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ARCP - American Realty Capital Properties


thepupil
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Seen it mentioned, but don't think it has its own thread. Probably worth discussing given the 27% drop and accounting issues (they intentionally covered up that they were overstating AFFO by 10%).

 

I bought some along with some $10.00 puts on the day they had that giant equity offering they said they didn't need two weeks earlier, creating the Jan 16 synthetic call for $3 and change. My idea was that the dividends would pay for the puts and de-risk the position by 1.00 / year and that was getting a call option on management's credibility increasing and ARCP re-rating closer to O and NNN's valuation. I didn't really trust the story, but sentiment was pretty low and I know markets are fickle and the thing was a yield pig's dream. The synthetic call seemed like a good risk/reward and a way to not get burned if it unraveled further.

 

Needless to say management's credibility is going nowhere but down and the story has unraveled further. Disaster averted by my puts but curious what fellow shareholders or onlookers are thinking.

 

If they don't need to raise equity and there are no more issues, this is very interesting from here. But the old "ya we committed fraud, sorry" press release is never a confidence builder.  ;D

 

 

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I had a position here until i realized that its to risky for me to hold a bunch of retail real estate for the long term that has no use in the future. And when i look at the stockprice now i realize how lucky my exit was. :)

Perhaps its interesting at a fraction of tangible book, but i would be careful by valueing it by the dividend yield or cashflows. (But perhaps i am just a frightened chicken these days.)

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I think this stock has become very interesting from the standpoint of the investor base.  It's a bunch of dumb, yield seeking retail investors that are hit with a big scary headline.

 

I always thought ARCP in particular was a REIT waiting to "blow up" given the investor base.  Well, this is that moment.

 

Seems like a good time to go long to me.

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yes. being a chicken (in your case as a seller, in my case as a hedger) clearly paid off, but the question is where do we go from here?

 

the preferreds are 8% yield and 83% of par if you want to just make a bet they won't go bankrupt and clip some coupon. a slightly more intelligent way of being a yield pig. I'm nibbling on those.

 

I think red lobsters, dollar general, CVS's, etc. will exist for a long time.

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Nicholas Schorsch makes me extremely nervous.  I've been told first-hand by people in the REIT industry to watch out and don't be surprised if this guy ends up in prison.

 

Yeah, I agree and take back what I said.  The investor base gave for an interesting opportunity this morning but I don't think I'll be looking to invest/trade in ARCP.  Just too much of a red flag.

 

I have kept RCAP on my watchlist as well, which happened to hit $14's this morning after trading around $40 earlier this year.  They have a massive independent army of advisors pitching his non-traded REIT's.  The company is a fee machine but I expect there will be some changes to how they conduct business.  I will probably steer clear from that one as well.

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At one point, I looked into a long/short play of ARCP versus O and NNN. The yields just stood out too much.  Then I called a bunch of my friends in the NNN space and I was hearing things like ARCP's Schorsch was telling competitors not to bid against him.  He was openly offering 10-15% higher prices for the same assets versus the next highest bid.  Aggressive growth + real estate tend to scare me.  I think the public space is probably ready for REIT products where the managers need to stay below a certain size.  Investors can actually get rich over time if the CEOs agree to a size cap and just stop making acquisitions.  Maybe, I ought to launch that product.  There are bad management teams and then there are atrocious management team, not everyone will be a Buffet.  Sometimes, with extreme value discrepancy, there is a bit of wiggle for the less than ideal manager.  Upon my research, Schorsch clearly dropped into the "don't touch with a 10 foot pole" category.  Oh, I heard that the Cole's portfolio was junk as well.  In essence, the early vintages of these private NNN REITs were decent, things that were acquired in 08,09,10.  However, more money went into these REITs in 11,12,13, and the later vintages were funded with more capital and less regards for safety.  Who knew that RE assets are like wine, they have good vintages and bad vintages. 

 

Who can blame the REIT operators, if there are unsophisticated retail money throwing themselves at you, why not earn a fee by buying some assets. 

 

 

 

Nicholas Schorsch makes me extremely nervous.  I've been told first-hand by people in the REIT industry to watch out and don't be surprised if this guy ends up in prison.

