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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (55662)	7/11/2015 1:57:27 PM
From: E_K_S	Read Replies (1) \| Respond to of 78748

Re: American Realty Capital Properties, Inc. (ARCP) Sometimes you have to pick up value when the prospects look bad, management is corrupt and the market has priced in the worst case. ARCP is one of these plays. First my position is very small but it's in the ROTH account where I can not afford any losses but believe value will eventually win out. My avg cost is around $8.75/share and I believe the company is worth a minimum of $10.00/share. The Risk/Reward at the current price level is a good bet. First, the new CEO has an excellent track record This Motely Fool article summarizes the issues surrounding ARCP (accounting scandal, disingenuous CEO, etc). The bottom line is that ARCP does own good properties w/ long term leases (12 years avg term). Those are not going away and if non core assets are sold s/d bring in high prices. The company's portfolio is 98% occupied, and the assets are generating income. Since October, the company has made sweeping changes to distance itself from the accounting scandal, including hiring Glenn Rufrano as CEO in April. Rufrano looks like the right man for the job. He has over 30 years of experience in the real estate industry and a track record of successfully handling similarly complex scenarios, which ARCP disclosed in a press release this past March: As CEO of Centro [Global Property Group], Mr. Rufrano successfully led the company through the global financial crisis. During this period, Mr. Rufrano oversaw a vital financial restructuring exercise to refinance Centro's debt. Centro emerged from a point of near-collapse to a stable position. As President and CEO of Cushman & Wakefield, he helped revitalize the world's largest privately held commercial real estate services firm following the financial crisis. That said, it comes down to the asset consolidation and sales. The previous management I believe made a good buy (they may have got these properties 15% below market), buying the Red Lobster properties from the Darden Group. That was structured into a sales lease back transaction. This s/d be spun off as a separate REIT and/or sold because of the concentration property risk from one restaurant chain. This transaction was originally valued at $2.08bln ( Darden Warms To Real Estate Spinoff Strategy With Proposed Olive Garden REIT). I suspect they could even package these Red Lobster REIT properties w/ other restaurant lease back real estate and create some type of fund. An IPO spin off could net ARCP more than their acquisition cost possibly as much as $300mln or about $0.33/share capital gain. That's just one example of a core asset they own that can be sold and/or spun off to pay down debt. I think Mr. Rufrano is the right person for the job but it will take time and strategic sales to make this a stronger company. However, value opportunities arise out of bad management and investor frustration selling their common shares when the investment sours. ARCP can be fixed by good management and time. I believe they have the right leader now and await to hear his consolidation strategy at the next stockholders meeting scheduled in September. I agree that Realty Income Corporation (O) is the gold standard in large REITs w/ a market cap of $10.78bln and 18 forward PE. Maybe ARCP will consolidate to half that size or about $5bln market cap and be priced at their historical PE of 11. There would/could eventually be PE expansion if the new management can post similar earnings and growth as O. One step at a time. EKS