American Realty Capital Properties' (ARCP) CEO Nicholas Schorsch on Q1 2014 Results - Earnings Call Transcript

May. 8.14 | About: VEREIT Inc. (VER)

American Realty Capital Properties Inc. (ARCP) Q1 2014 Earnings Conference Call May 8, 2014 3:00 PM ET

Executives

Nicholas Schorsch – CEO

David Kay – President

Brian Block – EVP, CFO, Treasurer & Secretary

Lisa Beeson – EVP and COO

Analysts

Paul Adornato – BMO Capital Markets

Jonathan Pong – Robert W. Baird

Chris Lucas – Capital One

Mitch Germain – JMP Securities

Dan Donlan – Ladenburg Thalmann

Bradley Teets – Kovack Securities

Operator

Good afternoon and welcome to the American Realty Capital Properties First Quarter 2014 Earnings Conference Call. At this time, all participants are in listen only mode. Later we will conduct a question and answer session. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Barney Rosen of ARCP. Please go ahead.

Unidentified Corporate Participant

Thank you Gary. Good afternoon everyone. Thank you for joining us today to review American Realty Capital Properties First quarter 2014 earnings report. Joining me today are Nicholas S. Schorsch, Chairman and CEO; David Kay, President; Brian Block, Chief Financial Officer and Lisa Beeson, Chief Operating Officer. This afternoon’s call is being webcast on our website at arcpreit.com in the investor relations section.

There will be a replay of the call beginning at 4pm Eastern Time today. Dial in for the replay is 18773447529 with the confirmation code of 10044445. Before I turn the call over to Nick, I would like to remind everyone that statements in this earnings call which are not historical facts will be forward looking.

ARCP’s actual results may differ materially from these forward looking statements and the risk factors that could cause these differences are detailed in our SEC report. In addition, as stated more fully in our SEC reports, ARCP disclaims any intent or obligation to update these forward looking statements except as expressly required by law.

Let me quickly review the format of today’s call. First, Nick will comment on the quarter then David will discuss the closing of our recent acquisition Cole Capital, the recently announced spin-off of our multi-tenant business ARCentres as well as the future opportunities we see for the business.

Brian will then review our operating results for the quarter, detail our execution on several strategic balance sheet initiatives and walk through our earnings guidance for 2014. Lisa will then provide an update on the integration and synergies of our operations across our businesses as well as possible larger scale opportunities we see in the market.

Now I would like to turn the call over to ARCP’s Chairman and CEO, Nicholas S. Schorsch.

Nicholas Schorsch

Thank you Barney. Good afternoon everyone. Let me make a couple of key points on the quarter and on the business before I turn the call over to David. Our portfolio acquisitions were extremely strong with $1.75 billion closed and in our pipeline.

Our team is performing as planned with cash cap rates of approximately 8% on these acquisitions and GAAP cap rates of nearly 8.25. our first quarter earnings came in exactly where we expected at $0.26 per share of AFFO, despite the fact that there was less revenue due to the timing of the Cole closing, we are confident with our guidance for the full year of 2014 of $0.13 to $0.19 per share and a forward quarterly run rate of $0.29 to $0.30 per share.

We are realizing the identified $74 million of annual savings from the synergies identified in the merger and our singular focus and [Inaudible] business coupled with Cole Capital provides our shareholders with both a stable and durable income while creating opportunities for dynamic growth within our platform.

Finally I continue to be extremely pleased with how the management team has developed a cohesive working relationship. In fact we anticipate accelerating the succession planning process for David to take the rein to CEO of the company in the near future.

With that, I would like to turn the call over to David.

David Kay

Thank you Nick and good afternoon everyone. I am pleased with the progress we have made on acquisitions and capital raising. And I am excited about the opportunities we see going forward for the business. We invested over billion dollars of real estate on the balance sheet during the first quarter inclusive of the previously announced Fortress and Inland portfolios at a cash cap rate of 8.02% and a GAAP cap rate of 8.24%. These included 224 properties comprised of 78 individual transactions.

In addition we have closed and/or have under contract over 700 million in real estate for the second quarter. Together first quarter acquisitions with our projected second quarter acquisitions were totaled $1.75 billion at an average cap rate of 8.26% and a cash cap rate of 7.92% and a weighted average lease term of about 10 years. This puts us firmly on track for achieving our previously stated guidance of $2 billion to $3 billion of self-originated balance sheet acquisitions for the year.

In addition to our self-originated acquisitions, we are currently in negotiations to acquire several large corporate sell lease back portfolios which could materialize in the future.

Let me now turn to Cole Capital. Looking at our capital raising results, Cole Capital raised approximately $900 million during the first quarter putting us firmly on pace to achieve our previously discussed $3.1 billion capital raise target for 2014. During the quarter we successfully closed out two non-traded funds and subsequently launched two successor funds.

Typically the non-traded funds have a fund raising ramp up period in the beginning stages of the fund’s life cycle as we obtain selling agreements with broker dealers. We have made great progress with obtaining these agreements. During the quarter, we completed the capital raise CCPT 4 which focuses on retail with over $2.9 billion of equity raised.

