American Realty Capital Properties: A CEO Change Should Be Enough To Satisfy Shareholders

ARCP is addressing investor concerns and is likely to concentrate on portfolio optimization and organic rental growth in the coming quarters.

Jul 8, 2014 at 4:24PM
G

Source: Company

American Realty Capital Properties (NYSE:VER) has excited and unsettled investors at the same time lately with its unrestrained acquisition spree.

Even though its current, fast-charging CEO will step down at the end of the year and acquisition growth will slow in the foreseeable future (according to company information), ARCP is a highly attractive, lowly valued income play which should benefit from organic rental growth and portfolio optimization.

Accelerating acquisition speed unsettled investors
After acquiring Cope Properties at the end of 2013, American Realty Capital Properties has pushed ahead this year and decided to spin-off its multi-tenant shopping center portfolio to shareholders in March 2014.

However, instead of spinning off its shopping center portfolio, American Realty Capital Properties pursued another exit option: It sold its portfolio to Blackstone for nearly $2.0 billion in cash in order to be able to stem the $1.5 billion Red Lobster portfolio acquisition at the end of May 2014.

The Red Lobster portfolio transaction alone encompassed approximately 500 stores that met ARCP's acquisition criteria.

Also at the end of May 2014, American Realty Capital Properties conducted a strategic secondary equity offering which netted the company about $1.6 billion in net proceeds in order to finance its most recent acquisitions.

With all these large-scale corporate changes taking place, it could indeed be difficult to keep track of each transaction and how it is impacting American Realty Capital Properties' financial statements.

Not surprisingly, some investors had problems in digesting ARCP's rapid transaction pace. Most notably, Marcato Capital Management sent a letter to ARCP and complained bitterly about the announcement of large-scale transactions that will make it so much harder for analysts and investors to really understand the commercial REIT.

The recent equity offering of ARCP was also a point of critique.

Management changes address investors' concerns
Nicolas Schorsch is the chairman and chief executive officer of American Realty Capital, and also its co-founder. Schorsch can largely be credited with ARCP's explosive growth over the last couple of years.

G

Source: Wikimedia Common

Schorsch has been pushing for landmark acquisitions ever since and his aggressive growth strategy at American Realty Capital has surely contributed to his winning of Ernst and Young's Entrepreneur Of The Year 2011 Lifetime Achievement Award.

In a shareholder letter from June 20, 2014, Schorsch announced, that he will step down as chief executive officer and will be succeeded by David Kay as CEO on October 1, 2014. In his shareholder letter he wrote that "this transition will allow me to focus on long-term and strategic initiatives, while David will drive day-to-day operations and investor communications for the company."

Moreover, in order to "enhance corporate governance", two members of the board of directors resigned and will pursue opportunities at another company.

The management changes are certainly aimed at addressing nervous shareholders, such as Marcato Capital Management, who grew increasingly uncomfortable with ARCP's transaction speed.

Furthermore, Schorsch announced that there will be no more merger activity in 2014. The current chief executive officer also ruled out additional equity raises during the current fiscal year which definitely should put investors at ease.

What will happen going forward
American Realty Capital Properties now manages approximately $30 billion in real estate assets and investors should see a stronger focus on organic growth as well as portfolio optimization going forward.

ARCP is also going to want to prove that it is taking investors seriously and will adopt a more proactive investors communications style.

Given ARCP's most recent acquisitions, the company will have some work to do in integrating the properties it acquired which ultimately should lead to some decent rental growth in ARCP's property portfolio.

The Foolish Bottom Line
Management has fully addressed investors' concerns by making changes to key executive and board positions and communicated, that there will be no further transactions in 2014. With a history of accretive acquisitions, a relatively low AFFO/multiple of less than eleven and a persistently high dividend yield of 8%, investors have little reason to throw in the towel now that ARCP recalibrates its acquisition pace.

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.

Kingkarn Amjaroen 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers