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The spin off is off; American Realty to sell multi-tenant shopping center portfolio

  • The buyer for $1.975B in cash is a Blackstone (BX) real estate fund. A letter of intent has been signed and a definitive agreement of sale is expected in the next 30 days. The properties included in the sale are the same ones American Realty earlier announced would be spun off into American Realty Capital Centers.
  • ARCP will use the proceeds from the sale to fund the just-announced Red Lobster sale-leaseback deal.
  • American Realty President David Kay notes the cap rate on the shopping center portfolio is more than 100 basis points lower than the 7.9% cash cap rate on the Red Lobster properties.
  • The company also launches a 100M share secondary offering, with the underwriters granted a greenshoe option of 15M shares.
  • Source: Press Release
  • Source: Press Release
Comments (51)
  • hdubin
    , contributor
    Comments (10) | Send Message
     
    More shares UGH!
    21 May, 08:11 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    The new shares have been in the pipeline since the 4th qtr conf call for the purpose of new aquisitions. So nothing new to those who pay attention. They have nothing to do with the sale to Blackstone.
    21 May, 10:07 AM Reply Like
  • surfgeezer
    , contributor
    Comments (6983) | Send Message
     
    Shares are how REITs grow.
    24 May, 06:32 PM Reply Like
  • kallabos
    , contributor
    Comments (17) | Send Message
     
    When I heard Red Lovster the other day.. I sold and didn't think twice about it. Going to find another REIT to replace this garbage
    21 May, 08:31 AM Reply Like
  • 11153541
    , contributor
    Comments (5) | Send Message
     
    While Red Lobster is scaring folks off, they didn't buy Red Lobster, they bought prime Real Estate. The Hedge fund will or won't run Red Lobster well....who knows....but many of the properties will get repurposed. Each piece of land will ultimately get used for highest and best purpose. Only disaster scenario is Red Lobster & Hedge Fund both go bust.... and ARCP can find no other users for the land. Very unlikely IMO.
    21 May, 06:40 PM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    The best REIT just improved it's financial position and it's portfolio.
    21 May, 09:27 AM Reply Like
  • wam350
    , contributor
    Comments (116) | Send Message
     
    Agree!
    21 May, 09:44 AM Reply Like
  • alschroed
    , contributor
    Comments (1033) | Send Message
     
    I wish MR. S would stop making other REITs rich and do something for us holders of ARCP. With all the deals done the last 2 years my dividend has only increased from.93 to 1.00. Mr. S pays too much for his deals and makes the target shareholders rich.
    21 May, 09:51 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    You're kidding right? Short?

     

    As of 12/31/2012 ARCP had 653 properties

     

    ARCP now has over 4,000 properties and those deals have been accretive to my knowledge. From what I have seen a dividend that was mostly roc to one that is now based on FFO, Mr S and team have pulled off an incredible transformation.
    21 May, 10:14 AM Reply Like
  • Techbug
    , contributor
    Comments (111) | Send Message
     
    So, how come the stock is tanking?
    21 May, 10:19 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    @tech because

     

    a) as I have demonstrated above, most people don't know what they are talking about

     

    and b) anytime you announce new stock issuance people are unhappy and do a knee-jerk, but I still think this stock is being manipulated to the downside that will turn around in time as the company just gets better and better.

     

    c) shares of O were down 2.7% on March 27 when they announced a secondary offering
    21 May, 10:27 AM Reply Like
  • Techbug
    , contributor
    Comments (111) | Send Message
     
    Because, it is hard to predict what Mr. S. is up to. For two months he was telling us that he was spinning off those properties. Now, over the past 24 hours he has changed his mind and telling us a completely different story.
    21 May, 10:40 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    See my comment above your first one to see what he has done
    21 May, 10:55 AM Reply Like
  • Techbug
    , contributor
    Comments (111) | Send Message
     
    During this past earnings conference call he was telling us that the stock was too cheap to raise cash from offering equity. Now, he has completely reversed himself, launching a 100M share secondary offering!
    21 May, 11:12 AM Reply Like
  • grox01
    , contributor
    Comments (675) | Send Message
     
    You haven't read the script right... he said the stock was cheap, but he also said he wouldn't hesitate to use stock offering for good deals.
    21 May, 11:29 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    nothing but whining from supposed ARCP investors, even though many have admitted they hold no position, or hold O, or some are shorts.

     

    Would you rather he stick to a previous statement or grab a new opportunity that just presented itself and is better for the company and shareholders?

     

    These little malls had been criticized, and maybe they would have gotten 2.2B and maybe not, but they were going to hold onto 25% and have to pay the underwriters so in the end they are getting at least $375 million more in cash than they would have from a spinoff.