We currently have three funds in total raising capital. Capital raising for non-traded REITs is cyclical by nature with a majority of the capital being raised as the program matures. During the quarter, our acquisitions team acquired $420 million of real estate on behalf of our managed REITs comprising 84 properties and 51 individual transactions.

Inclusive of the balance sheet acquisitions I just mentioned, our total acquisitions for the quarter were $1.45 billion comprised of 308 properties in a 129 individual transactions, that’s roughly an average purchase price of $11 million per transaction which as what I have been describing as one of our competitive advantages.

We can buy an up-market smaller transactions which have far less competition and better cap rates, ultimately yielding better spread to the company. Lisa will discuss the overall portfolio in greater detail but I will say that I am pleased with the progress we have made on the acquisitions front, as well as to growing diversity and quality of the portfolio.

Now, let me quickly give you update on our previously announced multi-tenant spin-off ARCenters. We are on target for a mid-June close. We continue to believe this transaction will unlock value for our shareholders. The assets continue to perform very well and believe represents a very solid foundation for growing this platform. Upon the completion of the spin-off ARCP will be focused on our core net lease strategy. ARCenters as a new standalone and publically traded company listed on NASDAQ will focus on growth and consolidation opportunities that exist within the multi-tenant sector.

I’d like to now turn the call over to Brian to discuss our financial results for the quarter and our future objectives.

Brian Block

Thank you David and thanks to the participants joining today’s call. In addition to reviewing our results for the first quarter I’ll also discuss the strategic initiatives we have undertaken to strengthen our balance sheet.

Let me remind everyone, that given the timing of the ARC Trust IV as well as the Cole closing first quarter results include just under two months of the collectivities and almost the full quarter of ARC Trust IV.

Revenues for the first quarter were approximately $321 million and AFFO was a $147.4 million for the quarter or $0.26 per share fully dilutive. The year-over-year increases were due to the various acquisitions consummated over the past 12 months. Our current run rate based on AFFO per share fully diluted is between $0.29 and $0.30.

We made a lot of progress improving our balance sheet on multiple front store during the quarter. Specifically we reduced our overall cost of borrowings as well as our secured debt, lengthened our debt maturities and improved balance sheet flexibility. One of our stated objectives was to continue to lengthen term which we will continue to do.

For example, during the quarter we successfully added long-term debt to the mix when we secured $1.2 billion of ten year fixed rate interest only financing consisting of $693 million of mortgage debt and $500 million of senior unsecured notes.

In addition, we successfully refinanced $730 million of secured mortgage financing. We used proceeds received from our five year unsecured note offering to replace this two year debt. We also used proceeds from our three notes to pay off roughly $1.3 billion on the whole credit facility which had a one year maturity.

As of the end of the quarter our weighted average interest rate was 3.7% which includes our line of credit with a weighted average maturity of 5.7 years. This compares favorably when compare to our peers which have an average maturity of 5.9 years and an average debt cost of 4.8%.

Increasing our borrowing capacity is another area where we are making significant progress. We have been in negotiation with our lenders to upsize our credit facility in excess of our current 3.15 billion capacity and have received verbal commitments from our largest lenders as well as from new relationships. These efforts will further improve our liquidity and provide additional flexibility.

With that I am going to turn the call over to Lisa.

Lisa Beeson

Thanks Brian. Looking at the net lease portfolio at the end of the quarter our occupancy remains at 99%; 51% of the portfolio tenancy is rated investment grade and an additional 20% is rated. As a reminder these are actual rated entities and not shadow ratings or parent ratings. We expect the portfolio to generate growth of 1.2% before taking in account CPI based escalators or percentage rents. These statistics exclude ARCenters, the multi-tenant portfolio that we will spin-off later this quarter.

Over the past four months, we have successfully integrated over 300 individuals from the multiple entities into one cohesive enterprise. Our accounting systems are fully integrated as well. We expect to exceed the previously announced 70 million in cost savings subsequent to the integration of the Cole platform. We anticipate 34 million in synergies to be recognized within the first six months following the close of the acquisition and an additional 40 million in the subsequent six months for an annual run rate of 74 million.

We continue to explore ways to optimize our business to increase these synergies further. Now I wanted to cover ARCenters and the growth opportunity we see. We have a great portfolio. 78 properties with 11.7 square million feet, 96% occupied with 4.7% comp store NOI growth. We also have very strong household metrics with three mile population of 69,000 and household income of roughly 70,000.

As a result of our spin-off announcement in form 10 filing, we have had a lot of inquiry regarding potential transactions. There are currently 19 public companies in this space and 11 with an enterprise value of less than 3 billion. The G&A of these small public companies is roughly 100 basis points. Further there are many more private portfolios.

The small cap companies are trading at 15.5 times AFFO multiple and the large caps are trading at 19.5 times. The ability to combine platforms and drive synergies is meaningful. Also our current structure makes conversations easier without creating social issues. By retaining the 25% interest in the company, we are aligned in creating shareholder value.

With that I will turn it back to the operator to open it up for questions. Gary?

Question-and-Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions). And the first question comes from Paul Adornato with BMO Capital Markets. Please go ahead.

Paul Adornato – BMO Capital Markets

Hi Good afternoon.

Nicholas Schorsch

Good afternoon Paul.

