American Realty Capital REIT Puts Sale Process In Motion

American Realty Capital REIT Puts Sale Process In Motion

Postby REIT Wrecks » Fri Apr 08, 2011 11:47 pm

American Realty Capital Trust Inc. announced today that it was exploring "strategic alternatives" which is PR jargon for organizing a yard sale. This is American Realty Capital's flagship REIT, and for a firm that prides itself on transparency, it's unclear why this news was floated in a press release that is reflected neither on American Realty Capital's website nor in an SEC filing. Perhaps they'll get around to notifying shareholders and advisors at some later date. :?

American Realty Capital Trust Inc. is ready to explore liquidity options in light of a pending July 25 close of its initial public offering. Since the IPO launch Jan. 25, 2008, the company has grossed $885.2 million. The REIT's adviser, American Realty Capital Advisors LLC, plans to start interviewing investment banking firms and other advisory firms to develop a strategic action list for its board, aimed at maximizing shareholder value. Source: Business Wire

With this news, it now seems that the increase in restricted shares available to management that was detailed in the Rational Realist earlier this week was quite pre-meditated, and the ridiculously low performance threshold was very purposeful.

Most important, the windfall they apparently engineered could result in up to $40 million being skimmed from the sale proceeds by the time the public offering closes in July. Nobody should oppose lucrative management compensation packages in return for maximizing shareholder value, but this is $40 million that would have otherwise been paid to the REIT's true owners, and the performance bar for earning this jackpot is comical.

This is quite an about-face from 2010, when American Realty Capital waived its internalization fee citing a performance-oriented culture ("Aligning interests between management and shareholders means tying advisor pay to performance"). The fee waiver served its purpose well. In 2009, before the fee was waived, ARC REIT had raised just $132 million in gross proceeds, including proceeds from the DRIP. In 2010, after the fee was waived, ARC raised over $450 million in gross proceeds. Unfortunately, it turns out that waiving the internalization fee was just a cynical sales tactic, and this recent increase in the restricted stock grants is the mother of all clawbacks.

Related Posts:
I Run A Non-Traded REIT, And I Am a Rockstar
Non-Traded REITs Are Designed to be Sold, Not Bought

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby Rational Realist » Wed Apr 20, 2011 7:01 am

Here is an August 2006 article from the Philadelphia Inquirer:

http://articles.philly.com/2006-08-18/b ... t-wachovia


It's a short, but informative article. Here it is:

American Financial Realty Trust, the Jenkintown firm that aspires to be the nation's premier bank landlord, said yesterday that it has ousted its founder and chief executive officer.

Nicholas S. Schorsch, 45, who along with his wife, Shelley, founded the first-of-its-kind real estate company eight years ago, was replaced by banker Harold W. Pote, 59, effective yesterday.

The move came at a trustees meeting late Wednesday in response to long-simmering worries that the company was putting rapid growth ahead of generating profit.

American Financial Realty became a publicly traded real estate investment trust in 2003, with Lewis S. Ranieri, the former vice chairman of Salomon Bros., who is called the "father of mortgage-backed securities," as chairman.

Making acquisitions at a furious pace, the company bought landmark bank towers as well as back-office and branch properties in 39 states.

Bankers praised Schorsch for creating a way to turn their buildings into cash. As Hugh C. Long II, Pennsylvania and Delaware chief executive for Wachovia Corp., put it last year: "Returns on the money are more attractive to us than real estate."

Long, whose Center City office is in the building at 123 S. Broad St. that Wachovia sold to American Financial Realty, called Schorsch's company "a great landlord."

But Wall Street has remained cool. The value of American Financial Realty's assets far exceeds the combined value of its shares traded on the New York Stock Exchange. Analysts have complained for more than a year about expense-control issues and have pressed for sale or breakup of the company. Shares closed at $10.80, down 41 cents, or 3.7 percent, in heavy trading on the New York Stock Exchange.

For the first time since the third quarter of 2003, the company announced a quarterly profit earlier this month - $13.46 million on revenue of $141.68 million, for the three months ended June 30. This compared with a loss of $25.15 million for the same quarter a year earlier.