     

    They must see things they want, it is a unique period in time coming off a giant recession that depressed prices and where people are still cash poor and rates are low. As long as it is accretive, why not. Everything they have done up to this point has been positive imo. They cherry picked the best RL locations which from what I can see are some of the choicest commercial parcels in the country.
    21 May, 11:35 AM Reply Like
  • Techbug
    , contributor
    Comments (111) | Send Message
     
    The multi-tenant shopping center unit had been announced as a $2.2B spinoff. Now, he is telling us that he sold it to Blackstone for $1.975B. Management credibility is very important. It is lacking in the eyes of the markets, the way Mr. S. has been conducting himself.
    21 May, 11:55 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    Since you like to repeat yourself, I will repeat myself

     

    2.2 billion (is what they hoped it would bring in total) Minus the 25% they would hold onto as stated at the time, minus the underwriting fees, minus the 80 million shares that the shareholders were getting = what

     

    probably around $600 million cash vs. the $2 billion CASH from blackstone

     

    NO BRAINER
    21 May, 01:32 PM Reply Like
  • 11153541
    , contributor
    Comments (5) | Send Message
     
    Check your yield. ARCP is paying a nice dividend, while they are building a solid portfolio. Just because the market is not seeing the value short term, doesn't mean their strategy is off. I loaded up today at $12.45 to $12.16. Also check out the potential return by selling cash covered puts. On many of the options (Oct/Dec) you can get in excess of a 10% annualized return.
    21 May, 08:34 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    "During this past earnings conference call he was telling us that the stock was too cheap to raise cash from offering equity. Now, he has completely reversed himself, launching a 100M share secondary offering! "

     

    Under the price of the 52wk low, no less.

     

    I'd have been happy to see a 30yr bond deal. This... not so happy. Issuing shares at a 8.33% yield to pay for a 7.9% cap rate deal isn't wise - it's freaking dillutive.

     

    I an re-evaluating whether I want to own such a company, which promises not to do something and then does it...

     

    -Mike
    21 May, 11:44 PM Reply Like
  • cdj99
    , contributor
    Comments (13) | Send Message
     
    Shorsch said "we are not anxious to issue stock" because the stock is cheap. Yet, he did. The Red Lobster deal is $1.5B. Why are they issuing stock if they are getting $2B from Blackstone? They're netting $500M, yet they are still selling stock. What for? I don't get it. Long ARCP.
    21 May, 11:43 AM Reply Like
  • Bingy77
    , contributor
    Comments (144) | Send Message
     
    To pay of their lines of credit which were used for other acquisitions
    21 May, 04:27 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    I'd rather have seen a 30yr bond deal. Those practically pay for themselves over the duration. If you factor in a ~2% dividend increase per year to match inflation, issuing stock at an 8.33% yield rather than long term bonds makes absolutely no sense. It's going to cost them way more money and be way more dillutive in the long run. Even at nearly 6.0% with 2% annual dividend growth (initially a 2.33% spread between 8.33% and 6.0%), in 30 years they'll spend twice as much on dividends than they would've on interest and repaying the debt. That concerns me. Granted, it is a longer term view than most investors take - but that's the kind of view that many income and retirement investors do take...

     

    Can someone explain to me why having so much debt vs equity is a bad thing? If it's super-far-out debt, which can be paid down from earnings before it expires, where is the danger?

     

    I'd much rather have had 30yr debt...

     

    -Mike
    22 May, 12:05 AM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    CDJ -- see grox's comment above
    21 May, 11:48 AM Reply Like
  • bilow
    , contributor
    Comments (157) | Send Message
     
    Since Jan. my bet has been that mr. Market is heading sideways and that ReIts are the best parking place in this slow economy. Ventas and O have had spring dips....bounced back. I am going to keep collecting the ARCP rent expecting the same. Good luck to all - enjoy your opinions.
    21 May, 12:00 PM Reply Like
  • financeminister
    , contributor
    Comments (786) | Send Message
     
    hmmm... at these levels, I'm thinking of starting a long position for this year's IRA allotment.

     

    Quick questions:

     

    1. Do you think the monthly dividend is sustainable and not at the risk of being cut? If yes or no, what makes you think so?
    2. Do you see further downside? and if yes, how low do you think the stock price can go and what would be the reasons for more downside?
    3. Can you summarize the risks related to the decisions taken by ARCP management?
    4. Can you summarize the risks of owning ARCP in the context of macro level risks (interest rates, downturn in economy etc)?