Paul Adornato – BMO Capital Markets

Nick, earlier I guess a couple of months ago, you talked about the equity markets and the fact that you would not issue equity below I think you mentioned 14.50 or so. And so I was wondering given the opportunity set that you see before you, given current market conditions, can you give us an update on what you think an appropriate share price is to tap the equity markets, just to hear your thoughts?

Nicholas Schorsch

Sure. Paul, as I said before, we are not happy with where our stock price is trading right now. We think that there is a lot of value that will be unlocked in the next 30 to 45 days with the Spinco of our multitenant assets which will certainly drive value and the other side of it is, we are seeing some very interesting opportunities in the marketplace per transactions where cap rates are starting to back up.

So we do take the stock price into consideration with any acquisitions. But to be clear, we are not anxious to issue stock at $12 or wherever it is at the moment or $13 or $13.5 a share, we think we are way undervalued and we think our currency is not being fairly viewed.

Paul Adornato – BMO Capital Markets

Okay, a related question, do you have a buy back in place?

Nicholas Schorsch

Yes we do.

Paul Adornato – BMO Capital Markets

And so what are your thoughts in terms of pulling the trigger there?

Nicholas Schorsch

We have not done so. We had a $250 million or $500 million; I am not sure what the exact amount is of our buy back, it’s been in place for quite a while. We haven’t executed anything on it in four, five or six months. Obviously it is something we have available to us if our stock continues to stay cheap. But we are also looking to delever our balance sheet overtime that would be inverse of buying back stock. So we don’t want to be delevering our balance sheet at the same time as, and buying back stock.

We do think our stock is cheap. Now just to be very specific, on the first note, we as a management team have borrowed $2 million worth of stock in the last six weeks and probably will continue to buy stock at that level. Currently we are blacked out but we were actively buying stock to both in our common and in our preferred and we believe that’s the right thing for us to be doing with our own capital.

Brian Block

Paul, you can see also the cap rates that were achieved in the market place at north of 8%. So we are obviously, even though we are trading at the levels that we are trading there, significant accretion between where our shares are trading and the 8% that we are able to achieve in the market place.

Nicholas Schorsch

I would rather be a buyer of stock myself personally than have the company buying back the stock and levering up.

Paul Adornato – BMO Capital Markets

Okay, great. Finally Nick, I don’t follow all of your businesses very closely but maybe you could just provide an update on what’s happening in terms of consolidation of the broker dealer networks and how that might impact ARCP?

Nicholas Schorsch

Sure. The broker dealer space that we are, we have closed the deal to buy Cetera that deal did close about a week ago. So we have about 10,000 advisors in our system that directly is a positive on ARCP. ARCP sells some products on those platforms, not a lot but some.

We continue to see very robust capital markets for our Cole Capital Markets business and that business continues to grow and our enthusiasm for the independent channel is no way [Inaudible] I know some of our peers have felt like that’s not that important of their business. It is an important part of our business.

We expect to raise over $3.1 billion, this year David and Lisa and Brian and our teams have been actively working with the broker dealers. We’ve recently signed many, many big selling agreements outside of the group that are cap owns, broadening their distribution constantly, significantly broadening of one was this Cole and that area is expanding and that’s one of the things I mentioned in my comments. So we expect to see that Cole Capital will continue to be dynamic growth aspect of our business as well as our asset management revenue for years and years to come.

Paul Adornato – BMO Capital Markets

Okay great thank you.

Operator

The next question comes from Jonathan Pong with Robert W. Baird. Please go ahead.

Jonathan Pong – Robert W. Baird

Hey good afternoon guys. Do you guys say, we are at a point right now where even though your past critical mass in terms of size or I guess because of the fact that your past critical mass in terms of size might [Inaudible] sensitive focus on the one off organic pipeline rather than pursuing these potentially large entity level deals especially given where stock price is today?

Nicholas Schorsch

Yes I mean that is where we’re focused. That’s what we have spoken about, I mean we obviously did a lot of transactions, we are achieving cap rates that are frankly that are north of where our peers are because of the way that we’re acquiring.

We continue to look at larger sale leaseback opportunities and built to suit opportunities for the same reasons because we think that we know that we have opportunities there because of our scale, we can take down larger blocks of assets and really get better rates because our peers can’t really participate in that. And so we’re able to play at both ends of the spectrum. We’re clearly focused on those areas much more than we would be in the M&A front.

Jonathan Pong – Robert W. Baird

Okay and then is future M&A dependent on where your equity is trading at that point or I guess I am trying to get a sense of the level of discipline you would have if you are to get a multi-billion dollar deal?

Nicholas Schorsch

I mean at the end of the day, cost of capital is always your overriding factor and so we look at every single opportunity both in terms of granular acquisitions, in terms of sale lease backs, built to suit or M&A transactions with our cost of capital in mind.

Our goal is ultimately to deleverage the balance sheet and continue to do so. And so obviously that’s an important factor as well. As we continue to look forward into the future and look at opportunities we will evaluate each of them on an independent basis trying to obviously add accretion each time. And that takes our cost of capital in the place and the factor as well as how we want to deleverage.

