PHOENIX—American Realty Capital Properties' adjusted funds from operations were overstated for three full years beginning in 2011 and for the first half of 2014, the net lease REIT said Monday. The revised financial statements, which also revealed a bigger net loss for 2013 and the first quarter of last year than originally stated, were the product of an investigation by the company's audit committee following last October's revelation of accounting irregularities that ultimately led to the dismissal or resignations of senior management.
The audit committee's investigation, conducted with the assistance of Weil, Gotshal & Manges LLP and Ernst & Young LLP, also found that equity awards to then-executive chairman Nicholas Schorsch and then-CFO Brian Block were larger than the REIT's compensation committee had approved. ARCP additionally said it has recovered about $8.5 million from payments it made to ARC Properties Advisors, LLC and certain of its affiliates that “were not sufficiently documented or otherwise warrant scrutiny.”
Interim chairman and CEO William Stanley, who temporarily took the reins after Schorsch and then-CEO David S. Kay stepped down in December, said on a conference call Monday that “all direct relationships with the former executive chairman were ended and significant steps were taken and remain in process to unwind relationships with the entities where he is either an executive, director or a significant stockholder.” The company plans to announce a new CEO and non-executive chairman “in the near term.”
Stanley says ARCP has made “significant progress to address the issues identified in the audit committee investigation, and can now focus our attention on moving ARCP to where we know it should be. We do that knowing that we have an exceptional business built on a diversified, high-quality portfolio of net lease assets, an outstanding team of real estate professionals and a healthy balance sheet to support our efforts.”
The company on Monday acknowledged that it's the subject of investigations by the SEC, the US Department of Justice and the Commonwealth of Massachusetts, and that it is cooperating on all three. It also said it's the defendant in a total of eight lawsuits pending in federal court in New York City as well as Maryland and New York state courts, and that it “intends to defend these actions vigorously.”
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