American Realty Capital Properties Inc. Is Going to Need to Do a Lot to Regain Investor Confidence

Based upon recent events this has become a tricky question for investors to answer.

Jun 16, 2014 at 10:17AM

Frankly, I am torn about how I feel regarding the future prospects for equity REIT American Realty Capital Partners (NYSE:VER).

Will it still be a prudent investment after the dust settles? Assuming the closing of the $1.6 billion Darden, Inc. Red Lobster sale-leaseback, and the announced sale of the 76 property multi-tenant portfolio to a Blackstone Group, L.P. (NYSE:BX) venture, ARCP will own:

On one hand, the single-tenant triple-net lease business model is a tried and true strategy to generate dependable dividend income.

In fact, ARCP is paying out an attractive monthly dividend -- currently over 8% on an annual basis -- the highest dividend yield of any of its REIT peers. It also trades at lowest multiple of funds from operations, or FFO.

On the other hand, Mr. Schorsch has recently become a lightning rod for criticism due to a recent frenzy of controversial asset purchases and sales -- as well as a dilutive follow-on offering of 138 million common shares of ARCP stock priced at $12 per share at the end of May 2014.

ARCP June 2014 Investor Presentation
CEO Schorsch used the June 3rd NAREIT Investor Forum REITWeek presentation to try to explain why there has been "... a lot of activity over the last year, last four months, and last six weeks."

The Feb. 7, 2014 $11.2 billion Cole Capital merger resulted in ARCP becoming a $21 billion leviathan -- the largest publicly traded triple-net REIT by total assets -- leapfrogging over industry pioneer and dividend stalwart $12 billion Realty Income.

The integration of an ambitious Cole Capital Properties acquisition alongside the four other existing ARCP asset groups would have kept most management teams busy for a few quarters. Additionally, the Cole Properties business model is fairly complicated, as Cole deals primarily in the public non-traded broker/dealer space.

Growth at any price?
However, dynamic ARCP CEO Nick Schorsch then continued to embark upon a whirlwind of M&A activity which has left many investors confused and concerned.

My ARCP midterm report card
Personally I was not thrilled about the Red Lobster deal. It increases both company and industry concentration risk while simultaneously reducing the percentage of investment grade tenants.

ARCP had previously announced a spin-off of these centers, American Realty Capital Centers, which was expected to be completed mid-June 2014. That was an excellent plan for ARCP to divest non-core assets with a potential upside for existing shareholders.

I am fairly certain that Nick Schorsch may have left some shareholder cash on the table if Blackstone Group with its Buy It, Fix It, Sell It mentality about real estate was happy to buy 76 ARCP owned shopping centers for just under $2B.

The $12 per share common stock offering was a very expensive way to fund growth as well as dilutive to existing shareholders. It means another 138 million shares receiving huge 8.4% dividend payouts, based upon a closing price of $11.95 on Jun. 12, 2014.

On the flip side, ARCP has a ton of assets it can optimize to create shareholder value.

The obvious place to begin would be by selling off one or more of the five portfolios each containing 100 Red Lobster leases. But beyond that, will Nick Schorsch be willing to part with significant chunks of his ARCP empire?

Investor takeaway
ARCP is not done doing deals this year. Management has increased 2014 acquisition guidance from $3.5 billion to $4.5 billion to reflect its intention to continue acquisitions during the second half of the year.

Will ARCP be able to deliver on its stated goal of targeting low-mid teens on a long-term basis while maintaining a healthy balance sheet? Only time will tell. My sense is that CEO Nick Schorsch has a lot of work to do to regain investor confidence. Time is of the essence.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Bill Stoller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information