects the states listed above may have a magnified adverse effect on our portfolio. Real estate markets are subject to economic downturns, as they have been in the past, and we cannot predict how economic conditions will impact this market in both the short and long term. Declines in the economy or a decline in the real estate market in these states could hurt our financial performance and the value of our properties. Factors that may negatively affect economic conditions in these states include:
•
business layoffs or downsizing;
•
industry slowdowns;
•
relocations of businesses;
•
changing demographics;
•
increased telecommuting and use of alternative work places;
•
infrastructure quality;
•
any oversupply of, or reduced demand for, real estate;
•
concessions or reduced rental rates under new leases for properties where tenants defaulted; and
•
increased insurance premiums.

39
Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities.
Unregistered Sales of Equity Securities
We did not sell any equity securities that were not registered under the Securities Act of during the six months ended June 30, 2014 .
Use of Proceeds of Registered Securities
On February 14, 2013 we commenced our IPO on a "reasonable best efforts" basis of up to a maximum of $1.7 billion of common stock, consisting of up to 68.0 million shares, pursuant to the Registration Statement initially filed on October 31, 2012 with the SEC under the Securities Act of 1933, as amended. The Registration Statement, which was declared effective by the SEC on February 14, 2013, also covers 14.7 million shares of common stock pursuant the DRIP under which common stockholders may elect to have their distributions reinvested in additional shares of common stock. We reserve the right to reallocate shares covered in the Registration Statement between the IPO and the DRIP. On July 23, 2014, we announced the reallocation of 13.9 million of our approximately 14.2 million remaining unsold shares available pursuant to the DRIP. On August 1, 2014, we registered an additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3. As of June 30, 2014 , we have issued 52.1 million shares of our common stock, including unvested restricted shares and shares issued pursuant to the DRIP, and received $1.3 billion of offering proceeds, including proceeds from shares issued pursuant to the DRIP.
The following table reflects the offering costs associated with the issuance of common stock:
 
 
Six Months Ended
(In thousands)
 
June 30, 2014
Selling commissions and dealer manager fees
 
$
105,197

Other offering costs
 
16,781

Total offering costs
 
$
121,978

The Dealer Manager may reallow the selling commissions and a portion of the dealer manager fees to participating broker-dealers. The following table details the selling commissions incurred and reallowed related to the sale of shares of common stock:
 
 
Six Months Ended
(In thousands)
 
June 30, 2014
Total commissions paid to the Dealer Manager
 
$
105,197

Less:
 
 
  Commissions to participating brokers
 
(72,142
)
  Reallowance to participating broker dealers
 
(10,739
)
Net to the Dealer Manager
 
$
22,316

As of June 30, 2014 , we have incurred $146.8 million of cumulative offering costs in connection with the issuance and distribution of our shares in connection with our IPO. As of June 30, 2014 , cumulative offering costs included $20.3 million of offering costs reimbursements incurred from the Advisor and Dealer Manager, excluding commission and dealer manager fees. The Advisor elected to cap cumulative offering costs incurred by us, net of unpaid amounts, to 15% of gross common stock proceeds during the offering period. Cumulative offering costs, net of unpaid amounts, were less that the 15% threshold as of June 30, 2014 . Cumulative offering proceeds from the sale of common stock exceeded cumulative offering costs by $1.1 billion at June 30, 2014 .
We have used and expect to continue to use substantially all of the net proceeds from our IPO to primarily acquire a diversified portfolio of income producing real estate properties, focusing predominantly on medical office buildings and healthcare-related facilities. We may also originate or acquire first mortgage loans secured by real estate. As of June 30, 2014 , we have used the net proceeds from our IPO to purchase 24 properties with an aggregate contract purchase price of $183.1 million . We have used and may continue to use net proceeds from our IPO to fund a portion of our distributions. Once we have used all the proceeds from the IPO to acquire properties, management expects that cash flow from our properties will be sufficient to fund operating expenses and the payment of our monthly distributions.

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Table of Contents

Issuer Purchases of Equity Securities
The following table reflects the number of shares repurchased under the Company's SRP cumulatively through June 30, 2014 :
 
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2013
 
2

 
1,600

 
$
25.00

Six months ended June 30, 2014 (1)
 
5

 
8,014

 
24.98

Cumulative repurchases as of June 30, 2014 (1)
 
7

 
9,614

 
$
24.99

_____________________________
(1)     Includes five unfulfilled repurchase requests consisting of 8,014 shares at an average price per share of $24.98 , which were approved for repurchase as of June 30, 2014 and completed in August 2014 .

Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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Table of Contents
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC.
 
By:
/s/ Thomas P. D'Arcy
 
 
Thomas P. D'Arcy
 
 
Chief Executive Officer (Principal Executive Officer)
 
 
 
 
By:
/s/ Edward F. Lange
 
 
Edward F. Lange
 
 
Chief Financial Officer and Chief Operating Officer
(and Principal Financial Officer and Principal Accounting Officer)

Dated: August 6, 2014


42
EXHIBITS INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No.
  
Description
10.24 *
 
Increase Letter, dated April 15, 2014, with Keybank National Association, relating to the Senior Secured Revolving Credit Agreement dated as of March 21, 2014 by and among American Realty Capital Healthcare Trust II Operating Partnership, L.P., KeyBank National Association, the other lenders which are parties to this agreement and other lenders that may become parties to the agreement
10.25 *
 
Agreement for Purchase and Sale of Real Property, effective as of April 14, 2014, by and among American Realty Capital VII, LLC, AW Countryside, LLC and AW St. Andrews, LLC
10.26 *
 
First Amendment to Agreement for Purchase and Sale of Real Property, dated as of May 14, 2014, by and among American Realty Capital VII, LLC, AW Countryside, LLC and AW St. Andrews, LLC
10.27 *
 
Agreement for Purchase and Sale of Real Property, effective as of June 5, 2014, by and among AR Capital, LLC, Jackson-Laguna, Jackson II, LLC and Jackson-Big Horn, LLC
31.1 *
 
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *
 
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 *
 
Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 *
 
XBRL (eXtensible Business Reporting Language). The following materials from American Realty Capital Healthcare Trust II, Inc.'s Quarterly Report on Form 10-Q for the three months ended June 30, 2014, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information in furnished and not filed for purpose of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934
____________________
*     Filed herewith


43
Exhibit 10.24

April 15, 2014
KeyBank National Association,
individually and as Agent
4910 Tiedeman Road, 3 rd Floor
Brooklyn, Ohio 44114
Attn: Amy L. MacLearie
KeyBank National Association,
individually and as Agent
127 Public Square, 8 th Floor
Cleveland, Ohio 44114
Attn: Wayne Horvath, SVP
Ladies and Gentlemen:
Pursuant to the provisions of Section 2.11 of the Senior Secured Revolving Credit Agreement dated as of March 21, 2014, as from time to time in effect (as the same may be varied, extended, supplemented, consolidated, replaced, increased, renewed, modified or amended from time to time, the “ Credit Agreement ”), by and among American Realty Capital Healthcare Trust II Operating Partnership, L.P., a Delaware limited partnership (“ Borrower ”), KeyBank National Association (“ KeyBank ”), as Agent, and each of the financial institutions initially a signatory to the Credit Agreement together with their assignees pursuant to Section 18 of the Credit Agreement (collectively, the “ Existing Lenders ” and each individually a “ Existing Lender ”), the Borrower hereby requests an increase in the Total Commitment (as defined in the Credit Agreement) as further set forth below.
1. In connection with the request for such increase, the Borrower hereby certifies as follows:
(a)     Request for Increase . The Borrower hereby requests an increase of the Total Commitment from $50,000,000.00 to $200,000,000.00 pursuant to Section 2.11 of the Credit Agreement (the “ Increase ”).
(b)     Certifications . In connection with the Increase, the Borrower and each Guarantor certifies that:
(i)    As of the date hereof and as of the effective date of the Increase, both immediately before and after giving effect to the Increase, there exists and shall exist no Default or Event of Default;
(ii)    As of the date hereof, the representations and warranties made by the Borrower and the Guarantors in the Loan Documents or otherwise made by or on behalf of the Borrower or the Guarantors in connection therewith or after the date thereof were true and correct in all material respects when made, are true and correct in all material respects as of the date hereof, and shall be true and correct in all material respects as of the effective date of the Increase, both immediately before and after giving effect to the Increase, as though such representations and warranties were made on and as of that date except that if any representation and warranty is as of a specific date, such representations and warranty shall be true and correct in all material respects as of such date; and
(iii)    Borrower has paid all fees required by the Agreement Regarding Fees and §2.11(d)(i) of the Credit Agreement.
(c)     Commitments . Borrower hereby acknowledges and agrees that as of the effective date of the Increase and following satisfaction of all conditions thereto as provided in Section 2.11 of the Credit Agreement, the amount of each Lender’s Commitment shall be the amount set forth on Schedule 1.1 attached hereto and the Total Commitment under the Credit Agreement will include the Increase. In connection with the Increase, Regions Bank (“ Regions ”), JPMorgan Chase Bank, N.A. (“ JPMorgan ”), and Capital One, National Association (“ Capital One ”; and Regions, JPMorgan and Capital One are hereinafter sometimes referred to individually as a “ New Lender ” and collectively as the “ New Lenders ”), shall each be issued a Revolving Credit Note in the principal face amount of



$50,000,000.00, and upon acceptance of such notes by the New Lenders, such notes will each be a “Note” under the Credit Agreement.
(d)     Swing Loan Commitment . Borrower hereby acknowledges and agrees that as of the effective date of the Increase and following satisfaction of all conditions thereto as provided in Section 2.11 of the Credit Agreement, the Swing Loan Commitment shall be increased from $5,000,000.00 to $20,000,000.00. In connection with the increase of the Swing Loan Commitment, KeyBank shall be issued a replacement Swing Loan Note in the principal face amount of $20,000,000.00 (the “ Replacement Swing Loan Note ”), and, upon acceptance of the Replacement Swing Loan Note by KeyBank, the Replacement Swing Loan Note will be the “Swing Loan Note” under the Credit Agreement. KeyBank will promptly return to Borrower the existing Swing Loan Note in the principal face amount of $5,000,000.00 marked “Cancelled.”
(e)     Other Conditions . All other conditions to the Increase set forth in Section 2.11 of the Credit Agreement have been satisfied.
2.     New Lender Agreements, Acknowledgements and Representations . By its signature below, each of the New Lenders, subject to the terms and conditions hereof, hereby agrees to perform all obligations with respect to its respective Commitment as if such New Lender were an original Lender under and signatory to the Credit Agreement having a Commitment, as set forth above, equal to its respective Commitment, which obligations shall include, but shall not be limited to, the obligation of such New Lender to make a Loan to the Borrower with respect to its Commitment as required under Section 2.1 of the Credit Agreement, and in any case the obligation to indemnify the Agent as provided therein. Each of the New Lenders makes and confirms to the Agent and the other Lenders all of the representations, warranties and covenants of a Lender under Section 14 of the Credit Agreement. Further, each New Lender acknowledges that it has, independently and without reliance upon the Agent, or on any affiliate or subsidiary thereof or any other Lender and based on the financial statements supplied by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to become a Lender under the Credit Agreement. Each New Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other Loan Documents or pursuant to any other obligation. Except as expressly provided in the Credit Agreement, the Agent shall have no duty or responsibility whatsoever, either initially or on a continuing basis, to provide any of the New Lenders with any credit or other information with respect to the Borrower, the Guarantors or any of their respective Subsidiaries, or the Collateral or any other assets of the Borrower, the Guarantors or any of their respective Subsidiaries, or to notify any of the New Lenders of any Default or Event of Default. The New Lenders have not relied on the Agent as to any legal or factual matter in connection therewith or in connection with the transactions contemplated thereunder. Each of the New Lenders (i) represents and warrants that it is (1) legally authorized to enter into this agreement, and (2) an “accredited investor” (as such term is used in Regulation D of the Securities Act of 1933, as amended); (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant thereto and such other documents and information (including without limitation the Loan Documents) as it has deemed appropriate to make its own credit analysis and decision to enter into this agreement; (iii) appoints and authorizes the Agent to take such action as contractual representative on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof; and (iv) agrees that it will become a party to and shall be bound by the Credit Agreement and the other Loan Documents to which the other Lenders are a party on the date hereof and will perform in accordance therewith all of the obligations which are required to be performed by it as a Lender. Each of the New Lenders acknowledges and confirms that its address for notices and Lending Office for Loans are as set forth on the signature pages hereto.
3.     Joint Lead Arrangers . As of the effective date of the Increase, KeyBanc Capital Markets, Inc., Regions Capital Markets, J.P. Morgan Securities LLC and Capital One shall be Joint Lead Arrangers under the Loan Documents and any and all references to the term “Arranger” in the Loan Documents shall be deemed to be references to each of such parties collectively and individually as the context may require.
4.     Co-Syndication Agents . As of the effective date of the Increase, Regions, JPMorgan and Capital One shall be Co-Syndication Agents under the Loan Documents.
5.     Definitions . Terms defined in the Credit Agreement are used herein with the meanings so defined.




IN WITNESS WHEREOF, we have hereunto set our hands this 15th day of April, 2014.
BORROWER :
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II OPERATING PARTNERSHIP, L.P. , a
Delaware limited partnership
By: AMERICAN REALTY CAPITAL
HEALTHCARE TRUST II, INC., a
Maryland corporation, its general partner
By: /s/ Edward M. Weil, Jr.    
Name: Edward M. Weil, Jr.    
Title: President    


GUARANTOR :
AMERICAN REALTY CAPITAL HEALTHCARE TRUST II, INC. , a Maryland corporation
By:     /s/ Edward M. Weil, Jr.
Name:     Edward M. Weil, Jr.
Title:      President


[Signatures Continued on Next Page]






REGIONS :
REGIONS BANK , as a Lender
By: /s/ David Blevins
Name: David Blevins
Title: Vice President
(SEAL)

Lending Office (all Types of Loans):
Regions Bank
1900 5 th Avenue North
Birmingham, Alabama 35203
Attention: David Blevins
Telecopy Number: (205) 801-0343
Telephone Number: (205) 264-7504


[Signatures Continued on Next Page]







JPMORGAN :
JPMORGAN CHASE BANK, N.A. , as a Lender
By: /s/ Rita Lai
Name: Rita Lai
Title: Authorized Signer
(SEAL)

Lending Office (all Types of Loans):
JPMorgan Chase Bank, N.A.
270 Park Avenue, Floor 45
New York, New York 10017-2014
Attention: Rita Lai
Telecopy Number: (646) 534-6301
Telephone Number: (212) 270-6254


[Signatures Continued on Next Page]






CAPITAL ONE :
CAPITAL ONE, NATIONAL ASSOCIATION , as a Lender
By: /s/ Todd Gordon
Name: Todd Gordon
Title: Managing Director
(SEAL)

Lending Office (all Types of Loans):
Capital One, National Association
4445 Willard Avenue, 6th Floor
Chevy Chase, Maryland 20815
Attention: Danny Moore; Michael Mastronikolas
Telecopy Number: (301) 280-0299
Telephone Number: (301) 280-2596; (301) 280-0244


[Signatures Continued on Next Page]






ACKNOWLEDGED:

KEYBANK NATIONAL ASSOCIATION , as Agent

By: /s/ John Hyland
Name: John Hyland
Title: Closing Officer










SCHEDULE 1.1
LENDERS AND COMMITMENTS
Name and Address
 
Commitment
 
Commitment Percentage
KeyBank National Association
127 Public Square
Cleveland, Ohio 44114-1306
Attention: Eric Hafertepen
Telephone: 770-510-2138
Facsimile: 770-510-2195  
$50,000,000.00
25.00%
LIBOR Lending Office
Same as Above
 
 
Regions Bank
1900 5th Avenue North
Birmingham, Alabama 35203
Attention: David Blevins
Telephone: 205-264-7504
Facsimile: 205-801-0343  
$50,000,000.00
25.00%
LIBOR Lending Office
Same as Above
 
 
JPMorgan Chase Bank, N.A.  
270 Park Avenue, Floor 45
New York, New York 10017-2014
Attention: Rita Lai
Telephone: 212-270-6254
Facsimile: 646-534-6301  
$50,000,000.00
25.00%
LIBOR Lending Office
Same as Above
 
 
Capital One, National Association
4445 Willard Avenue, 6 th  Floor
Chevy Chase, Maryland 20815
Attention: Danny Moore and
Michael Mastronikolas
Telephone: 301-280-2596;
                    301-280-0244
Facsimile: 301-280-0299
$50,000,000.00
25.00%
LIBOR Lending Office
Same as Above
 
 
TOTAL
$200,000,000.00
100%



 

Exhibit 10.25

 

AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY

 

A.W. FLORIDA MOB PORTFOLIO

 

3131 NORTH MCMULLEN BOOTH ROAD, CLEARWATER, FLORIDA 33761

 

AND

 

1350 - 1370 EAST VENICE AVENUE, VENICE, FLORIDA 34285

THIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this “ Agreement ”) is made and entered into as of the Effective Date by and among AMERICAN REALTY CAPITAL VII, LLC, a Delaware limited liability company (“ Buyer ”), as buyer, and AW COUNTRYSIDE, LLC, a Delaware limited liability company (“ Countryside Seller ”), and AW ST. ANDREWS, LLC, a Delaware limited liability company (“ St. Andrews Seller ”; Countryside Seller and St. Andrews Seller are referred to herein, individually and collectively, as “ Seller ”), as seller.

 

BACKGROUND

 

A.           Countryside Seller is the fee owner of the Land (defined below) described on Exhibit A-1 attached hereto and made a part hereof (the “ Countryside Land ”).

 

B.           St. Andrews Seller is the fee owner of the Land (defined below) described on Exhibit A-2 attached hereto and made a part hereof (the “ St. Andrews Land ”).

 

C.           Buyer desires to purchase the Property (defined below) and Seller desires to sell the Property to Buyer on the terms and conditions set forth in this Agreement.

 

In consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1.           Terms and Definitions . The terms listed below shall have the respective meaning given them as set forth adjacent to each term.

 

(a)           “ Broker ” shall mean Healthcare Real Estate Capital, LLC, acting as Seller’s agent.

 

(b)           “ Closing ” shall mean the consummation of the transaction contemplated herein, which shall occur, subject to any applicable extension periods set forth in this Agreement, on the date that is five (5) business days following the Lender’s (as defined herein) approval of the Loan Assumption (as defined herein). In no event shall Closing occur prior to the expiration of the Due Diligence Period (as defined herein). The date of Closing is sometimes hereinafter referred to as the “ Closing Date .” Neither party will need to be present at Closing, it being anticipated that the parties will deliver all Closing documents and deliverables in escrow to the

 

 
 

 

 

Escrow Agent (or if both Buyer and Seller agree, to Buyer’s and/or Seller’s counsel) prior to the date of Closing.

 

(c)          “ Countryside Property ” shall mean the Countryside Land and all matters described in (ii)-(vii) of the definition of “Property” in connection with the Countryside Land.

 

(d)           “ Due Diligence Period ” shall mean the period beginning upon the Effective Date and extending until 11:59 PM EDT on the date that is thirty (30) days thereafter or the date on which Seller receives written notice of Buyer’s waiver of the Due Diligence Period. Seller shall deliver to Buyer all of the Due Diligence Materials within five (5) business days after the Effective Date.

 

(e)           “ Earnest Money ” shall mean Five Hundred Thousand and No/100 Dollars ($500,000.00). The Earnest Money shall be delivered to Escrow Agent within three (3) business days after the Effective Date. The Earnest Money shall be deposited by Buyer in escrow with Escrow Agent, to be applied as part payment of the Purchase Price at the time of Closing, or disbursed as agreed upon in accordance with the terms of this Agreement. Seller and Buyer each shall pay one-half of all reasonable escrow fees charged by Escrow Agent.

 

(f)           “ Effective Date ” The date that is one (1) business day after the date of execution and delivery of this Agreement by both Seller and Buyer shall be the “Effective Date” of this Agreement.

 

(g)           “ Escrow Agent ” shall mean Stewart Title Guaranty Company, whose address is One Washington Mall - Suite 1400, Boston, MA 02108, Attention: Annette Comer, Telephone: 617-933-2441, Telecopy: 617-727-8372; E-Mail: acomer@stewart.com.

 

(h)           “ Guarantor ” shall mean each guarantor of the Leases.

 

(i)           “ Guaranty ” shall mean each guaranty executed by a Guarantor.

 

(j)           “ Leases ” shall mean those certain Leases described on Exhibit A-3 attached hereto and made a part hereof and referred to in Section 6(b)(i) of this Agreement between Seller, as landlord, and the tenants described on Exhibit A-3 attached hereto, as tenant (each tenant, individually, a “ Tenant ”, and collectively, the “ Tenants ”), as amended. Each of the Leases may be referred to herein individually as a “ Lease ” or the “ Lease ”).

 

(k)           “ New Tenant(s) ” shall mean those Tenants identified on Exhibit A-5 attached hereto and made a part hereof, who have entered into leases with respect to certain demised premises within a Property, but, at the time of Closing, may not be in possession of the premises demised under its respective Lease, open for business to the public and/or paying full and unabated rent under its Lease.

 

(l)           “ Property ” shall collectively mean (i) those certain parcels of real property which are listed on Exhibits A-1and A-2 attached hereto, together with all right, title and interest of Seller, if any, in and to the land lying in the bed of any street or highway in front of or adjoining such real property, and all appurtenances and all the estate and rights of Seller, if any, in and appurtenant to such parcels of real property, including, without limitation, all

 

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appurtenant easements and rights-of-way, and Buildings (as hereinafter defined) and all other improvements thereon, and all air and subsurface rights appurtenant to such parcels of real property, as the case may be (such parcels of real property, together with all such rights and appurtenances, being collectively referred to herein as the “ Land ”); (ii) all of the buildings (each individually called a “ Building ” and collectively called the “ Buildings ”), facilities and other improvements situated on the Land or required to be constructed under the respective Leases (collectively, the “ Improvements ”); (iii) all right, title and interest of Seller, if any, in and to the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems used in connection with the Land and the Buildings, and all carpeting, draperies, appliances and other fixtures and equipment attached or appurtenant to the Land together with all personal property (other than furniture, equipment not necessary to operate the Buildings or building systems and not permanently affixed to the Buildings or Land, trade fixtures and inventory) owned by Seller and located on the Land or on and/or in the Buildings (collectively, the “ Personal Property ”); (iv) all right, title and interest of Seller in and to all plans and specifications, architectural drawings, building permits and other permits issued in connection with the construction, operation, use or occupancy of the Improvements, and all warranties and guaranties respecting the Buildings and Personal Property; (v) to the extent not otherwise described in subsection (i), all right, title and interest of Seller in and to all leases respecting the Buildings and Personal Property, including, without limitation, all prepaid rent or security or other deposits thereunder and all right, title and interest of the Affiliates under the Guaranties; (vi) all right, title and interest of Seller in and to all licenses, permits, authorizations and approvals issued by any governmental agency or authority which pertain to the Land and the Buildings, to the extent they exist and are transferable and assignable; and (vii) to the extent the same are assignable, all site plans, surveys, and plans which relate to the Land. Any references to “Property” in the singular, such as references to “a Property” or “each Property”, refer to an individual parcel of Land and all matters described in (ii)-(vii) in connection with such Land.

 

(m)           “ Purchase Price ” shall mean Twenty Three Million and No/100 Dollars ($23,000,000.00). Notwithstanding the foregoing, in the event Buyer has not received a fully executed and effective copy of the Hearing Center Lease (as defined herein) by the Closing Date, then the Purchase Price allocated to the St. Andrews Property (as defined herein) on Schedule 3(a) attached hereto and made a part hereof shall be reduced by $350,000.00.

 

(n)          “ Real Estate Taxes ” shall mean all real estate taxes, rollback taxes, personal property taxes, water and sewer use charges, or payments in lieu of taxes, and any other charges and assessments constituting a lien on the Property.

 

(o)           Seller and Buyer’s Notice address

 

(i)           “ Seller’s Notice Address ” shall be as follows, except as same may be changed pursuant to the Notice section herein:

 

2801 PGA Boulevard – Suite 220

Palm Beach Gardens, Florida 33410

Attention: Brian Waxman

Tel. No.: (561) 687-5800

Email: bwaxman@awproperty.com

 

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And to:

 

Jones Foster Johnston & Stubbs, P.A.

801 Maplewood Drive, Suite 22-A

Jupiter, Florida  33458

Attention: Scott L. McMullen, Esq.

Tel. No.: 561.650.8224

Email: smcmullen@jonesfoster.com

 

(ii)          “ Buyer’s Notice Address ” shall be as follows, except as same may be changed pursuant to the Notice section herein:

 

Michael Weil

c/o American Realty Capital VII, LLC

405 Park Avenue, 15th Floor

New York, NY 10022

Tel. No.: (212) 415-6505

Fax No.: (857) 207-3397

Email: mweil@arlcap.com

 

And to:

 

Jesse Galloway, Esq.

c/o American Realty Capital VII, LLC

405 Park Avenue, 15th Floor

New York, NY 10022

Tel. No.: (212) 415-6516

Fax No.: (646) 861-7751

Email: jgalloway@arlcap.com

 

And Due Diligence Materials (if provided by email) to:

 

duediligence@arlcap.com

 

With hard copies and/or cds to:

 

James A. (Jim) Mezzanotte

c/o American Realty Capital VII, LLC

7621 Little Avenue, Suite 200

Charlotte, North Carolina 28226

Tel. No.: (704) 626-4410

Fax No.: (212) 415.6507

Email: jmezzanotte@arlcap.com

 

(p)          “ St. Andrews Property ” shall mean the St. Andrews Land and all matters described in (ii)-(vii) of the definition of “Property” in connection with the St. Andrews Land.

 

4
 

 

2.           Purchase and Sale of the Property.   Subject to the terms of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Property for the Purchase Price.

 

3.           Payment of Purchase Price.

 

(a)          The portion of the Purchase Price to be paid by Buyer to Sellers at Closing shall be the Purchase Price less the outstanding principal balance of the Loan (hereinafter defined) as of the Closing Date (the " Cash Portion of the Purchase Price "), plus or minus prorations, credits and adjustments as provided in Section 4 and elsewhere in this Agreement. The allocation of the Purchase Price as to each Property is set forth on Schedule 3(a) attached hereto. The Cash Portion of the Purchase Price shall be paid by wire transfer of immediately available funds to Escrow Agent, at the time of Closing, or as otherwise agreed to between Buyer and Seller.

 

(b)          Notwithstanding anything contained in this Agreement to the contrary, Buyer shall have no obligation to purchase the Property unless and until (and subject to any of Buyer's termination rights contained in this Agreement) Seller and Buyer have secured from the existing mortgagee of the Property (the " Lender ") approval for an assumption of the loan secured by the Property (the " Loan Assumption " and " Loan " respectively) to be executed by Buyer at Closing, which shall have:

 

(i)          an original principal balance as set forth on Schedule 3(b) attached hereto and made a part hereof;

 

(ii)         an annual interest rate as set forth on Schedule 3(b) attached hereto);

 

(iii)        payments based upon a thirty (30) year amortization schedule throughout the term of the Loan;

 

(iv)        intentionally deleted;

 

(v)         a maturity date as set forth on Schedule 3(b) attached hereto;

 

(vi)        such loan document modifications as Buyer may request to address Buyer’s parent’s compliance with real estate investment trust laws and regulations and its offering materials, including, but not limited to, modifications to covenants regarding ongoing financial reporting, transfers and distributions of excess cash flow; and

 

(vii)       no requirement for personal recourse liability from any shareholder, owner, officer or employee of Buyer, except for customary carve-out guaranties that are acceptable to Buyer in its sole discretion.

 

(c)          Buyer shall be responsible for any and all fees and expenses of Lender in connection with the Loan Assumption, including an assumption fee in an amount not to exceed one percent (1%) of the Loan. Notwithstanding anything to the contrary contained in this Agreement, if the Loan Assumption is not approved by Lender on or before the date that is sixty

5
 

 

 

(60) days after the Effective Date, or if Lender affirmatively disapproves the Loan Assumption for any reason at any time, Buyer shall have the right to terminate this Agreement and receive the Earnest Money. Upon such termination, neither party shall have any further rights, obligations or liabilities hereunder, except as otherwise expressly set forth herein.