Jonathan Pong – Robert W. Baird

Okay. And just a last question for me, for your year to date acquisitions; can you give us a sense of what percentage of those have grown your cash flow?

Lisa Beeson

Very few of them as a percentage there were a couple embedded in our portfolio that we acquired via Fortress but those were all bankable ground leases but otherwise there are no ground leases associated with the acquisition.

Jonathan Pong – Robert W. Baird

Great that’s helpful. Thanks a lot.

Nicholas Schorsch

Thank you Jon.

Operator

The next question comes from Chris Lucas with Capital One. Please go ahead.

Chris Lucas – Capital One

Good afternoon everyone. David or Nick may be to start this way. Can you give me a sense as to of the acquisitions you guys closed already year to date? What’s the composition by property type retail versus the industrial and office?

David Kay

Let Lisa answer that because she has the schedule sitting right in front of us.

Lisa Beeson

Sure. So you know as I look at first and second quarter about 30% is retail on the single tenant with some on the multi-tenant, 5% on the multi-tenant perspective and the remainder was in office and industrial and 16% office and 41% industrial.

Chris Lucas – Capital One

Okay. And then I guess.

David Kay

When we say industrial we mean distribution, these are non-industrial buildings. So I don’t want to confuse, people use these terms very loosely, we don’t do industrial so we are doing to either built to suit some of these built to suit where we’ve built the building like the Nissan or the M&M, Mars facility and some of these are Home Depot or FedEx distribution facility. And if you look at some our peers they will use that almost in literal retail because the users, the retail user like Kohl’s or like CDS or an Amazon and they will call it retail, it’s really distribution. So we don’t do industrial so it’s industrial, retail and office.

Chris Lucas – Capital One

Okay. And then it relates to the amount that is either closed or under contract for – Is the entire amount expected to close in the second quarter or is there some risk that?

David Kay

Yes. Yeah what we’ve laid out is all expected to close with a high degree of confidence during the second quarter.

Nicholas Schorsch

And more that’s just what we have as of today. So that’s not – that will certainly be a lower number than where we expect to be.

Lisa Beeson

And it also does not include longer built to suit type programs where they are expected to close into the third and fourth quarter.

Nicholas Schorsch

Nor does it include anything for the non-traded REITs.

Chris Lucas – Capital One

Well that’s good Nick trying to understand. So the CCPT tender, the acquisition that’s depending on that is not included in these numbers?

Lisa Beeson

Actually that is included in here. That transaction is included in here, a couple of $100 million associated with it is included that should be closing concurrent with the expiration of the tender in the middle of May.

David Kay

But it’s on the balance sheet it’s not going into a non-traded REIT.

Brian Block

When Nick was referring to with assets being acquired into the non-traded REITs are not included in that numbers. So these numbers that we are giving are just what’s going on to the balance sheet.

Chris Lucas – Capital One

Okay. And then just on the, just out of curiosity about many thing, one asset that did not close and have not expected to close the Inland portfolio seems extremely large, what was it?

David Kay

AT&T, it was a large facility in Atlanta and it is in St. Louis and it was a building that AT&T in the middle of due diligence noticed they were vacant.

Chris Lucas – Capital One

Okay. And then the last question for me. It is just may if you could give us an update on a built to suite business and how the progress is moving on deals on that front?

David Kay

It’s been actually very strong and I think one of the advantages that we’ve had is the size of our company we are able to talk to other big corporates as a peer now. When you go to present a build to suit as a take out, we are not doing construction or construction lending; this is purely take out positions.

We now have the size and scale to really talk to the big corporates as a peer, we’re also many of these company’s largest landlord already. And so progress is going very well. We have a team of guys who are working on, going out and visiting those corporate, talking to the CFO’s and the guys who run the real estate groups within the big corporations, we’ve made a lot of progress, our pipeline right now is about $800 million.

The closing of those typically takes 12 to 24 months depending on the type of facility that it is, but we as Nick mentioned we’ve done some really great deals with FedEx, Amazon, Mars, ConAgra many of the big names that you would want to see, good credits.

Chris Lucas – Capital One

And so are those deals included in sort of the acquisition flow or is there a separate view on those?

David Kay

The ones that are included in the acquisitions flow are really from a pipeline perspective would be in their future forecast. In the numbers that we’ve given closing in the second quarter or under contract to close in the second quarter, we may have A, built to suite or two in there that is being completed during that quarter. But one that was by example initiated during this quarter that won’t close for 18 months that’s nowhere sort of in our numbers right now, it’s just in our future pipeline of deals.

Chris Lucas – Capital One

Okay Great. Thanks a lot guys.

David Kay

Thanks Chris.

Operator

The next question comes from Mitch Germain with JMP Securities. Please go ahead.

Mitch Germain – JMP Securities

Hey guys. So it looks like private capital fund raising slowed in March. You know David what’s that attributed to?

David Kay

You know as we’ve said on the call, we initiated two new funds and there is really a ramp up period where you are going to obtain selling agreements of the broker dealers. During that period you are not raising as much capital, most of the capital in these funds is actually raised as the fund matures and towards the back end where there is sort of this rush to get dollars.