Yesterday, American Financial Realty also said it would cut quarterly dividend to 19 cents from 27 cents and take a restructuring charge of $23 million to $27 million.

Schorsch could not be reached for comment. His ouster, called a "mutual agreement," was complete. He will no longer serve on the company's board, of which he had been vice chairman, or play any role in company affairs.


Gramercy Capital acquired American Financial Realty in late 2007.

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby Shareholder » Sat Apr 23, 2011 6:49 pm

There are only two REITs that have rewarded management/advisor prior to shareholders receiving a liquidity event or even a return of capital back would be Healthcare Trust of America and America Realty Capital Trust.

Funny thing is both these REITs were sold through Realty Capital Service, which is the dealer manager owned by Nicholas Schorsch.

Nick recently spoke at a conference and talked that he has aligned his interest with shareholders and ARCT waived the internalization fees and have shareholder interest first. ARCT and HTA are both shareholder friendly and will either be closing soon to list or will list on an exchange for $14-$17. ARC has lied selling HTA and is continuing lying when selling ARCT. ARCT just granted share to mgt, prior to any liquidation and return of capital to investors.

The found the above news article to be very interesting.
“Banking REIT's founder ousted Trustees of American Financial Realty had worried the firm was putting rapid growth ahead of building profit. Founder of landlord for banks ousted” Nick Schorsch ran a public REIT called American Financial Realty Trust. The board of directors removed Nick Schorsch for spending too much money, generating poor results within the REIT and focusing on growth instead of bottom line and shareholders profit.

So, Mr. Schorsch was removed from running a public REIT and from the public markets and then decided to jump into the private REIT market to do the same thing and steal from more shareholders.

Are you beginning to see a common pattern here? Removed from AFRT (public REIT) for poor performance, spending too money, not focusing on shareholders results.

ARCT and HTA – (Private REITs) Nick is receiving stock grants for poor performance, spending too much money, not focusing on shareholders results.

HMMMMMMM – I see a common theme emerging here?
I would recommend to everyone – NEVER sell or STOP selling anything that Nick Schorsch or his firm American Realty Capital is offering! They will lie and cheat to get anyone’s money to invest in their REITs.

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby REIT Wrecks » Mon Apr 25, 2011 8:00 pm

Shareholder/Rational Realist,

I spoke to a well-placed person (who didn't necessarily know that I am the masked man), and this person said that the sale announcement was just an ARCT sales tactic. The intention was to create a sense of urgency among the clueless financial advisors who sell this stuff by giving them impression that the American Realty Capital Trust offering is closing AND that the REIT will be sold shortly thereafter.

This person said they were "drafting" off of heavy pre-closing sales of HTA, which has also yet to liquidate despite a similar "seeking liquidity options" announcement before the offering closed. Sure enough, I visited the American Realty Capital Trust website yesterday and discovered that they had installed a "countdown to fund closing" clock very prominently at the top of the web page -- you can see the clock here. The only thing that's missing is the sound of a cuckoo.

Shareholder wrote:They will lie and cheat to get anyone’s money to invest in their REITs.


Seems that Shareholder has it just about right.

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby REIT Wrecks » Wed May 11, 2011 9:30 pm

Re: the comment from "Shareholder" and putting "rapid growth ahead of profit", Nicholas Schorsch's most recent publicly traded REIT, American Financial Realty Trust, is about to lose 900 properties to foreclosure:

http://www.costar.com/News/Article/Gram ... ies/128682

Nine hundred properties lost to foreclosure?! This is almost incredible, and it's completely consistent with "spending too much money, generating poor results within the REIT and focusing on growth instead of the bottom line and shareholders profit."

If you're an ARCT shareholder, watch out...