 

(d)          Commencing on the date that is the fifth (5 th ) business day after the Effective Date, Buyer and Seller shall use commercially reasonable efforts, including without limitation, the furnishing of all commercially reasonable documents, executed forms, instruments, financial statements and other materials requested by Lender, in a timely manner, to obtain the consent of the Lender to:

 

(i)          the transfer of the Property to Buyer or a bankruptcy remote, special purpose entity to be formed by Buyer to purchase the Property as permitted pursuant and subject to the provisions of Section 25 herein (the " Buyer Entity "), the governance of which may involve an independent director(s) or other person who is not employed by Buyer or an affiliate of Buyer;

 

(ii)         the assumption of the Loan by Buyer or the Buyer Entity;

 

(iii)        the loan document modifications referenced in Section 3(b)(vi) above; and

 

(iv)        a release of Seller and/or any of its affiliates, members or
principals from all liabilities arising under the Loan for periods after Closing, including, without limitation, any liability under any guaranty or indemnity executed by Seller and/or any of its affiliates, members or principals in favor of Lender relating to the Loan; provided, however, that notwithstanding anything in this Agreement to the contrary, Seller acknowledges that Buyer will propose the Buyer Entity (which Buyer Entity shall be formed and established to qualify as bankruptcy remote, special purpose entity in compliance with the customary requirements for so-called "securitized loans") to the Lender to assume the Loan and Buyer will determine in its sole and absolute discretion the entity it will offer to the Lender to provide guarantees of non-recourse carve outs and any required environmental or other indemnity. If Lender consents to the Loan Assumption in accordance with the provisions of this Section, the Buyer Entity shall assume and agree to pay and perform at Closing the obligations under the Loan that arise from and after the Closing, in each case subject to the prorations and adjustments provided for in this Agreement.

 

(e)          The parties agree that the value of the Personal Property is de minimis, and no part of the Purchase Price is allocated to it.

 

4.           Proration of Expenses and Payment of Costs and Recording Fees .

 

(a)           Prorations . The following items will be prorated as of 12:01 A.M. on the Closing Date, with all items of income and expense for the Property being borne by Buyer from and after (and including) the Closing Date: Tenant Receivables (hereinafter defined) and other income and rents that have been collected by Seller as of Closing; fees and assessments; prepaid expenses and obligations under service contracts which are assigned, if any; accrued operating

 

6
 

 

expenses; Real Estate Taxes; and any assessments by private covenant for the then-current calendar year of Closing.

 

(b)           Taxes

 

(i)          If Real Estate Taxes for the year of Closing are not known or cannot be reasonably estimated, Real Estate Taxes will be prorated based on Real Estate Taxes for the year prior to Closing. Any additional Real Estate Taxes in the nature of “roll back” taxes or relating to the year of Closing arising out of a change in the use of the Land and Improvements or a change in ownership shall be paid by Seller when due and payable, and Seller will indemnify Buyer from and against any and all such Real Estate Taxes arising out of the transfer of the Property, which indemnification obligation will survive the Closing.

 

(ii)         If Seller has engaged or will engage prior to the expiration of the Due Diligence Period, consultants for the purpose of protesting the amount of taxes or the assessed valuation for certain tax periods for the Property (“ Protest Proceedings ”), any cash refunds or proceeds actually distributed (collectively, “ Cash Refunds ”) will be apportioned as described below. Any Cash Refunds (including interest thereon) on account of a favorable determination, after deduction of costs and expenses incurred for such Protest Proceedings, shall be: (A) the property of Seller to the extent such Cash Refunds were for Real Estate Taxes paid by Seller applicable to a period prior to the Closing Date; (B) prorated between Buyer and Seller for taxes paid for a period during which the Closing Date occurred; and (C) the property of Buyer for Real Estate Taxes for a period after the Closing Date. Seller and Buyer agree to notify the other in writing of any receipt of a Cash Refund within fifteen (15) business days of receipt of such Cash Refund. To the extent either party obtains a Cash Refund, a portion of which is owed to the other party, the receiving party shall deliver the Cash Refund to the other party within fifteen (15) Business Days of its receipt. Buyer agrees and acknowledges that Seller has the right to initiate proceedings to protest the valuation of any of the Property prior to the expiration of the Due Diligence Period. Seller agrees to give Buyer notice of Seller’s intent to initiate such proceedings prior to initiation of such proceedings and at any time subsequent to the end of the Due Diligence Period shall obtain Buyer’s consent to initiation of such proceedings, which consent may be unreasonably withheld.         

 

(c)           Utilities . Buyer will take all steps necessary to effectuate the transfer of all utilities to its name as of the Closing Date, and where necessary, post deposits with the utility companies. The Seller will ensure that all utility meters are read as of the Closing Date. Seller will be entitled to recover any and all deposits held by any utility company as of the Closing Date.

 

(d)           Tenant Receivables . Rents due from Tenants under Leases (including operating expense and real estate tax contributions or reimbursements and similar charges (collectively, “ Pass-Through Expenses ”)), set-offs due or required to be paid under or by reason of the Leases (collectively called “ Tenant Receivables ”) shall be adjusted by appropriate credit to the Seller or Buyer (as the case may be) on the Closing Date. If, at the Closing Date, any Tenant is in arrears in the payment of rents (“ Uncollected Delinquent Tenant Receivables ”), Seller will disclose the same to Buyer in writing or on the rent roll to be delivered to Buyer pursuant to Section 10 hereof and such amounts shall not be adjusted on the Closing Date. Prior to the

 

7
 

 

Closing Date, Seller shall use Seller’s current business practices to collect Uncollected Delinquent Tenant Receivables. If Buyer shall collect Uncollected Delinquent Tenant Receivables within ninety (90) days after the Closing Date, then Buyer shall turn over to Seller the arrearages so collected, less the reasonable cost of collection thereof, if any; provided, however, Seller may continue to seek to collect the Uncollected Delinquent Tenant Receivables by legal action following the Closing Date. All rents collected by Buyer after the Closing Date (except for amounts specifically billed and paid as end of year reconciliation payments for Pass-Through Expenses, which shall be separately accounted for and allocated, pro rata, between Seller and Buyer as their interest may appear) shall be first applied to rents due and payable after the Closing Date and only the excess thereof shall be paid over to Seller on account of the Uncollected Delinquent Tenant Receivables. Seller shall prepare the reconciliation for Pass-Through Expenses for the Property and provide such reconciliation to Buyer and Buyer’s property manager. Buyer agrees to cause its property manager to cooperate with Seller in preparing such reconciliation. To the extent that items to be apportioned hereunder may be required to be paid directly by a Tenant under its Lease, the same shall not be apportioned, provided, however, that such items shall have been paid by such Tenant currently through the month including the Closing Date. The provisions of this subparagraph 4(d) shall survive Closing and the delivery of the Deed (hereinafter defined). Seller expressly agrees that if Seller receives any amounts after the Closing Date which are attributable, in whole or in part, to any period after the Closing Date, Seller will notify Buyer of such fact and will remit to Buyer that portion of the monies so received by Seller to which Buyer is entitled within ten (10) business days after receipt thereof. With respect to unbilled Tenant Receivables, Buyer covenants and agrees to cause its property manager to (A) bill the same in the ordinary course of its business and (B) cooperate with Seller to determine the correct amount of operating expenses and/or taxes due.

 

A reconciliation or determination of Pass-Through Expenses, Uncollected Delinquent Tenant Receivables and unbilled Tenant Receivables due under the Leases shall be made at Closing to the extent possible. To the extent such information is not available at Closing, the foregoing shall be subject to adjustment following the Closing in accordance with the terms of Section 4(e), below. The provisions of this Section 4(d) will survive the Closing.

 

(e)          If final bills are not available or cannot be issued prior to Closing for any item being prorated under Section 4(a) through (d), then, for each separate item for which an adjustment is to be made, the following will apply: (i) initially the matter subject to allocation at Closing (including without limitation the Pass-Through Expenses) shall be re-prorated within sixty (60) days following the Closing; (ii) a further adjustment of prorated items shall occur one hundred twenty (120) days following the close of the calendar year in which the Closing occurs; and (iii) a final adjustment shall occur not later than twelve (12) months after the Closing. All such rights and obligations under this Section 4(e) will survive the Closing.

 

(f)          All security deposits under the Leases collected and not properly applied by Seller as of the Closing (and interest thereon if required by law or contract) must be transferred or credited to Buyer at Closing. As of the Closing, Buyer will assume each Seller’s obligations related to the security deposits, but only to the extent they are credited or transferred to Buyer.

 

8
 

 

(g)          Seller shall pay or be charged with the following costs and expenses in connection with this transaction:

 

(i)          All Title Policy premiums, including search costs and a survey endorsement, up to a maximum amount of $9,384.76 for the St. Andrews Property and $6,155.13 for the Countryside Property, but excluding any other endorsements issued in connection with such policies other than endorsements that Seller elects to purchase to cover title issues, if any;

 

(ii)         Transfer taxes and conveyance fees on the sale and transfer of the Property;

 

(iii)        Broker’s commission payments in accordance with Section 24 of this Agreement;

 

(iv)        All fees relating to the granting, executing and recording of the Deed for each Property; and

 

(v)         Any leasing commissions, tenant improvement allowances or rent abatements related to the Leases or the Hearing Center Lease.

 

(h)          Buyer shall pay or be charged with the following costs and expenses in connection with this transaction:

 

(i)          Title Policy premiums (A) in excess of the amounts charged to Seller in Section 4(g)(i) and (B) for any endorsements issued in connection therewith other than endorsements that Seller elects to purchase to cover title issues, if any, and other than a survey endorsement;

 

(ii)         All costs and expenses in connection with the Loan Assumption, including Lender’s title policy, costs for the filing of all documents necessary to complete the Loan Assumption and related documentary stamp tax and intangibles tax; and

 

(iii)        Buyer shall pay for the cost of its own survey, Phase I environmental study and due diligence investigations.

 

(i)          Each party shall pay its own legal fees incidental to the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

(j)          Interest on the Loan shall be prorated as of Closing, and Seller shall receive a credit at Closing for the balance of all tax, insurance and other reserves held by Lender and not otherwise distributed to Seller at Closing.

 

(k)          Seller and Buyer each shall pay one-half of all reasonable escrow fees charged by Escrow Agent.

 

5.           Title . At Closing, Seller agrees to convey to Buyer fee simple marketable title to each Property by special warranty deed, free and clear of all liens, defects of title, conditions,

 

9
 

 

easements, assessments, restrictions, and encumbrances except for Permitted Exceptions (as hereinafter defined).

 

6.           Examination of Property . Seller and Buyer hereby agree as follows:

 

(a)          Buyer shall order a title commitment (the “ Title Commitment ” ) from Escrow Agent, a survey and a zoning report for each Property promptly after the date hereof. All matters shown in the Title Commitment, survey or zoning report ( “ Title Matters ”) with respect to which Buyer fails to object prior to the expiration of the Due Diligence Period shall be deemed “ Permitted Exceptions ”. However, Permitted Exceptions shall not include, and Seller shall be obligated to remove of record prior to or at Closing, any mechanic’s lien or any monetary lien, fine or penalty, or any deeds of trust, mortgage, or other loan documents secured by the Property, other than the Loan Documents (defined below), or any judgments and federal and state tax liens (collectively, “ Liens ”). Seller shall be required to cure or remove all Liens (by payment, bond deposit or indemnity acceptable to Escrow Agent). Seller shall have no obligation to cure any Title Matter objected to, except the Liens as aforesaid, provided Seller notifies Buyer of any objections which Seller elects not to remove or cure within five (5) business days following receipt of Buyer’s objections. In the event that Seller refuses to remove or cure any objections, Buyer shall have the right to terminate this Agreement upon written notice to Seller given within five (5) business days after receipt of Seller’s notice, upon which termination the Earnest Money, and all interest earned thereon, shall be returned to Buyer and neither party shall have any further obligation hereunder, except as otherwise expressly set forth herein. If any matter not revealed in the Title Commitment is discovered by Buyer or by the Escrow Agent and is added to the Title Commitment by the Escrow Agent at or prior to Closing, Buyer shall have until the earlier of (i) ten (10) days after the Buyer’s receipt of the updated, revised Title Commitment showing the new title exception, together with a legible copy of any such new matter, or (ii) the Closing Date, to provide Seller with written notice of its objection to any such new title exception (an “ Objection ”). If Seller does not remove or cure such Objection prior to the Closing Date, Buyer may terminate this Agreement, in which case the Earnest Money, together with all interest earned thereon, shall be returned to Buyer, Seller shall reimburse Buyer up to $50,000.00 for all out of pocket costs and expenses incurred hereunder solely in the event Seller caused such Objection(s) from and after the effective date of the Title Commitment, and neither party shall have any further obligation hereunder, except as otherwise expressly set forth herein.

 

(b)          Within five (5) business days following the Effective Date, Seller shall provide to Buyer copies of the following documents and materials pertaining to each Property to the extent within Seller’s possession or reasonably obtainable by Seller or Seller’s counsel: (i) a complete copy of all leases and lease guaranties affecting the Property and all amendments thereto and of all material correspondence relating thereto; (ii) a copy of all surveys and site plans of the Property, including without limitation any as-built survey obtained or delivered to tenants of the Property in connection with its construction; (iii) a copy of all architectural plans and specifications and construction drawings and contracts for improvements located on the Property; (iv) a copy of Seller’s title insurance commitments and policies relating to the Property; (v) a copy of the certificate of occupancy (or local equivalent) and zoning reports for the Property; and of all governmental permits/approvals; (vi) a copy of all environmental, engineering and physical condition reports for the Property; (vii) copies of the Property’s real

 

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estate tax bills for the current and prior two (2) tax years or, if the Property has been owned by Seller for less than two (2) tax years, for the period of ownership; (viii) the operating budget and any common area maintenance (CAM) reconciliations of the Property for the current year and following year, if available; (ix) the operating statements and delinquency reports of the Property for the twenty four (24) calendar months immediately preceding the Effective Date or if a Tenant has been operating for less than twenty-four (24) months, for the period of operation; (x) all service contracts and insurance policies which affect the Property, if any; (xi) a copy of all warranties relating to the improvements constructed on the Property, including without limitation any structural slab or roof warranties; (xii) a written inventory of all items of personal property to be conveyed to Buyer, if any; (xiii) the notes, mortgages and other loan documents securing repayment of the Loan, as listed on Exhibit K attached hereto and made a part hereof (collectively, the “ Loan Documents ”); (xiv) Tenant financials for each Tenant, to the extent reasonably available to Seller and consistent with each such Tenant’s reporting requirements; (xv) a complete copy of any feasibility study completed by the developer of the Property; (xvi) a copy of all primary and secondary state licenses or regulatory permits for the Property; and (xvii) a copy of any documents relating to a waiver of life safety code or physical plant requirements (collectively, the “ Due Diligence Materials ”). Seller shall deliver any other documents relating to the Property reasonably requested by Buyer, to the extent within Seller’s or its affiliates’ or agents’ possession or reasonably obtainable by Seller, within three (3) business days following such request. Additionally, during the term of this Agreement, Buyer, its agents and designees, shall have the right to enter the Property for the purposes of inspecting the Property, conducting soil tests, and making surveys, mechanical and structural engineering studies, inspecting construction, and conducting any other investigations and inspections as Buyer may reasonably require to assess the condition and suitability of the Property; provided, however, that such activities by or on behalf of Buyer on the Property shall not damage the Property nor materially interfere with construction on the Property or the conduct of business by Tenants under the Leases; and provided further, however, that Buyer shall indemnify and hold Seller harmless from and against any and all claims or damages to the extent resulting from the activities of Buyer on the Property, and Buyer shall repair any and all damage caused, in whole or in part, by Buyer and return the Property to substantially its condition prior to such damage, which obligation shall survive Closing or any termination of this Agreement. Seller shall reasonably cooperate with the efforts of Buyer and the Buyer’s representatives to inspect the Property. After the Effective Date, Buyer shall be permitted to speak and meet with the Tenants in connection with Buyer’s due diligence. Upon signing this Agreement, Seller shall provide Buyer with the name of a contact person(s) for the purpose of arranging site visits. Buyer shall give Seller reasonable written notice (which in any event shall not be less than two (2) business days) before entering the Property, and Seller may have a representative present during any and all examinations, inspections and/or studies on the Property. Buyer shall have the unconditional right, for any reason or no reason, to terminate this Agreement by giving written notice thereof to Seller and the Escrow Agent prior to the expiration of the Due Diligence Period, in which event this Agreement shall become null and void as to such Property, Buyer shall receive a refund of the Earnest Money, and all rights, liabilities and obligations of the parties under this Agreement shall expire, except as otherwise expressly set forth herein.

 

(c)          Within two (2) business days following the Effective Date, Seller shall request a waiver of each Tenant’s right of first refusal, right of first offer or other purchase option, if any, to purchase the Property. Seller shall use diligent and good faith efforts to obtain

 

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an estoppel certificate in the form attached hereto as Exhibit F (each, an “ Estoppel Certificate ,” and collectively, “ Estoppel Certificates ”) from each Tenant. It shall be a condition of Closing that Seller shall have obtained Estoppel Certificates from at least eighty-five percent (85%) of all Tenants (on a rentable square footage basis) of each Property (the “ Estoppel Threshold ”), including all of the Major Tenants (defined below). If the Estoppel Threshold is satisfied but Seller has not obtained Estoppel Certificates from each Tenant, then Seller shall execute and deliver to Buyer or Escrow Agent at Closing, an estoppel certificate in substantially the same form as the Estoppel Certificate for each such Tenant (each, a “ Seller Estoppel Certificate ”). Each Seller Estoppel Certificate shall be subject to the same survival and liability limitations as Seller’s representations and warranties hereunder. “ Major Tenants ” shall mean the following Tenants: Diagnostic Clinic Medical Group (BCBS), St. Andrews Surgery Center and Center for Sight. Seller shall promptly deliver to Buyer photocopies or pdf files of each executed Estoppel Certificate when Seller receives the same. Buyer and Seller shall agree upon a reasonable time for Seller to request Estoppel Certificates in light of the anticipated timing of the Loan Assumption approval. All estoppel certificates under this Section 6(c) shall be certified to Buyer, the applicable Approved Assignee and Lender and successors and assigns (and simultaneously provide Buyer with a copy of such request). Within five (5) business days following the date that Buyer has received complete copies of the Lease and Guaranty, Buyer may propose modifications or additions to the form of Estoppel Certificate.

 

(d)          Seller shall use good faith efforts to obtain a subordination, non-disturbance and attornment agreement from each Tenant in form and substance reasonably acceptable to Buyer and Buyer’s Lender, if applicable (each such agreement, an “ SNDA ”).

 

(e)          Seller shall use good faith efforts to obtain estoppel certificates with respect to reciprocal easement agreements as may be reasonably requested by Buyer.

 

(f)          Seller shall use good faith efforts to enter into a lease with Ear-Resistible Hearing Center for the 2,591 square foot space at the St. Andrews Property known as Suite 104, including the following terms: (i) five (5) year term, with rent commencing at the Closing Date of the St. Andrews Property; (ii) initial base rent of $57,002.00 per annum, with annual increases of three percent (3%) thereto; (iii) tenant shall be obligated to pay landlord its pro-rata share of the increase in annual property operating expenses over the amount of 2014 annual property operating expenses; (iv) no rent abatement, tenant improvement allowance or other monetary concessions granted to tenant, unless paid in full by Seller or credited to Buyer at Closing; (v) no landlord work obligations; (vi) no options granted to tenant to terminate the lease prior to its expiration date or lease additional space at or purchase the St. Andrews Property; (vii) each individual owner of tenant shall be required to deliver a personal guaranty of tenant’s lease obligations; and (viii) tenant shall be obligated to provide to landlord a security deposit in an amount equal to one (1) month’s rent (the “ Hearing Center Lease ”). Seller shall provide Buyer with a copy of the initial draft of the Hearing Center Lease and any subsequent revisions thereto promptly after such document is distributed or received by Seller. The Hearing Center Lease shall be subject to Buyer’s prior written consent, which shall not be unreasonably withheld or delayed. Buyer shall not be deemed to be acting unreasonably if it denies consent to the Hearing Center Lease if the form presented for approval does not conform to the requirements set forth in this Section 6(f).

 

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7.           Risk of Loss/Condemnation . Upon an occurrence of a casualty, condemnation or taking with respect to any Property, Seller shall notify Buyer in writing of same. Until Closing, the risk of loss or damage to the Property, except as otherwise expressly provided herein, shall be borne by Seller. In the event all or any portion of any Property is damaged in any casualty or condemned or taken (or notice of any condemnation or taking is issued) so that: (a) any Tenant has a right of termination or abatement of rent under its Lease, or (b) with respect to any casualty, if the cost to repair such casualty would exceed $50,000, or (c) with respect to any condemnation, any Improvements or access to the Property or more than five percent (5%) of the Property is (or will be) condemned or taken, then, Buyer may elect to terminate this Agreement by providing written notice of such termination to Seller within ten (10) business days after Buyer’s receipt of written notice of such condemnation, taking or damage, upon which termination the Earnest Money shall be returned to Buyer, and neither party hereto shall have any further rights, obligations or liabilities under this Agreement, except as otherwise expressly set forth herein. With respect to any condemnation or taking (of any notice thereof), if Buyer does not elect to cancel this Agreement as aforesaid, there shall be no abatement of the Purchase Price and Seller shall assign to Buyer at the Closing the rights of Seller to the awards, if any, for the condemnation or taking, and Buyer shall be entitled to receive and keep all such awards. With respect to a casualty, if Buyer does not elect to terminate this Agreement or does not have the right to terminate this Agreement as aforesaid, there shall be no abatement of the Purchase Price and Seller shall assign to Buyer at the Closing the rights of Seller to the proceeds under Seller’s insurance policies covering such Property with respect to such damage or destruction (or pay to Buyer any such proceeds received prior to Closing) and pay to Buyer the amount of any deductible with respect thereto, and Buyer shall be entitled to receive and keep any monies received from such insurance policies.

 

8.           Earnest Money Disbursement . The Earnest Money shall be held by Escrow Agent, in trust, and disposed of only in accordance with the following provisions:

 

(a)          If the Closing occurs, Escrow Agent shall deliver the Earnest Money to, or upon the instructions of, Seller and Buyer on the Closing Date to be applied as part payment of the Purchase Price. If for any reason the Closing does not occur, Escrow Agent shall deliver the Earnest Money to Seller or Buyer only upon receipt of a written demand therefor from such party, subject to the following provisions of this clause (a). Subject to the last sentence of this clause (a), if for any reason the Closing does not occur and either party makes a written demand (the “ Demand ”) upon Escrow Agent for payment of the Earnest Money, Escrow Agent shall give written notice to the other party of the Demand within one (1) business day after receipt of the Demand. If Escrow Agent does not receive a written objection from the other party to the proposed payment within five (5) business days after the giving of such notice by Escrow Agent, Escrow Agent is hereby authorized to make the payment set forth in the Demand. If Escrow Agent does receive such written objection within such period, Escrow Agent shall continue to hold such amount until otherwise directed by written instructions signed by Seller and Buyer or a final judgment of a court. Notwithstanding the foregoing provisions of this clause (a), if Buyer delivers a notice to Escrow Agent stating that Buyer has terminated this Agreement on or prior to the expiration of the Due Diligence Period, then Escrow Agent shall immediately return the Earnest Money to Buyer without the necessity of delivering any notice to, or receiving any notice from Seller.

 

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(b)          The parties acknowledge that Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that Escrow Agent shall not be deemed to be the agent of either of the parties, and that Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any liabilities (including reasonable attorneys’ fees, expenses and disbursements) incurred by Seller or Buyer resulting from Escrow Agent’s mistake of law respecting the scope or nature of Escrow Agent’s duties. Seller and Buyer shall jointly and severally indemnify and hold Escrow Agent harmless from and against all liabilities (including reasonable attorneys’ fees, expenses and disbursements) incurred in connection with the performance of Escrow Agent’s duties hereunder, except with respect to actions or omissions taken or made by Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of Escrow Agent. Escrow Agent has executed this Agreement in the place indicated on the signature page hereof in order to confirm that Escrow Agent shall hold the Earnest Money in escrow, and shall disburse the Earnest Money pursuant to the provisions of this Section 8.

 

9.             Default

 

(a)          In the event that Seller is ready, willing and able to close in accordance with the terms and provisions hereof, and Buyer defaults in any of its obligations undertaken in this Agreement, Seller shall be entitled, as its sole and exclusive remedy to either: (i) if Buyer is willing to proceed to Closing, waive such default and proceed to Closing in accordance with the terms and provisions hereof; or (ii) declare this Agreement to be terminated, and Seller shall be entitled to immediately receive all of the Earnest Money as liquidated damages as and for Seller’s sole remedy. Upon such termination, neither Buyer nor Seller shall have any further rights, obligations or liabilities hereunder, except as otherwise expressly provided herein. Seller and Buyer agree that (a) actual damages due to Buyer’s default hereunder would be difficult and inconvenient to ascertain and that such amount is not a penalty and is fair and reasonable in light of all relevant circumstances, (b) the amount specified as liquidated damages is not disproportionate to the damages that would be suffered and the costs that would be incurred by Seller as a result of having withdrawn the Property from the market, and (c) Buyer desires to limit its liability under this Agreement to the amount of the Earnest Money paid in the event Buyer fails to complete Closing, and such amount shall be paid to Seller as liquidated damages and as Seller’s sole remedy hereunder. Seller hereby waives any right to recover the balance of the Purchase Price, or any part thereof, and the right to pursue any other remedy permitted at law or in equity against Buyer. In no event under this Section or otherwise shall Buyer be liable to Seller for any punitive, speculative or consequential damages.

 

(b)          In the event that Buyer is ready, willing and able to close in accordance with the terms and provisions hereof, and Seller defaults in the obligations herein taken by Seller, with respect to the Property, Buyer may, as its sole and exclusive remedy, either: (i) waive any unsatisfied conditions and proceed to Closing in accordance with the terms and provisions hereof; (ii) terminate this Agreement by delivering written notice thereof to Seller no later than Closing, upon which termination the Earnest Money shall be refunded to Buyer, Seller shall pay to Buyer all of the out-of-pocket costs and expenses incurred by Buyer in connection with this Agreement up to $50,000.00, which return and payment shall operate as liquidated damages and to terminate this Agreement and release Seller and Buyer from any and all rights,

 

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obligations and liability hereunder, except those which are specifically stated herein to survive any termination hereof; (iii) enforce specific performance of Seller’s obligations hereunder; or (iv) by notice to Seller given on or before the Closing Date, extend the Closing Date for a period of up to thirty (30) days (the “ Closing Extension Period ” ), and the “Closing Date” shall be moved to the last day of the Closing Extension Period. If Buyer so extends the Closing Date, then Seller may, but shall not be obligated to, cause said conditions to be satisfied during the Closing Extension Period. If Seller does not cause said conditions to be satisfied during the Closing Extension Period, then Buyer shall have the remedies set forth in Section 9(b) (i) through (iii) above except that the term “Closing” shall read “Extended Closing”.

 

10.          Closing . The Closing shall consist of the execution and delivery of documents by Seller and Buyer, with respect to each Property as set forth below, and delivery by Buyer to Seller of the Purchase Price in accordance with the terms of this Agreement. Seller shall deliver to Escrow Agent for the benefit of Buyer at Closing the following executed documents for each Property (except as otherwise noted below):

 

(a)          A Special Warranty Deed in the form attached hereto as Exhibit B (the “ Deed ”);

 

(b)          An Assignment and Assumption of Leases, Guaranties and Security Deposits, in the form attached hereto as Exhibit C;

 

(c)          A Bill of Sale for the Personal Property, if any, in the form attached hereto as Exhibit D;

 

(d)          An Assignment of Contracts, Permits, Licenses and Warranties in the form of Exhibit E;

 

(e)          An original of each Estoppel Certificate obtained by Seller dated no earlier than thirty (30) days prior to the date of Closing. In addition, the business terms of each Estoppel Certificate must be in accordance with and not contradict the corresponding Lease. If any Lease and any amendments, bearing the original signatures of the landlord and tenant thereunder have not been delivered to Buyer previously, a copy thereof confirming that the copy is true, correct and complete shall be attached to the corresponding Estoppel Certificate;

 

(f)          To the extent required under Section 6(c) hereof, an original of each Seller Estoppel Certificate dated as of the Closing Date;

 

(g)          A settlement statement setting forth the Purchase Price, all prorations and other adjustments to be made pursuant to the terms hereof, and the funds required for Closing as contemplated hereunder;

 

(h)          All transfer tax statements, declarations and filings as may be necessary or appropriate for purposes of recordation of the Deed;

 

(i)          Good standing certificates and corporate resolutions or member or partner consents, as applicable, and such other documents as reasonably requested by Escrow Agent;

 

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(j)          Originals of the Warranties (as hereinafter defined) re-issued at Seller’s expense, to Buyer or Tenant, as requested by Buyer;

 

(k)          A certificate pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended, or the regulations issued pursuant thereto, certifying the non-foreign status of Seller;

 

(l)          An owner’s title affidavit as to mechanics’ liens and possession and other matters in customary form reasonably acceptable to Buyer and Escrow Agent;

 

(m)          An original SNDA from each Tenant fully executed and notarized by such Tenant, if requested by Buyer;

 

(n)          With respect to each Tenant, a Letter to Tenant in form of Exhibit H attached hereto;

 

(o)          An updated Rent Roll (defined below), arrears report and schedule of security deposits and letters of credit, certified by Seller to be true and correct;

 

(p)          Intentionally deleted;

 

(q)          A bring down certificate with respect to Seller’s representations and warranties provided herein in a form reasonably satisfactory to Seller and Buyer;

 

(r)          The agreement documenting the Loan Assumption and any other documents reasonably required by the Lender;

 

(s)          With respect to the St. Andrews Property, and to the extent obtained by Seller, the fully executed and effective Hearing Center Lease; and

 

(t)          Such other instruments as are reasonably required by Buyer or Escrow Agent to close the escrow and consummate the purchase of the Property in accordance with the terms hereof.