And so this is fairly typical, we actually put out of free writing perspectives that showed where Cole Capital raises have been in the past and you can track those with the launches of the fund. So as we closed out two funds and replaced those with two new products, you’ll see that now selling agreements are ramping up, we’ve got 9,000, 10,000 advisors and certain ones now and as we continue to get selling agreements that will ramp up and then dollars will come in. And so again we are in our view we are right on track to the numbers that we have forecasted for full capital and we remain confident that we’ll hit those.

Nicholas Schorsch

Mitch we are actually we are probably a month ahead of where we expected to be for example, CCPT which was the Cole Credit 2 is now raising almost $2.5 million a day from the standing start less than 2.5 months ago.

So that’s a very rapid ramp up and that’s partially because of what we talked about it earlier was the diversification of the Cole platform. Cole is a lot more diversified than it used to be, it used to sell primarily through about a 130 broker dealers, now it’s more like a 160. So that’s helping ramp up that sales efforts, and the first quarter was much better because those deals closed out quicker. So it’s really, it all averages out in the total for the year.

Mitch Germain – JMP Securities

Great and then sorry...

David Kay

Well I was just going to say we are very pleased with how Cole capital is operating. Management is doing a great job out there, the wholesalers are doing a terrific job and they’ve really been operating better than expected as Nick said.

Mitch Germain – JMP Securities

And then on that top how would you characterize the Cole team in general?

David Kay

You know I would characterize them as fully integrated and obviously very capable of performing what they are supposed to do. They had a great business before the merger, we’ve continued to sort of refine how we do certain things. From an underwriting perspective they are world class.

From an acquisition perspective, they were as dominant as ARCP and so the two teams collectively you see the acquisition results, I mean I think that they speak for themselves to some extent we’ve done an awful lot of transactions, we’re obtaining the cap rates that we have slated to obtain and we are not stretching.

We’ve underwritten nearly $10 billion of deals in the first quart and the billion and a half that we’ve closed and have under contract to close in the next quarter is a pretty typical sort of percentage. And the team is operating very well. Our accounting systems are fully integrated as Lisa mentioned and we couldn’t be more pleased.

We are spending a lot of time in Phoenix from the management perspective and I think that that’s a good thing. We have I think a rejuvenated intensity there that Cole frankly had not seen in probably past year or two and I think that the work product and the effort is directly related to the results that we are achieving.

Nicholas Schorsch

Hey Mitch as one of the thing you have to look at and that is that, look at the results, when you look at the performance of David and Lisa’s teams and how they are performing as far as buying, the velocity these are 1Z, 2Z, I don’t know or was it 380 properties David, with over 90 transactions. There is no other peer in this industry that’s putting up eight caps with investment grade assets with nine and 10 year durations in this kind of tonnage.

I mean this is big value and this is 1.7 billion in four months and that includes two months we were shut down in January and February, we were in the middle of the merger. So besides the merger with all the things that we have been going on, they put up a 1.7 billion of assets and cap rates that are 100 wide at industry standards. All I can say is it’s the reason why I feel that our succession planning is moving ahead of schedule. That’s the exact reason, it did not show right there, it’s just their fee, they performing exemplary.

Mitch Germain – JMP Securities

Great. I appreciate that Nick. And then David just some thoughts on the sale leaseback opportunities, is there specific industry or a sector that that’s skewing toward?

David Kay

No, I mean, we like retail, I mean that’s been the bulk of the portfolio at roughly 50% or so and I think that we will continue to be focused on that, there is a lot of opportunity there. And retail as you know stands across everything from quick service restaurants, restaurants to bread and butter retail. And so I think we are seeing it across that entire platform and we have, we are the landlord to a lot of major companies as I said.

And so I think that the dialogue that we have now with our size is vastly different than it was a year ago. And it’s a different company, our capabilities are different, we can execute, we talked about last quarter we brought a lot of the diligence and the legal underwriting, et cetera in house, we have a full team of attorneys that do our work, so that we can not only control the timing of it, but the quality of it.

And I think that’s been attractive for a lot of corporations who are working to do leasebacks. I think you are going to see higher rates in that as well because there is not a lot of companies that can pull down $300 million, $500 million, $1 billion type transactions with single products and because of our skill, we can do that now.

Mitch Germain – JMP Securities

Great. Thanks guys.

David Kay

Thank you.

Operator

The next question comes from Daniel Donlan with Ladenburg Thalmann. Please go ahead.

Dan Donlan – Ladenburg Thalmann

Thank you and good afternoon.

David Kay

Hi Dan.

Nicholas Schorsch

Hi Dan.

Dan Donlan – Ladenburg Thalmann

Hi. I guess first question for Brian on the G&A I think is about 49 million, how much of that was related to Cole and then kind of what are you expecting for that line item going forward for rest of year, should we see that start to take down a little bit or how should that, how is that going to progress?

Brian Block

Yeah Dan. I would point out that we view Cole Capital as a different segment of business. So I think we have pretty good transparency in the footnotes specific to the real estate versus Cole Capital.

So if you parse through the G&A and I am turning toward right now, you would see that roughly see here $20 million of the total G&A relates to the fund raising business and the balance is to the real estate. How I see that trending is to the extent we are raising more capital in subsequent quarters, there is a direct correlation to additional G&A vis-à-vis conditions and variable cost that are directly relating to the selling activities.

