|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the quarterly period ended March 31,
2010
|
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the transition period from
to
|
|
Maryland
|
26-4567130
|
|
(State or Other Jurisdiction of
|
(I.R.S. Employer
|
|
Incorporation or Organization)
|
Identification No.)
|
|
25 Philips Parkway
|
|
|
Montvale, New Jersey
|
07645
|
|
(Address of principal executive offices)
|
(Zip code)
|
|
Page
|
||
|
PART
I – FINANCIAL INFORMATION
|
||
|
Item
1.
|
Consolidated
Balance Sheets as of March 31, 2010 (unaudited) and December 31,
2009
|
F-1
|
|
Consolidated
Statements of Operations (unaudited) for the three months ended March 31,
2010 and the period from March 26, 2009 (Date of Inception) to March
31, 2009
|
F-2
|
|
|
Consolidated
Statement of Equity for the three-month period ended March 31, 2010
(unaudited) and the period March 26, 2009 (Date of Inception) through
December 31, 2009
|
F-3
|
|
|
Consolidated
Statements of Cash Flows (unaudited) for the three months ended March 31,
2010 and the period from March 26, 2009 (Date of Inception) to March 31,
2009
|
F-4
|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
F-5
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
3
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
10
|
|
Item
4T.
|
Controls
and Procedures
|
11
|
|
PART
II – OTHER INFORMATION
|
||
|
Item
1.
|
Legal
Proceedings
|
12
|
|
Item
1A.
|
Risk
Factors
|
12
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
12
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
13
|
|
Item
4.
|
(Removed
and Reserved)
|
13
|
|
Item
5.
|
Other
Information
|
13
|
|
Item
6.
|
Exhibits
|
13
|
|
Signatures
|
14
|
|
|
PART
III
|
||
|
Certification
of Chief Executive Officer
|
16
|
|
|
Certification
of Chief Financial Officer
|
18
|
|
|
Written
Statement of Chief Executive Officer and Chief Financial Officer Pursuant
to Section 906 of the Sarbanes — Oxley Act of 2002
|
20
|
|
|
March
31, 2010
|
December
31, 2009
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Cash
|
$ | 5,667 | $ | 205,667 | ||||
|
Related
party receivable
|
203,199 | 560 | ||||||
|
Total
Assets
|
$ | 208,866 | $ | 206,227 | ||||
|
LIABILITIES
AND STOCKHOLDER'S EQUITY
|
||||||||
|
Related
party payable
|
$ | 2,000 | $ | 2,000 | ||||
|
Accrued
expense
|
300 | 300 | ||||||
|
Accrued
income taxes payable
|
856 | 731 | ||||||
|
Total
Liabilities
|
3,156 | 3,031 | ||||||
|
Stockholder's
equity:
|
||||||||
|
Common
stock, $.01 par value; 200,000 shares authorized, 20,000 shares issued and
outstanding
|
200 | 200 | ||||||
|
Additional
paid-in capital
|
199,800 | 199,800 | ||||||
|
Retained
earnings
|
3,710 | 1,196 | ||||||
|
Total
Company's stockholder's equity
|
203,710 | 201,196 | ||||||
|
Non-controlling
interest
|
2,000 | 2,000 | ||||||
|
Total
stockholder's equity
|
205,710 | 203,196 | ||||||
|
Total
Liabilities and Stockholder's Equity
|
$ | 208,866 | $ | 206,227 | ||||
|
Three
months ended
March
31, 2010
|
March
26, 2009
(Date
of Inception)
to
March
31, 2009
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Revenue
|
||||||||
|
Interest
Income
|
$ | 2,639 | $ | - | ||||
|
Total
Revenue
|
2,639 | - | ||||||