 

At Closing, Buyer shall instruct Escrow Agent to deliver the Earnest Money to Seller which shall be applied to the Purchase Price, shall deliver the balance of the Purchase Price to Seller and shall execute and deliver execution counterparts of the closing documents referenced in clauses (b), (g), (h), (m) and (r) above. Buyer shall have the right to advance the Closing upon five (5) days prior written notice to Seller; provided that all conditions precedent to both Buyer’s and Seller’s respective obligations to proceed with Closing under this Agreement have been satisfied (or, if there are conditions to a party’s obligation to proceed with Closing that remain unsatisfied, such conditions have been waived by such party). Buyer shall have a one-time right to extend the Closing for up to five (5) business days upon written notice to Seller to be received by Seller on or prior to the date scheduled for the Closing. If Buyer timely exercises this right to extend, any document that Seller is obligated to provide that is “time sensitive” does not need to be provided again by Seller. The Closing shall be held through the mail by delivery of the closing documents to the Escrow Agent on or prior to the Closing or such other place or manner as the parties hereto may mutually agree.

 

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11.          Representations by Seller . For the purpose of inducing Buyer to enter into this Agreement and to consummate the sale and purchase of the Property in accordance herewith, Seller makes the following representations and warranties to Buyer as of the date hereof and as of the Closing Date with respect to each Property:

 

(a)          Seller is a limited liability company duly formed, validly existing and in good standing under the laws of its state of organization, and to the extent required by law, the State in which the Property is located. Seller has the power and authority to execute and deliver this Agreement and all closing documents to be executed by Seller, and to perform all of Seller’s obligations hereunder and thereunder. Neither the execution and delivery of this Agreement and all closing documents to be executed by Seller, nor the performance of the obligations of Seller hereunder or thereunder will result in the violation of any law or any provision of the organizational documents of Seller or will conflict with any order or decree of any court or governmental instrumentality of any nature by which Seller is bound. The execution, delivery and performance of this Agreement does not require the consent or approval of any court, administrative or governmental authority and does not result in the creation or imposition of any lien or equity of any kind whatsoever upon, or give to any other person any interest or right (including any right of termination or cancellation) in or with respect to, any material agreement to which Seller is a party or the business or operations of Seller or any of its properties or assets;

 

(b)          Except for any tax appeals and/or contests initiated by Seller and/or Tenants, if any, Seller has not received any written notice of any current or pending litigation, condemnation proceeding or tax appeals affecting Seller or the Property and Seller does not have any knowledge of any pending litigation, condemnation proceeding or tax appeals against Seller or the Property; Seller has not initiated, nor is Seller participating in, any action for a change or modification in the current subdivision, site plan, zoning or other land use permits for the Property and Seller has no knowledge that the Property may be rezoned;

 

(c)          Seller has not entered into any leases, subleases, contracts, licenses or other agreements affecting the Property which will be binding upon Buyer after the Closing other than the Leases and the agreements referenced on Exhibit J annexed hereto;

 

(d)          Except for violations which have been cured or remedied on or before the date hereof, Seller has not received any written notice from (or delivered any notice to) (i) any governmental authority regarding any violation of any law applicable to the Property and Seller does not have knowledge of any such violations and (ii) any third party that the Property or the current use thereof violates any private covenant, restriction, easement or encumbrance and Seller does not have any knowledge of any such violation;

 

(e)          Seller has fee simple title to the Property free and clear of all liens and encumbrances except for Permitted Exceptions and Seller is the sole owner of the entire lessor’s interest in each Lease. The Property constitutes one or more separate tax parcels for purposes of ad valorem taxation;

 

(f)          With respect to each Lease: (i) the Lease forwarded to Buyer under Section 6(b) is a true, correct and complete copy of the Lease; (ii) the Lease is in full force and effect and there is no default thereunder; (iii) no brokerage or leasing commissions or other

 

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compensation is or will be due or payable to any person, firm, corporation or other entity with respect to or on account of the current term of the Lease or any extension or renewal thereof; (iv) Seller has no outstanding obligation to provide Tenant with an allowance to construct, or to construct at its own expense, any tenant improvements, except as set forth in Schedule 11(f)(iv) attached hereto; (v) intentionally deleted; (vi) Tenant is not entitled to rental concessions or abatements for any period subsequent to the scheduled date of Closing, except as set forth in Schedule 11(f)(vi) attached hereto; (vii) Tenant has not prepaid any rents as of the date hereof nor has Tenant delivered a security deposit, letter of credit or other security in connection with the Lease, except as set forth on Schedule 11(f)(vii) attached hereto; (viii) Tenant has not made any request for any assignment, transfer, or subletting in connection with all or a portion of the premises demised to Tenant which is presently pending or under consideration by Seller; (ix) all specified work required to be performed by the landlord under the Lease up to the date of Closing has been completed or will be completed, at Seller’s expense, prior to the Closing; (x) Seller has not received and has no knowledge of any pending notices from Tenant electing to vacate the premises leased to Tenant or exercising any right of Tenant to terminate the Lease; and (xi) Seller has heretofore billed Tenant for all fixed rent and additional rent due under the Lease as of the date hereof;

 

(g)          Attached hereto as Exhibit A-4 and made a part hereof is a true, correct and complete copy of the rent roll for the Property (the “ Rent Roll ”);

 

(h)          There are no occupancy rights, leases or tenancies affecting the Property other than the Leases. Neither this Agreement nor the consummation of the transactions contemplated hereby is subject to any first right of refusal or other purchase right in favor of any other person or entity; and apart from this Agreement, Seller has not entered into any written agreements for the purchase or sale of the Property, or any interest therein, which has not been terminated;

 

(i)          The transactions contemplated hereby either (i) will not constitute a sale of all or substantially all the assets of Seller, or (ii) if such transaction does constitute a sale of all or substantially all the assets of any Seller, Seller shall provide to Buyer at Closing an excise tax lien waiver or such other reasonably obtainable instruments evidencing compliance with laws or payment of taxes to the extent required by the law of the relevant state, or an indemnification from a party reasonably acceptable to Buyer for any resulting liability with respect to the period prior to the Closing;

 

(j)          To Seller’s knowledge, except as set forth in the environmental reports previously delivered by Seller to Buyer, no hazardous substances have been generated, stored, released, or disposed of on or about the Property in violation of any law, rule or regulation applicable to the Property which regulates or controls matters relating to the environment or public health or safety (collectively, “ Environmental Laws ”) and no adverse environmental condition exists at the Property. Seller has not received any written notice from (nor delivered any notice to) any federal, state, county, municipal or other governmental department, agency or authority (1) concerning any petroleum product or other hazardous substance discharge or seepage at, on, around or under the Property, or migrating from the Property, in violation of any Environmental Laws or; (2) of any pending actions, suits, claims and/or proceedings claiming that Seller, any Tenant or the Property is in violation of any Environmental Laws. For purposes

 

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of this Subsection, “hazardous substances” shall mean any substance or material which is defined or deemed to be hazardous or toxic pursuant to any Environmental Laws. To Seller’s knowledge, there are no underground storage tanks located on the Property;

 

(k)          Exhibit I attached hereto is a true, correct and complete listing of all warranties in effect for the Property (the “ Warranties ” );

 

(l)          Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code;

 

(m)          There presently exists no unrestored casualty or condemnation affecting the Property;

 

(n)          With respect to each Guaranty: (a) the Guaranty forwarded to Buyer under Section 6(b) is a true, correct and complete copy of the Guaranty; and (b) the Guaranty is in full force and effect and there is no default thereunder; and

 

(o)          With respect to the Loan: (i) attached hereto as Exhibit K is a complete list of the Loan Documents; (ii) the Loan Documents are valid and in full force and effect on the date hereof; and (iii) to Seller’s knowledge, no event of default has occurred and is continuing, nor, to Seller’s knowledge, has any material event or omission occurred which, with the giving of notice or the lapse of time, or both, would constitute an event of default by Seller thereunder.

 

The representations and warranties of Seller shall survive Closing for a period of one (1) year.

 

12.          Representations by Buyer . Buyer represents and warrants to, and covenants with, Seller as follows:

 

(a)          Buyer is a limited liability company duly formed, validly existing and in good standing under the laws of Delaware, is authorized to consummate the transaction set forth herein and fulfill all of its obligations hereunder and under all closing documents to be executed by Buyer, and has all necessary power to execute and deliver this Agreement and all closing documents to be executed by Buyer, and to perform all of Buyer’s obligations hereunder and thereunder. This Agreement and all closing documents to be executed by Buyer have been duly authorized by all requisite corporate or other required action on the part of Buyer and are the valid and legally binding obligation of Buyer, enforceable in accordance with their respective terms. Neither the execution and delivery of this Agreement and all closing documents to be executed by Buyer, nor the performance of the obligations of Buyer hereunder or thereunder will result in the violation of any law or any provision of the organizational documents of Buyer or will conflict with any order or decree of any court or governmental instrumentality of any nature by which Buyer is bound.

 

The representations and warranties of Buyer shall survive Closing for a period of one (1) year.

 

13.          Conditions Precedent to Buyer’s Obligations. Buyer’s obligation to pay the Purchase Price, and to accept title to the Property, shall be subject to compliance by Seller with

 

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the following conditions precedent with respect to each Property on and as of the date of Closing:

 

(a)          Seller shall deliver to Buyer on or before the Closing the items set forth in Section 10 above;

 

(b)          Buyer shall receive from Escrow Agent or any other title insurer approved by Buyer in its judgment and discretion, a current ALTA owner’s form of title insurance policy, or irrevocable and unconditional binder to issue the same, with extended coverage for the Real Property in the amount of the Purchase Price, dated, or updated to, the date of the Closing, insuring, or committing to insure, at its ordinary premium rates Buyer’s good and marketable title in fee simple to the Real Property and otherwise in such form and with such endorsements as provided in the title commitment approved by Buyer pursuant to Section 6 hereof and subject only to the Permitted Exceptions (the “ Title Policy ”);

 

(c)          Buyer shall have received a valid and permanent final certificate of occupancy (or the equivalent thereof) for the Property which shall not contain any contingencies or require any additional work to be completed;

 

(d)          With the exception of the New Tenants, each Tenant shall be in possession of the premises demised under its respective Lease, open for business to the public and paying full and unabated rent under such Lease and no Tenant shall have assigned its Lease or sublet the Property;

 

(e)          The representations and warranties of Seller contained in this Agreement shall have been true when made and shall be true in all material respects at and as of the date of Closing as if such representations and warranties were made at and as of the Closing, and Seller shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing;

 

(f)          Seller shall have delivered to Buyer a written waiver by each applicable party of any right of first refusal, right of first offer or other purchase option that such party has to purchase the Property, or any part thereof, from Seller;

 

(g)          Lender shall have given approval of the Loan Assumption on the terms described in Section 3(b) hereof; and

 

(h)          Seller shall have made all contributions, payments and/or reimbursements and completed any and all work required by any governmental authority in connection with the construction and development of the Property, including, without limitation, as required by any variance or site plan approval.

 

In the event that any of the foregoing condition precedent have not been satisfied as of the Closing Date, Buyer shall have the right terminate this Agreement by delivering written notice thereof to Seller no later than the date which is fifteen (15) days after the Closing Date, upon which termination the Earnest Money shall be refunded to Buyer, and with respect to a failure under Sections (a), (e) or (f) above, Seller shall pay to Buyer upon receipt of reasonable

 

20
 

 

documentary evidence of all of the out-of-pocket costs and expenses actually incurred by Buyer in connection with this Agreement up to $50,000.00, which return and payment shall operate to terminate this Agreement and release Seller and Buyer from any and all liability hereunder, except those which are specifically stated herein to survive any termination hereof. Notwithstanding the foregoing sentence, Seller shall not be obligated to pay Buyer’s out-of-pocket costs and expenses in the event Buyer terminates the Agreement for Seller’s failure to deliver the Estoppel Certificates or SNDAs required under Section 6.

 

14.          Conditions Precedent to Seller’s Obligations. Seller’s obligation to deliver title to the Property shall be subject to compliance by Buyer with the following conditions precedent with respect to each Property on and as of the date of Closing:

 

(a)          Buyer shall deliver to Escrow Agent on the Closing Date the remainder of the Purchase Price, subject to adjustment of such amount pursuant to Section 4 hereof;

 

(b)          The representations and warranties of Buyer contained in this Agreement shall have been true when made and shall be true in all material respects at and as of the date of Closing as if such representations and warranties were made at and as of the Closing, and Buyer shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing; and

 

(c)          Lender shall have given approval of the Loan Assumption on the terms described in Section 3(b) hereof.

 

15.          Notices. Unless otherwise provided herein, all notices and other communications which may be or are required to be given or made by any party to the other in connection herewith shall be in writing and shall be deemed to have been properly given and received on the date: (i) delivered by facsimile transmission or by electronic mail (e.g. email), (ii) delivered in person, (iii) deposited in the United States mail, registered or certified, return receipt requested, or (iv) deposited with a nationally recognized overnight courier, to the addresses set out in Section 1, or at such other addresses as specified by written notice delivered in accordance herewith. Notwithstanding the foregoing, Seller and Buyer agree that notice may be given on behalf of each party by the counsel for each party and notice by such counsel in accordance with this Section 15 shall constitute notice under this Agreement.

 

16.          Seller Covenants. Seller agrees that it: (a) shall continue to operate and manage each Property in the same manner in which Seller has previously operated and managed such Property; (b) shall, subject to Section 7 hereof and subject to reasonable wear and tear, maintain each Property in the same (or better) condition as exists on the date hereof; and (c) shall not, without Buyer’s prior written consent, which, after the expiration of the Due Diligence Period may be withheld in Buyer’s sole discretion: (i) amend the Leases or Guaranties in any manner, nor enter into any new lease, other than the Hearing Center Lease, license agreement or other occupancy agreement with respect to any Property; (ii) consent to an assignment of any Lease or a sublease of the premises demised thereunder or a termination or surrender thereof; (iii) terminate any Lease nor release any guarantor of or security for any Lease unless required by the express terms of such Lease; (iv) cause, permit or consent to an alteration of the premises

 

21
 

 

demised under the Leases (unless such consent is non-discretionary); and/or (v) amend the Loan Documents in any manner or enter into any new loan documents with respect to the Loan. Seller shall promptly inform Buyer in writing of any material event adversely affecting the ownership, use, occupancy or maintenance of any Property, whether insured or not.

 

17.          314 Audit. Upon Buyer’s request, for a period of one (1) year after Closing, Seller shall make the financial statements , including balance sheets, income statements, stockholders’ equity statements and cash flow statements and related notes prepared in accordance with United States generally accepted accounting standards, and any and all books, records, correspondence, financial data, leases, delinquency reports and all other documents and matters (other than confidential and privileged information) maintained by Seller or their agents and relating to receipts, expenditures, contributions and distributions reasonably necessary to complete an audit pertaining to each Property for the three (3) most recent full calendar years and the interim period of the current calendar year (collectively, the “ Records ”) available to Buyer and/or its auditors for inspection, copying and audit by Buyer’s designated accountants, and at Buyer’s expense. Seller shall provide Buyer and/or its auditors, but without expense to Seller, with copies of, or access to, such factual and financial information as may be reasonably requested by Buyer or its designated accountants, and in the possession or control of Seller, to enable Buyer to file any filings required by the Securities and Exchange Commission (the “ SEC ”) in connection with the purchase of each Property. Seller understands and acknowledges that Buyer is required to file audited financial statements related to each Property with the SEC within seventy-one (71) days of the Closing Date and agree to provide any Records and requested reasonable representations and/or certifications to the Buyer’s auditors, on a timely basis to facilitate Buyer’s timely submission of such audited financial statements.

 

18.          Performance on Business Days. A "business day" is a day which is not a Saturday, Sunday or legal holiday recognized by the Federal Government. Furthermore, if any date upon which or by which action is required under this Agreement is not a business day, then the date for such action shall be extended to the first day that is after such date and is a business day. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-business day, the period in question shall end on the next succeeding business day.

 

19.          Entire Agreement. This Agreement constitutes the sole and entire agreement among the parties hereto and no modification of this Agreement shall be binding unless in writing and signed by all parties hereto. No prior agreement or understanding pertaining to the subject matter hereof (including, without limitation, any letter of intent executed prior to this Agreement) shall be valid or of any force or effect from and after the date hereof.

 

20.          Severability. If any provision of this Agreement, or the application thereof to any person or circumstance, shall be invalid or unenforceable, at any time or to any extent, then the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. Each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.

 

22
 

 

21.          No Representations or Warranties. Buyer hereby acknowledges, understands and agrees that it has an opportunity to inspect the Property as set forth in Section 6 herein, and except as set forth in this Agreement, the Property shall be conveyed at Closing to Buyer in “as-is” condition with no representation or warranties whatsoever.

 

22.          Applicable Law. This Agreement shall be construed under the laws of the State or Commonwealth in which the Property is located, without giving effect to any state's conflict of laws principles.

 

23.          Tax-Deferred Exchange. Buyer and Seller respectively acknowledge that the purchase and sale of the Property contemplated hereby may be part of a separate exchange (an “ Exchange ”) being made by each party pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated with respect thereto. In the event that either party (the “ Exchanging Party ”) desires to effectuate such an exchange, then the other party (the “ Non-Exchanging Party ”) agrees to cooperate fully with the Exchanging Party in order that the Exchanging Party may effectuate such an exchange; provided, however, that with respect to such Exchange (a) all additional costs, fees and expenses related thereto shall be the sole responsibility of, and borne by, the Exchanging Party; (b) the Non-Exchanging Party shall incur no additional liability as a result of such exchange; (c) the contemplated exchange shall not delay any of the time periods or other obligations of the Exchanging Party hereby, and without limiting the foregoing, the scheduled date for Closing shall not be delayed or adversely affected by reason of the Exchange; (d) the accomplishment of the Exchange shall not be a condition precedent or condition subsequent to the Exchanging Party's obligations under the Agreement; and (e) the Non-Exchanging Party shall not be required to hold title to any land other than the Property for purposes of the Exchange. The Exchanging Party agrees to defend, indemnify and hold the Non-Exchanging Party harmless from any and all liability, damage or cost, including, without limitation, reasonable attorney's fees that may result from Non-Exchanging Party's cooperation with the Exchange. The Non-Exchanging Party shall not, by reason of the Exchange, (i) have its rights under this Agreement, including, without limitation, any representations, warranties and covenants made by the Exchanging Party in this Agreement (including but not limited to any warranties of title, which, if Seller is the Exchanging Party, shall remain warranties of Seller), or in any of the closing documents (including but not limited to any warranties of title, which, if Seller is the Exchanging Party, shall remain warranties of Seller) contemplated hereby, adversely affected or diminished in any manner, or (ii) be responsible for compliance with or deemed to have warranted to the Exchanging Party that the Exchange complies with Section 1031 of the Code.

 

24.          Broker’s Commissions. Buyer and Seller each hereby represent that, except for the Broker listed herein, there are no other brokers involved or that have a right to proceeds in this transaction. Seller shall be responsible for payment of commissions to the Broker pursuant to a separate written agreement executed by Seller. Seller and Buyer each hereby agree to indemnify and hold the other harmless from all loss, cost, damage or expense (including reasonable attorneys' fees at both trial and appellate levels) incurred by the other as a result of any claim arising out of the acts of the indemnifying party (or others on its behalf) for a commission, finder's fee or similar compensation made by any broker, finder or any party who claims to have dealt with such party (except that Buyer shall have no obligations hereunder with

 

23
 

 

respect to any claim by Broker). The representations, warranties and indemnity obligations contained in this section shall survive the Closing or the earlier termination of this Agreement.

 

25.          Assignment. Buyer may assign its rights under this Agreement, provided, however, that no such assignment shall relieve Buyer of any of its obligations hereunder until Closing is complete. Buyer is entering into this Agreement for and on behalf of two related special purpose entities titled ARHC CSCLWFL01, LLC, with respect to the Countryside Property, and ARHC SAVENFL01, LLC, with respect to the St. Andrews Property (individually and collectively, “ Approved Assignee ”) and intends to assign each respective Approved Assignee its rights hereunder prior to Closing.

 

26.          Attorneys’ Fees. In any action between Buyer and Seller as a result of failure to perform or a default under this Agreement, the prevailing party shall be entitled to recover from the other party, and the other party shall pay to the prevailing party, the prevailing party’s reasonable attorneys’ fees and disbursements and court costs incurred in such action.

 

27.          Time of the Essence . Time is of the essence with respect to each of Buyer’s and Seller’s obligations hereunder.

 

28.          Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each of the parties and delivered to the other party. Signatures on this Agreement which are transmitted electronically shall be valid for all purposes, however any party shall deliver an original signature on this Agreement to the other party upon request.

 

29.          Anti-Terrorism. Neither Buyer or Seller, nor any of their affiliates, are in violation of any Anti-Terrorism Law (as hereinafter defined) or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. “Anti-Terrorism Laws” shall mean any laws relating to terrorism or money laundering, including: Executive Order No. 13224; the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or may hereafter be, renewed, extended, amended or replaced; the applicable laws comprising or implementing the Bank Secrecy Act; and the applicable laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing may from time to time be amended, renewed, extended, or replaced).

 

[SIGNATURES APPEAR ON THE FOLLOWING PAGES]

 

24
 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

BUYER:   SELLER:
     
AMERICAN REALTY CAPITAL VII, LLC,   AW ST. ANDREWS, LLC,
a Delaware limited liability company   a Delaware limited liability company

 

By:    /s/ Edward M. Weil, Jr.   By:   /s/ Brian Waxman
  Name: Edward M. Weil, Jr.     Name: Brian Waxman
  Title:  President     Title:  President
     

Date: April 11, 2014   Date: April 11, 2014

 

    AW COUNTRYSIDE, LLC,
    a Delaware limited liability company

 

    By:   /s/ Brian Waxman
      Name: Brian Waxman
      Title:  President
     

    Date: April 11, 2014

 

THE UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES TO BE BOUND BY THE TERMS OF THIS AGREEMENT RELATING TO ESCROW AGENT AND THE EARNEST MONEY.

 

ESCROW AGENT:

 

STEWART TITLE GUARANTY COMPANY  
     
By: /s/ Annette M. Comer  
     
Name: Annette M. Comer  
     
Title: Vice President  
     
Date: April 16, 2014  

 

 
 

 

EXHIBITS AND SCHEDULES

 

Exhibits    
     
Exhibit A-1 - Real Property – Countryside Land
     
Exhibit A-2 - Real Property – St. Andrews Land
     
Exhibit A-3 - List of Leases
     
Exhibit A-4 - Rent Roll
     
Exhibit A-5   New Tenants
     
Exhibit B - Form of Special Warranty Deed
     
Exhibit C - Form of Assignment and Assumption of Leases, Guaranties and Security Deposits
     
Exhibit D - Form of Bill of Sale
     
Exhibit E - Form of Assignment of Contracts, Permits, Licenses and Warranties
     
Exhibit F - Form of Estoppel Certificate
     
Exhibit G - Intentionally Omitted
     
Exhibit H - Form of Tenant Notice Letter
     
Exhibit I - Warranties
     
Exhibit J - Service Contracts
     
Exhibit K - Loan Documents

 

Schedules    
     
Schedule 3(a) - Purchase Price Allocation
     
Schedule 3(b) - Loan Information
     
Schedule 11(f)(iv) - Tenant Improvement Allowances
     
Schedule 11(f)(vi) - Rent Concessions
     
Schedule 11(f)(vii) - Prepaid Rents, Security Deposits and Letters of Credit
     
 
 

 

EXHIBIT A-1

 

LEGAL DESCRIPTION OF PROPERTY

 

Countryside Land

 

TRACT 1: (Fee Simple)

 

The North Half (N 1/2) of the South Two-Fifths (S 2/5) of the Southwest Quarter (SW 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of Section 21, Township 28 South, Range 16 East, Pinellas County, Florida, more particularly described as follows:

 

Commence at the Southwest corner of said Southwest Quarter (SW 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of Section 21, Township 28 South, Range 16 East, thence run North 00°01'13" West, 133.47 feet; thence South 89°30'31" East, 50.00 feet to the Point of Beginning; thence North 00°01'13" West, 133.49 feet; thence South 89°30'56" East, 621.16 feet; thence South 00°04'02" East, 133.57 feet; thence North 89°30'31" West, 621.27 feet to the Point of Beginning.

 

LESS the Westerly 50.00 feet thereof for right-of-way for McMullen Booth Road as recorded in Official Records Book 6557, Page 1699, of the Public Records of Pinellas County, Florida.

 

TRACT 2: (Fee Simple)

 

The South Third (S 1/3) of the North Three-Fifths (N 3/5) of the Southwest Quarter (SW 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of Section 21, Township 28 South, Range 16 East, Pinellas County, Florida, more particularly described as follows:

 

Commence at the Southwest corner of said Southwest Quarter (SW 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of Section 21, Township 28 South, Range 16 East, thence run North 00°01'13" West, 266.95 feet; thence South 89°25'21" East, 50.00 feet to the Point of Beginning; thence North 00°01'13" West, 133.48 feet; thence South 89°31'22" East, 621.05 feet; thence South 00°04'02" East, 133.56 feet; thence North 89°30'56" West, 621.16 feet to the Point of Beginning.

 

LESS the Westerly 50.00 feet thereof for right of way for McMullen Booth Road as recorded in Official Records Book 6557, Page 1699, of the Public Records of Pinellas County, Florida.

 

TRACT 3: (Easement):

 

Together with a Non-exclusive Utility Easement as granted in Official Records Book 6294, Page 817, of the Public Records of Pinellas County, Florida, over the following described land:

 

A parcel of land lying in Section 21, Township 28 South, Range 16 East, Pinellas County, Florida, explicitly described as follows:

 

Commence at the Southwest corner of the Southwest Quarter (SW 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 21; thence on the South boundary thereof South 89 degrees 22 minutes 32 seconds East a distance of 671.36 feet to the Southwest corner of the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 21 and the Point of Beginning; thence on the West boundary thereof North 00°06'24" West a distance of 158.52 feet; thence departing said West boundary, North 89°53'36" East a distance of 15.00 feet, thence South 00°06'24" East, 15.00 feet East of and parallel to the West boundary of the Southeast

 

A- 1
 

 

Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 21 a distance of 158.71 feet to a point on the South boundary of the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 21; thence on a line 15.00 feet East of and parallel to the Southerly projection of the West boundary of the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 21, continue South 00°06'24" East a distance of 30 feet; thence North 89°22'32" West, a distance of 15.00 feet to a point on the aforesaid Southerly projection of the West boundary of the Southeast Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 21; thence on said Southerly projection North 00°06'24" West a distance of 30.00 feet to the Point of Beginning.