Dan Donlan – Ladenburg Thalmann

Okay. So you anticipate kind of this run rate to kind of kick up from here a little bit?

Brian Block

No, I would say it goes down in general as we are realizing the synergies that we spoke about earlier. But my only point is when we are successful with the fund raising whether it’s the end of second quarter, the third quarter, I don’t want to use this as a trend right now because the variable cost that hit the G&A directly relating to the sales will increase G&A overall.

Dan Donlan – Ladenburg Thalmann

Okay. Yeah. I can remember that with Cole, and we had a lot of companies report today, so I am sorry I missed that footnote. And then the second question is kind of on the credit facility, I noticed that your spread to LIBOR is I think it’s almost 300 basis points. But was kind of curious why that seems to be so high relative to some of your peers, is it just the share of magnitude and then kind of going forward, what’s your anticipation for paying that down, what type of debt maturities are you looking to pair that down with as you bring more acquisitions onto the balance sheet?

Brian Block

Dan you are referring to the older revolver, now we have the new revolver. And revolver itself is 140 over and the term loan is 160 over. So that’s been, that’s already been updated when we increase the facility to 3.15 billion those new terms went into play.

Dan Donlan – Ladenburg Thalmann

Okay. That makes a lot more sense then. But as far as...

Brian Block

And they don’t ratchet anymore, so you won’t have them in a higher rate as the leverage rates are flat.

Dan Donlan – Ladenburg Thalmann

Okay. As far as the 2.4, what do you, do you think about putting more on the credit facility as you get more lenders in there or what is your thought process on terming that out?

Brian Block

Yeah I mean our thought is to go back to the bond market I think we did a large bond deal 2.55 billion last time, there needs to be some space in between, rates are very attractive right now, on the long term side we will keep the next deal towards the longer end of the curve.

You are seeing some of our peers issue 10 year paper, 30 year papers being done, there is a nice sweet spot on some sevens too which fits nicely into our maturity schedule. So we will term it out.

I think that we want to do issuances as we have said previously of the larger variety, airing on the side of 700 million to a billion, maybe just north of a $1 billion. And so you should see that as we progress, we are looking to upsize the line that does not – that’s not just to go ahead and load it up, it’s really to provide ourselves with more flexibility and more liquidity which I think the agencies like.

I know the agencies like that and I also think that it gives us a lot more flexibility when we are looking at sale leaseback transactions or things of that sort. So we will continue to term out the debt in the bond market, I think we just want to do it at a measured pace with a little space in between your deals. And so we just recently did a deal so we need to be patient but you will see hit the market hopefully a good time.

Dan Donlan – Ladenburg Thalmann

Okay makes complete sense. And then moving to Cole Capital, I remember when you guys acquired it and you talked a lot about how AR Capital had relationships in the broker deal world and Cole Capital had relationships that maybe you guys didn’t have. Was just kind of curious is that falling into place in terms of getting new relationships and specifically do you have selling agreements with LPL as well as an AIR price?

Brian Block

Yeah. Let me answer the first part of the question first which is yes, that is bearing fruit I mean there were some crossovers but many not and we are getting selling agreements with ones that we had not had before – we did not have.

Dan Donlan – Ladenburg Thalmann

Did not have a merit price?

Brian Block

Right, we did not have a merit price and previously we do, we are working with LPL, we just recently got Linking as an example. And so it is progressing very nicely and as I said before we couldn’t be more pleased with the management that’s there in working hard and the wholesalers are doing a good job and we continue to see ramp up in the funds.

And so I know that there was question I received a couple of emails based on the [Inaudible] reported whereas the volume, this is very typical, this business and you would see cyclicality and particularly at the launch of the funds. And so you will start to see ramp ups and again as the funds start to mature, you will a lot of dollars come in. And so we are just approaching this as we have any other year and we are very, very comfortable with the funds we have outlined as our guidance to raise.

Dan Donlan – Ladenburg Thalmann

Okay. So Cole Capital is selling on a merit price but they are not selling LPL?

Brian Block

No, vice versa, Cole Capital has never sold on a merit price.

Dan Donlan – Ladenburg Thalmann

Okay.

Brian Block

And it is selling on, it is continuing to sell as it was before on LPL, no change.

Dan Donlan – Ladenburg Thalmann

Okay. Yeah. Okay. That’s the largest...

Brian Block

It also is broadening, the third thing you asked is also correct, it is broadening its distribution to more broker dealers it did not have before as expected, so the number of broker dealers itself there is probably in large part by 30.

Dan Donlan – Ladenburg Thalmann

Okay. I will [Inaudible] fire, the sirens are

Brian Block

It’s an ambulance on Park Avenue.

Dan Donlan – Ladenburg Thalmann

All right. And then two more questions sorry. On the – as far as the acquisition side, you raised 880 million in private capital, you only put 420 million to work, why not try to match that better, why not add more properties to the non-traded versus the balance sheet in order to time it more appropriately?

Lisa Beeson

Go ahead David.

David Kay

I was just going to say the acquisitions are there I mean they’re teed up, it just takes a little while, some of those are built to suit and there is an allocation process but the acquisitions are there, so it is more of a timing issue but you will see the acquisitions flow into those bonds over the next quarter or so.

