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

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.


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.

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