Commercial Real Estate Direct Staff Report
American Realty Capital Properties Inc., which last month had raised $69.8 million through its initial public offering of common shares, is looking to raise additional capital in order to buy another 29 properties.
The New York REIT is sponsored by American Realty Capital Advisors, an investment manager led by Nicholas S. Schorsch and William M. Kahane. It formed American Realty Capital Properties in order to provide liquidity to some of its early investors. The REIT owns 63 properties with 768,730 square feet in 10 states that are leased to RBS Citizens, Citizen's Bank of Pennsylvania and Home Depot.
The REIT had used proceeds from its IPO, along with a $51.5 million draw against a $150 million credit facility provided by RBS Citizens, to retire $82.6 million of debt that had encumbered the properties it acquired.
It has lined up another 29 properties that would allow it to diversify its portfolio by tenant, industry and geography. Those properties, which total 256,070 sf, are leased to Advance Auto Parts, Dollar General and Walgreens and would be purchased for $20.8 million, or $81.23/sf.
That acquisition would increase the REIT's rental revenue to $10.7 million/year from $9.1 million/year, and would expand its footprint to 13 states.
The REIT is pursuing additional properties that are net leased to their tenants. It estimates that the country has $1.2 trillion of properties that are net leased to tenants in the 10 industry sectors it pursues. Investment-grade or other high credit-quality tenants occupy roughly a third of those. And of those, perhaps 30 percent have remaining lease terms of three to eight years, which American Realty Capital Properties prefers.
In a regulatory filing, the REIT said that economic turmoil has prompted many holders of net-leased properties to reduce their exposure to similar assets with leases that mature in the medium term. It added that few investors compete for such properties because of the potential risk.
As a result, it's able to buy those properties at prices that represent attractive yields. The $20.8 million price it is paying for the 29 properties represents a 9.15 percent capitalization rate.
And its expertise in the net-lease industry allows it to mitigate the risk posed by medium-term leases.
Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.
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