Dan Donlan – Ladenburg Thalmann

Okay. And then lastly Nick you have a seven year agreement with ARCP as CEO. Was just kind of curious why the discussed success plans is, is that something you would go back and change the agreement or how should we think about that, given that you only signed it just a couple of months ago?

Nicholas Schorsch

No, that was always a part of my agreement Dan. I think we have discussed this before in the call you may not have been on. But my contract was to be Chairman, the Executive Chairman of the firm from the very beginning and that I was going to be Interim CEO and that’s the way my contract is written and the idea was that I would stay in place and dedicate a substantial majority of my time through the point of which we had a deep bench in the C suite and we wanted to have a more robust bench then a company of $4 billion or $5 billion which would have been I guess almost any one of the four people we have now sitting in the C suite.

And the idea was that overtime we would be, I would be able to take a more of the role of a Chairman and allocate capital no different than what you see with Mort Zuckerman or with Sam Zell or what you see with John Malone and that was always the construct of my contract and David was brought in Lisa and Brian and then Rich as part of the board’s concept from the very beginning

It was always contemplated that we needed a very robust management team to run a company of this size, realize we are almost double the size of our newest peer and we are doing more than double the amount of acquisition than our newest peer is doing.

So, we look at as part of the process. So, at this point we are seeing very good results and I wanted to be clear with the market that at our current pace we had originally hoped to be in a position to start the transition in early ‘15 we may be able to start the transition even sooner than that.

Dan Donlan – Ladenburg Thalmann

Okay, well hopefully that means you are still going to stay in the calls, they won’t be the same without you.

Nicholas Schorsch

I won’t leave, don’t worry. And I am not selling my stock either.

Dan Donlan – Ladenburg Thalmann

Thank you.

Nicholas Schorsch

Thanks Dan.

Operator

The next question comes is a follow-up from Paul Adornato with BMO Capital Markets. Please go ahead.

Paul Adornato – BMO Capital Markets

Thanks. Sorry if I missed this Lisa, could you talk about where the incremental cost savings are coming from?

Lisa Beeson

Sure, so it’s a combination of streamlining a bunch of the organization a lot of it is the elimination of the duplication of sort of joint corporate expenses, there is also a lot of very expensive people who are no longer part of the company on a go forward basis that’s another sizable advisable portion of the saving but it really is coming across the board from third-party service providers you know paying closer attention to expenses given the knowledge that we have on the Cole Capital side, it really is all the process aboard. Auditors, board fees, I mean it’s all of those kind of expenses that we are able to drive the expenses down.

Paul Adornato – BMO Capital Markets

Great, thank you very much.

David Kay

Thanks Paul.

Operator

The next question comes from Bradley Teets with Kovack Securities. Please go ahead.

Bradley Teets – Kovack Securities

Thank you. When you structured the spin-off of the centers property, do you consider the reason for doing that more to break up income versus growth properties or just to have the pure triple net lease in the original ARCP and the multi-tenant in the new spin-off?

David Kay

I think it’s a combination it’s ARCP will become a pure play net lease durable income company, growth in that company will as Nick pointed and I pointed out earlier is in the 1.5% sort of internal range and then additional growth from Cole Capital.

We see the spin-off as the multi-tenant grouping a higher growth as we pointed as Lisa pointed is over 4.5% same store comp, trades at a different multiple, there is lots of consolidation opportunities as she pointed out earlier and I think it’s really the combination of creating value for our shareholder as well as becoming a single focused net lease pure play company which I think is something that the market should embrace.

Bradley Teets – Kovack Securities

Thank you.

David Kay

Thank you.

Operator

The next question comes from [Panos Marcolas with Helenica]. Please go ahead.

Unidentified Analyst

Good afternoon gentlemen.

Nicholas Schorsch

Good afternoon.

Unidentified Analyst

I have two very simple questions probably related, first question is in the issue how the market comparing ARCP to Realty Income it seems like ARCP is getting short end of the stake. My concern is what is management doing to achieve a more favorable comparison and at what stage will we see the valuation levels from the market where to put into street terms when are going to get any respect?

David Kay

You know it’s an excellent question in fact on the last call somebody asked where are the things that are happening better than expected or sooner than excepted and what are the ones that are happening at a slower rate and my answer was, the markets embracing our company is definitely coming at a slower pace.

We spend a lot of time on the road talking to dedicated refunds talking to investors potential investors and I think you know one of the things hopefully that this quarter will do is really clarify and simplify the story, sure we had a partial quarter because of the acquisitions that we have made during the first quarter but I think this is really a true – you are seeing a true run-rate now for what we do.

You are not seeing any major acquisition added to this, you are seeing the granular deals that we have talked about and are executing and the cap rates that we are able to achieve. Our debt levels are really the only state that I can point to that isn’t the same or better than every other as a peer.

And I would say that hopefully with time obviously we will bring in our leverage and we have talked about that for the last two quarters now and we will continue to work towards that. We will focus on our blocking and tackling which is the basic buying at good cap rates and buying the right assets, keeping our mix and majority of investment grade and hopefully the market will respond with getting on the road.