     

    Thanks. Appreciate your input.
    21 May, 12:18 PM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    1) slides 20 and 28 http://1.usa.gov/19wm0XG

     

    2) Stupidity is the only reason for its downside, how stupid are investors

     

    3) huh

     

    4) The economy is going to be slow and steady, run by energy as it always has been, which is plentiful and homegrown yet not cheap. Interest rates will stay low for the forseeable future because of energy and productivity. Fed only raises to cool off an overheated economy, the economy only overheats due to energy shocks and full employment, see above
    21 May, 01:39 PM Reply Like
  • financeminister
    , contributor
    Comments (786) | Send Message
     
    Thanks for the information. I'm fully invested right now and have a small cash position (5%). Wondering if I should use part of that on ARCP.
    21 May, 02:59 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    If you buy in, try to grab it under $12... that's the price for the offering. Usually when new shares are issued, the buyers unload a whole bunch on the market right away. If the market likes the offering, ARCP's share price won't ever hit $12, due to buyers grabbing the new shares more quickly than the offering's buyers can sell and drive the price down. If the market is now wary because the company doing what they explicitly stated they would not, then the price may not have support and may dive further.

     

    Heh... ARCP at a 9% yield. Wouldn't that be something to see?

     

    Dividend seems safe to me, but if they're willing to issue dillutive equity, you will never see a snowball pattern like DLR or OHI had for years. Instead you'll see a pattern more similar to DFT or WSR.

     

    "Snowball pattern" refers to companies that have investor confidence. They can issue accretive equity, which they use to make more acquisitions. This generally results in an upward sloping stock price over the years.

     

    Hmm... FRT might be the best example of this. Paid $0.48 in dividends when their share price was $20... but something happened, and over time they fetched a premium. Now they pay $0.78 in dividends, but their share price is 6x higher. Any equity issued is going to be very accretive, given their 2.7-2.8% yield. If they needed to, they could issue new shares cheaper than any debt/financing that I can think of. Accretive to the maximum, if you ask me.

     

    -Mike
    22 May, 12:15 AM Reply Like
  • embryorambo
    , contributor
    Comments (246) | Send Message
     
    very interesting this changing plans last minute to sell vs spin off, and also to issue shares despite saying we don't like issuing shares at these levels. Nick and his team are making a lot of very large changes very quickly. Which is creating uncertainty..Hard to say at this point if this is going to help or hurt shareholders...be curious to know the offering price
    21 May, 12:32 PM Reply Like
  • kgerickson
    , contributor
    Comments (213) | Send Message
     
    Wow... we (I) like to buy these reit's because they are generally slow moving income generating businesses a normal investor can follow. This is going to be a mess or a long term home run. I bought the jan 2016 12.5 calls between .95 and 1.05. I like the price for a 20 month call at these levels. The x-div's will work against the position but I think the timing is correct if your interested in this stock.
    21 May, 12:52 PM Reply Like
  • Sundowner
    , contributor
    Comments (219) | Send Message
     
    The CEO keeps saying these transactions are creating shareholder value, but yet the share price keeps falling. Can someone explain this phenomena?...
    21 May, 12:56 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    Accretive actions generally cause the price to go up. Dillutive actions generally cause the price to go down. This results in snowball effects. (either upward or downward)

     

    -Mike
    22 May, 12:23 AM Reply Like
  • dondiego77
    , contributor
    Comments (25) | Send Message
     
    Issuing stock at a cost of 8% (the dividend) to buy properties yielding 8% is what concerns me. A conf call or presentation to explain would be nice.
    21 May, 12:59 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    Actually, it was issued at 8.33% for properties yielding 7.9%

     

    I can do math. Most investors expect the dividend to rise, to at least match inflation, which will offset the built-in 2% escalator for the cap rate. Therefore, this was dillutive. Period. I'm disappointed. Doubly so because they said they wouldn't do it.

     

    -Mike
    22 May, 12:26 AM Reply Like
  • coloneldebugger
    , contributor
    Comments (904) | Send Message
     
    yeesh, this is testing my limits today.