 

A- 1
 

 

EXHIBIT A-2

 

LEGAL DESCRIPTION OF PROPERTY

 

St. Andrews Land

 

PARCEL NO. 1:

 

A parcel of land lying and being in Section 9, Township 39 South, Range 19 East, Sarasota County, Florida, and being more particularly described as follows:

 

Commence at the Northwest corner of the Southwest 1/4 of said Section 9; thence North 89°36'06" East, along the Northerly line of the Southwest 1/4 of said Section 9, a distance of 612.48 feet; thence South 00°23'54" East, a distance of 25.00 feet to the intersection with the Southerly right of way line of Ridgewood Avenue as described in the instrument recorded in Official Records Book 1548, at Page 1266, of the Public Records of Sarasota County, Florida, and to the Point of Beginning; thence North 89°36'06" East along the said Southerly right of way line of Ridgewood Avenue and along a line that is 25.00 feet Southerly of and parallel with the Northerly line of the Southwest 1/4 of said Section 9, a distance of 715.28 feet to the intersection with the Westerly right of way line of Capri Isles Boulevard (100' wide public right of way) as shown on the Plat of "Capri Isles, Unit 3", as recorded in Plat Book 22, at Pages 8 to 8-D, of the Public Records of Sarasota County, Florida; thence South 00°38'51" East along the said Westerly right of way line of Capri Isles Blvd., a distance of 355.76 feet to the intersection with the Northerly right of way line of East Venice Avenue as described in the Order of Taking, Case No. 85-5539CA01; thence South 89°34'34" West along the said Northerly right of way line of East Venice Avenue for the next five (5) calls, a distance of 99.00 feet; thence North 00°26'12" West, a distance of 5.00 feet; thence South 89°34'34" West, a distance of 450.00 feet; thence South 00°25'25" East, a distance of 10.00 feet; thence South 89°34'34" West, a distance of 167.83 feet; thence North 00°23'54" West, a distance of 126.80 feet; thence South 89°36'06" West, a distance of 178.33 feet to the intersection with the Easterly line of the Guaranty Bank parcel described in Official Records Book 1965, at Page 1801, of the Public Records of Sarasota County, Florida; thence North 00°34'21" West along the said Easterly line of the Guaranty Bank parcel and its Northerly extension, a distance of 107.21 feet; thence North 89°36'06" East, a distance of 178.65 feet; thence North 00°23'54" West, a distance of 127.07 feet to the Point of Beginning.

 

PARCEL NO. 2 – EASEMENT

 

TOGETHER WITH non-exclusive easements for the benefit of the above described parcel as created by and set forth in that certain Grant of Easements and Declaration of Use Restriction Agreement by and among St. Andrews, LLC, a Florida limited liability company, Fifth Third Bank, a Michigan banking corporation and Healthcare Realty Trust Incorporated, a Maryland corporation, recorded in Official Records Instrument No. 2008158157, of the Public Records of Sarasota County, Florida.

 

A- 2
 

 

PARCEL NO. 3 - EASEMENT:

 

TOGETHER WITH non-exclusive easements for the benefit of the above described parcel as created by and set forth in that certain Drainage and Retention Pond Easement Agreement by and among St. Andrews, LLC, a Florida limited liability company, Fifth Third Bank, a Michigan banking corporation and Healthcare Realty Trust Incorporated, a Maryland corporation, recorded in Official Records Instrument No. 2008158158, of the Public Records of Sarasota County, Florida.

 

A- 2
 

 

EXHIBIT A-3

 

LIST OF LEASES

 

St. Andrews

 

1. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (successor–in-interest to Healthcare Realty Trust, Inc., a Maryland Corporation) (“Landlord”), and Surgicare of St. Andrews, Ltd., a Florida Limited Partnership (“Tenant”), dated April 5, 2005 and extended by notice dated November 1, 2011 (the “Lease”) for 12,189 rentable square feet of space located in 1350 building of the building commonly known as ‘St. Andrews Medical Park’, located at 1350 East Venice Avenue, Venice, Florida (the “Premises”).

 

2. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (successor–in-interest to Healthcare Realty Services, Inc., an Alabama Corporation, as agent for Healthcare Realty Trust, Inc., a Maryland Corporation) (“Landlord”), and Center for Sight, P.A., a Florida Professional Association (“Tenant”), dated October 13, 2005 as amended by First Amendment dated April 28, 2009 (the “Lease”) for 17,292 rentable square feet of space located in 1360 building of the building commonly known as ‘St. Andrews Medical Park’, located at 1360 East Venice Avenue, Venice, Florida (the “Premises”).
   
3. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (successor–in-interest to Healthcare Realty Services, Inc., an Alabama Corporation, as agent for Healthcare Realty Trust, Inc., a Maryland Corporation) (“Landlord”), and Dimensional Imaging, Inc. (“Tenant”), dated January 18, 2011 (the “Lease”) for 2,596 rentable square feet of space located in Suite 101 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).
   
4. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (successor–in-interest to Healthcare Realty Services, Inc., an Alabama Corporation, as agent for Healthcare Realty Trust, Inc., a Maryland Corporation) (“Landlord”), and The Heart Institute of Venice, P.L.L.C., a Florida Limited Liability Company (“Tenant”), dated May 4, 2005 as amended by Addendum dated October 13, 2005, and by First Amendment dated March 26, 2006 and further by Third Amendment dated February 23, 2012, (the “Lease”) for 7,383 rentable square feet of space located in Suite 102 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).

 

A- 3
 

 

5. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (successor–in-interest to Healthcare Realty Services, Inc., an Alabama Corporation, as agent for Healthcare Realty Trust, Inc., a Maryland Corporation) (“Landlord”), and Quest Diagnostics Clinical Laboratories, Inc., a Delaware Corporation (“Tenant”), dated May 25, 2010 (the “Lease”) for 2,957 rentable square feet of space located in Suite 103 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).
   
6. Lease Agreement by and between AW St. Andrews, LLC, a Delaware limited liability company (“Landlord”) and Retina Care Associates of Sarasota, P.A., a Florida Corporation (“Tenant”), dated March 24, 2014 (the “Lease”) for 1,716 rentable square feet of space located in Suite 201 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).
   
7. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (successor–in-interest to Healthcare Realty Services, Inc., an Alabama Corporation, as agent for Healthcare Realty Trust, Inc., a Maryland Corporation) (“Landlord”), and Primary Urgent Care, P.L., a Florida Professional Limited Liability Company (“Tenant”), dated December 10, 2005 as amended by First Amendment dated March 12, 2011, and by certain Sublease Agreement by and between Primary Urgent Care, P.L., and Gulf Coast HMA Physician Management, LLC, dated October 29, 2012 (the “Lease”) for 2,500 rentable square feet of space located in Suite 202 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”)..
   
8. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (“Landlord”), and Gulf Coast HMA Physician Management, LLC, a Florida Limited Liability Company (“Tenant”), dated January 21, 2014 (the “Lease”) for 4,469 rentable square feet of space located in Suite 205 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).
   
9. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (“Landlord”), and Joseph E. Chebli, MD, FACS, Inc. P.S., a Washington corporation (“Tenant”), dated October 2, 2013 (the “Lease”) for 2,000 rentable square feet of space located in Suite 208 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).

 

A- 3
 

 

10. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (“Landlord”), and Comprehensive Medpsych Systems, Inc., (“Tenant”), dated July 16, 2013 as amended by First Amendment dated September 20, 2013 (the “Lease”) for 1,287 rentable square feet of space located in Suite 209 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).
   
11. Lease Agreement by and between AW St. Andrews, LLC a Delaware limited liability company (“Landlord”), and DeMasi Digestive Health, P.A. (“Tenant”), dated June 14, 2013 as amended by Amendment dated September 20, 2013 (the “Lease”) for 3,048 rentable square feet of space located in Suite 210 of the building commonly known as ‘St. Andrews Medical Park’, located at 1370 East Venice Avenue, Venice, Florida (the “Premises”).

 

Countryside

 

1. Lease Agreement by and between AW Countryside, LLC a Delaware limited liability company (successor–in-interest to HR Acquisition I Corporation, a Maryland Corporation (“Landlord”), and Diagnostic Clinic Medical Group, P.A., a Florida professional service corporation (“Tenant”), dated January 27, 2005 as amended by First Amendment dated May 5, 2008, as amended by Second Amendment dated April 4, 2012 (the “Lease”) for 50,972 rentable square feet of space located in Suite 100 of the building commonly known as ‘Countryside Medical Center’, located at 3131 N. McMullen Drive, Safety Harbour, Florida (the “Premises”).

 

A- 3
 

  

EXHIBIT A-4

 

RENT ROLL

 

 

Applefield Waxman Management, LLC Page: 1
Rent Roll Date: 04/11/2014
AW St. Andrews Medical Park (awstand) Time: 2:25 pm
As of: 04/11/2014    

 

    Unit     Unit
Sq Ft 		    Name   Move In   Lease From   Lease Exp  

Charge

Code

 

Annual

Amount

   

Monthly

Amount

    $ per S.F.  
Current/Notice Residents                                                  
awstand     *1350     12,189     St Andrew Surgery Center   4/5/05   4/1/2005   3/31/16   cam     60,025.08       5,002.09       4.92  
                                    rent     321,165.72       26,763.81       26.35  
                                    Total     381,190.80       31,765.90       31.27  
awstand     *1360     17,292     Center for Sight   4/28/09   1/1/2011   12/31/20   rent     401,270.76       33,439.23       23.21  
                                    Total     401,270.76       33,439.23       23.21  
awstand     101       2,596     Dimensional Imaging, Inc.   2/1/11   2/1/2011   1/31/16   cam     907.68       75.64       0.35  
                                    rent     56,722.56       4,726.88       21.85  
                                    Total     57,630.24       4,802.52       22.20  
awstand     102       7,383     The Heart Institute of Venice   8/1/05   8/1/2005   9/30/17   rent     168,332.40       14,027.70       22.80  
                                    Total     168,332.40       14,027.70       22.80  
awstand     103       2,957     Quest Diagnostics Clinical Lab   6/1/10   6/1/2010   2/29/16   rent     72,742.20       6,061.85       24.60  
                                    cam     3,881.04       323.42       1.31  
                                    Total     76,623.24       6,385.27       25.91  
awstand     104       2,591     VACANT                     0.00       0.00       0.00  
                                    Total     0.00       0.00       0.00  
awstand     201       1,716     Retina Assoc. of Sarasota P.A   1/14/08   3/1/2014   2/28/19   rent     40,996.92       3,416.41       23.89  
                                    concess     -40,996.92       -3,416.41       0.00  
                                    Total     0.00       0.00       23.89  
awstand     202       2,500     Primary Urgent Care, P.L.   4/1/06   4/1/2006   3/31/16   cam     714.36       59.53       0.29  
                                    rent     57,525.00       4,793.75       23.01  
                                    Total     58,239.36       4,853.28       23.30  
awstand     205       4,469     VACANT                     0.00       0.00       0.00  
                                    Total     0.00       0.00       0.00  
awstand     208       2,000     Joseph E. Chebli, MD, FACS, Inc. PS   3/1/14   4/1/2014   3/31/19   rent     42,000.00       3,500.00       21.00  
                                    Total     42,000.00       3,500.00       21.00  
awstand     209       1,287     Comprehensive Medpsych Systems, Inc.   11/1/13   11/1/2013   10/31/16   rent     22,522.44       1,876.87       17.50  
                                    Total     22,522.44       1,876.87       17.50  
awstand     210       3,048     DeMasi Digestive Health, P.A.   11/1/13   11/1/2013   10/31/16   rent     54,864.00       4,572.00       18.00  
                                    Total     54,864.00       4,572.00       18.00  
awstand     BOMA       413     BOMA   5/1/12                 0.00       0.00       0.00  
                                    Total     0.00       0.00       0.00  

 

Future Residents/Applicants

 

A- 4
 

  

RENT ROLL (cont’d)

 

Applefield Waxman Management, LLC Page: 2
Rent Roll Date: 04/11/2014
AW St. Andrews Medical Park (awstand) Time: 2:25 pm
As of: 04/11/2014    

  

    Unit     Unit
Sq Ft 		    Name   Move In   Lease From   Lease Exp   Charge
Code 		  Annual
Amount 		    Monthly
Amount 		    $ per S.F.
Future Resident/Applicants                                              
awstand     205       4,469     Gulf Coast HMA Physician Mgmt., LLC   6/1/14   6/1/2014   5/31/19         0.00       0.00     0.00
                                    Total     0.00       0.00     0.00

 

    Square
Footage 		    % S.F     Annual
Charges 		    Monthly
Charges 		 
Current/Notice Res.                     1,262,673.24       105,222.77  
Future Residents/Applicants                     0.00       0.00  
Occupied Units     53,381       88.32 %                
Vacant Units     7,060       11.68 %                
Totals:     60,441       100.00 %     1,262,673.24     105,222.77  

 

Summary of Charges by Charge Code (Current/Notice residents only)

 

    Month     Annual  
cam     5,460.68       65,528.16  
                 
concess     -3,416.41       -40,996.92  
                 
rent     103,178.50       1,238,142.00  
                 
Total     105,222.77       1,262,673.24  

 

A- 4
 

  

RENT ROLL (cont’d)

 

Applefield Waxman Management, LLC Page: 1
Rent Roll Date: 04/11/2014
AW Countryside Medical Arts (awcount) Time: 2:58 pm
As of: 04/11/2014    

  

    Unit     Unit
Sq Ft 		    Name   Move In   Lease From   Lease Exp   Charge
Code 		  Annual
Amount 		    Monthly
Amount 		    $ per S.F.  
Current/Notice Residents                                                  
awcount     100       50,972     Diagnostic Clinic Medical Group, P.A.   4/18/12   4/18/2012   12/31/24   rent     777,823.92       64,818,66       15.26  
                                    retrec     83,829.84       6,985.82       1.64  
                                    Total     861,653.76       71,804.48       16.90  

 

    Square
Footage 		    % S.F     Annual
Charges 		    Monthly
Charges 		 
Current/Notice Res.                     861,653.76       71,804.48  
Future Residents/Applicants                     0.00       0.00  
                                 
Occupied Units     50,972       100.00 %                
Vacant Units     0       0.00 %                
                                 
Totals:     50,972       100.00 %     861,653.76       71,804.48  

 

Summary of Charges by Charge Code (Current/Notice residents only)

  

    Month     Annual  
rent     64,818.66       777,823.92  
                 
retrec     6,985.82       83,829.84  
                 
Total     71,804.48       861,653.76  

 

A- 4
 

 

EXHIBIT A-5

 

NEW TENANTS

 

St. Andrews Medical Park

 

Suite   SF     Tenant   Move In   Lease From   Lease Exp
205     4,469     Gulf Coast HMA Physician Mgmt., LLC   6/1/14   6/1/2014   5/31/19

 

Countryside

 

[NONE]

 

A- 5
 

  

EXHIBIT B

 

FORM OF SPECIAL WARRANTY DEED
[Subject to Local Counsel Review]

 

This document prepared by:
(and return to :)

 

___________________________
___________________________
___________________________
___________________________

 

Tax Parcel No. ______________________________

 

SPECIAL WARRANTY DEED

 

THIS INDENTURE, made on the _____ day of ______________, 2014, by and between ___________________________________, a ___________________________ ("Grantor"), and ________________________________________, a ______________, whose address is ________________________________ ("Grantee")

 

WITNESSETH:

 

THAT Grantor, in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt of which is hereby acknowledged, does by these presents, sell and convey unto the said Grantee, its successors and assigns, the lots, tracts or parcels of land lying, being and situated in the County of ____________, State of _____________, and more fully described on Exhibit "A" attached hereto and incorporated herein by reference, together with all buildings, facilities and other improvements, located thereon and (a) all right, title and interest, if any, of Grantor in and to any streets and roads abutting the above described premises to the center lines thereof and (b) the appurtenances and all the estate and rights of Grantor in and to said premises.

 

TO HAVE AND TO HOLD the premises aforesaid with all and singular, the rights, easements, privileges, appurtenances and immunities thereto belonging or in any wise appertaining unto the said Grantee and unto Grantee's successors and assigns forever, the said Grantor hereby covenanting that Grantor will warrant and defend the title to said premises unto the said Grantee and unto Grantee's successors and assigns, against the lawful claims and demands of all persons claiming by, under or through Grantor, but not otherwise.

 

B- 1
 

  

IN WITNESS WHEREOF, Grantor has executed this Special Warranty Deed the day and year first above written.

 

  GRANTOR:
   
   
   
   
  By:  
  Name:
  Its:

 

[ACKNOWLEDGMENT]

 

B- 2
 

  

EXHIBIT C

 

FORM OF
ASSIGNMENT AND ASSUMPTION OF LEASES, GUARANTIES AND SECURITY DEPOSITS

 

______________________________ ("Assignor"), in consideration of the sum of Ten and No/100 Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt of which is hereby acknowledged, hereby assigns, transfers, sets over and conveys to ______________________________ ("Assignee"), all of Assignor's right, title and interest in and to those leases described in Exhibit A attached hereto and made a part hereof (as amended from time to time, the “Leases”), including any and all security deposits under the Leases, together with all of Assignor’s right, title and interest in and to those lease guaranties described in Exhibit B attached hereto and made a part hereof (as amended from time to time).

 

Subject to the limitations set forth below, Assignor does hereby agree to defend, indemnify and hold harmless Assignee from any liability, damages (excluding speculative damages, consequential damages and lost profits), causes of action, expenses and reasonable attorneys' fees incurred by Assignee by reason of the failure of Assignor to have fulfilled, performed and discharged all of the various commitments, obligations and liabilities of the lessor, or landlord under and by virtue of the Leases arising or accruing prior to the date of this Assignment. Subject to the limitations set forth below, Assignee does hereby agree to defend, indemnify and hold harmless Assignor from any liability, damages (excluding speculative damages, consequential damages and lost profits), causes of action, expenses and reasonable attorneys' fees incurred by Assignor by reason of the failure of Assignee to have fulfilled, performed and discharged all of the various commitments, obligations and liabilities of the Landlord under and by virtue of the Leases arising or accruing on and after the date of this Assignment.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

C- 1
 

  

IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment this ______ day of ______________, 2014, which Assignment is effective this date. This Assignment may be executed in counterparts, which when taken together shall be deemed one agreement.

 

  ASSIGNOR:
   
   
   
  By:  
  Name:  
  Title:  
   
  ASSIGNEE:
   
   
   
  By:  
    Name:  
    Title:  

 

C- 2
 

  

EXHIBIT A

 

Leases

 

[Seller to prepare Exhibit]

 

C- 3
 

 

EXHIBIT B

 

Guaranties

 

[Seller to prepare Exhibit]

 

C- 4
 

  

EXHIBIT D

 

FORM OF BILL OF SALE

 

For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, ______________________________, a ___________________________, having an address at ____________________________ (“Seller”), hereby bargains, sells, conveys and transfers to ____________________________ (“Buyer”), a _______________________________, all of Seller’s right, title and interest in and to those certain items of personal and intangible property (including any warranty made by third parties in connection with the same and the right to sue on any claim for relief under such warranties) (the “Personal Property”) located at or held in connection with that certain real property located in the State of __________________________, as more particularly described on Schedule A attached hereto and made a part hereof.

 

Seller has not made and does not make any express or implied warranty or representation of any kind whatsoever with respect to the Personal Property, including, without limitation, with respect to title, merchantability of the Personal Property or its fitness for any particular purpose, the design or condition of the Personal Property; the quality or capacity of the Personal Property; workmanship or compliance of the Personal Property with the requirements of any law, rule, specification or contract pertaining thereto; patent infringement or latent defects. Buyer accepts the Personal Property on an “as is, where is” basis.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

D- 1
 

  

IN WITNESS WHEREOF, Seller has caused this instrument to be executed and delivered as of this ___ day of _______, 2014.

 

  SELLER:
   
   
   
  By:  
     
  Name:  
     
  Title:  

 

D- 2
 

 

 

SCHEDULE A

 

TO BILL OF SALE

 

[Add legal description of Real Property]

 

D- 3
 

  

EXHIBIT E

 

FORM OF ASSIGNMENT OF CONTRACTS,
PERMITS, LICENSES AND WARRANTIES

 

THIS ASSIGNMENT, made as of the ___ day of ________, 2014, by _________________, a __________________________ (“Assignor”), to _____________________________, a __________________________________________(“Assignee”).

 

WITNESSETH:

 

WHEREAS, by Agreement for Purchase and Sale of Real Property (the “Purchase Agreement”) having an effective date of ________, 2014, between Assignor and American Realty Capital VII, LLC, Assignee’s predecessor-in-interest under the Purchase Agreement, Assignee has agreed to purchase from Assignor as of the date hereof, and Assignor has agreed to sell to Assignee, that certain property located at ________________________ (the “Property”); and

 

WHEREAS, Assignor desires to assign to Assignee as of the date hereof all of Assignor’s right, title and interest in contracts, permits, trademarks, licenses and warranties held by Assignor in connection with the Property, including without limitation any and all guaranties of leases relating to the Property (collectively, the “Contracts”).

 

NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Assignor hereby assigns, sets over and transfers unto Assignee to have and to hold from and after the date hereof all of the right, title and interest of Assignor in, to and under the Contracts. Assignor agrees without additional consideration to execute and deliver to Assignee any and all additional forms of assignment and other instruments and documents that may be reasonably necessary or desirable to transfer or evidence the transfer to Assignee of any of Assignor's right, title and interest to any of the Contracts.

 

This Assignment shall be governed by the laws of the State of _____________, applicable to agreements made and to be performed entirely within said State.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

E- 1
 

 

IN WITNESS WHEREOF, Assignor has duly executed this Assignment as of the date first above written.

 

  ASSIGNOR:
   
   
  a  

 

  By:  
  Name:  
  Title:  

 

E- 2
 

  

EXHIBIT F

 

FORM OF ESTOPPEL CERTIFICATE

 

The undersigned hereby certifies to American Realty Capital VII, LLC (“ ARC VII ”), [ARHC CSCLWFL01, LLC][ARHC SAVENFL01, LLC] (“ Approved Assignee ”; ARC VII and Approved Assignee are hereinafter referred to, individually and collectively, as “ Buyer ”), [Lender] (“ Lender ”) and their respective successors and assigns as follows:

 

1.                            The undersigned is the tenant under that certain [insert title of lease document] [(the “ Original Lease ”)], dated as of _________ __, ____, by and between _________________________ (“ Landlord ”) and _________________________ (“ Tenant ”), pursuant to which Tenant leases certain premises known as [Suite ____], consisting of _______ rentable square feet, at that real property located at _________________________________________ (the “ Premises ”).

 

2.                            The Original Lease has been amended as follows:

 

a.           

 

b.           

 

c.            (the Original Lease, as amended, is hereinafter referred to as the “ Lease ”).

 

3.          Except as set forth in paragraph 2 above, the Lease has not been modified, changed, altered, supplemented or amended in any respect, nor have any provisions thereof been waived.

 

4.          The Lease is valid and in full force and effect on the date hereof. The Lease represents the entire agreement between Landlord and Tenant with respect to the Premises and the land on which the Premises are situated.

 

5.          Tenant is not entitled to, and has made no agreement with Landlord or its agents or employees concerning, free rent, partial rent, rebate of rent payments, credit or offset or reduction in rent, or any other type of rental concession including, without limitation, lease support payments, lease buy-outs, or assumption of any leasing or occupancy agreements of Tenant.

 

6.          The initial term of the Lease began on __________ __, _____ and expires on ________ __, 20__. The Rent Commencement Date was __________ __, ____. Tenant has accepted possession of the Premises and is open for business. Tenant has not sublet all or a portion of the Premises to any sublessee and has not assigned, transferred or encumbered any of its rights or interests under the Lease.

 

7.          Tenant has no outstanding options or rights to renew or extend the term of the Lease, except as follows: ________________ (if none, please state “none”). Tenant has no outstanding expansion options, other options, rights of first refusal or rights of first offer to

 

F- 1
 

  

purchase the Premises or any part thereof and/or the land on which the Premises are situated, or rights of first offer to lease with respect to all or any part of the Premises.

 

8.          The [Base Annual Rent] payable under the Lease is currently $____________ ($_________ monthly). Such [Base Annual Rent] payable under the Lease shall be adjusted during the initial term of the Lease as follows:

 

(a) ___________________________________;

 

(b) ___________________________________; and

 

(c) ___________________________________. [MODIFY AS NEEDED TO SHOW EACH SCHEDULED RENT INCREASE]

 

Such base rent and any additional rent has been paid through and including the month of ____________, 2014. No such rent (excluding security deposits) has been paid more than one (1) month in advance of its due date.

 

8.          Tenant's security deposit, if any, is $_________________ (if none, please state “none”). Tenant has paid last month’s rent in the amount of $______________________.

 

9.          No event has occurred and no condition exists that constitutes, or that with the giving of notice or the lapse of time or both, would constitute, a default by Tenant or, to the best knowledge of Tenant, Landlord under the Lease. Tenant has no existing defenses or offsets against the enforcement of the Lease by Landlord.

 

10.         (a)          All required contributions by Landlord to Tenant on account of Tenant's improvements have been received by Tenant and all of Tenant's tenant improvements have been completed in accordance with the terms of the Lease.

 

(b)          Landlord has satisfied all its obligations to Tenant arising out of or incurred in connection with the construction of the tenant improvements on the Premises and no off-set exists with respect to any rents or other sums payable or to become payable by the Tenant under the Lease.

 

11.         All licenses necessary for using and operating the Premises as a medical office are held by Tenant and are in full force and effect.

 

12.         This Certificate is delivered to induce Buyer to acquire the Premises and Lender to approve Buyer’s assumption of Landlord’s financing in connection with such acquisition, with the understanding that Buyer and Lender shall rely upon the truth of the matters set forth in this Certificate.

 

[SIGNATURE PAGE FOLLOWS]

 

F- 2
 

  

The undersigned is duly authorized to execute this Certificate on behalf of Tenant.

 

Dated: ____________, 2014

 

TENANT:

 

____________________, a ________________

 

By:______________________
Name:

Title:

 

[DELETE THE FOLLOWING SECTION IF THE LEASE IS NOT GUARANTEED]

 

[_________________________, a _________________________] (“ Guarantor ”) certifies to and for the benefit of Buyer, Lender and their respective successors and assigns as follows:

 

With respect to that certain [Guaranty], dated as of ________ __, ____, by Guarantor to and for the benefit of Landlord (the “Guaranty” ): (a) Guarantor is the guarantor of the Lease pursuant to the Guaranty; (b) the Guaranty has not been modified, changed, altered, supplemented or amended in any respect, nor have any provisions thereof been waived; (c) the Guaranty is valid and in full force and effect on the date hereof; and (d) no voluntary actions or, to Guarantor’s best knowledge, involuntary actions are pending against Guarantor under the bankruptcy laws of the United States or any state thereof. This Certificate is delivered to induce Buyer to acquire the Premises and Lender to approve Buyer’s assumption of Landlord’s financing in connection with such acquisition, with the understanding that Buyer and Lender shall rely upon the truth of the matters set forth in this Certificate. The undersigned is duly authorized to execute this Certificate.

 

Dated: ____________, 2014  
   
  [USE FOLLOWING SIGNATURE BLOCK FOR ENTITY GUARANTOR]
   
  GUARANTOR:
   
  ____________________,
  a ________________
   
  By:  
    Name:
    Title:
   
  [USE FOLLOWING SIGNATURE BLOCK FOR PERSONAL GUARANTOR]

 

F- 3
 

  

  GUARANTOR:
   
   
  Name:

 

F- 4
 

  

EXHIBIT G

 

INTENTIONALLY OMITTED

  

G- 1
 

  

EXHIBIT H

 

FORM OF NOTICE TO TENANT

 

________________ ___, 2014

 

TO: [INSERT TENANT’S NOTICE ADDRESS FROM LEASE]

 

Re: Notice of Change of Ownership of ______________________________

 

Ladies and Gentlemen:

 

YOU ARE HEREBY NOTIFIED AS FOLLOWS:

 

That as of the date hereof, the undersigned has transferred, sold, assigned, and conveyed all of its right, title and interest in and to the above-described property, (the “Property”) to [ARHC CSCLWFL01, LLC][ARHC SAVENFL01, LLC] (the “New Owner”) and assigned to New Owner, all of the undersigned’s right, title and interest under that certain Lease, dated _________, between ________as tenant and ____________as landlord (the “Lease”), together with any security deposits or letters of credit held thereunder.

 

Accordingly, New Owner is the landlord under the Lease and future notices and correspondence with respect to your leased premises at the Property should be made to the New Owner at the following address:

 

[ARHC CSCLWFL01, LLC][ARHC SAVENFL01, LLC]

c/o American Realty Capital

7621 Little Avenue, Suite 200

Charlotte, North Carolina 28226

Attention: Regional Asset Manager

 

With a copy to:

 

[ARHC CSCLWFL01, LLC][ARHC SAVENFL01, LLC]

c/o American Realty Capital

405 Park Avenue, 15 th Floor

New York, NY 10022

Attention: General Counsel

 

You will receive a separate notification from New Owner regarding the new address for the payment of rent. In addition, to the extent required by the Lease, please amend all insurance policies you are required to maintain pursuant to the Lease to name New Owner as an additional insured thereunder and promptly provide New Owner with evidence thereof.