 

Yeah, I agree and take back what I said.  The investor base gave for an interesting opportunity this morning but I don't think I'll be looking to invest/trade in ARCP.  Just too much of a red flag.

 

I have kept RCAP on my watchlist as well, which happened to hit $14's this morning after trading around $40 earlier this year.  They have a massive independent army of advisors pitching his non-traded REIT's.  The company is a fee machine but I expect there will be some changes to how they conduct business.  I will probably steer clear from that one as well.

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This guy has an aggressive reputation and talking with one of my friends in the business, he thinks he will have a hard time raising any new funds in the market, thus reducing growth potential for his REITs.  There may be some firms in the space that get marked down because of this.  That is where I would look for bargains.

 

Packer

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stock tanking again.......

 

 

RCS Capital Corporation Terminates Agreement to Acquire Cole Capital®

Announces Termination of Related Sub-Advisory and Wholesaling Agreements

Company Release - 11/03/2014 06:00

 

NEW YORK, Nov. 3, 2014 /PRNewswire/ -- RCS Capital Corporation ("RCAP") (NYSE: RCAP), announced today that it has terminated the previously disclosed definitive agreement to acquire Cole Capital Partners, LLC and Cole Capital Advisors, Inc. (together, "Cole Capital") from American Realty Capital Properties, Inc. (NASDAQ: ARCP).

 

In addition, concurrently with the termination of the definitive agreement to acquire Cole Capital, the previously disclosed interim sub-advisory agreements entered into on October 22, 2014 among RCAP and the five non-traded REITs sponsored and advised by Cole Capital were terminated, and the wholesaling agreements entered into on October 22, 2014 between Realty Capital Securities, LLC ("RCS"), a subsidiary of RCAP, and Cole Capital Corporation, a subsidiary of Cole Capital, whereby Cole Capital engaged RCS to act as its distribution agent for the three non-traded REITs for which it currently serves as dealer-manager, were terminated.

 

 

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Back of the envelope

 

$12.50 fair value if everything were tiptop

- 1.20 they overpaid for a few properties

- 1.20 accounting mess and negative overhang

- 0.35 assuming Cole is worth half what they were in contract to sell it for.

-------------

 

$9.75. But currently trading for $8.

 

Is there a lot I'm missing here? Thoughts?

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Back of the envelope

 

$12.50 fair value if everything were tiptop

- 1.20 they overpaid for a few properties

- 1.20 accounting mess and negative overhang

- 0.35 assuming Cole is worth half what they were in contract to sell it for.

-------------

 

$9.75. But currently trading for $8.

 

Is there a lot I'm missing here? Thoughts?

 

I'd point out that deducting 10% from equity value for a levered pool of assets may not be particularly conservative. I'm not saying they did, but as an illustration, if they overpaid at the asset level by 33% and on average used 50% leverage (ie they paid $100 for $75 of value using $50 of debt), then real equity  value is $25 versus $50 (50%hit to NAV).

 

So my math would be

$12.50 * 0.5 = $6.25 bear case NAV. it's trading at $8.00, but you can sell $7.50 Jan 15 puts for close to a $1.00 and get pretty close to bear case NAV if you are put to and otherwise make a nice gross and annualized return (13% gross, 81% annualized <--not that that is meaningful).

 

There's probably more bad news to come but eventually this gets to a point where as long as the assets were actually purchased and there is not extreme fraud (as in we said we owned this thing we didn't) a whole lot of Schorsch overpaying gets priced in. Also, whether the divvy is cut to focus on debt paydown or repurchase, or kept in place, a lot of contractual cash flow "should" (once again assuming they aren't absolute complete utter frauds) come online. they may have overpaid, but so did those who bought the equity offerings and their debt is pretty nicely termed out, so locked in cash flow starts to really bail you out at a low enough valuation.

 

 

 

 

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Trying to understand this model. You have RCAP a brokerage firm pushing REITS, of which ARCP is one of them. Similar to a broker for mutual funds. Other brokers are saying we are not going to push ARCP REIT as a product. I'm not sure how much it affects RCAP as they are diversified (you'd need to know how much revenue comes from pushing Schorsch's products). Also, it would seem to affect growth most of all as financing for new units sold. On an ongoing basis for the existing properties, it would seem to be, at worst, neutral.

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