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Stifel Resumes Coverage: Net-Lease REIT ARCP - New AFFO Estimates

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Stifel Resumes Coverage: Net-Lease REIT ARCP - New AFFO Estimates

On March 9, Stifel reinstated American Realty Capital Properties Inc (NASDAQ: ARCP) with a Hold rating, noting concerns regarding the ongoing rehabilitation of this former Nick Schorsch led net-lease REIT.

ARCP is recovering from an accounting scandal and cover-up, which led to numerous executive resignations, as well cessation of its monthly dividend -- which was formerly based upon a $1.00 per year payout.

Additionally, the aborted sale of its Cole Capital non-traded REIT sponsor/manager/broker-dealer has called into question the valuation of this business unit.

Tale Of The Tape - Past Year

stifel_-_ychart_arcp_resume_hold.jpg

Stifel: Resumes Coverage ARCP - Hold Rating

Stifel explained that at previous close of $9.59, shares of ARCP were trading above its latest NAV estimate of $9.25, and recommended was "staying on the sidelines" for now.

  • Reestablishing Estimates: Stifel now estimates "2014, 2015, and 2016 AFFO estimates of $0.93, $0.86, and $0.90," respectively. Stifel's "estimates do not reflect asset sales and any equity raised due to the uncertain timing and pricing."
  • Restatement Relates Primarily To AFFO: ARCP "disclosed that 2013 AFFO was overstated by $0.20/share, or 19.0%, and that 1H14 AFFO was overstated by $0.08/share, or 16.3%. The restatement had "no material impact on the company's rental revenue or Cole Capital."
  • CEO, Chairman, New Board Members? Questions remain regarding who will be leading ARCP after most of its senior management resigned in wake of the scandal. Stifel noted "reports that former New Plan Excel Realty Trust/Centro Properties Group CEO Glenn Rufrano could be named CEO."
  • Balance Sheet Has To Be De-Levered: Stifel noted that "pro forma net debt + preferred to EBITDA is 8.5x, and could drift higher as Cole earnings roll off. This compares to both O and NNN at 6.0x." Stifel believes ARCP "will have to de-lever through equity raises and asset sales to bring its ratios more in-line with its peers and to regain its investment grade rating."
  • Maintains Suspended Dividend: ARCP "did not reinstate its dividend and is expected to address its dividend later this year when a new management team is assembled." Stifel believes "the [new] management team will have a very conservative payout ratio as it is expected to use operating cash flow to reduce debt."
  • Ongoing SEC/FBI Investigations: Both the SEC and FBI are investigating the company after the accounting irregularity announcement. No announcement has been made of investigation results.

Latest Ratings for ARCP

DateFirmActionFromTo
Mar 2015UpgradesEqual-WeightOverweight
Mar 2015AssumesHold
Mar 2015Initiates Coverage onMarket Perform

View More Analyst Ratings for ARCP
View the Latest Analyst Ratings

Posted-In: StifelAnalyst Color REIT Initiation Analyst Ratings Real Estate Best of Benzinga

 

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