 

[SIGNATURE PAGE FOLLOWS]

 

H- 1
 

  

  Very truly yours,
  [PRIOR LANDLORD)
   
  By:  
  Name:  
  Title:  

 

H- 2
 

  

EXHIBIT I

 

WARRANTIES

 

ST. ANDREWS

 

Vendor   Description   Start Date   Expiration   Warranty Term/Notes
Automated Business Control Systems   Building Temperature Automation System   11/1/2013   11/1/2014   1 year
                 
Sutter Roofing Company   Red Shield Roofing System Warranty   8/21/2009   8/21/2029   20 years
                 
Centimark Roof Systems   Roof Warranty   5/31/2007   5/31/2022   15 years
                 
Centimark   Assignment of Centimark Corporation Warranty   5/31/2007   5/31/2022    
                 
Craft Equipment Company   Fire Extinguishers, FE Cabinets & Toilet Accessories Workmanship Guarantee   11/1/2013   11/1/2014   1 year
                 
Dolphin Innovations   Drywall, Metal Frame, Wall Insulation   11/1/2013   11/1/2014   1 year
                 
NuSons Electric, Inc.   Electrical - 2nd Floor tenant improvements   11/1/2013   11/1/2014   1 year
                 
Tyco / Simplex Grinnell   Additions to existing fire alarm system   10/30/2013   10/29/2014   1 year
                 
Alliance Fire & Safety   Fire Sprinkler System   11/1/2013   11/1/2014   1 year
                 
Aldrich Flooring, Inc.   Flooring - 2nd floor tenant improvements   11/1/2013   11/1/2014   1 year
                 
Suncoast Commercial Door & Hardware   Frames/Doors/Hardware - 2nd TI   11/1/2013   11/1/2014    
Daybar Metal Industries   Holly Metal Frames   11/1/2013   10/31/2023   10 year warranty/lifetime against rust
Masonite   Prehung Wood Doors   11/1/2013   10/31/2014   1 year
Doormerica   Wood Doors   11/1/2013   10/31/2015   2 year / lifetime on some
National Guard Products   Lite kit   11/1/2013   10/31/2015   2 year warranty
Cal-Royal   Hinges, wall stops, floor stops   11/1/2013       Lifetime warranty
PDQ   Locksets   11/1/2013       varies per product
Harney Hardware   Closers   11/1/2013   10/31/2023   10 year warranty
Johnson Hardware   Pocket rollers and track   11/1/2013       Lifetime
Rockwood   Pocket door pull   11/1/2013   10/31/2014   1 year
Pemko   Door bottom   11/1/2013   10/31/2023   10 years
                 
LaGasse Plumbing   Plumbing workmanship and materials   11/1/2013   11/1/2014   1 year
                 
Walltech   Painting and Wallcovering   11/1/2013   11/1/2014   1 year
                 
Absolute Window   Windows   11/1/2013   11/1/2014   1 year

 

COUNTRYSIDE

 

[NONE]

 

I- 1
 

  

EXHIBIT J

 

SERVICE AGREEMENTS

 

Vendor Schedule

St. Andrews

 

        Under   Commencement    
Service Type   Vendor   Contract   Date   Expiration Date
Elevator Services   Thysenkrupp tenantive   Yes   1/1/2014   12/31/2014
Fire/Life Safety - Fire Alarm   Alliance Fire & Safety   Yes   1/1/2014   12/31/2014
Fire/Life Safety - Fire Sprinkler   Alliance Fire & Safety   Yes   1/1/2014   12/31/2014
Fire Alarm Monitoring   Alliance Fire & Safety   Yes   1/1/2014   12/31/2014
HVAC   Crowther   Yes   1/1/2014   12/31/2014
Janitorial Services   Jani King   Yes   1/1/2014   12/31/2014
Janitorial Services - Window Cleaning   N/A   No        
Landscaping   Total Landscape Care   Yes   1/1/2014   12/31/2014
Landscaping - Irrigation   Total Landscape Care   Yes   1/1/2014   12/31/2014
Pest Control   Good News Pest Control   Yes   1/1/2014   12/31/2014
Utilities - Telephone Service   Verizon   No        
Waste Services/Trash Removal   City Of Venice   No        
                 
*General Contractor   Jeff Charlotte Construction   Yes   5/1/2014   9/15/2014

* This contract is for the tenant improvement buildout for Gulf Coast Medical Suite 205. This project is currently in for permit.

 

Countryside

 

        Under   Commencement   Contract Expire
Service Type   Vendor   Contract   Date   Date
HVAC   Mecon, Inc.   Yes   4/1/2014   3/31/2015
Roof Maintenance   Crowther   Yes   8/20/2012   8/19/2015
Lake Maintenance (Retention Pond)   Florida Aquatic Management, Inc.   Yes   8/1/2013   7/31/2015

  

J- 1
 

 

EXHIBIT K

 

LOAN DOCUMENTS

 

1 Promissory Note A, dated April 18, 2012, in the principal amount of $13,200,000 executed by AW St. Andrews, LLC and AW Countryside, LLC in favor of General Electric Capital Corporation

 

2 Promissory Note B, dated April 18, 2012 in the principal amount of $500,000 executed by AW St. Andrews, LLC and AW Countryside, LLC in favor of General Electric Capital Corporation

 

3 Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by AW Countryside, LLC in favor of General Electric Capital Corporation and recorded in Official Record Book 17559, Page 838, Public Records of Pinellas County, Florida.

 

4 Assignment of Leases and Rents executed by AW Countryside, LLC in favor of General Electric Capital Corp. and recorded in Official Record Book 17559, Page 858, Public Records of Pinellas County, Florida

 

5 Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by AW St. Andrews, LLC in favor of General Electric Capital Corporation and recorded in Official Records Instrument # 2012050118, Public Records of Sarasota County, Florida.

 

6 Assignment of Leases and Rents executed by AW St. Andrews, LLC in favor of General Electric Capital Corp. and recorded in Official Record Instrument # 2012050120, Public Records of Sarasota County, Florida

 

7 Loan Agreement dated April 18, 2012 between General Electric Capital Corporation and AW St. Andrews, LLC and AW Countryside, LLC

 

[Seller to prepare Exhibit]

 

K- 1
 

   

Schedule 3(a)

 

Purchase Price Allocation

 

Property   Purchase Price  
Countryside Property   $ 9,342,388.00  
St. Andrews Property   $ 13,657,612.00  
Total   $ 23,000,000.00  

 

Schedule 3( a )
 

  

Schedule 3(b)

 

Loan Information

 

Property   Original
Principal
Balance 		    Outstanding Loan
Balance (as of
4/1/2014) 		    Interest
Rate 		    Loan
Maturity
Date
Countryside Property   $ 6,072,000.00     $ 5,984,747.98       5.99 %   5/1/2017
St. Andrews Property   $ 7,128,000.00     $ 6,950,554.31       5.99 %   5/1/2017

 

Schedule 3( b )
 

 

Schedule 11(f)(iv)

 

Tenant Improvement Allowances

 

Tenant Improvement Allowances

 

Tenant   Remaining Cost     Comments
             
St. Andrews            
Gulf Coast Medical HMA Physician Management, LLC   $ 304,235.00     Estimated project cost plus architectural fees
             
Countryside            
Diagnostic Clinic Medical Group, P.A.   $ 59,177.26     Allowance Remaining

 

Schedule 11(f)( iv )
 

   

Schedule 11(f)(vi)

 

Rent Concessions

 

[NONE]

 

Schedule 11(f)( vi )
 

   

Schedule 11(f)(vii)

 

Prepaid Rents, Security Deposits and Letters Of Credit

 

Countryside Medical Arts         Security     Last Month        
Tenant Name         Deposit     Rent     Total  
                         
Diagnostic Clinic Medical Group, PA     100       -       -       -  
                                 
      Total     $ -             $ -  

 

St. Andrews         Security     Last Month        
Tenant Name         Deposit     Rent     Total  
                         
Dimensional Imaging     101       4,326.67       -       4,326.67  
The Heart Institute     102       10,050.16       -       10,050.16  
Quest Diagnostics     103       5,544.38       -       5,544.38  
Retina Assoc     201       2,983.69       -       2,983.69  
Primary Urgent Care     202       3,750.00       -       3,750.00  
Comprehensive Medpsych     203       1,900.00       2,130.56       4,030.56  
DiMasi Digestive Health     205       4,000.00       5,435.60       9,435.60  
Joseph E. Chebli, MD, FAC     208       3,500.00       4,215.03       7,715.03  
                                 
      Total     $ 36,054.90     $ 11,781.19     $ 47,836.09  
                                 
      Grand Total     $ 36,054.90     $ 11,781.19     $ 47,836.09  

 

Notes:

DiMasi Digestive Health - Last month rent billed but not collected yet (5,435.60), as of 4/11/14.

 

Joseph E. Chebli, MD, FAC - Additional deposit & last month rent billed but not collected yet ($1,750 + $4,215.03

= $5,965.03), as of 4/11/14.

  

Schedule 11(f)( vii )

 

Exhibit 10.26

FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY
THIS FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this “ Amendment ”) is made as of May 14, 2014, by and among AW COUNTRYSIDE, LLC, a Delaware limited liability company, and AW ST. ANDREWS, LLC, a Delaware limited liability company (individually and collectively, “ Seller ”), and AMERICAN REALTY CAPITAL VII, LLC, a Delaware limited liability company (“ Buyer ”).
WHEREAS, Buyer and Seller entered into that certain Agreement for Purchase and Sale of Real Property, having an effective date of April 14, 2014 (the “ Agreement ”), with regard to the Property, as more particularly described in the Agreement. Buyer and Seller wish to amend the Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual promise contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree that the Agreement shall be amended as follows:
1.
Immediate Repairs Credit . Buyer shall receive a credit against the Purchase Price in the amount of $43,750.00 as compensation for certain immediate property repairs that Buyer will undertake post-closing (the “ Repair Credit ”). Buyer may allocate the Repair Credit between the Countryside Property and the St. Andrews Property as it determines in its sole discretion.
 
2.
Landlord’s Work . At Closing, Seller shall escrow with Escrow Agent an amount equal to one hundred twenty-five percent (125%) of the remaining cost of the “Tenant Improvements” described and defined in that certain Lease Agreement, dated as of January 21, 2014, by and between St. Andrews Seller and Gulf Coast HMA Physician Management, LLC, a Florida limited liability company (the “ Work Escrow ”). The disbursement of the Work Escrow will be governed by a post-closing escrow agreement to be entered into at Closing by and among Buyer, St. Andrews Seller and Escrow Agent (the “ Post-Closing Escrow Agreement ”). The Post-Closing Escrow Agreement shall be in form and substance mutually satisfactory to Buyer and St. Andrews Seller.

3.
Miscellaneous . Except as expressly modified hereby the terms of the Agreement shall remain in full force and effect as written. Capitalized terms used herein but not defined herein shall have the meanings given to such terms in the Agreement. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each of the parties and delivered to the other party. Signatures on this Amendment which are transmitted electronically shall be valid for all purposes, however any party shall deliver an original signature of this Amendment to the other party upon request.

[Signatures appear on following page ]


  


IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first set forth above.

BUYER:
SELLER:
 
 
AMERICAN REALTY CAPITAL VII, LLC,
a Delaware limited liability company
AW ST. ANDREWS, LLC,  
a Delaware limited liability company

By:     /s/ Edward M. Weil, Jr.       
   Name: Edward M. Weil, Jr.
   Title: President

By:     /s/ Brian Waxman          
   Name: Brian Waxman
   Title: President
 
 
   

AW COUNTRYSIDE, LLC,  
a Delaware limited liability company
   

By:     /s/ Brian Waxman          
   Name: Brian Waxman
   Title: President
 
 



 

Exhibit 10.27

 

AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY

 

LAGUNA MEDICAL OFFICE PORTFOLIO

 

UC DAVIS MEDICAL BUILDING

8110 LAGUNA BOULEVARD, ELK GROVE, CA 95758

 

AND

 

LAGUNA PROFESSIONAL CENTER

9390-9394 BIG HORN BOULEVARD, ELK GROVE, CA 95758

 

THIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this “ Agreement ”) is made and entered into as of the Effective Date by and among AR CAPITAL, LLC, a Delaware limited liability company (“ Buyer ”), as buyer, and JACKSON-LAGUNA, a California general partnership (“ UCD I Seller ”), as to an undivided 88.15% interest in the UCD Property (defined below), JACKSON II, LLC, a California limited liability company (“ UCD II Seller ”; UCD II Seller and UCD I Seller are referred to herein, individually and collectively, as “ UCD Seller ”), as to an undivided 11.85% interest in the UCD Property, and JACKSON-BIG HORN, LLC, a California limited liability company (“ Laguna Professional Seller ”; Laguna Professional Seller and UCD Seller are referred to herein, individually and collectively, as “ Seller ”), as seller.

 

BACKGROUND

 

A.          UCD I Seller, as to an undivided 88.15% interest, and UCD II Seller, as to an undivided 11.85% interest, are the fee owners of the Land (defined below) described on Exhibit A-1 attached hereto and made a part hereof (the “ UCD Land ”).

 

B.          Laguna Professional Seller is the fee owner of the Land (defined below) described on Exhibit A-2 attached hereto and made a part hereof (the “ Laguna Professional Land ”).

 

C.          Buyer desires to purchase the Property (defined below) and Seller desires to sell the Property to Buyer on the terms and conditions set forth in this Agreement.

 

In consideration of the mutual promises set forth herein and for other good and valuable consideration (including the payment of One Hundred Dollars ($100.00) by Buyer to Seller (the “ Nonrefundable Consideration ”), which is independent Nonrefundable Consideration to Seller with respect to the rights provided to Buyer under this Agreement), the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1.           Terms and Definitions . The terms listed below shall have the respective meaning given them as set forth adjacent to each term.

 

(a)           “ Broker ” shall mean Palmer Capital, LLC, acting as Seller’s agent.

 

 
 

 

(b)           “ Closing ” shall mean the date that the Purchase Price (less prorations and other adjustments pursuant to the terms of this Agreement) is released to Seller, which shall occur, subject to any applicable extension periods set forth in this Agreement, on the date that is five (5) business days following the expiration of the Due Diligence Period (as defined herein) unless the Buyer waives the full Due Diligence Period and elects to close earlier by providing written notice thereof to Seller. The date of Closing is sometimes hereinafter referred to as the “ Closing Date .” Neither party will need to be present at Closing, it being anticipated that the parties will deliver all Closing documents and deliverables in escrow to the Escrow Agent (or if both Buyer and Seller agree, to Buyer’s and/or Seller’s counsel) prior to the date of Closing.

 

(c)           “ Due Diligence Period ” shall mean the period beginning upon the Effective Date and extending until 11:59 PM EDT on the date that is the earlier to occur of (i) twenty-five (25) days thereafter, or (ii) the date on which Seller receives written notice of Buyer’s waiver of the Due Diligence Period. Seller shall deliver to Buyer all of the Due Diligence Materials within five (5) business days after the Effective Date.

 

(d)           “ Earnest Money ” shall mean One Million Two Hundred Fifty Thousand and No/100 Dollars ($1,250,000.00). The Earnest Money shall be delivered to Escrow Agent within three (3) business days after the Effective Date. The Earnest Money shall be deposited by Buyer in escrow with Escrow Agent, to be applied as part payment of the Purchase Price at the time of Closing, or disbursed as agreed upon in accordance with the terms of this Agreement. Seller and Buyer each shall pay one-half of all reasonable escrow fees charged by Escrow Agent.

 

(e)           “ Effective Date ” The date that is one (1) business day after the date of execution and delivery of this Agreement by both Seller and Buyer shall be the “Effective Date” of this Agreement.

 

(f)           “ Escrow Agent ” shall mean Stewart Title Guaranty Company, whose address is One Washington Mall - Suite 1400, Boston, MA 02108, Attention: Annette Comer, Telephone: 617-933-2441, Telecopy: 617-727-8372; E-Mail: acomer@stewart.com. The parties agree that the Escrow Agent and Buyer’s title agent, if any, shall be responsible for (x) organizing the issuance of the Title Commitment (hereinafter defined) and Title Policy (hereinafter defined), (y) preparation of the closing statement, and (z) collections and disbursement of the funds.

 

(g)           “ Guarantor ” shall mean each guarantor of the Leases.

 

(h)           “ Guaranty ” shall mean each guaranty executed by a Guarantor.

 

(i)           “ Laguna Professional Property ” shall mean the Laguna Professional Land and all matters described in (ii)-(vii) of the definition of “Property” in connection with the Laguna Professional Land.

 

(j)            “ Leases ” shall mean those certain Leases described on Exhibit A-3 attached hereto and made a part hereof and referred to in Section 6(b)(i) of this Agreement between Seller, as landlord, and the tenants described on Exhibit A-3 attached hereto, as tenant (each tenant, individually, a “ Tenant ”, and collectively, the “ Tenants ”), as amended. Each of the Leases may be referred to herein individually as a “ Lease ” or the “ Lease ”).

 

2
 

 

(k)          “ Property ” shall collectively mean (i) those certain parcels of real property which are listed on Exhibits A-1and A-2 attached hereto, together with all right, title and interest, if any, of Seller in and to the land lying in the bed of any street or highway in front of or adjoining such real property, and all appurtenances and all the estate and rights, if any, of Seller in and appurtenant to such parcels of real property, including, without limitation, all appurtenant easements and rights-of-way, and Buildings (as hereinafter defined) and all other improvements thereon, and all air and subsurface rights appurtenant to such parcels of real property, as the case may be (such parcels of real property, together with all such rights and appurtenances, being collectively referred to herein as the “ Land ”); (ii) all of the buildings (each individually called a “ Building ” and collectively called the “ Buildings ”), facilities and other improvements situated on the Land or required to be constructed under the respective Leases (collectively, the “ Improvements ”); (iii) all right, title and interest, if any, of Seller in and to the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems used in connection with the Land and the Buildings, and all carpeting, draperies, appliances and other fixtures and equipment permanently attached or appurtenant to the Land together with all tangible personal property (other than furniture, equipment not necessary to operate the Buildings or building systems and not permanently affixed to the Buildings or Land, trade fixtures and inventory) owned by Seller and located on the Land or on and/or in the Buildings and used exclusively in connection with the Buildings and Land (collectively, the “ Personal Property ”); (iv) all right, title and interest, if any, of Seller in and to all plans and specifications, architectural drawings, building permits and other permits issued in connection with the construction, operation, use or occupancy of the Improvements, and all warranties and guaranties respecting the Buildings and Personal Property; (v) to the extent not otherwise described in subsection (i), all right, title and interest of Seller in and to all leases respecting the Buildings and Personal Property, including, without limitation, all prepaid rent or security or other deposits thereunder and all right, title and interest of the Affiliates under the Guaranties; (vi) all right, title and interest, if any, of Seller in and to all licenses, permits, authorizations and approvals issued by any governmental agency or authority which pertain solely to the Land and the Buildings, to the extent they exist and are transferable and assignable; and (vii) to the extent the same are assignable, Seller’s interest, if any, in all site plans, surveys, and plans which relate to the Land. Any references to “Property” in the singular, such as references to “a Property” or “each Property”, refer to an individual parcel of Land and all matters described in (ii)-(vii) in connection with such Land.

 

(l)          “ Purchase Price ” shall mean Twenty Seven Million Five Hundred Thousand and No/100 Dollars ($27,500,000.00).

 

(m)        “ Real Estate Taxes ” shall mean all real estate taxes, personal property taxes, water and sewer use charges, or payments in lieu of taxes, and any other charges and assessments constituting a lien on the Property.

 

(n)          Seller and Buyer’s Notice address

 

(i)           “ Seller’s Notice Address ” shall be as follows, except as same may be changed pursuant to the Notice section herein:

 

c/o Jackson Properties, Inc.

 

3
 

 

5665 Power Inn Road, Suite 140

Sacramento, CA 95824

Attn: John Jackson, Jr.

Tel. No.: (916) 381-8113

Fax No: (916) 381-3153

Email: jjackson@jacksonprop.com

 

And to:

 

c/o Jackson Properties, Inc.

5665 Power Inn Road, Suite 140

Sacramento, CA 95824

Attn: Gregg Mason

Tel. No.: (916) 381-8113

Fax No: (916) 381-3153

Email: gmason@jacksonprop.com

 

And to:

 

Stewart Ward & Josephson LLP

1601 Response Rd., Suite 390

Sacramento, CA 95815

Attn: Thomas F. Stewart, Esq.

Tel. No.: (916) 569-8121

Email: tstewart@swjllp.com

 

(ii)          “ Buyer’s Notice Address ” shall be as follows, except as same may be changed pursuant to the Notice section herein:

 

Michael Weil

c/o AR Capital, LLC

405 Park Avenue, 15th Floor

New York, NY 10022

Tel. No.: (212) 415-6505

Fax No.: (857) 207-3397

Email: mweil@arlcap.com

 

And to:

 

Jesse Galloway, Esq.

c/o AR Capital, LLC

405 Park Avenue, 15th Floor

New York, NY 10022

Tel. No.: (212) 415-6516

Fax No.: (646) 861-7751

Email: jgalloway@arlcap.com

 

4
 

 

And Due Diligence Materials (if provided by email) to:

 

duediligence@arlcap.com

 

With hard copies and/or cds to:

 

James A. (Jim) Mezzanotte

c/o AR Capital, LLC

7621 Little Avenue, Suite 200

Charlotte, North Carolina 28226

Tel. No.: (704) 626-4410

Fax No.: (212) 415.6507

Email: jmezzanotte@arlcap.com

 

(o)          “ UCD Property ” shall mean the UCD Land and all matters described in (ii)-(vii) of the definition of “Property” in connection with the UCD Land.

 

2.            Purchase and Sale of the Property. Subject to the terms of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Property for the Purchase Price.

 

3.            Payment of Purchase Price.

 

(a)          The Purchase Price to be paid by Buyer to Seller shall be paid by wire transfer of immediately available funds in the amount of the Purchase Price plus or minus prorations, credits and adjustments as provided in Section 4 and elsewhere in this Agreement to Escrow Agent, at the time of Closing, or as otherwise agreed to between Buyer and Seller. The allocation of the Purchase Price and Earnest Money among the Properties is set forth on Schedule 3(a) attached hereto.

 

(b)          The parties agree that the value of the Personal Property is de minimis, and no part of the Purchase Price is allocated to it.

 

4.            Proration of Expenses and Payment of Costs and Recording Fees .

 

(a)           Prorations . The following items will be prorated as of 12:01 A.M. on the Closing Date, with all items of income and expense for the Property being borne by Buyer from and after (and including) the Closing Date: Tenant Receivables (hereinafter defined) and other income and rents that have been collected by Seller as of Closing; fees and assessments; prepaid expenses and obligations under service contracts which are assigned, if any; accrued operating expenses; Real Estate Taxes; and any assessments by private covenant for the then-current calendar year of Closing.

 

(b)           Taxes

 

5
 

 

(i)          All non-delinquent Real Estate Taxes shall be prorated as of the Closing based on the actual current tax bill. All delinquent Real Estate Taxes, if any, shall be paid at the Closing from funds accruing to Seller. All supplemental taxes pursuant to this transaction that are billed or assessed after the Closing and which are attributable to the period of time after the Closing shall be the responsibility of Buyer.

 

(ii)         If Seller has engaged or will engage prior to the expiration of the Due Diligence Period, consultants for the purpose of protesting the amount of taxes or the assessed valuation for certain tax periods for the Property (“ Protest Proceedings ”), any cash refunds or proceeds actually distributed (collectively, “ Cash Refunds ”) will be apportioned as described below. Any Cash Refunds (including interest thereon) on account of a favorable determination, after deduction of costs and expenses incurred for such Protest Proceedings, shall be: (A) the property of Seller to the extent such Cash Refunds were for Real Estate Taxes paid by Seller applicable to a period prior to the Closing Date; (B) prorated between Buyer and Seller for taxes paid for a period during which the Closing Date occurred; and (C) the property of Buyer for Real Estate Taxes for a period after the Closing Date. Seller and Buyer agree to notify the other in writing of any receipt of a Cash Refund within fifteen (15) business days of receipt of such Cash Refund. To the extent either party obtains a Cash Refund, a portion of which is owed to the other party, the receiving party shall deliver the Cash Refund to the other party within fifteen (15) Business Days of its receipt. Buyer agrees and acknowledges that Seller has the right to initiate proceedings to protest the valuation of any of the Property prior to the expiration of the Due Diligence Period. Seller agrees to give Buyer notice of Seller’s intent to initiate such proceedings prior to initiation of such proceedings and at any time subsequent to the end of the Due Diligence Period shall obtain Buyer’s consent to initiation of such proceedings, which consent may be unreasonably withheld.         

 

(c)           Utilities . Buyer will take all steps necessary to effectuate the transfer of all utilities to its name as of the Closing Date, and where necessary, post deposits with the utility companies. The Seller will ensure that all utility meters are read as of the Closing Date. Seller will be entitled to recover any and all deposits held by any utility company as of the Closing Date.

 

(d)           Tenant Receivables . Rents due from Tenants under Leases (including operating expense and real estate tax contributions or reimbursements and similar charges (collectively, “ Pass-Through Expenses ”)), set-offs due or required to be paid under or by reason of the Leases (collectively called “ Tenant Receivables ”) shall be adjusted by appropriate credit to the Seller or Buyer (as the case may be) on the Closing Date. If, at the Closing Date, any Tenant is in arrears in the payment of rents (“ Uncollected Delinquent Tenant Receivables ”), Seller will disclose the same to Buyer in writing or on the rent roll to be delivered to Buyer pursuant to Section 10 hereof and such amounts shall not be adjusted on the Closing Date. Prior to the Closing Date, Seller shall use Seller’s current business practices to collect Uncollected Delinquent Tenant Receivables, but shall not be obligated to pursue an eviction proceeding. If Buyer shall collect Uncollected Delinquent Tenant Receivables within ninety (90) days after the Closing Date, then Buyer shall turn over to Seller the arrearages so collected, less the reasonable cost of collection thereof, if any; provided, however, Seller may continue to seek to collect the Uncollected Delinquent Tenant Receivables by legal action following the Closing Date. All rents collected by Buyer after the Closing Date (except for amounts specifically billed and paid

 

6
 

 

as end of year reconciliation payments for Pass-Through Expenses, which shall be separately accounted for and allocated, pro rata, between Seller and Buyer as their interest may appear) shall be first applied to rents due and payable after the Closing Date and only the excess thereof shall be paid over to Seller on account of the Uncollected Delinquent Tenant Receivables. Seller shall prepare the reconciliation for Pass-Through Expenses for the Property and provide such reconciliation to Buyer and Buyer’s property manager. Buyer agrees to cause its property manager to cooperate with Seller in preparing such reconciliation. To the extent that items to be apportioned hereunder may be required to be paid directly by a Tenant under its Lease, the same shall not be apportioned, provided, however, that such items shall have been paid by such Tenant currently through the month including the Closing Date. The provisions of this subparagraph 4(d) shall survive Closing and the delivery of the Deed (hereinafter defined). Seller expressly agrees that if Seller receives any amounts after the Closing Date which are attributable, in whole or in part, to any period after the Closing Date, Seller will notify Buyer of such fact and will remit to Buyer that portion of the monies so received by Seller to which Buyer is entitled within ten (10) business days after receipt thereof. With respect to unbilled Tenant Receivables, Buyer covenants and agrees to cause its property manager to (A) bill the same in the ordinary course of its business and (B) cooperate with Seller to determine the correct amount of operating expenses and/or taxes due.

 

A reconciliation or determination of Pass-Through Expenses, Uncollected Delinquent Tenant Receivables and unbilled Tenant Receivables due under the Leases shall be made at Closing to the extent possible. To the extent such information is not available at Closing, the foregoing shall be subject to adjustment following the Closing in accordance with the terms of Section 4(e), below. The provisions of this Section 4(d) will survive the Closing.

 

(e)          If final bills are not available or cannot be issued prior to Closing for any item being prorated under Section 4(a) through (d), then, for each separate item for which an adjustment is to be made, the following will apply: (i) initially the matter subject to allocation at Closing (including without limitation the Pass-Through Expenses) shall be re-prorated within sixty (60) days following the Closing; and (ii) a final adjustment of prorated items shall occur one hundred twenty (120) days following the close of the calendar year in which the Closing occurs. All such rights and obligations under this Section 4(e) will survive the Closing.