|
Expense
|
||||||||
|
Filing
Fees
|
- | - | ||||||
|
Total
Expense
|
- | - | ||||||
|
Net
income before income taxes
|
2,639 | - | ||||||
|
Income
tax provision
|
125 | - | ||||||
|
Net
income
|
2,514 | - | ||||||
|
Less
net income attributable to non-controlling interest
|
- | - | ||||||
|
Net
income attributable to the Company
|
$ | 2,514 | $ | - | ||||
|
Earnings
per common share
|
||||||||
|
Basic
earnings per share
|
$ | 0.13 | $ | - | ||||
|
Diluted
earnings per share
|
$ | 0.13 | $ | - | ||||
|
Basis
and diluted weighted-average common shares
|
20,000 | - | ||||||
|
Total
|
||||||||||||||||||||||||||||
|
Common
Shares
|
Additional
|
Company's
|
Total
|
|||||||||||||||||||||||||
|
Common
|
Paid-in
|
Retained
|
Stockholders'
|
Non-controlling
|
Stockholder's
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
Interest
|
Equity
|
||||||||||||||||||||||
|
Balance,
March 26, 2009 (Date of Inception)
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
|
Proceeds
from issuance of common stock
|
20,000 | 200 | 199,800 | 200,000 | - | 200,000 | ||||||||||||||||||||||
|
Proceeds
from issuance of limited partnership units
|
- | 2,000 | 2,000 | |||||||||||||||||||||||||
|
Net
income
|
1,196 | 1,196 | $ | - | 1,196 | |||||||||||||||||||||||
|
Balance,
December 31, 2009
|
20,000 | $ | 200 | $ | 199,800 | $ | 1,196 | $ | 201,196 | $ | 2,000 | $ | 203,196 | |||||||||||||||
|
Net
income
|
- | - | - | 2,514 | 2,514 | $ | - | 2,514 | ||||||||||||||||||||
|
Balance,
March 31, 2010
|
20,000 | $ | 200 | $ | 199,800 | $ | 3,710 | $ | 203,710 | $ | 2,000 | $ | 205,710 | |||||||||||||||
|
January
1, 2010
through
March 31,
2010
|
March
26, 2009
(Date of Inception)
to
March
31, 2009
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Cash
Flows From Operating Activities:
|
||||||||
|
Net
income
|
$ | 2,514 | $ | - | ||||
|
Plus:
|
||||||||
|
related
party receivable - interest on short term notes
|
(2,639 | ) | - | |||||
|
accrued
expense
|
- | - | ||||||
|
accrued
income taxes payable
|
125 | - | ||||||
|
Net
cash provided by operating activities
|
- | - | ||||||
|
Cash
flows From Investing Activities:
|
||||||||
|
Net
cash provided by investing activities
|
- | - | ||||||
|
Cash
Flows From Financing Activities:
|
||||||||
|
Proceeds
from repayment of short term notes
|
- | - | ||||||
|
Issuance
of short term notes
|
(200,000 | ) | - | |||||
|
Proceeds
from issuance of common stock
|
- | - | ||||||
|
Related
party payable
|
- | - | ||||||
|
Proceeds
from issuance of limited partnership units
|
- | - | ||||||
|
Net
cash provided by financing activities
|
(200,000 | ) | - | |||||
|
Net
Change in Cash
|
(200,000 | ) | - | |||||
|
Cash,
beginning of period
|
205,667 | - | ||||||
|
Cash,
end of period
|
$ | 5,667 | $ | - | ||||
|
1.
|
Organization
|
|
2.
|
Summary
of Significant Accounting
Policies
|
|
2.
|
Summary of
Significant Accounting Policies –
(continued)
|
|
2.
|
Summary
of Significant Accounting Policies –
(continued)
|
|
2.
|
Summary
of Significant Accounting Policies –
(continued)
|
|
2.
|
Summary
of Significant Accounting Policies –
(continued)
|
|
3.
|
Stockholder’s
Equity
|
|
3.
|
Stockholder’s
Equity – (continued)
|
|
4.
