NEW YORK CITY-Following its pending mergers with CapLease and American Realty Capital Trust IV, American Realty Capital Properties will become a self-administered, publicly traded net lease REIT, the company said Tuesday. Currently it's externally managed by ARC Properties Advisors LLC, the executive officers of which include Nicholas Schorsch and Brian Block, who are also founders of ARCP.
It's expected that Schorsch and Block will serve as executive chairman and CFO, respectively, for ARCP post-merger, while searches are under way to fill the roles of president, COO and general counsel. The management contract with ARC Property Advisors will be terminated as ARCP assumes self-managed status.
In an SEC filing, ARCP says that following the integration of CapLease and ARCT IV, the company will have achieved a scale whereby it will cost less to self-manage than to use an externally advised arrangement. Among other things, self-management means that ARCP will no longer incur the asset management fees currently payable to ARC Property Advisors.
Further, according to the SEC filing, ARCP recognizes that institutional investors, research analysts and the financial press alike “have historically viewed externally managed REITs as being susceptible to potential conflicts of interest." This perception may contribute to externally managed, publicly listed REITs "trading at lower earnings multiples relative to self-managed REITs.”
While “high quality, large self-managed net lease REITs” now trade at earnings multiples of 17x to 18x their funds from operations, ARCP trades at 15x FFO. “ARCP believes that potential multiple expansion as a result of becoming self-managed may increase the company's delivery of stockholder value to its stockholders.”
Even so, ARCP isn't counting this larger scale as a done deal just yet. In the SEC filing, the company says it's continuing to monitor the impact of the “recent challenging conditions” in the capital markets on its pending transactions, including the ARCT IV deal.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.