 

(f)          All security deposits under the Leases collected and not properly applied by Seller as of the Closing (and interest thereon if required by law or contract) must be transferred or credited to Buyer at Closing. As of the Closing, Buyer will assume each Seller’s obligations related to the security deposits, but only to the extent they are credited or transferred to Buyer.

 

(g)          Seller shall pay or be charged with the following costs and expenses in connection with this transaction:

 

(i)          Up to $15,000 of the premium for the Title Policy attributable to standard CLTA coverage, including search costs, but excluding any other endorsements issued in connection with such policies, other than endorsements that Seller elects to purchase to cover title issues, if any;

 

7
 

 

(ii)         Transfer taxes and conveyance fees on the sale and transfer of the Property;

 

(iii)        Broker’s commission payments in accordance with Section 24 of this Agreement;

 

(iv)        All fees relating to the granting, executing and recording of the Deed for the Property; and

 

(v)         Any leasing commissions, tenant improvement allowances or rent abatements related to the Leases, including the Khattab Amendment (defined below).

 

(h)          Buyer shall pay or be charged with the following costs and expenses in connection with this transaction:

 

(i)          Title Policy premiums (A) in excess of Seller’s maximum obligation set forth in Section 4(g)(i) above and (B) for any endorsements issued in connection therewith, other than endorsements that Seller elects to purchase to cover title issues, if any;

 

(ii)         All costs and expenses in connection with Buyer’s financing, including appraisal, points, commitment fees and the like and costs for the filing of all documents necessary to complete such financing and related documentary stamp tax and intangibles tax; and

 

(iii)        Buyer shall pay for the cost of its own survey, Phase I environmental study and due diligence investigations.

 

(i)          Each party shall pay its own legal fees incidental to the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

(j)          Seller and Buyer each shall pay one-half of all reasonable escrow fees charged by Escrow Agent.

 

5.            Title . At Closing, Seller agrees to convey to Buyer fee simple title to the Land and Improvements by the Deed (as defined below), subject to the Permitted Exceptions (as hereinafter defined).

 

6.            Examination of Property . Seller and Buyer hereby agree as follows:

 

(a)          Buyer shall order a title commitment (the “ Title Commitment ” ) from Escrow Agent, a survey and a zoning report for each Property promptly after the date hereof. All matters shown in the Title Commitment, survey or zoning report ( “ Title Matters ”) with respect to which Buyer fails to object prior to the expiration of the Due Diligence Period shall be deemed “ Permitted Exceptions ”. The Permitted Exceptions shall in all events include (i) a lien for Real Property Taxes not then delinquent; (ii) matters affecting the condition of title to the Property created by or with the written consent of Buyer; (iii) zoning or permit conditions; and (iv) the Leases. However, Permitted Exceptions shall not include, and Seller shall be obligated to remove of record (or cause the Title Company to insure against by payment, bond deposit or

 

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indemnity acceptable to Escrow Agent) prior to or at Closing, any mechanic’s lien or any monetary lien, fine or penalty, or any deeds of trust, mortgage, or other loan documents secured by the Property, or any judgments and federal and state tax liens (collectively, “ Liens ”). Seller shall be required to cure or remove all Liens (by payment, bond deposit or indemnity acceptable to Escrow Agent). Seller shall have no obligation to cure any Title Matter objected to, except the Liens as aforesaid, and those Title Matters, if any, that Seller notifies Buyer as to which Seller elects to remove or cure within five (5) business days following receipt of Buyer’s objections; Seller’s failure to deliver such written notice shall be deemed Seller’s election not to cure or remove such Title Matter. The parties agree that (i) except as expressly provided in this Agreement, Seller makes no express or implied warranties regarding the condition of title to the Property, (ii) Buyer shall rely on the Title Policy for protection against any title defects, and (iii) except as expressly provided in this Section 6(a), Seller shall have no obligation to cure any Title Matters. In the event that Seller refuses to remove or cure any objections, Buyer shall have the right to terminate this Agreement upon written notice to Seller given within five (5) business days after receipt of Seller’s notice, upon which termination the Earnest Money, and all interest earned thereon, shall be returned to Buyer and neither party shall have any further obligation hereunder, except as otherwise expressly set forth herein. If any matter not revealed in the Title Commitment is discovered by Buyer or by the Escrow Agent and is added to the Title Commitment by the Escrow Agent at or prior to Closing (each, a “ New Exception ”), Buyer shall have until the earlier of (i) five (5) business days after the Buyer’s receipt of the updated, revised Title Commitment showing the New Exception, together with a legible copy of any such new matter, or (ii) the Closing Date, to provide Seller with written notice of its objection to any such New Exception (an “ Objection ”). If Seller does not remove or cure such Objection prior to the Closing Date, Buyer may, as its sole remedy, terminate this Agreement, in which case the Earnest Money, together with all interest earned thereon, shall be returned to Buyer, and neither party shall have any further obligation hereunder, except as otherwise expressly set forth herein; in addition, Seller shall reimburse Buyer up to $75,000.00 for all out of pocket costs and expenses incurred hereunder, but only if Seller caused such New Exception from and after the effective date of the Title Commitment and such New Exception has a material and adverse affect on the value of the Property.

 

(b)          Within five (5) business days following the Effective Date, Seller shall provide to Buyer copies of the following documents and materials pertaining to each Property to the extent within Seller’s possession: (i) a complete copy of all leases and lease guaranties affecting the Property and all amendments thereto and of all material correspondence relating thereto; (ii) a copy of all surveys and site plans of the Property, including without limitation any as-built survey obtained or delivered to tenants of the Property in connection with its construction; (iii) a copy of all architectural plans and specifications and construction drawings and contracts for improvements located on the Property; (iv) a copy of Seller’s title insurance commitments and policies relating to the Property; (v) a copy of the certificate of occupancy (or local equivalent) and zoning reports for the Property; and of all governmental permits/approvals; (vi) a copy of all environmental, engineering and physical condition reports for the Property; (vii) copies of the Property’s real estate tax bills for the current and prior two (2) tax years or, if the Property has been owned by Seller for less than two (2) tax years, for the period of ownership; (viii) the operating budget and any common area maintenance (CAM) reconciliations of the Property for the current year and following year, if available; (ix) the operating statements and delinquency reports of the Property for the twenty four (24) calendar months immediately

 

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preceding the Effective Date or if a Tenant has been operating for less than twenty-four (24) months, for the period of operation; (x) all service contracts and insurance policies which affect the Property, if any; (xi) a copy of all warranties relating to the improvements constructed on the Property, including without limitation any structural slab or roof warranties; (xii) a written inventory of all items of personal property to be conveyed to Buyer, if any; (xiii) Tenant financials for each Tenant, to the extent reasonably available to Seller and consistent with each such Tenant’s reporting requirements; (xiv) a complete copy of any feasibility study completed by the developer of the Property (Seller hereby advises Buyer that there are none); (xv) a copy of all primary and secondary state licenses or regulatory permits for the Property; and (xvi) a copy of any documents relating to a waiver of life safety code or physical plant requirements (collectively, the “ Due Diligence Materials ”). Seller shall use good faith efforts to deliver any other documents relating to the Property reasonably requested by Buyer, to the extent in Seller’s possession, within three (3) business days following such request, provided that such documents are not privileged, confidential or proprietary, including, but not limited to: internal memoranda, analyses and business plans; financial information; and correspondence and other materials to or from Seller’s attorneys and potential third-party buyers. Additionally, during the term of this Agreement, Buyer, its agents and designees, shall have the right to enter the Property for the purposes of inspecting the Property, conducting soil tests, and making surveys, mechanical and structural engineering studies, inspecting construction, and conducting any other non-invasive investigations and inspections as Buyer may reasonably require to assess the condition and suitability of the Property; provided, however, that such activities by or on behalf of Buyer on the Property shall not damage the Property nor materially interfere with construction on the Property or the conduct of business by Tenants under the Leases; and provided further, however, that Buyer shall indemnify and hold Seller harmless from and against any and all claims or damages to the extent resulting from the activities of Buyer on the Property, and Buyer shall repair any and all damage caused, in whole or in part, by Buyer and return the Property to substantially its condition prior to such damage, which obligation shall survive Closing or any termination of this Agreement. Seller shall reasonably cooperate with the efforts of Buyer and the Buyer’s representatives to inspect the Property. After the Effective Date, Buyer shall be permitted to speak and meet with the Tenants in connection with Buyer’s due diligence, and Seller may, at its election, require that a Seller representative be present during such meetings. Upon signing this Agreement, Seller shall provide Buyer with the name of a contact person(s) for the purpose of arranging site visits. Buyer shall give Seller reasonable written notice (which in any event shall not be less than two (2) business days) before entering the Property, and Seller may have a representative present during any and all examinations, inspections and/or studies on the Property. Buyer shall have the unconditional right, for any reason or no reason, to terminate this Agreement by giving written notice thereof to Seller and the Escrow Agent prior to the expiration of the Due Diligence Period, in which event this Agreement shall become null and void, Buyer shall receive a refund of the Earnest Money, and all rights, liabilities and obligations of the parties under this Agreement shall expire, except as otherwise expressly set forth herein. Buyer agrees that, in making its physical and environmental inspections of the Property, including any due diligence activities at or about the Property, Buyer shall maintain (i) commercial general liability insurance on an occurrence basis, including contractual liability coverage (designating the indemnity provisions of this section above) and broad form property damage endorsement coverage, providing that Buyer is the named insured and that Seller and Seller’s property manager are additional insureds, and providing liability limits of not less than

 

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$1,000,000 combined single limit per occurrence with respect to bodily and personal injury, death and property damage and $2,000,000 in the aggregate, (ii) workmen’s compensation insurance at statutory limits, including employer’s liability insurance in an amount not less than $1,000,000 as required by law, and (iii) for any of Buyer’s consultants who conduct environmental inspections of the Property, professional liability insurance of not less than $1,000,000. Buyer shall provide Seller with Certificates of Insurance in form reasonably satisfactory to Seller which evidences such insurance prior to obtaining access to the Property. Such insurance shall contain a waiver of subrogation provision with respect to Seller.

 

(c)          Within five (5) business days following the Effective Date, Seller shall deliver to Buyer completed drafts of each Tenant Estoppel Certificate (defined below) and Guarantor Estoppel Certificate (defined below) required to be requested by Seller hereunder, and request a waiver of each Tenant’s right of first refusal, right of first offer or other purchase option, if any, to purchase the Property (and simultaneously provide Buyer with a copy of such request). It shall be a condition of Closing that Seller shall have obtained an estoppel certificate in the form attached hereto as Exhibit F or such other form as may be required by the Lease in question (the “ Tenant Estoppel Certificate ”) from each Tenant and an estoppel certificate in the form attached hereto as Exhibit G (the “ Guarantor Estoppel Certificate ”) from each Guarantor, and Seller shall use good faith efforts to obtain the same. Seller shall promptly deliver to Buyer photocopies or pdf files of each executed Tenant Estoppel Certificate and Guarantor Estoppel Certificate when Seller receives the same. Buyer’s failure to notify Seller of any objections to any executed estoppel certificate within four (4) business days of Buyer’s receipt of the same shall constitute Buyer’s acknowledgement that such estoppel certificate satisfies the requirements of this Section.

 

(d)          Intentionally Omitted.

 

(e)           Seller shall use good faith efforts to obtain estoppel certificates with respect to reciprocal easement agreements (each, an “ REA ”) as may be reasonably requested by Buyer in writing, provided that such request (i) is accompanied by a commercially reasonable form of estoppel that is consistent with the terms of the REA in question, and (ii) is made prior to the expiration of the Due Diligence Period.

 

(f)           Seller represents that Seller and Mahmoud Khattab, an individual, have entered into that certain Lease Amendment No. Three, dated May 1, 2014, for the 1,352 square foot space at the Laguna Professional Property known as Suite 145 (the “ Khattab Amendment ”). A copy of the Khattab Amendment shall be included in the Due Diligence Materials to be provided to Buyer. At Closing, Seller shall escrow with Escrow Agent an amount equal to one hundred twenty-five percent (125%) of the remaining cost of the Tenant Improvements described in Section 6 of the Khattab Amendment (the “ Work Escrow ”). The disbursement of the Work Escrow will be governed by a post-closing escrow agreement to be entered into at Closing by and among Buyer, Laguna Professional Seller and Escrow Agent (the “ Post-Closing Escrow Agreement ”). The Post-Closing Escrow Agreement shall be in form and substance mutually satisfactory to Buyer and Seller.

 

7.            Risk of Loss/Condemnation . Upon an occurrence of a casualty, condemnation or taking with respect to any Property, Seller shall notify Buyer in writing of same. Until

 

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Closing, the risk of loss or damage to the Property, except as otherwise expressly provided herein, shall be borne by Seller. In the event all or any portion of any Property is damaged in any casualty or condemned or taken (or notice of any condemnation or taking is issued) so that: (a) any Tenant has a right of termination or abatement of rent under its Lease, or (b) with respect to any casualty, if the cost to repair such casualty would exceed $50,000, or (c) with respect to any condemnation, any Improvements or access to the Property or more than five percent (5%) of the Property is (or will be) condemned or taken, then, Buyer may elect to terminate this Agreement by providing written notice of such termination to Seller within ten (10) business days after Buyer’s receipt of written notice of such condemnation, taking or damage, upon which termination the Earnest Money shall be returned to Buyer, and neither party hereto shall have any further rights, obligations or liabilities under this Agreement with respect to such Property, except as otherwise expressly set forth herein. With respect to any condemnation or taking (of any notice thereof), if Buyer does not elect to cancel this Agreement as aforesaid, there shall be no abatement of the Purchase Price and Seller shall assign to Buyer at the Closing the rights of Seller to the awards, if any, for the condemnation or taking, and Buyer shall be entitled to receive and keep all such awards. With respect to a casualty, if Buyer does not elect to terminate this Agreement with respect to any such Property or does not have the right to terminate this Agreement as aforesaid, there shall be no abatement of the Purchase Price and Seller shall assign to Buyer at the Closing the rights of Seller to the proceeds under Seller’s insurance policies covering such Property with respect to such damage or destruction (or pay to Buyer any such proceeds received prior to Closing) and pay to Buyer the amount of any deductible with respect thereto, and Buyer shall be entitled to receive and keep any monies received from such insurance policies.

 

8.            Earnest Money Disbursement . The Earnest Money shall be held by Escrow Agent, in trust, and disposed of only in accordance with the following provisions:

 

(a)          If the Closing occurs, Escrow Agent shall deliver the Earnest Money to, or upon the instructions of, Seller and Buyer on the Closing Date to be applied as part payment of the Purchase Price. If for any reason the Closing does not occur, Escrow Agent shall deliver the Earnest Money to Seller or Buyer only upon receipt of a written demand therefor from such party, subject to the following provisions of this clause (a). Subject to the last sentence of this clause (a), if for any reason the Closing does not occur and either party makes a written demand (the “ Demand ”) upon Escrow Agent for payment of the Earnest Money, Escrow Agent shall give written notice to the other party of the Demand within one (1) business day after receipt of the Demand. If Escrow Agent does not receive a written objection from the other party to the proposed payment within five (5) business days after the giving of such notice by Escrow Agent, Escrow Agent is hereby authorized to make the payment set forth in the Demand. If Escrow Agent does receive such written objection within such period, Escrow Agent shall continue to hold such amount until otherwise directed by written instructions signed by Seller and Buyer or a final judgment of a court. Notwithstanding the foregoing provisions of this clause (a), if Buyer delivers a notice to Escrow Agent stating that Buyer has terminated this Agreement on or prior to the expiration of the Due Diligence Period, then Escrow Agent shall immediately return the Earnest Money to Buyer without the necessity of delivering any notice to, or receiving any notice from Seller.

 

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(b)          The parties acknowledge that Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that Escrow Agent shall not be deemed to be the agent of either of the parties, and that Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any liabilities (including reasonable attorneys’ fees, expenses and disbursements) incurred by Seller or Buyer resulting from Escrow Agent’s mistake of law respecting the scope or nature of Escrow Agent’s duties. Seller and Buyer shall jointly and severally indemnify and hold Escrow Agent harmless from and against all liabilities (including reasonable attorneys’ fees, expenses and disbursements) incurred in connection with the performance of Escrow Agent’s duties hereunder, except with respect to actions or omissions taken or made by Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of Escrow Agent. Escrow Agent has executed this Agreement in the place indicated on the signature page hereof in order to confirm that Escrow Agent shall hold the Earnest Money in escrow, and shall disburse the Earnest Money pursuant to the provisions of this Section 8.

 

9.            Default

 

(a)          In the event that Seller is ready, willing and able to close in accordance with the terms and provisions hereof, and Buyer defaults in any of its obligations undertaken in this Agreement, Seller shall be entitled, as its sole and exclusive remedy to either: (i) if Buyer is willing to proceed to Closing, waive such default and proceed to Closing in accordance with the terms and provisions hereof; or (ii) declare this Agreement to be terminated, and Seller shall be entitled to immediately receive all of the Earnest Money as liquidated damages as and for Seller’s sole remedy. Upon such termination, neither Buyer nor Seller shall have any further rights, obligations or liabilities hereunder, except as otherwise expressly provided herein. Seller hereby waives any right to recover the balance of the Purchase Price, or any part thereof, and the right to pursue any other remedy permitted at law or in equity against Buyer. In no event under this Section or otherwise shall Buyer be liable to Seller for any punitive, speculative or consequential damages. BUYER AND SELLER AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE THE DAMAGES SUFFERED BY SELLER AS A RESULT OF BUYER’S DEFAULT OR FAILURE TO COMPLETE THE PURCHASE OF THE PROPERTY PURSUANT TO THIS AGREEMENT, AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION REPRESENT A REASONABLE ESTIMATE OF THE DAMAGES WHICH SELLER SHALL INCUR AS A RESULT OF SUCH FAILURE; PROVIDED, HOWEVER THAT THIS PROVISION SHALL NOT LIMIT SELLER’S RIGHT TO RECEIVE REIMBURSEMENT FOR ATTORNEYS’ FEES AS AUTHORIZED BY SECTION 26, NOR WAIVE OR AFFECT BUYER’S INDEMNITY OBLIGATIONS AND SELLER’S RIGHTS TO THOSE INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT, NOR WAIVE OR AFFECT BUYER’S OBLIGATIONS TO RETURN THE DUE DILIGENCE MATERIALS TO SELLER PURSUANT TO APPLICABLE PROVISIONS OF THIS AGREEMENT. THE PAYMENT OF THE EARNEST MONEY AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671,

 

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1676 AND 1677. UPON DEFAULT BY BUYER, AND SELLER’S TERMINATION OF THIS AGREEMENT, EXCEPT FOR THE SURVIVING OBLIGATIONS, WHICH MAY BE ENFORCED BY SELLER (IN ADDITION TO COLLECTION AND RETENTION BY SELLER OF BUYER’S DEPOSIT AS PROVIDED HEREUNDER), NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS HEREUNDER, EACH TO THE OTHER EXCEPT FOR THE RIGHT OF SELLER TO COLLECT SUCH LIQUIDATED DAMAGES FROM BUYER AND ESCROW HOLDER.

 

Buyer’s Initials: /s/ NSS     Seller’s Initials: /s/ JMJ

 

(b)          In the event that Buyer is ready, willing and able to close in accordance with the terms and provisions hereof, and Seller defaults in the obligations herein taken by Seller, with respect to any or all of the Properties, and Seller fails to cure such default within five (5) business days following written notice from Buyer, Buyer may, as its sole and exclusive remedy, either: (i) waive any unsatisfied conditions and proceed to Closing in accordance with the terms and provisions hereof; or (ii) terminate this Agreement by delivering written notice thereof to Seller no later than Closing, upon which termination the Earnest Money shall be refunded to Buyer, Seller shall pay to Buyer all of the out-of-pocket costs and expenses incurred by Buyer as to such Property or Properties in connection with this Agreement (in an amount not to exceed $75,000), which return and payment shall operate as liquidated damages and to terminate this Agreement and release Seller and Buyer from any and all rights, obligations and liability hereunder, except those which are specifically stated herein to survive any termination hereof; or (iii) enforce specific performance of Seller’s obligations hereunder; or (iv) by notice to Seller given on or before the Closing Date, extend the Closing Date for a period of up to thirty (30) days (the “ Closing Extension Period ” ), and the “Closing Date” shall be moved to the last day of the Closing Extension Period. If Buyer so extends the Closing Date, then Seller may, but shall not be obligated to, cause said conditions to be satisfied during the Closing Extension Period. If Seller does not cause said conditions to be satisfied during the Closing Extension Period, then Buyer shall have the remedies set forth in Section 9(b) (i) through (iii) above except that the term “Closing” shall read “Extended Closing”. Notwithstanding the foregoing, in no event shall Seller be liable to Buyer for monetary damages, including, without limitation, general, punitive, speculative or indirect consequential damages (with exception of the sums, if any, to be paid pursuant to clause (ii) above or the final paragraph of Section 11 below).

 

10.         Closing . The Closing shall consist of the execution and delivery of documents by Seller and Buyer, with respect to each Property as set forth below, and delivery by Buyer to Seller of the Purchase Price in accordance with the terms of this Agreement. Seller shall deliver to Escrow Agent for the benefit of Buyer at Closing the following executed documents for the Property:

 

(a)          A grant deed in the form attached hereto as Exhibit B (the “ Deed ”);

 

(b)          An Assignment and Assumption of Leases, Guaranties and Security Deposits, in the form attached hereto as Exhibit C;

 

(c)          A Bill of Sale for the Personal Property, if any, in the form attached hereto as Exhibit D;

 

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(d)          An Assignment of Contracts, Permits, Licenses and Warranties in the form of Exhibit E;

 

(e)          An original Tenant Estoppel Certificate from each Tenant dated no earlier than thirty (30) days prior to the original date of Closing stated in Section 1(b) above. In addition, the business terms of each Tenant Estoppel Certificate must be in accordance with and not materially contradict the corresponding Lease. If any Lease and any amendments, bearing the original signatures of the landlord and tenant thereunder have not been delivered to Buyer previously, a copy thereof confirming that the copy is true, correct and complete shall be attached to the corresponding Tenant Estoppel Certificate. Buyer acknowledges that the satisfaction of the requirements of this Section 10(e) constitute a condition to close for Buyer’s benefit, but so long as Seller exercises a good faith effort to satisfy such condition in compliance with the terms of Section 6(c) above, the failure of Seller to deliver the Tenant Estoppel Certificates shall not be a default or breach by Seller;

 

(f)          An original Guarantor Estoppel Certificate from each Guarantor dated no earlier than thirty (30) days prior to the date of Closing. Buyer acknowledges that the satisfaction of the requirements of this Section 10(f) constitute a condition to close for Buyer’s benefit, but so long as Seller exercises a good faith effort to satisfy such condition in compliance with the terms of Section 6(c) above, the failure of Seller to deliver the Guarantor Estoppel Certificates shall not be a default or breach by Seller;

 

(g)          A settlement statement setting forth the Purchase Price, all prorations and other adjustments to be made pursuant to the terms hereof, and the funds required for Closing as contemplated hereunder;

 

(h)          All transfer tax statements, declarations and filings as may be necessary or appropriate for purposes of recordation of the Deed;

 

(i)           Good standing certificates and corporate resolutions or member or partner consents, as applicable, and such other documents, all to the extent, if any, reasonably requested by Escrow Agent;

 

(j)           Copies of the Warranties (as hereinafter defined);

 

(k)          A certificate pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended, or the regulations issued pursuant thereto, certifying the non-foreign status of Seller;

 

(l)           To the extent required by Escrow Agent, an owner’s title affidavit as to mechanics’ liens and possession and other matters in customary form reasonably acceptable to Escrow Agent;

 

(m)         With respect to each Tenant, a Letter to Tenant in form of Exhibit H attached hereto;

 

(n)          An updated Rent Roll (defined below), arrears report and schedule of security deposits and letters of credit, certified by Seller to be true and correct;

 

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(o)         To the extent in Seller’s possession or control, certificates of insurance or other evidence of insurance memorializing and confirming that the Tenants are then maintaining policies of insurance of the types and amounts required by the Leases;

 

(p)         A bring-down certificate with respect to Seller’s representations and warranties provided herein in a form reasonably satisfactory to Seller and Buyer; such certificate shall be limited to confirming the continued accuracy of Seller’s representations and warranties set forth herein, or specifying the factors rendering or likely to render such representations and warranties inaccurate, and shall in no manner expand the scope of those representations and warranties or otherwise modify the terms of this Agreement; and

 

(q)          Such other instruments as are reasonably required by Escrow Agent to close the escrow and consummate the purchase of the Property in accordance with the terms hereof.

 

At Closing, Buyer shall instruct Escrow Agent to deliver the Earnest Money to Seller which shall be applied to the Purchase Price, shall deliver the balance of the Purchase Price to Seller and shall execute and deliver execution counterparts of the closing documents referenced in clauses (b), (g) and (h) above. Buyer shall have the right to advance the Closing upon five (5) days’ prior written notice to Seller; provided that all conditions precedent to both Buyer’s and Seller’s respective obligations to proceed with Closing under this Agreement have been satisfied (or, if there are conditions to a party’s obligation to proceed with Closing that remain unsatisfied, such conditions have been waived by such party). Buyer shall have a one-time right to extend the Closing for up to fifteen (15) business days upon written notice to Seller to be received by Seller on or prior to the date that is five (5) business days prior to the scheduled Closing Date. If Buyer timely exercises this right to extend, any document that Seller is obligated to provide that is “time sensitive” does not need to be provided again by Seller. The Closing shall be held through the mail by delivery of the closing documents to the Escrow Agent on or prior to the Closing or such other place or manner as the parties hereto may mutually agree.