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby Shareholder2 » Mon May 16, 2011 6:06 am

Long time reader, first time poster.  In the past I’ve been very appreciative of your analysis of the funds in this industry and their practices. As a former shareholder of AFR I just wanted to clarify the last comment about GKK’s 900 properties facing foreclosure.  These assets are not, I repeat NOT, being foreclosed upon by the first mortgage lender.  These properties are not, by and large, under-performing, delinquent in rent, or vacant.  GKK may lose these properties to the MEZZ lender that financed GKK’s buyout of AFR in 2007, 18 months after Schorsch left AFR.  Anyone remember who provided the lion’s share of that mezz fiancning?  None other than KBS, another non traded REIT (one curiously devoid of postings on this website). Despite GKK’s announcement last week that they would likely lose these assets, KBS, in their most recent 10-Q SEC filing, has yet to impair this asset and is still holding it at book value ($458 million). To quote their 10-Q, “As of March 31, 2011, the Company’s investment in the GKK Mezzanine Loan was also deemed to be impaired as the borrower failed to meet its contractual interest payment obligation beginning April 2011. During the three months ended March 31, 2011, the Company recognized $6.9 million of interest income related to this loan. Additionally, as of March 31, 2011, the Company had recorded interest income receivable of $1.1 million, all of which was received in April 2011, related to the GKK Mezzanine Loan. As of March 31, 2011, the Company determined that the carrying value of the GKK Mezzanine Loan was fully secured by the collateral, and as a result, the Company had not recorded an impairment charge related to its investment in the GKK Mezzanine Loan as of March 31, 2011.”  It doesn’t take Warren Buffet to understand that the value of this loan has been significantly impaired since it was made in 2007. I’m a little disappointed that you haven’t picked up on this to date and, instead of posting under KBS’s thread to warn their investors, have encouraged this debate on this ARCT thread, which is completely unrelated to GKK’s default.  The default is 100% of the result of GKK’s buyout of AFR and was not the work of AFR, its board of directors, Schorsch, or his successor, Hal Pote. I’ve always valued the transparency and accuracy this site promotes, I just wanted to contribute what I know to maintain that same standard.

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby GeorgiaGulf » Thu May 19, 2011 8:36 am

REIT Wrecks wrote:I spoke to a well-placed person (who didn't necessarily know that I am the masked man), and this person said that the sale announcement was just an ARCT sales tactic. The intention was to create a sense of urgency among the clueless financial advisors who sell this stuff by giving them impression that the American Realty Capital Trust offering is closing AND that the REIT will be sold shortly thereafter.


Someone had contacted me about this offering, and I'm glad this site was here. First, it is absolutely preposterous for a syndicator to begin the process of offering a REIT for sale PRIOR to closing it out to new investors! Just thinking how ridiculous this is either has me rolling on the floor laughing at the sheer moxie of these people to even think about doing this, or the realization there are people out there playing income-seeking retirees for schmucks.
Remember one heartless fact about retirees- once they lose the principle. it cant be replaced. Especially with our wonderful job market. Whoever sells this to anyone is a monstrous human being.

Secondly, who the hell are they going to sell this to and at what profit?? Look at the SEC filing. Nothing seems to have gone right with this thing, and it's losses are still accelerating! Like the David Lerner REITs, they're using their line of credit- at a stunning 9% rate, which gives you an idea of the faith of the lender in this turkey- to keep the dividend going up front, while equity gets shrunk out the back.

Mind boggling treachery. Beyond belief.

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Re: American Realty Capital REIT Puts Sale Process In Motion

Postby Shareholder2 » Tue May 24, 2011 8:48 am

Which filings are you referring to, especially regarding the 9% line of credit? I just looked at their 10-Q and I saw two lines of credit for about $30 million each at LIBOR plus 3.25% (less than 4% in total right now). Also, it looks like their lines of credit are, according to the 10-Q, unused, therefore can’t be supporting the distribution. It isn’t needed anyway; the 10-Q shows their distribution coverage to be the best in the industry. Maybe you were thinking of a different company.
Hiring a strategic advisor doesn’t necessarily mean that they’re planning to sell anything immediately. I’m glad that management is evaluating options for selling the portfolio. It makes total sense to start testing the waters before closing out in the next 60 days. I like the fact that this company is focusing on the exit early on.

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