     

    must remember long term must remember long term must remember long term must remember long term must remember long term must remember long term
    21 May, 01:28 PM Reply Like
  • DRILLINDK
    , contributor
    Comments (5) | Send Message
     
    Not that this matters to many of you, but man does that daily & weekly chart look Bearish. Unfortunately, Long ARCP
    21 May, 02:06 PM Reply Like
  • Captain Pike
    , contributor
    Comments (768) | Send Message
     
    I bought more
    21 May, 02:15 PM Reply Like
  • user27205633
    , contributor
    Comments (343) | Send Message
     
    I like the change. Sell the shopping malls. I wasn't that excited about losing shares of ARCP for shares in shopping malls. Im not that excited about Red Lobster either, but they have to pay rent to someone, as long as they are around.
    21 May, 02:15 PM Reply Like
  • Union Trade Assoc
    , contributor
    Comments (776) | Send Message
     
    The situation - Hedge Funds holding Darden shares complain bitterly the sale of Red Lobster properties occurred at a 800 Million Dollar Discount to they're actual valuation, the proceeds to be utilized for debt pay-off and share buy-back. ARCP claims the cash cap rate on the Restaurant Properties is at least 100 bases points higher than the Retail Properties it owned [ axe the spin-off, sell em to Blackstone, and add the new properties to ARCP's portfolio .. accretive to earnings ]
    With that, ARCP claims they've exceeded their Target Acquisitions for the year - but are now putting 100 Million New Shares on the block, at a Market low and further deluding the valuation of current shares, plus a potential 15 Million more in hope the Under Writer's will take them.

     

    The Sale of New Shares to be used for new Opportunities, of course.

     

    It's not what Mr. Schorsch Say's ... It's what he say's he'll do and does differently under expectation of everything else. The Market apparently doesn't believe in a thing he says or the shares wouldn't be selling off. And you've gotta wonder, because Insiders own so many thousands of shares it makes no sense at all they'd destroy their own wealth.

     

    Okay, Tell Us whose ' Manipulating the Price of the shares lower ?
    21 May, 03:34 PM Reply Like
  • Techbug
    , contributor
    Comments (111) | Send Message
     
    Corporate executives overcome by hubris may become a liability for their firms.
    21 May, 03:56 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    Couldn't have put it better myself, UTA...

     

    Not feeling very good about this...
    22 May, 12:28 AM Reply Like
  • Sundowner
    , contributor
    Comments (219) | Send Message
     
    Integrity is a terrible thing to waste...
    21 May, 03:59 PM Reply Like
  • JDoe20
    , contributor
    Comments (429) | Send Message
     
    As we hit a new 52 week low price can we afford any more of these deals that advance shareholder value? Does this CEO have any kind of plan he keeps to?
    21 May, 04:19 PM Reply Like
  • grox01
    , contributor
    Comments (675) | Send Message
     
    Ouff, a lot of fear talking here.

     

    Schorsch clearly said the route for the spinoff was taken because a sell would not be easy to find a buyer... we are just lucky a buyer manifested!
    21 May, 04:20 PM Reply Like
  • John David11
    , contributor
    Comments (33) | Send Message
     
    Just loaded up on more shares at 18.175
    21 May, 04:25 PM Reply Like
  • Sundowner
    , contributor
    Comments (219) | Send Message
     
    "Just loaded up on more shares at 18.175"

     

    Whoa! I'll sell you mine for less...

     

    just kidding, I'm sure that's a typo...
    21 May, 04:52 PM Reply Like
  • westelk
    , contributor
    Comments (266) | Send Message
     
    When you can borrow long term money at 5% or less, why would you sell shares costing 8%? This only makes sense if there is a substantial dividend cut such that the cost of the dividend is less than the borrowing cost.

     

    How about this scenario: Let's peddle 100m shares at 12, then cut the dividend by half. Stock will drop to 8, we buy all we want, then buy back the 100m shares for less than $10. We create $200m for the company and line our pockets with cheap shares. After we get the shares bought back, then we announce an increase in the dividend and the stock pops. Yes, you can call me cynical.
    21 May, 08:00 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    I don't believe that's legal... the SEC would be knocking on their door.

     

    30 year debt, however - totally legal. Even at nearly 6%, it'd be HUGELY ACCRETIVE compared to this. They'll pay out twice as much in dividends as they would've in interest and repaying the 30yr debt... over 30 years. Too long term thinking, I guess? That means this offering was dillutive, and the market seems to agree so far...

     

    Another way to look at it... issuing 8.33% yield shares that increase at roughly 2-5% to match/beat inflation (hopefully) and then using that to acquire at a cap rate of 7.9% with a fixed 2% escalator... is once again dillutive.

     

    -Mike
    22 May, 01:21 AM Reply Like
  • Steven Kiss
    , contributor
    Comments (11) | Send Message
     
    What really makes me angry is the share offering. They should have done it when the stock was at $15 not $12....unreal
    21 May, 08:32 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2154) | Send Message
     
    I'm feeling the same way... they priced it below the 52wk low. Absolutely incredible...

     

    -Mike
    22 May, 01:22 AM Reply Like
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