 

11.         Representations by Seller . For the purpose of inducing Buyer to enter into this Agreement and to consummate the sale and purchase of the Property in accordance herewith, Seller makes the following representations and warranties to Buyer as of the date hereof:

 

(a)          Seller is duly formed, validly existing and in good standing under the laws of its state of organization, and to the extent required by law, the State in which the Property is located. Seller has the power and authority to execute and deliver this Agreement and all closing documents to be executed by Seller, and to perform all of Seller’s obligations hereunder and thereunder. Neither the execution and delivery of this Agreement and all closing documents to be executed by Seller, nor the performance of the obligations of Seller hereunder or thereunder will result in the violation of any law or any provision of the organizational documents of Seller or will conflict with any order or decree of any court or governmental instrumentality of any nature by which Seller is bound. The execution, delivery and performance of this Agreement does not require the consent or approval of any court, administrative or governmental authority and does not result in the creation or imposition of any lien or equity of any kind whatsoever upon, or give to any other person any interest or right (including any right of termination or

 

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cancellation) in or with respect to, any material agreement to which Seller is a party or the business or operations of Seller or any of its properties or assets;

 

(b)          Except for any tax appeals and/or contests initiated by Seller and/or Tenants, if any, Seller has not received any written notice of any current or pending litigation, condemnation proceeding or tax appeals affecting Seller or the Property and Seller does not have any actual knowledge of any pending litigation, condemnation proceeding or tax appeals against Seller or the Property; Seller has not initiated, nor is Seller participating in, any action for a change or modification in the current subdivision, site plan, zoning or other land use permits for the Property and Seller has no actual knowledge that the Property may be rezoned;

 

(c)          Seller has not entered into any leases, subleases, contracts, licenses or other agreements affecting the Property which will be binding upon Buyer after the Closing other than the Leases and the agreements referenced on Exhibit J annexed hereto;

 

(d)          Except for violations which have been cured or remedied on or before the date hereof, Seller has not received any written notice from (or delivered any notice to) (i) any governmental authority regarding any outstanding violation of any law applicable to the Property and Seller does not have actual knowledge of any such violations and (ii) any third party that the Property or the current use thereof violates any private covenant, restriction, easement or encumbrance and Seller does not have any actual knowledge of any such violation;

 

(e)           Seller has fee simple title to the Property (and to Seller’s actual knowledge, such title is free and clear of all liens and encumbrances except for Permitted Exceptions), and Seller is the sole owner of the entire lessor’s interest in each Lease. The Property constitutes one or more separate tax parcels for purposes of ad valorem taxation;

 

(f)           With respect to each Lease: (i) the Lease forwarded to Buyer under Section 6(b) is a true, correct and complete copy of the Lease; (ii) the Lease is in full force and effect, and to Seller’s actual knowledge there is no default thereunder; (iii) no brokerage or leasing commissions or other compensation is or will be due or payable to any person, firm, corporation or other entity with respect to or on account of the current term of the Lease or any extension or renewal thereof; (iv) Seller has no outstanding obligation to provide Tenant with an allowance to construct, or to construct at its own expense, any tenant improvements, except as set forth in Schedule 11(f)(iv) attached hereto or as set forth in the Khattab Amendment; (v) intentionally deleted; (vi) Tenant is not entitled to rental concessions or abatements for any period subsequent to the scheduled date of Closing, except as set forth in Schedule 11(f)(vi) attached hereto; (vii) Tenant has not prepaid any rents as of the date hereof nor has Tenant delivered a security deposit, letter of credit or other security in connection with the Lease, except as set forth on Schedule 11(f)(vii) attached hereto; (viii) Tenant has not made any request for any assignment, transfer, or subletting in connection with all or a portion of the premises demised to Tenant which is presently pending or under consideration by Seller; (ix) all specified work required to be performed by the landlord under the Lease up to the date of Closing has been completed or will be completed, at Seller’s expense, prior to the Closing; (x) Seller has not received and has no actual knowledge of any pending notices from Tenant electing to vacate the premises leased to Tenant or exercising any right of Tenant to terminate the Lease; and (xi)

 

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Seller has heretofore billed Tenant for all fixed rent and additional rent due under the Lease as of the date hereof;

 

(g)          Attached hereto as Exhibit A-4 and made a part hereof is a true, correct and complete copy of the rent roll for the Property (the “ Rent Roll ”);

 

(h)          There are no occupancy rights, leases or tenancies affecting the Property other than the Leases, and to Seller’s actual knowledge there are no existing subleases, with the exception of the sublease whereby Dignity Health subleased a portion of its premises to Quest Diagnostics (the “ Quest Sublease ”). Neither this Agreement nor the consummation of the transactions contemplated hereby is subject to any first right of refusal or other purchase right in favor of any other person or entity; and apart from this Agreement, Seller has not entered into any written agreements for the purchase or sale of the Property, or any interest therein which has not been terminated;

 

(i)           The transactions contemplated hereby either (i) will not constitute a sale of all or substantially all the assets of Seller, or (ii) if such transaction does constitute a sale of all or substantially all the assets of any Seller, Seller shall take all steps, if any, necessary to comply with laws to the extent required by the law of the relevant state;

 

(j)           To Seller’s actual knowledge, except as set forth in the environmental reports previously delivered by Seller to Buyer or as disclosed in the Due Diligence Materials, no hazardous substances have been generated, stored, released, or disposed of on or about the Property in violation of any law, rule or regulation applicable to the Property which regulates or controls matters relating to the environment or public health or safety (collectively, “ Environmental Laws ”). Seller has not received any written notice from (nor delivered any notice to) any federal, state, county, municipal or other governmental department, agency or authority (1) concerning any petroleum product or other hazardous substance discharge or seepage at, on, around or under the Property, or migrating from the Property, in violation of any Environmental Laws or; (2) of any pending actions, suits, claims and/or proceedings claiming that Seller, any Tenant or the Property is in violation of any Environmental Laws. For purposes of this Subsection, “hazardous substances” shall mean any substance or material which is defined or deemed to be hazardous or toxic pursuant to any Environmental Laws. To Seller’s actual knowledge, there are no underground storage tanks located on the Property;

 

(k)          Exhibit I attached hereto is a true, correct and complete listing of all warranties currently in effect for the Property (the “ Warranties ” );

 

(l)           Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code;

 

(m)         There presently exists no unrestored casualty or condemnation affecting the Property; and

 

(n)          With respect to each Guaranty: (a) the Guaranty forwarded to Buyer under Section 6(b) is a true, correct and complete copy of the Guaranty; and (b) the Guaranty is in full force and effect and there is no default thereunder.

 

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As used herein “to the best of Seller’s knowledge,” “Seller’s actual knowledge” or “Seller has not received written notice” shall mean the actual knowledge of or receipt of written notice by Gregg Mason and/or Eric Edelmayer. Seller represents and warrants to Buyer that (i) Gregg Mason (title: Vice President) has a day-to-day working knowledge of the Laguna Professional Property and the subject matter of the representations and warranties of Seller set forth herein with respect to the Laguna Professional Property, and (ii) Eric Edelmayer (title: Vice President) has a day-to-day working knowledge of the UCD Property and the subject matter of the representations and warranties of Seller set forth herein with respect to the UCD Property. There shall be no duty imposed or implied to investigate, inspect or audit any such matters, and there shall be no personal liability on the part of such persons.

 

The representations and warranties of Seller shall survive Closing for a period of one (1) year (the “ Survival Period ”). No claim for a breach of any representation or warranty in this Section 11 shall be actionable or payable (i) unless and until the valid claims for all such breaches collectively aggregate more than Twenty-Five Thousand and no/100 Dollars ($25,000.00), and (ii) unless written notice containing a description of the specific nature of such breach shall have been given to Seller prior to the expiration of the Survival Period, and an action shall have been commenced in a court having jurisdiction within sixty (60) days after the expiration of the Survival Period. In no event shall the total liability of Seller to Buyer for all breaches of all representations and warranties of Seller in this Agreement exceed the amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000). Notwithstanding anything in this Agreement to the contrary, if (a) on the Effective Date Buyer has actual knowledge that any of Seller’s representations or warranties set forth in Section 11 are untrue in any respect, then the breach by Seller of the representations or warranties as to which Buyer has such knowledge shall be deemed waived by Buyer, and Seller shall not be in default hereunder and shall have no liability to Buyer or its successors or assigns in respect thereof, and (b) after the Effective Date and prior to Closing, Buyer obtains actual knowledge that any of Seller’s representations or warranties set forth in this Agreement, or any of Seller’s representations or warranties made in any documents delivered by Seller in connection with the Closing, are untrue in any respect, then Seller shall have no liability to Buyer or its successors or assigns in respect thereof following the Closing for the breach of such representations or warranties. For purposes of this Section 11, Buyer shall be deemed to have or to have obtained knowledge of any such matter or thing only if such matter or thing (i) is set forth in any Lease, the Due Diligence Materials, or any other document delivered to Buyer, or (ii) is made available for review by Buyer to the extent Seller actually notified Buyer in writing that such matter or thing were available for Buyer’s review, or (iii) was set forth in any written studies or reports furnished to Buyer including, without limitation, any environmental reports, or (iv) was set forth in any letter, memorandum, or other written communication provided to or otherwise made available for inspection by Buyer or Buyer’s attorneys to the extent Seller actually notified Buyer in writing that such letter, memorandum, or other written communication were available for Buyer’s review, or (v) was otherwise within the actual knowledge of Buyer.

 

12.          Representations by Buyer . Buyer represents and warrants to, and covenants with, Seller as follows:

 

(a)          Buyer is a limited liability company duly formed, validly existing and in good standing under the laws of Delaware, is authorized to consummate the transaction set forth

 

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herein and fulfill all of its obligations hereunder and under all closing documents to be executed by Buyer, and has all necessary power to execute and deliver this Agreement and all closing documents to be executed by Buyer, and to perform all of Buyer’s obligations hereunder and thereunder. This Agreement and all closing documents to be executed by Buyer have been duly authorized by all requisite corporate or other required action on the part of Buyer and are the valid and legally binding obligation of Buyer, enforceable in accordance with their respective terms. Neither the execution and delivery of this Agreement and all closing documents to be executed by Buyer, nor the performance of the obligations of Buyer hereunder or thereunder will result in the violation of any law or any provision of the organizational documents of Buyer or will conflict with any order or decree of any court or governmental instrumentality of any nature by which Buyer is bound.

 

The representations and warranties of Buyer shall survive Closing for a period of one (1) year.

 

13.          Conditions Precedent to Buyer’s Obligations. Buyer’s obligation to pay the Purchase Price, and to accept title to the Property, shall be subject to compliance by Seller with the following conditions precedent with respect to each Property on and as of the date of Closing:

 

(a)          Seller shall deliver to Buyer on or before the Closing the items set forth in Section 10 above;

 

(b)          Buyer shall receive from Escrow Agent or any other title insurer approved by Buyer in its judgment and discretion, a current ALTA owner’s form of title insurance policy, or irrevocable and unconditional binder to issue the same, with extended coverage for the Real Property in the amount of the Purchase Price, dated, or updated to, the date of the Closing, insuring, or committing to insure, at its ordinary premium rates Buyer’s good and marketable title in fee simple to the Real Property and otherwise in such form and with such endorsements as provided in the title commitment approved by Buyer pursuant to Section 6 hereof and subject only to the Permitted Exceptions (the “ Title Policy ”);

 

(c)          Buyer shall have received any certificates of occupancy (or the equivalent thereof) for the Property, to the extent in Seller’s possession;

 

(d)          No Tenant shall be in material default under its Lease (following the giving of notice and the passage of any applicable cure or grace periods under such Lease) and no Tenant shall have assigned its Lease or sublet the Property (other than the Quest Sublease), except to the extent permitted without Seller’s consent under the Leases (or to the extent permitted with Seller’s consent, as permitted in writing by Buyer under Section 16 hereof);

 

(e)          The representations and warranties of Seller contained in this Agreement shall have been true when made and shall be true in all material respects at and as of the date of Closing as if such representations and warranties were made at and as of the Closing, and Seller shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing;

 

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(f)          Seller shall have delivered to Buyer a written waiver by each applicable party of any right of first refusal, right of first offer or other purchase option that such party has to purchase the Property, or any part thereof, from Seller; and

 

(g)         The Khattab Amendment shall be fully executed and effective.

 

In the event that any of the foregoing conditions precedent have not been satisfied as of the Closing Date, Buyer shall have the right terminate this Agreement by delivering written notice thereof to Seller no later than the earlier to occur of (i) the date which is fifteen (15) days after the Closing Date, or (ii) the day prior to the date that such previously unsatisfied condition precedent is actually satisfied, upon which termination the Earnest Money shall be refunded to Buyer, and with respect to a failure under Sections (a), (e), (f) or (g) above, Seller shall pay to Buyer upon receipt of reasonable documentary evidence of all of the out-of-pocket costs and expenses actually incurred by Buyer in connection with this Agreement but in no event to exceed $75,000.00 (the “ Expense Reimbursement ”), which refund and payment shall operate to terminate this Agreement and release Seller and Buyer from any and all liability hereunder, except those which are specifically stated herein to survive any termination hereof (provided, however, that with respect to a failure under Section (e) above, the Seller’s obligation to pay Buyer the Expense Reimbursement shall only apply in the circumstance in which Seller’s representation or warranty was actually known by Seller to be untruthful when made, or subsequently become untruthful due to a breach or default by Seller under this Agreement or another wrongful and intentional act of Seller.

 

14.          Conditions Precedent to Seller’s Obligations. Seller’s obligation to deliver title to the Property shall be subject to compliance by Buyer with the following conditions precedent with respect to each Property on and as of the date of Closing:

 

(a)          Buyer shall deliver to Escrow Agent on the Closing Date the remainder of the Purchase Price, subject to adjustment of such amount pursuant to Section 4 hereof; and

 

(b)          The representations and warranties of Buyer contained in this Agreement shall have been true when made and shall be true in all material respects at and as of the date of Closing as if such representations and warranties were made at and as of the Closing, and Buyer shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing.

 

15.          Notices. Unless otherwise provided herein, all notices and other communications which may be or are required to be given or made by any party to the other in connection herewith shall be in writing and shall be deemed to have been properly given and received on the date: (i) delivered by facsimile transmission or by electronic mail (e.g. email), (ii) delivered in person, (iii) deposited in the United States mail, registered or certified, return receipt requested, or (iv) deposited with a nationally recognized overnight courier, to the addresses set out in Section 1, or at such other addresses as specified by written notice delivered in accordance herewith. Notwithstanding the foregoing, Seller and Buyer agree that notice may be given on behalf of each party by the counsel for each party and notice by such counsel in accordance with this Section 15 shall constitute notice under this Agreement.

 

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16.          Seller Covenants. Seller agrees that as long as this Agreement remains in full force and effect, and provided Buyer is not in default under this Agreement, Seller: (a) shall continue to operate and manage each Property in the same manner in which Seller has previously operated and managed such Property; (b) shall, subject to Section 7 hereof and subject to reasonable wear and tear, maintain each Property in the same condition as exists on the date hereof; and (c) shall not, without Buyer’s prior written consent, which, after the expiration of the Due Diligence Period may be withheld in Buyer’s sole discretion (and prior thereto shall not be unreasonably withheld, delayed, or conditioned): (i) amend the Leases or Guaranties in any manner, or enter into any new lease, license agreement or other occupancy agreement with respect to any Property; (ii) consent to an assignment of any Lease or a sublease of the premises demised thereunder or a termination or surrender thereof; (iii) terminate any Lease nor release any guarantor of or security for any Lease unless required by the express terms of such Lease; and/or (iv) cause, permit or consent to an alteration of the premises demised under the Leases (unless such consent is non-discretionary). If Buyer fails to respond within five (5) business days after receipt of a written request from Seller for Buyer’s consent to any of the foregoing (which request shall be accompanied by a copy of the proposed lease, lease modification or other agreement), Buyer shall be deemed to have consented to the same. To the extent required by California law, Seller shall promptly notify Buyer in writing of any Material Events. “ Material Events ” shall be limited to physical changes to the Property occurring after the Effective Date that (i) materially and adversely affect the value of the Property, and (ii) are actually known to Seller, and (iii) to Seller’s knowledge have not been independently discovered by Buyer.

 

17.          Intentionally Omitted.

 

18.          Performance on Business Days. A "business day" is a day which is not a Saturday, Sunday or legal holiday recognized by the Federal Government. Furthermore, if any date upon which or by which action is required under this Agreement is not a business day, then the date for such action shall be extended to the first day that is after such date and is a business day. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-business day, the period in question shall end on the next succeeding business day.

 

19.          Entire Agreement. This Agreement constitutes the sole and entire agreement among the parties hereto and no modification of this Agreement shall be binding unless in writing and signed by all parties hereto. No prior agreement or understanding pertaining to the subject matter hereof (including, without limitation, any letter of intent executed prior to this Agreement) shall be valid or of any force or effect from and after the date hereof.

 

20.          Severability. If any provision of this Agreement, or the application thereof to any person or circumstance, shall be invalid or unenforceable, at any time or to any extent, then the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. Each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.

 

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21.          No Representations or Warranties. Buyer hereby acknowledges, understands and agrees that it has an opportunity to inspect the Property as set forth in Section 6 herein, and except as expressly set forth in this Agreement, the Property shall be conveyed at Closing to Buyer in “as-is” condition with no representation or warranties whatsoever.

 

22.          Applicable Law. This Agreement shall be construed under the laws of the State or Commonwealth in which the Property is located, without giving effect to any state's conflict of laws principles.

 

23.          Tax-Deferred Exchange. Buyer and Seller respectively acknowledge that the purchase and sale of the Property contemplated hereby may be part of a separate exchange (an “ Exchange ”) being made by each party pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated with respect thereto. In the event that either party (the “ Exchanging Party ”) desires to effectuate such an exchange, then the other party (the “ Non-Exchanging Party ”) agrees to cooperate fully with the Exchanging Party in order that the Exchanging Party may effectuate such an exchange; provided, however, that with respect to such Exchange (a) all additional costs, fees and expenses related thereto shall be the sole responsibility of, and borne by, the Exchanging Party; (b) the Non-Exchanging Party shall incur no additional liability as a result of such exchange; (c) the contemplated exchange shall not delay any of the time periods or other obligations of the Exchanging Party hereby, and without limiting the foregoing, the scheduled date for Closing shall not be delayed or adversely affected by reason of the Exchange; (d) the accomplishment of the Exchange shall not be a condition precedent or condition subsequent to the Exchanging Party's obligations under the Agreement; and (e) the Non-Exchanging Party shall not be required to hold title to any land other than the Property for purposes of the Exchange. The Exchanging Party agrees to defend, indemnify and hold the Non-Exchanging Party harmless from any and all liability, damage or cost, including, without limitation, reasonable attorney's fees that may result from Non-Exchanging Party's cooperation with the Exchange. The Non-Exchanging Party shall not, by reason of the Exchange, (i) have its rights under this Agreement, including, without limitation, any representations, warranties and covenants made by the Exchanging Party in this Agreement (including but not limited to any warranties of title, which, if Seller is the Exchanging Party, shall remain warranties of Seller), or in any of the closing documents (including but not limited to any warranties of title, which, if Seller is the Exchanging Party, shall remain warranties of Seller) contemplated hereby, adversely affected or diminished in any manner, or (ii) be responsible for compliance with or deemed to have warranted to the Exchanging Party that the Exchange complies with Section 1031 of the Code.

 

24.          Broker’s Commissions. Buyer and Seller each hereby represent that, except for the Broker listed herein, there are no other brokers involved or that have a right to proceeds in this transaction. Seller shall be responsible for payment of commissions to the Broker pursuant to a separate written agreement executed by Seller. Seller and Buyer each hereby agree to indemnify and hold the other harmless from all loss, cost, damage or expense (including reasonable attorneys' fees at both trial and appellate levels) incurred by the other as a result of any claim arising out of the acts of the indemnifying party (or others on its behalf) for a commission, finder's fee or similar compensation made by any broker, finder or any party who claims to have dealt with such party (except that Buyer shall have no obligations hereunder with

 

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respect to any claim by Broker). The representations, warranties and indemnity obligations contained in this section shall survive the Closing or the earlier termination of this Agreement.

 

25.          Assignment. This Agreement may not be assigned by Buyer without the prior written consent of Seller, which consent may be withheld in Seller’s sole and absolute discretion; provided, however, that Buyer may assign this Agreement without Seller’s consent to an Approved Assignee (as defined below), provided, however, that (i) no such assignment shall relieve Buyer of any of its obligations hereunder until Closing is complete (and such release shall only be effective to the extent that all of Buyer’s obligations, both pre-Closing and post-Closing, have been expressly assumed by the assignee), and (ii) such assignee shall assume all obligations of Buyer hereunder in a written agreement reasonably acceptable to Seller, including, specifically, reaffirmation of the release set forth in Section 33 below. Buyer is entering into this Agreement for and on behalf of two related special purpose entities titled ARHC LPELKCA01, LLC, with respect to the Laguna Professional Property, and ARHC UCELKCA01, LLC, with respect to the UC Davis Property (individually and collectively, “ Approved Assignee ”) and intends to assign each respective Approved Assignee its rights hereunder prior to Closing, subject to the terms of this Section 25.

 

26.          Attorneys’ Fees. In any action between Buyer and Seller as a result of failure to perform or a default under this Agreement, the prevailing party shall be entitled to recover from the other party, and the other party shall pay to the prevailing party, the prevailing party’s reasonable attorneys’ fees and disbursements and court costs incurred in such action.

 

27.          Time of the Essence . Time is of the essence with respect to each of Buyer’s and Seller’s obligations hereunder.

 

28.          Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each of the parties and delivered to the other party. Signatures on this Agreement which are transmitted electronically shall be valid for all purposes, however any party shall deliver an original signature on this Agreement to the other party upon request.

 

29.          Anti-Terrorism. Neither Buyer or Seller, nor any of their affiliates, are in violation of any Anti-Terrorism Law (as hereinafter defined) or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law. “Anti-Terrorism Laws” shall mean any laws relating to terrorism or money laundering, including: Executive Order No. 13224; the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or may hereafter be, renewed, extended, amended or replaced; the applicable laws comprising or implementing the Bank Secrecy Act; and the applicable laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing may from time to time be amended, renewed, extended, or replaced).

 

30.          Confidentiality . Unless otherwise agreed to in writing by Seller, Buyer shall keep confidential all documents, financial statements, reports or other information provided to,

 

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or generated by Buyer relating to the Property, including the and the negotiation and execution of this Agreement or financing of the purchase of the Property (collectively, “ Confidential Information” ); provided, however, that Buyer may disclose such Confidential Information to Buyer’s directors, officers, advisors, employees, attorneys, accountants, financing sources, consultants and other agents. Confidential Information shall not include any information that: (i) at the time of disclosure is generally available to the public or, after disclosure, becomes generally available to the public other than by a breach of this Agreement or by any breach of confidentiality by a third party; or (ii) is already in Buyer’s possession at the time of disclosure by Seller and was not acquired directly or indirectly from Seller; (iii) is later received by Buyer on a non-confidential basis from a third party having the right to impart that information; or (iv) Buyer can prove was developed independently by Buyer without use of the Confidential Information. Upon any termination of this Agreement for any reason, Buyer shall promptly return to Seller copies of all documents or other information pertaining to the Property provided to Buyer by Seller, including, without limitation, the Due Diligence Materials. The provisions of this Section shall survive the termination of this Agreement and shall survive the Closing.

 

31.          Limitation of Liability . The obligations of Seller hereunder are binding only on Seller and Seller’s assets and shall not be personally binding upon, nor shall resort be had to, the private properties of any of the partners, officers, directors, members or shareholders of Seller, or any employees or agents of Seller.

 

32           No Oral Agreements or Representations; As-Is Purchase . BUYER ACKNOWLEDGES THAT, DURING THE DUE DILIGENCE PERIOD, BUYER WILL HAVE THE OPPORTUNITY TO INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS. BUYER AGREES THAT BUYER SHALL ACCEPT THE PROPERTY, IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS. NO PERSON ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT OR IN THE CLOSING DOCUMENTS REQUIRED TO BE DELIVERED BY SELLER HEREUNDER, IF AT ALL, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:

 

(I) THE VALUE OF THE PROPERTY;

 

(II) THE VALUE OF THE LEASES;

 

(III) THE INCOME TO BE DERIVED FROM THE PROPERTY;

 

(IV) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY LEASING OR DEVELOPMENT OF THE PROPERTY;

 

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(V) THE HABITABILITY, MERCHANTABILITY, MARKET-ABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;

 

(VI) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY;

 

(VII) THE FINANCIAL CAPABILITY OF THE TENANTS UNDER THE LEASES;

 

(VIII) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;

 

(IX) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY;

 

(X) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;

 

(XI) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING BUT NOT LIMITED TO, THE AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR REGULATION GOVERNING ACCESS BY DISABLED PERSONS, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;

 

(XII) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR ADJACENT TO THE PROPERTY;

 

(XIII) THE CONTENT, COMPLETENESS OR ACCURACY OF THE SELLER’S DELIVERIES, INCLUDING ANY INFORMATIONAL PACKAGE, OR OTHER MATERIALS PREPARED BY SELLER;

 

(XIV) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;

 

(XV) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS, AND ANY VIOLATIONS OF SUCH REQUIREMENTS;

 

(XVI) SUFFICIENCY OF ANY UNDERSHORING;

 

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(XVII) SUFFICIENCY OF ANY DRAINAGE;

 

(XVIII) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN ALQUIST PRIOLO SPECIAL STUDY ZONE;

 

(XIX) THE EXISTENCE OR LACK OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY, OR

 

(XX) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN OR IN THE CLOSING DOCUMENTS REQUIRED TO BE DELIVERED BY SELLER HEREUNDER, INCLUDING ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY DOCUMENTS DELIVERED BY SELLER TO BUYER (OTHER THAN THE REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN THIS AGREEMENT THE CLOSING DOCUMENTS REQUIRED TO BE DELIVERED BY SELLER HEREUNDER), IN ANY PUBLIC RECORDS OF ANY GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER DOCUMENTS AVAILABLE TO BUYER.

 

BUYER FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY AND REVIEW INFORMATION AND DOCUMENTATION AFFECTING THE PROPERTY, BUYER IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND REVIEW OF SUCH INFORMATION AND DOCUMENTATION, AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS OF INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR PREPARERS ARE SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS, PARTNERS, REPRESENTATIVES, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES, SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS THAT THEY MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST SUCH SOURCES AND PREPARERS OF INFORMATION FOR ANY COSTS, LOSS, LIABILITY, DAMAGE, EXPENSE, DEMAND, ACTION OR CAUSE OF ACTION ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT TO THE EXTENT PROVIDED IN SECTION 11 OF THIS AGREEMENT. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF, FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY OTHER INDIVIDUAL OR ENTITY. BUYER FURTHER ACKNOWLEDGES AND

 

27
 

 

AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN “AS-IS” CONDITION AND BASIS WITH ALL FAULTS, AND THAT SELLER HAS NO OBLIGATIONS TO MAKE REPAIRS, REPLACEMENTS OR IMPROVEMENTS EXCEPT AS MAY OTHERWISE BE EXPRESSLY STATED IN THIS AGREEMENT.

 

33.          Release of Seller .

 

(a)          Except as expressly provided in this Agreement or in the closing documents required to be delivered by Seller hereunder, Buyer and anyone claiming by, through or under Buyer hereby fully and irrevocably releases Seller, and its members, managers, partners affiliates, parent companies and subsidiaries, and each of their respective employees, officers, directors, partners, shareholders, representatives, agents, servants, attorneys, successors and assigns, and all persons, firms, corporations and organizations acting on the behalf of each of the foregoing, (each a “Seller Party”, and collectively, the “Seller Parties”) from any and all claims that it may now have or hereafter acquire against any Seller Party for any costs, loss, liability, damage, expenses, demand, action or cause of action arising from or related to the condition of the Property, including, without limitation, (i) environmental matters, (ii) matters described or referred to in the environmental reports obtained by Buyer; (iii) matters reasonably discoverable by prudent investigation during the Due Diligence Period; (iv) matters that are of public record; (v) matters otherwise disclosed by Seller to Buyer or discovered by Buyer at any time prior to the Closing; (vi) the presence of hazardous substances in, on, about or under the Property or which have migrated from adjacent lands to the Property or from the Property to adjacent lands, and (vii) the matters described in Section 32 above. This release includes any claims made by third parties.

 

(b)          THE ABOVE RELEASE INCLUDES CLAIMS OF WHICH BUYER IS PRESENTLY UNAWARE OR WHICH BUYER DOES NOT PRESENTLY SUSPECT TO EXIST WHICH, IF KNOWN BY BUYER, WOULD MATERIALLY AFFECT BUYER’S RELEASE TO SELLER. BUYER SPECIFICALLY WAIVES THE PROVISION OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR EXPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

(c)          IT IS UNDERSTOOD AND AGREED THAT THE PURCHASE PRICE HAS BEEN ADJUSTED BY PRIOR NEGOTIATIONS TO REFLECT THAT ALL OF THE PROPERTY IS SOLD BY SELLER AND PURCHASED BY BUYER SUBJECT TO THE FOREGOING.

 

  /s/ JMJ   /s/ NSS  
         
  Seller’s Initials   Buyer’s Initials  

 

28
 

 

34.  Survival . Sections 32 and 33 above shall survive the Closing and shall not merge with the Deed.

 

35. Energy Performance Disclosure Information . Section 25402.10 of the California Public Resources Code requires certain building owners to disclose the energy performance of certain non-residential buildings to a prospective buyer. Seller agrees disclose to Buyer, to the extent in Seller’s possession, the Disclosure Summary Sheet, the Statement of Energy Performance, the Data Checklist and the Facility Summary (as such terms are defined in Section 1681 of Title 20, Division 2, Chapter 4, Article 9 of the California Code of Regulations) for the Improvements (collectively, the “ Energy Performance Disclosure Information ”). Buyer agrees that Seller shall have no liability to Buyer for any errors or omissions in the Energy Performance Disclosure Information. If and to the extent not prohibited by applicable law, Buyer hereby waives any right it may have to receive the Energy Performance Disclosure Information, including any right Buyer may have to terminate this Agreement as a result of any such failure. Further, Buyer hereby releases Seller from any liability Seller may have to Buyer as a result of Seller's failure to deliver the Energy Performance Disclosure Information to Buyer prior to the execution of this Agreement. The terms of this Section 35 shall survive the Closing and any earlier termination of this Agreement.

 

[SIGNATURES APPEAR ON THE FOLLOWING PAGES]

 

29
 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

BUYER: SELLER:
   

AR CAPITAL, LLC,

a Delaware limited liability company

JACKSON-LAGUNA, a California general

partnership

 

By: /s/ Nicholas Schorsch   By: /s/ John M. Jackson, Jr.
  Name: Nicholas Schorsch     Name: John M. Jackson, Jr.
  Title:   Manager       Title: Managing Partner

 

Date: June 4, 2014   Date: June 4, 2014  

 

 

JACKSON II, LLC,  a California limited 

liability company

     
  By: /s/ John M. Jackson, Jr.
    Name: John M. Jackson, Jr.
    Title:  Managing Member

 

  Date: June 4, 2014  

 

 

JACKSON-BIG HORN, LLC, a California 

limited liability company

     
  By: /s/ John M. Jackson, Jr.
    Name: John M. Jackson, Jr.
    Title:   Managing Member

 

  Date: June 4, 2014  

 

[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]

 

 
 

 

THE UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES TO BE BOUND BY THE TERMS OF THIS AGREEMENT RELATING TO ESCROW AGENT AND THE EARNEST MONEY.