|
Related-Party
Transactions
|
|
Form
of Compensation
|
Amount
|
|
|
Selling
Commissions
|
Payable
to the Dealer Manager up to 7% of gross
offering proceeds before reallowance of commissions
earned by participating broker-dealers. The Dealer
Manager intends to reallow 100% of commissions earned for those
transactions that involve participating broker dealers.
|
|
|
Dealer
Manager Fee
|
|
Payable
to the Dealer Manager up to 3% of gross proceeds of the Offering before
reallowance to participating broker-dealers. The Dealer
Manager, in its sole discretion, may reallow a portion of its dealer
manager fee of up to 3% of the gross offering proceeds
to be paid to such participating
broker-dealers.
|
|
4.
|
Related-Party
Transactions – (continued)
|
|
Form
of Compensation
|
Amount
|
|
|
Organization
and Offering Expenses
|
The
Company will pay its Advisor up to 1.5% of the
gross offering proceeds for organizational and
offering expenses (other than dealer manager fees and selling
commissions). The Advisor and its affiliates are responsible
for the payment of organization and offering expenses, other
than selling commissions and the dealer manager fee, to the extent they
exceed 1.5% of gross offering proceeds, without recourse
against or reimbursement by the Company; provided, however,
that in no event will the Company pay or reimburse organization and
offering expenses (including dealer manager fees and selling commissions)
in excess of 15% of the gross offering proceeds.
|
|
|
Operational
Stage
|
||
|
Acquisition
Fees
|
Fees
payable to the Advisor in the amount of 2.5% of the gross contract
purchase price (including any mortgage assumed) of the property, loans or
other real estate-related assets purchased. The acquisition
fees and expenses for any particular asset, including amounts payable to
affiliates, will not exceed, in the aggregate, 6% of the gross contract
purchase price (including any mortgage assumed) of the asset. The Advisor
will be paid acquisition fees and the Company will
reimburse the Advisor for acquisition expenses only to the extent that
acquisition fees and acquisition expenses collectively do not exceed 6% of
the contract purchase price of the Company’s assets.
|
|
|
Acquisition
Expenses
|
Expenses
reimbursed to the Advisor incurred in connection with the
purchase of property, loans or other real estate-related
assets. The acquisition fees and expenses for any particular
asset, including amounts payable to affiliates, will not
exceed, in the aggregate, 6% of the gross contract purchase price
(including any mortgage assumed) of the asset. The Advisor will
be paid acquisition fees and the Company will reimburse the Advisor for
acquisition expenses only to the extent that acquisition fees and
acquisition expenses collectively do not exceed 6% of the contract
purchase price of the Company’s assets.
|
|
|
Asset
Management Fees
|
|
Payable
to the Advisor in the amount of 0.75% of average invested
assets. Average invested assets means the average of the
aggregate book value of the Company’s assets invested in interests in, and
loans secured by, real estate before reserves for depreciation or
bad debt or other similar non-cash reserves. The Company
will compute the average invested assets by taking the average of these
book values at the end of each month during the quarter for which the
Company will calculate the
fee.
|
|
4.
|
Related-Party
Transactions – (continued)
|
|
Form
of Compensation
|
Amount
|
|
|
Property
Management and Leasing Fees
|
Payable
to the Property Manager on a monthly basis in the amount of 5.0% of the
gross revenues. Additionally, the Company may pay the Property
Manager a separate fee for the one-time initial rent-up or leasing-up of
newly constructed properties in an amount not to exceed the fee
customarily charged in arm’s length transactions by others rendering
similar services in the same geographic area for similar properties as
determined by a survey of brokers and agents in such
area.
