NEW YORK CITY—Seeking to dispel the perception that his company's top financial personnel had sought to inflate quarterly earnings numbers, American Realty Capital Properties' CEO on Wednesday afternoon said the misstated earnings grew out of an accounting error that was then covered up. The mistake, which precipitated a plummeting of the net lease REIT's stock prices on Wednesday and prompted a number of analysts to issue downgrades, resulted in the resignations of CFO Brian Block and chief accounting officer Lisa McAlister earlier the same day.

“The best way I can describe what happened is that we don't have bad people, we had some bad judgment there, and we have two employees who have resigned as a result” of the decision to not disclose an error in calculating adjusted funds from operations for the first quarter, CEO David S. Kay said during a webcast Wednesday afternoon. He pointed out that none of the GAAP measurements, including NAV, NOI and property metrics, were affected by the ovestatement

ARCP's audit committee determined that in order to conceal the Q1 error, which resulted from a confusion of two different accounting methods to determine AFFO, an accrual that ought to have been included as an expense in Q2's numbers was instead moved up to Q3's ledger, Kay said. As a result, Q2's AFFO figure was inflated by about 5% to $205.3 million, None of the current ARCP executives have been implicated in the investigation, he added.

With Block and McAlister having been replaced by Michael Sodo and Gavin Brandon, respectively, and with changes coming to ARCP's financial reporting controls and procedures, Kay sought to put the incident into perspective. “We buy and manage assets in the net lease space better than anybody,” he said on Wednesday's webcast. “Our company has bought more assets, has a high quality portfolio, nearly 50% investment grade-rated tenants, we have exceptional length and maturity on our leases and we are significantly de-levered from 10 months ago. We have simplified the business by not only selling our multi-tenant division but we have also contracted to sell Cole Capital, our broker-dealer.”

In a statement issued Wednesday, ARCP's board expressed confidence in the REIT's current management, and Kay reiterated that he wasn't going anywhere.  “I can assure you that I'm not moving from this seat, other than to talk to investors and run this business. I have been asked on every call, am I going to stay with the company? One hundred percent absolutely. This is not the ideal situation, but it is not the parade of horribles that the market may view this as today.”