 

ESCROW AGENT:

 

STEWART TITLE GUARANTY COMPANY

 

By: /s/ Annette M. Comer  
     
Name: Annette M. Comer  
     
Title: Vice President  
     
Date:   June 5, 2014  

 

 
 

 

EXHIBITS AND SCHEDULES

 

Exhibits      
       
Exhibit A-1   - Real Property – UCD Land
       
Exhibit A-2   - Real Property – Laguna Professional Land
       
Exhibit A-3   - List of Leases
       
Exhibit A-4   - Rent Roll
       
Exhibit B   - Form of Grant Deed
       
Exhibit C   - Form of Assignment and Assumption of Leases, Guaranties and Security Deposits
       
Exhibit D   - Form of Bill of Sale
       
Exhibit E   - Form of Assignment of Contracts, Permits, Licenses and Warranties
       
Exhibit F   - Form of Tenant Estoppel Certificate
       
Exhibit G   - Form of Guarantor Estoppel Certificate
       
Exhibit H   - Form of Tenant Notice Letter
       
Exhibit I   - Warranties
       
Exhibit J   - Service Contracts

 

Schedules      
       
Schedule 3(a)   - Purchase Price Allocation
       
Schedule 11(f)(iv)   - Tenant Improvement Allowances
       
Schedule 11(f)(vi)   - Rent Concessions
       
Schedule 11(f)(vii)   - Prepaid Rents, Security Deposits and Letters of Credit

 

 
 

 

EXHIBIT A-1

 

LEGAL DESCRIPTION OF PROPERTY

 

UCD Land

 

Page 1 of 2

 

 

A- 1
 

 

EXHIBIT A-1

 

LEGAL DESCRIPTION OF PROPERTY

 

UCD Land

 

Page 2 of 2

 

 

 
 

 

EXHIBIT A-2

 

LEGAL DESCRIPTION OF PROPERTY

 

Laguna Professional Land

 

 

A- 2
 

 

EXHIBIT A-3

 

LIST OF LEASES

 

· Brian B. Fong, DMD, M.D., an individual , 9390 Big Horn Boulevard, Suite 100: Lease document dated May 10, 2006, and Lease Amendment No. One dated February 2, 2007

 

· Hao Hoang and Truc Huynh, as individuals , 9390 Big Horn Boulevard, Suite 110: Lease document dated June 25, 2008, lease Amendment No. One dated August 27, 2008, Lease Amendment No, Two dated November 12, 2008 and Lease Amendment No. Three dated November 5, 2013.

 

· The Regents of the University of California , 9390 Big Horn Boulevard, Suite 120; Lease dated June 1, 2012, Lease Amendment No. 1 dated November 1, 2012 and Lease Amendment No. 2 dated June 1, 2013.

 

· Jorge Rico, DDS, an individual , 9390 Big Horn Boulevard, Suite 130: Lease document dated December 28, 2005 and Lease Amendment No. One dated December 11, 2006.

 

· Mahmoud Khattab, M.D . , an individual, 9390 Big Horn Boulevard, Suite 145: Lease document dated January 22, 2011, Lease Amendment No. One dated May 21, 2012, Lease Amendment No. Two dated April 4, 2013 and Lease Amendment No. Three dated May 1, 2014.

 

· Ngoc H. Nguyen and Khanh T. Tran, as individuals, 9390 Big Horn Boulevard, Suite 175: Lease document dated March 15, 2006 and Lease Amendment No. One dated November 20, 2006.

 

· CHW Medical Foundation, , 9394 Big Horn Boulevard, Suite 100: Lease document dated February 22, 2006. Tenant has a Sublease with Unilab, Inc. dba Quest Diagnostics dated June 6, 2013.

 

· The Regents of the University of California , 8110 Laguna Boulevard: Lease document dated May 1, 2003, lease Amendment No. 1 dated April 1, 2009, Lease Amendment No. 2 dated September 20, 2010, Lease Amendment No. 3 dated October 27, 2010 and Lease Amendment No. 4 dated September 4, 2012.

 

A- 3
 

 

EXHIBIT A-4

 

RENT ROLL

 

See attached pages

 

B- 1
 

 

EXHIBIT A-4                    1 OF 3

 

 

B- 2
 

 

EXHIBIT A-4                    2 OF 3

 

 

B- 3
 

 

EXHIBIT A-4                    3 OF 3

 

 

B- 4
 

EXHIBIT B

 

FORM OF GRANT DEED

GRANT DEED  
   
Recorded at Request of:  
   
   
   
When Recorded Mail to:  
   
   
   
Mail Tax Statements to:  
   
   
   
   

 

GRANT DEED

 

In accordance with Section 11932 of the California Revenue and Taxation Code, Grantor has declared the amount of the transfer tax that is due by a separate statement that is not being recorded with this Grant Deed.

 

FOR VALUABLE CONSIDERATION, receipt of which is acknowledged, ________________________________, a _________________ (“Grantor”), hereby grants to ________________________________ (“Grantee”), the real property in the City of _________________, County of_________________, State of ______________________, described in Exhibit A attached hereto and made a part hereof (the “Property”).

 

The Property is being sold subject to the exceptions listed on Exhibit B attached hereto.

 

B- 5
 

 

Dated: ___________, 20____.

 

    ,
       
a      
     
By:    
     
Name:     
     
Title:    

 

B- 6
 

 

ACKNOWLEDGMENT

 

STATE OF ________________________)

 

COUNTY OF ______________________)

 

On _____________________, 20____, before me, __________________________, Notary Public, personally appeared __________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of _______________ that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

Signature:

 

(seal)

 

B- 7
 

 

EXHIBIT A

 

TO

 

GRANT DEED

 

B- 8
 

 

EXHIBIT B

 

TO

 

GRANT DEED

 

B- 9
 

 

STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION NOT BE MADE A PART OF THE PERMANENT RECORD IN THE OFFICE OF THE COUNTY RECORDER

 

(Pursuant to Section 11932 R&T Code)

 

To: Registrar-Recorder

County of ___________________

 

Request is hereby made in accordance with the provisions of the Documentary Transfer Tax Act that the amount of tax due not be shown on the original document which names:

 

_________________________

(as Grantor)

 

and

 

_________________________

(as Grantee)

 

Property described in the accompanying document is located in (_____) unincorporated area or (_____) City of __________.

 

The amount of tax due on the accompanying document is $__________.

 

__________ Computed on full value of property conveyed, or
   
__________ Computed on full value less liens and encumbrances remaining at time of sale.

 

   
Signature of Declarant or Agent  
   
   
Firm Name  

 

B- 10
 

 

EXHIBIT C

 

FORM OF
ASSIGNMENT AND ASSUMPTION OF LEASES, GUARANTIES AND SECURITY
DEPOSITS

 

______________________________ ("Assignor"), in consideration of the sum of Ten and No/100 Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt of which is hereby acknowledged, hereby assigns, transfers, sets over and conveys to ______________________________ ("Assignee"), all of Assignor's right, title and interest in and to those leases described in Exhibit A attached hereto and made a part hereof (as amended from time to time, the “Leases”), including any and all security deposits under the Leases, together with all of Assignor’s right, title and interest in and to those lease guaranties described in Exhibit B attached hereto and made a part hereof (as amended from time to time).

 

Subject to the limitations set forth below, Assignor does hereby agree to defend, indemnify and hold harmless Assignee from any liability, damages (excluding speculative damages, consequential damages and lost profits), causes of action, expenses and reasonable attorneys' fees incurred by Assignee by reason of the failure of Assignor to have fulfilled, performed and discharged all of the various commitments, obligations and liabilities of the lessor, or landlord under and by virtue of the Leases arising or accruing prior to the date of this Assignment. Subject to the limitations set forth below, Assignee does hereby agree to defend, indemnify and hold harmless Assignor from any liability, damages (excluding speculative damages, consequential damages and lost profits), causes of action, expenses and reasonable attorneys' fees incurred by Assignor by reason of the failure of Assignee to have fulfilled, performed and discharged all of the various commitments, obligations and liabilities of the Landlord under and by virtue of the Leases arising or accruing on and after the date of this Assignment.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

C- 1
 

 

IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment this ______ day of ______________, 2014, which Assignment is effective this date. This Assignment may be executed in counterparts, which when taken together shall be deemed one agreement.

 

  ASSIGNOR:
       
     
       
  By:  
  Name:  
  Title:  
       
  ASSIGNEE:
       
     
       
  By:  
    Name:  
    Title:  

 

C- 2
 

 

EXHIBIT A

 

Leases

 

(Seller to prepare Exhibit)

 

C- 3
 

 

EXHIBIT B

 

Guaranties

 

(Seller to prepare Exhibit)

 

D- 4
 

 

EXHIBIT D

 

FORM OF BILL OF SALE

 

For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, ______________________________, a ___________________________, having an address at ____________________________ (“Seller”), hereby bargains, sells, conveys and transfers to ____________________________ (“Buyer”), a _______________________________, all of Seller’s right, title and interest, if any, in and to those certain items of personal and intangible property (including any warranty made by third parties in connection with the same and the right to sue on any claim for relief under such warranties) (the “Personal Property”) located at and used exclusively in connection with that certain real property located in the State of California, as more particularly described on Schedule A attached hereto and made a part hereof.

 

Seller has not made and does not make any express or implied warranty or representation of any kind whatsoever with respect to the Personal Property, including, without limitation, with respect to title, merchantability of the Personal Property or its fitness for any particular purpose, the design or condition of the Personal Property; the quality or capacity of the Personal Property; workmanship or compliance of the Personal Property with the requirements of any law, rule, specification or contract pertaining thereto; patent infringement or latent defects. Buyer accepts the Personal Property on an “as is, where is” basis.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

D- 1
 

 

IN WITNESS WHEREOF, Seller has caused this instrument to be executed and delivered as of this ___ day of _______, 2014.

 

  SELLER:  
       
       
       
  By:    
       
  Name:    
       
  Title:    

 

D- 2
 

 

SCHEDULE A

 

TO BILL OF SALE

 

[Add legal description of Real Property]

 

D- 3
 

 

EXHIBIT E

 

FORM OF ASSIGNMENT OF CONTRACTS,
PERMITS, LICENSES AND WARRANTIES

 

THIS ASSIGNMENT, made as of the ___ day of ________, 2014, by _________________, a __________________________ (“Assignor”), to _____________________________, a __________________________________________(“Assignee”).

 

WITNESSETH:

 

WHEREAS, by Agreement for Purchase and Sale of Real Property (the “Purchase Agreement”) having an effective date of ________, 2014, between Assignor and AR Capital, LLC, Assignee’s predecessor-in-interest under the Purchase Agreement, Assignee has agreed to purchase from Assignor as of the date hereof, and Assignor has agreed to sell to Assignee, that certain property located at ________________________ (the “Property”); and

 

WHEREAS, Assignor desires to assign to Assignee as of the date hereof all of Assignor’s right, title and interest in those contracts set forth on Exhibit A attached hereto and made a part hereof, and in any permits, trademarks, licenses and warranties held by Assignor in connection with the Property (collectively, the “Contracts”).

 

NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Assignor hereby assigns, sets over and transfers unto Assignee to have and to hold from and after the date hereof all of the right, title and interest of Assignor in, to and under the Contracts. Assignee does hereby accept the foregoing assignment and does hereby assume and become responsible for and agree to perform, discharge, fulfill and observe all of the obligations, covenants and conditions of Assignor with respect to the Contracts which are to be performed hereafter. Assignor agrees without additional consideration to execute and deliver to Assignee any and all additional forms of assignment and other instruments and documents that may be reasonably necessary or desirable to transfer or evidence the transfer to Assignee of any of Assignor’s right, title and interest to any of the Contracts.

 

This Assignment shall be governed by the laws of the State of California, applicable to agreements made and to be performed entirely within said State.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

E- 1
 

 

IN WITNESS WHEREOF, Assignor has duly executed this Assignment as of the date first above written.

 

  ASSIGNOR:
     
     
  a  
     
  By:  
  Name:  
  Title:  

 

E- 2
 

 

Exhibit A

 

Contracts

 

E- 3
 

 

EXHIBIT F

 

FORM OF TENANT ESTOPPEL CERTIFICATE

 

The undersigned hereby certifies to AR Capital, LLC (“ ARC ”), [ARHC LPELKCA01, LLC][ARHC UCELKCA01, LLC] (“ Approved Assignee ”; ARC and Approved Assignee are hereinafter referred to, individually and collectively, as “ Buyer ”), KeyBank National Association (“ Lender ”), and [ insert name of Seller: JACKSON-LAGUNA, a California general partnership and JACKSON II, LLC, a California limited liability company OR JACKSON-BIG HORN, LLC, a California limited liability company] (“ Landlord ”) and their respective successors and assigns as follows:

 

1.       The undersigned is the tenant under that certain [insert title of lease document] [(the “ Lease ”)], dated as of _________ __, ____, by and between Landlord and _________________________ (“ Tenant ”) [, as amended by that certain [insert title of lease amendment document], dated as of _________ __, ____, by and between _________________________ and _________________________ (collectively, the “ Lease ”)], pursuant to which Tenant leases certain premises known as [Suite ____], consisting of _______ rentable square feet, at that real property located at _________________________________________ (the “ Premises ”).

 

2.       Except as set forth above, the Lease has not been modified, changed, altered, supplemented or amended in any respect, nor have any provisions thereof been waived.

 

3.       The Lease is valid and in full force and effect on the date hereof. The Lease represents the entire agreement between Landlord and Tenant with respect to the Premises and the land on which the Premises are situated.

 

4.       Tenant is not entitled to, and has made no agreement with Landlord or its agents or employees concerning, free rent, partial rent, rebate of rent payments, credit or offset or reduction in rent, or any other type of rental concession including, without limitation, lease support payments, lease buy-outs, or assumption of any leasing or occupancy agreements of Tenant.

 

5.       The initial term of the Lease began on __________ __, _____ and expires on ________ __, 20__. The Rent Commencement Date was __________ __, ____. Tenant has accepted possession of the Premises and is open for business. Tenant has not sublet all or a portion of the Premises to any sublessee and has not assigned, transferred or encumbered any of its rights or interests under the Lease.

 

6.       Tenant has no outstanding options or rights to renew or extend the term of the Lease, except as follows: ________________ (if none, please state “none”). Tenant has no outstanding expansion options, other options, rights of first refusal or rights of first offer to purchase the Premises or any part thereof and/or the land on which the Premises are situated, or rights of first offer to lease with respect to all or any part of the Premises.

 

7.       The [Base Annual Rent] payable under the Lease is $____________ ($_________ monthly). Such [Base Annual Rent] payable under the Lease shall be adjusted during the initial

 

F- 1
 

 

term of the Lease as follows: (a) from ___________, 20__ to and including ______________, 20__, the Base Annual Rent shall be $_______ ($_______ monthly); (b) from ___________, 20___ to and including ____________, 20___ the Base Annual Rent shall be $________ ($________ monthly); [and from __________, 20__ to and including __________, 20___ the Base Annual Rent shall be $_________ ($__________ monthly)]. Such rent has been paid through and including the month of ____________, 2014. Additional rent under the Lease has been paid through and including the month of __________, 2014. No such rent (excluding security deposits) has been paid more than one (1) month in advance of its due date.

 

8.       Tenant's security deposit, if any, is $_________________ (if none, please state “none”).

 

9.       No event has occurred and no condition exists that constitutes, or that with the giving of notice or the lapse of time or both, would constitute, a default by Tenant or, to the best knowledge of Tenant, Landlord under the Lease. Tenant has no existing defenses or offsets against the enforcement of the Lease by Landlord.

 

10.      (a) All required contributions by Landlord to Tenant on account of Tenant's improvements have been received by Tenant and all of Tenant's tenant improvements have been completed in accordance with the terms of the Lease.

 

            (b)  Landlord has satisfied all its obligations to Tenant arising out of or incurred in connection with the construction of the tenant improvements on the Premises and no off-set exists with respect to any rents or other sums payable or to become payable by the Tenant under the Lease.

 

11.       All licenses necessary for using and operating the Premises as a medical office are held by Tenant and are in full force and effect.

 

12.       No voluntary actions or, to Tenant’s best knowledge, involuntary actions are pending against Tenant under the bankruptcy laws of the United States or any state thereof.

 

13.       This Certificate is delivered to induce Buyer to acquire the Premises and Lender to provide certain financing to Buyer, with the understanding that Buyer, Landlord and Lender will rely upon the truth of the matters set forth in this Certificate.

 

[SIGNATURE PAGE FOLLOWS]

 

F- 2
 

 

The undersigned is duly authorized to execute this Certificate on behalf of Tenant.

 

Dated: ____________, 2014

 

TENANT:

 

____________________, a ________________

 

By:    
  Name:  
  Title:  

 

F- 3
 

 

EXHIBIT G

 

FORM OF GUARANTOR ESTOPPEL CERTIFICATE

 

The undersigned hereby certifies to AR Capital, LLC (“ ARC ”), [ARHC LPELKCA01, LLC][ARHC UCELKCA01, LLC] (“ Approved Assignee ”; ARC and Approved Assignee are hereinafter referred to, individually and collectively, as “ Buyer ”), KeyBank National Association (“ Lender ”) [ insert name of Seller: JACKSON-LAGUNA, a California general partnership and JACKSON II, LLC, a California limited liability company OR JACKSON-BIG HORN, LLC, a California limited liability company] (“ Landlord ”) and their respective successors and assigns as follows:

 

1.      The undersigned ( “Guarantor” ) is the guarantor of that certain [Lease Agreement] dated as of _____________ __, ____, as amended by [insert amendments] ([collectively,] the “Lease” ) by and between Landlord and __________________________ ( “Tenant” ), pursuant to which Tenant leases from Landlord certain space known as Suite ____ at the land and building located at _______________________________, as more particularly described in the Lease (the “Premises” ). Such guaranty is made pursuant to that certain Guarantee dated as of ________ __, ____ (the “Guaranty” ) from Guarantor to Landlord.

 

2.       The Guaranty has not been modified, changed, altered, supplemented or amended in any respect, nor have any provisions thereof been waived.

 

3.       The Guaranty is valid and in full force and effect on the date hereof.

 

4.      No voluntary actions or, to Guarantor’s best knowledge, involuntary actions are pending against Guarantor under the bankruptcy laws of the United States or any state thereof.

 

5.       This Certificate is delivered to induce Buyer to acquire the Premises and Lender to provide certain financing to Buyer, with the understanding that Buyer, Landlord and Lender will rely upon the truth of the matters set forth in this Certificate.

 

[SIGNATURE PAGE FOLLOWS]

 

G- 1
 

 

The undersigned is duly authorized to execute this Certificate on behalf of Guarantor.

 

Dated: ____________, 2014

 

  GUARANTOR:
   
  ______________, a ___________________
     
  By:  
    Name:
    Title:

 

G- 2
 

 

EXHIBIT H

 

FORM OF NOTICE TO TENANT

 

________________ ___, 2014

 

TO: [INSERT TENANT’S NOTICE ADDRESS FROM LEASE]

 

Re: Notice of Change of Ownership of ______________________________

 

Ladies and Gentlemen:

 

YOU ARE HEREBY NOTIFIED AS FOLLOWS:

 

That as of the date hereof, the undersigned has transferred, sold, assigned, and conveyed all of its right, title and interest in and to the above-described property, (the “Property”) to [ARHC LPELKCA01, LLC][ARHC UCELKCA01, LLC] (the “New Owner”) and assigned to New Owner, all of the undersigned’s right, title and interest under that certain Lease, dated _________, between ________as tenant and ____________as landlord (the “Lease”), together with any security deposits or letters of credit held thereunder.

 

Accordingly, New Owner is the landlord under the Lease and future notices and correspondence with respect to your leased premises at the Property should be made to the New Owner at the following address:

 

[ARHC LPELKCA01, LLC][ARHC UCELKCA01, LLC]

c/o American Realty Capital Healthcare Trust II, Inc.

7621 Little Avenue, Suite 200

Charlotte, North Carolina 28226

Attention: Regional Asset Manager

 

With a copy to:

 

[ARHC LPELKCA01, LLC][ARHC UCELKCA01, LLC]

c/o American Realty Capital Healthcare Trust II, Inc.

405 Park Avenue, 15 th Floor

New York, NY 10022

Attention: General Counsel

 

You will receive a separate notification from New Owner regarding the new address for the payment of rent. In addition, to the extent required by the Lease, please amend all insurance policies you are required to maintain pursuant to the Lease to name New Owner as an additional insured thereunder and promptly provide New Owner with evidence thereof.

 

[SIGNATURE PAGE FOLLOWS]

 

H- 1
 

 

  Very truly yours,
  [PRIOR LANDLORD]
     
  By:  
  Name:  
  Title:  

 

H- 2
 

 

EXHIBIT I

 

WARRANTIES

 

There are no Warranties in place for any of the suites at 9390 Big Horn Boulevard, 9394 Big Horn Boulevard or 8110 Laguna Boulevard.

 

J- 1
 

 

EXHIBIT J

 

Service Contracts

 

9390/9394 BIG HORN BLVD.   VENDOR LIST
 
Service Vendor Address Account No. Contact Office Phone
Fire Extinguisher Maintenance Firecode 3722 W. Pacific Avenue, Sacramento CA 95820     (916) 453-5561
Fire Alarm Monitoring Sacramento Valley Alarm 5933 Folsom Blvd., Sacramento, CA 95819 9258 Stacey Himenes  916-452-1481
HVAC Maintenance BOS Sheet Metal, Inc. 3325 52nd Avenue, Sacramento, CA 95823   Mike Pierson 916-428-7180
Fire Sprinkler Inspection (Qrtly) Foothill Fire Protection 4000 Alvis Court Rocklin, CA  95677      916-452-1481
Landscaping The Growing Company 4 Wayne Court, Bldg 3, Sacramento, CA  95829  Jackson-08 Bettie Huerta 916-739-1420
Security Services Bayer Protective Services 3436 American River Drive, Suite 10, Sacramento, CA 95864 5340104 Bryon Bayer 916-486-5800
Trash Removal Allied Waste / Republic Services 3326 Fitzgerald Rd., Rancho Cordova, CA 95742-6809 3-0922-0111104 Arielle Bailey 916-631-0600
Telephone / Fire Monitoring Frontier Communications P.O. Box 20550, Rochester, NY 14602.0550 (916)691-9639-101306-8 and (916)691-9642-072506-8   1(800) 921-8102
Window Washing High Rise Window Cleaning P.O. Box 13821, Sacramento, CA 95853   Michelle Schmidt 916-646-1086
Electric Service SMUD P.O. Box 15555, Sacramento, CA 95852     877-622-7683
Water/Sewer Sacramento County Utilities P.O. Box 1804, Sacramento, CA 95812     916-875-5555

 

 
 

 

EXHIBIT J

 

Service Contracts

 

8110 LAGUNA BLVD.   VENDOR LIST
 
Service Vendor Address Acct. No Contact Office Phone
Fire Extinguisher Maintenance Firecode 3722 W. Pacific Avenue, Sacramento CA 95820   Tamara Fernandez  (916) 453-5561
Fire Alarm Monitoring Sacramento Valley Alarm 5933 Folsom Blvd., Sacramento, CA 95819

 

 

1364

Stacey Himenes 916-452-1481
Booster Pump Maintenance Airco Commercial Services 5725 Alder Avenue, Sacramento, CA  95828

 

 

C 1602

Greg Gordon 916 381-4526
HVAC Maintenance BOS Sheet Metal, Inc. 3325 52nd Avenue, Sacramento, CA 95823

 

 

14-196

Mike Pierson 916-428-7180
Landscaping - Exterior The Growing Company 4 Wayne Court, Bldg. 3, Sacramento, CA 95829   Bettie Huerta 916-739-1420
Pest Control Parish Termite & Pest Management, Inc. P.O. Box 1467 Citrus Heights, CA 95611-1467   Dee Dee Parish 916-722-5000
Fire Sprinkler System Testing Foothill Fire Protection 3299 Swetzer Road., Loomis, CA  95650   John M. Nwill 916-683-3583
Security Services Bayer Protective Services 3436 American River Drive, Suite 10, Sacramento, CA 95864

 

 

Jackson

Bryon Bayer 916-486-5800
Trash Removal Allied Waste / Republic Services 3326 Fitzgerald Rd., Rancho Cordova, CA 95742-6809

 

 

3-092209998842

Arielle Bailey 916-631-0600
Telephone / Fire Monitoring Frontier Communications P.O. Box 20550, Rochester, NY 14602.0550

 

916-684-3209-080304-8

  1-800-921-8102 

Window Washing

(Tenant reimburses)

High Rise Window Cleaning P.O. Box 13821, Sacramento, CA 95853   Michelle Schmidt 916-646-1086

 

 
 

 

Schedule 3(a)

 

Purchase Price Allocation

 

Property   Purchase Price     Earnest Money  
Laguna Professional Property   $ 17,451,500.00     $ 793,250.00  
UCD Property   $ 10,048,500.00     $ 456,750.00  
Totals   $ 27,500,000.00     $ 1,250,000.00  

 

Schedule 3(a)
 

 

 

Schedule 11(f)(iv)

 

Tenant Improvement Allowances

 

1) THE REGENTS OF THE UNIVERSITY OF CALIFORNIA/UCD MEDICAL GROUP 8110 LAGUNA BOULEVARD

 

· $10/sf allowance negotiated during recent renewal. Allowance totals $258,610 and Tenant has not used the allowance as of 6/1/14.

 

2) MAHMOUD KHATTAB, MD 9390 BIG HORN BOULEVARD, SUITE 145

 

· Lease Amendment to expand Dr. Khattab has been signed and we are in the process of completing Construction Drawings. The Tenant improvement budget is $43,806.00.

 

Schedule 11(f)(vii)
 

 

Schedule 11(f)(vi)

 

Rent Concessions

 

As of 6/1/14 there are no rent concessions due any Tenants at 9390 Big Horn Boulevard, 9394 Big Horn Boulevard or 8110 Laguna Boulevard.

 

 
 

 

Schedule 11(f)(vii)

 

Prepaid Rents, Security Deposits and Letters Of Credit

 

9390 BIG HORN BOULEVARD

 

TENANT   SUITE     SECURITY DEPOSIT  
             
Brian B. Fong, M.D.     100     $ 7,956.00  
                 
Hoang/Huynh     110     $ 3,262.00  
                 
The Regents of the University of California
UC Davis Medical Group 		    120       NONE  
                 
Jorge Rico, DDS     130     $ 7,804.00  
                 
Mahmoud Khattab, M.D.     145     $ 2,257.00  
                 
Nguyen/Tran     175     $ 3,776.00  
                 
Total       $  25,055.00  
                 
9394 BIG HORN BOULEVARD                
                 
CHW Medical Foundation     100       NONE  
                 
8110 LAGUNA BOULEVARD                
                 
The Regents of the University of California
UC Davis Medical Group 		            NONE  
                 
Total Deposits as of 6/1/14           $ 25,055.00  

 

 

Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Thomas P. D'Arcy, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of American Realty Capital Healthcare Trust II, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 6th day of August, 2014
 
/s/ Thomas P. D'Arcy
 
 
Thomas P. D'Arcy
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)

 



Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Edward F. Lange, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of American Realty Capital Healthcare Trust II, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 6th day of August, 2014
 
/s/ Edward F. Lange
 
 
Edward F. Lange
 
 
Chief Financial Officer and Chief Operating Officer
 
 
(Principal Financial Officer and Principal Accounting Officer)


 



Exhibit 32
SECTION 1350 CERTIFICATIONS

This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of Section 18 of the Securities Act of 1934, as amended.
The undersigned, who are the Chief Executive Officer and Chief Financial Officer of American Realty Capital Healthcare Trust II, Inc. (the “Company”), each hereby certify as follows:
The quarterly report on Form 10-Q of the Company, which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated this 6th day of August, 2014
 
/s/ Thomas P. D'Arcy
 
Thomas P. D'Arcy
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
/s/ Edward F. Lange
 
Edward F. Lange
 
Chief Financial Officer and Chief Operating Officer
 
(Principal Financial Officer and Principal Accounting Officer)