|
|
|
Operating
Expenses
|
The
Company will reimburse the Advisor for all expenses paid or incurred by
the Advisor in connection with the services provided to the Company,
subject to the limitation that the Company will not reimburse the
Advisor for any amount by which the Company’s operating expenses
(including the asset management fee, the financing coordination fee and
disposition fees paid in connection with the sale of real estate-related
assets other than real property interests) at the end of the four
preceding fiscal quarters exceeds the greater of: (A) 2% of the
Company’s average invested assets, or (B) 25% of the Company’s net income
determined without reduction for any additions to reserves for
depreciation, bad debts or other similar non-cash reserves and
excluding any gain from the sale of the Company’s assets for that
period. Notwithstanding the above, the Company may reimburse the Advisor
for expenses in excess of this limitation if a majority of
the independent directors determines that such excess expenses are
justified based on unusual and non-recurring factors. The
Company will not reimburse the Advisor or its affiliates for
personnel employment costs incurred by the Advisor or its
affiliates in performing services under the Advisory Agreement to the
extent that such employees perform services for which the Advisor receives
a separate fee.
|
|
|
Financing
Coordination Fee
|
|
If
the Advisor provides services in connection with the refinancing of any
debt that the Company obtains, the Advisor will be paid a financing
coordination fee equal to 1% of the amount available and/or outstanding
under such financing, subject to certain
limitations.
|
|
4.
|
Related-Party
Transactions – (continued)
|
|
Form
of Compensation
|
Amount
|
|
|
Disposition
Fee
|
The
Company may pay the Advisor a commission upon the sale of one of more of
the Company’s properties or other real estate related assets in an
amount equal to the lesser of (a) one-half of the commission that would be
reasonable, customary and competitive in light of the size, type and
location of the asset or (b) 1% of the sale price of the
asset. Payment of such fee may be made only if the Advisor
provides a substantial amount of services in connection with the sale
of the asset. In addition, the amount paid when added to all
other commissions paid to unaffiliated parties in connection with such
sale shall not exceed the lesser of the commission that would be
reasonable, customary and competitive in light of the size, type and
location of the asset or an amount equal to 6% of the sale price of
such asset.
The
Company will not pay a disposition fee upon the maturity, prepayment or
workout of a loan or other debt-related investment, provided that if the
Company take ownership of a property as a result of a workout or
foreclosure of a loan the Company will pay a disposition fee upon the
sale of such property.
Any
disposition fees paid on assets other than real property
interests will be included in the calculation of operating expenses
for purposes of the limitation on total operating
expenses.
|
|
|
Subordinated
Incentive Listing Fee
|
Upon
listing the Company’s common stock on a national securities exchange,
Empire American ALP, LLC, an indirect wholly owned subsidiary of the
Sponsor, is entitled to a fee equal to 10% of the amount, if any, by
which a) the market value of the Company’s outstanding stock plus
distributions paid by the Company prior to listing, exceeds (b) the
aggregate capital contributed by investors plus an amount equal to an 8%
annual cumulative, non-compounded return to investors on their
aggregate capital contributed.
|
|
|
Subordinated
Participation in Net Sale Proceeds
|
|
After
investors have received a return of their capital contributions invested
and a 8% annual cumulative, noncompounded return, then Empire
American ALP, LLC is entitled to receive 10% of the remaining net sale
proceeds.
|
|
4.
|
Related-Party
Transactions – (continued)
|
|
Form
of Compensation
|
Amount
|
|
|
Subordinated
Termination Fee
|
|
Upon
termination of the advisory agreement, Empire American ALP, LLC, an
affiliate of the Advisor, will be entitled to a subordinated termination
fee payable in the form of an interest bearing promissory
note. The subordinated termination fee, if any, will be equal
to the sum of (a) 10% of the amount, if any, by which (1) the
appraised value of the Company’s
assets on the termination date, less any indebtedness secured by such
assets, plus total distributions paid through the termination date,
less any amounts distributable as of the termination date to limited
partners who received units in the operating partnership in connection
with the acquisition of any assets upon the liquidation or sale of such
assets (assuming the liquidation or sale of such assets on the termination
date) exceeds (2) the sum of the total amount of capital raised from
stockholders (less amounts paid to repurchase shares of the Company’s
common stock pursuant to the Company’s share repurchase plan) and the
total amount of cash that, if distributed to them as of the termination
date, would have provided them an 8% annual cumulative, pre-tax,
non-compounded return on the gross proceeds from the sale of shares
of the Company’s common stock through the termination
date.