Many have suggested maybe you should go out and issue equity and it will give some of these REIT funds and some of the other investors a chance to buy stock and that might actually move your stock in an upward trajectory.

I think the answer to that is we are only going to issue equity in accretive manner when we have deals, we don’t like our stock price right now as Nick said. I don’t love it in the 13’s more or less in the 12’s. We trade at a couple of 100 basis point yield differential from a dividend perspective, we trade at multiples below where our peers are.

We are just going to keep doing the same things that we are doing in executing and getting out there and telling the story and hopefully the market will respond. We are not running a stock, we are running the company and the company is producing shareholder value right now by doing the things that we said that we are going to do and hitting our numbers and you know that’s what we are going to continue to do.

Unidentified Analyst

I think that there is a consistency and this is the second question I have and it’s more along the lines if you comment on this. I think there is a consistency in fixed base conference call that we need to go back to organic growth, this is a large acquisitions now you just said deleverage and give that opportunity to market to see a better performance from the company itself even though I won’t say right off the bat but you have done a phenomenal job with growing in revenues and your AFFO.

My question is, are we going to go back to organic growth as the norm for the rest of the year or are we looking to getting bigger than where we are at now because the two would be –with the statement you just made earlier that kind of fee suppose that we are going back to an organic growth model for the company.

David Kay

Yeah I would say that we are not going to grow just for the sake of growth. I mean the cap rates that we have been able to achieve and the deals that we have been able to acquire are transactions that makes sense from an accretion standpoint, they make sense from an integration standpoint and a capability standpoint.

We are going to continue to grow at our self-originated deals would be, what we do quarter in and quarter out. Will we look at other opportunities, absolutely we see every deal just about out there on the street that’s a good thing for our shareholders, they should want us to continue to look and see what’s out there but right now we are focused on becoming a pure play net lease company that has a great capital management business in Cole Capital which will provide some growth to us above and beyond the 1.5% plus the CPI escalators that we are going to get in the leases and that should yield a pretty solid return for our shareholders.

If you can grow your business up a single digit to low double digit and provide nearly 8% coupon which is where we are trading on a dividend basis, that’s a pretty solid return and for me I’m still scratching my head much like you are as when do we sort of get that respect of the investment community that says, this platform is pretty rock solid, if you look at our free riding perspective and compare us to all the other net lease companies, I would never say discouraging about them but just stack us up, our leverage is higher and we are addressing that, other than that our metrics are every bit as good or better than every other company there and the thing that we can do better than them is our ability to acquire on an individual basis and buy at yield.

If you look at where our peers are and I didn’t plan on sort of going into this much detail but if you look at reality income that you just brought up, we just bought their acquisition and big blocky transactions at seven caps. I believe that our portfolio and the acquisitions that we just made at eight caps are far better investments.

If you look at [Inaudible] NNN where you focus on either non-investment grade companies that they are buying leases too or you are focused on lower yields or we’re buying at better yields and we are buying better products and we can do that because of the way that we are set up.

We have a factory, it’s a machine to acquire assets and we figured out the mouse trap to do that in, we have phenomenal underwriting capabilities and we can close because we have very thing in house. I think the market will ultimately get that and as I continue to tell the story and get out on the road and our team continues to perform that’s hopefully what happens.

This isn’t a sales pitch or anything like I have been accused of being very savvy et cetera. We are excited about the business we have a great business. We are able to achieve pretty good spreads, we just got investment grade rating but our cost of debt should continue to come down, unlike most of the other companies in our peer set which are already at their maximum ratings and their spreads are staying about the same.

So, I think all those things are positives for our company and hopefully the market will grab hold of that at some point and say these guys really do have a pretty unique business and a unique platform and they are not going to screw it up.

Operator

The next question comes from Chris Lucas a follow up from Capital One. Please go ahead.

Chris Lucas – Capital One

Yeah David, just a quick one, can you remind us what the mechanics are of the spend in terms of the SEC interaction and shareholder interaction?

David Kay

Yeah, I mean we filed our Form 10, we have got comments back and we should be effective by mid-June and then dynamics are, you are going to get a share for every 10 shares and it will start trading right in mid-June.

Chris Lucas – Capital One

Great, thank you.

David Kay

Thanks Chris.

Operator

This concludes our question and answer session. I would like to the conference back over to Mr. David Kay for any closing remarks.

David Kay

Thank you and thanks everybody for joining. First quarter was a great start to the year, hopefully this will be one of many quarters to come where we are reporting good news. We are always accessible as everybody hopefully on this call knows. Please do not hesitate to contact us, Barney will give you the numbers now but I appreciate everybody being on the call and thank you for joining us.

Unidentified Corporate Participant

Thanks David, and thank you again everyone for joining us today. As always our management team is always available to speak with you should you have any follow up questions, if so please do not hesitate to contact me directly at 212-590-3940. Operator, would you please provide the conference call replay instructions once again. Have a great day.

Operator

Thank you Ms. Rosen. As a reminder this conference call will be available for replay beginning approximately one hour after the end of the call. The dial-in number for replay is 1877-344-7529 with the confirmation code of 10044445. Again the dial-in for replay is 1877-344-7529 with the confirmation code of 10044445. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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