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Oppenheimer: Glenn Rufrano Is Big For ARCP, But There's Still Work To Be Done

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Oppenheimer: Glenn Rufrano Is Big For ARCP, But There's Still Work To Be Done

On March 30, Oppenheimer published a research note on $8.9 billion cap net-lease REIT American Realty Capital Properties Inc (NASDAQ: ARCP), shortly after the company's belated report of its Q4 and FY 2014 earnings and conference call presentation.

ARCP shares had plummeted in late October 2014, on news of accounting errors and related cover-ups, which in turn led to key executive resignations, including former Executive Chairman Nick Schorsch's well publicized departure at the end of last year.

While Oppenheimer cited the recent hire of Glenn Rufrano, as new CEO (effective April 1) as a positive step; it also noted key issues for Rufrano address, including: debt reduction/managing debt maturities, net-lease portfolio re-positioning, and revitalization of its Cole Capital's broker-dealer business.

Tale Of The Tape

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During the past 52-weeks ARCP shares have traded from $7.38 to $14.73. The regular dividend for common shares remains suspended, although ARCP intends to reinstate a quarterly dividend in-line with its peers at some point later in 2015.

arcp_-_ychart_opco_vs_peers_mar_31.jpg

Oppenheimer used net-lease stalwart $11.6 billion cap Realty Income Corp (NYSE: O), as a point of comparison to help put its methodology for valuing ARCP is its current condition into perspective.

  • Oppenheimer maintains an Outperform rating on Realty Income.
  • Oppenheimer noted that Realty Income "trades at 18.1x 2015E consensus [AFFO], 4.4% dividend yield and 31% leverage."
  • It is Oppenheimer's belief that O receives "premium valuations" due to the quality of its management, balance sheet and successful track record, (not its real estate portfolio, per se).

Oppenheimer - ARCP: Perform, No PT
Given the uncertainty of the current ARCP strategic direction and many decisions which will be made by Rufrano and the board, Oppenheimer chose not to estimate ARCP's 2016 AFFO; instead Oppenheimer is "estimating a run-rate for the current real estate portfolio."

  • Oppenheimer calculated an AFFO run-rate of $0.78, which implies ARCP is trading at ~12.7x AFFO.
  • Assuming an 80 percent payout ratio, Oppenheimer is estimating a $0.62 per share dividend, yielding 6.3 percent.
  • The Oppenheimer model assumes a 50 percent debt/total capitalization ratio.
  • Oppenheimer's ARCP NAV estimate is $8.17 per share, utilizing an unchanged 7.25 percent cap-rate.
  • Cole Capital was written down $309 million in Q4 2014, to a book value of $385 million, which is not significant relative to ARCP's real estate assets on its balance sheet.

Oppenheimer - Bottom Line

Oppenheimer views the $0.78 per share AFFO figure "as representing the earnings power of the portfolio before any portfolio or balance sheet changes are implemented by the new CEO."

Oppenheimer believes that "those issues will prove to be dilutive to the current AFFO run-rate, and therefore believe the stock will at best remain an in-line performer over the next 12 months or so."

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

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