|
|
|
·
|
We
have no prior operating history or established financing sources, and the
prior performance of other affiliates of our sponsor, Empire American
Holdings, LLC (our “Sponsor”), and our Advisor may not be a good measure
of our future results; therefore, there is no assurance we will be able to
achieve our investment objectives;
|
|
|
·
|
Our
current offering is a best efforts offering and, as such, the risk that we
will not be able to accomplish our business objectives and that the poor
performance of a single investment will materially adversely affect our
overall investment performance will increase if only a small number of
shares are purchased in the
offering;
|
|
|
·
|
Whether
we will have the opportunity to invest offering and distribution
reinvestment program proceeds to acquire properties or other investments
or whether such proceeds will be needed to redeem shares; and if proceeds
are available for investment, our ability to make such investments in a
timely manner and at appropriate amounts that provide acceptable
returns;
|
|
|
·
|
Competition
for tenants and real estate investment opportunities, including
competition with affiliates of our Sponsor and our
Advisor;
|
|
|
·
|
Our
reliance on our Advisor and its affiliates for our day-to-day operations
and the selection of real estate investments, and our Advisor’s ability to
attract and retain high-quality personnel who can provide service at a
level acceptable to us;
|
|
|
·
|
Risks
associated with conflicts of interests that result from our relationship
with our Advisor and our Sponsor, as well as conflicts of interests
certain of our officers and directors face relating to the positions they
hold with other entities;
|
|
|
·
|
The
potential need to fund tenant improvements, lease-up costs or other
capital expenditures, as well as increases in property operating expenses
and costs of compliance with environmental matters or discovery of
previously undetected environmentally hazardous or other undetected
adverse conditions at our
properties;
|
|
|
·
|
The
availability and timing of distributions we may pay is uncertain and
cannot be assured;
|
|
|
·
|
Some
or all of our distributions may be paid from sources such as cash advances
by our Advisor, cash resulting from a waiver or deferral of fees,
borrowings and/or proceeds from the offering. If we pay
distributions from sources other than our cash flow from operations, we
will have less funds available for the acquisition of properties, and your
overall return may be reduced;
|
|
|
·
|
Risks
associated with debt;
|
|
|
·
|
Risks
associated with adverse changes in general economic or local market
conditions, including terrorist attacks and other acts of violence, which
may affect the markets in which we
operate;
|
|
|
·
|
Catastrophic
events, such as hurricanes, earthquakes and terrorist attacks; and our
ability to secure adequate insurance at reasonable and appropriate
rates;
|
|
|
·
|
The
failure of any bank in which we deposit our funds could reduce the amount
of cash we have available to pay distributions and make additional
investments;
|
|
|
·
|
Changes
in governmental, tax, real estate and zoning laws and regulations and the
related costs of compliance and increases in our administrative operating
expenses, including expenses associated with operating as a public
company;
|
|
|
·
|
The
lack of liquidity associated with our assets;
and
|
|
|
·
|
Our
ability to continue to qualify as a real estate investment trust (“REIT”)
for U.S. federal income tax
purposes.
|
|
EMPIRE
AMERICAN REALTY TRUST, INC.
|
||
|
June
25 , 2010
|
By:
|
/s/ Ezra
Beyman
|
|
Ezra
Beyman
|
||
|
President
and Chief Executive Officer
|
||
|
(Principal
Executive Officer)
|
||
|
June
25 , 2010
|
By:
|
/s/ David
Teiler
|
|
David
Teiler
|
||
|
Chief
Financial Officer
|
||
|
(Principal
Financial
Officer)
|
||
|
Exhibit No.
|
Description
|
|
|
31.1*
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended.
|
|
|
31.2*
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended.
|
|
|
32.1*
|
Certification
of Principal Executive Officer and Principal Financial Officer Pursuant to
18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|