Activist investor Marcato Capital Management LP asked American Realty Capital Properties Inc. to curb its acquisition spree and complained that a recent stock sale hurt existing shareholders.
“The company is engaging in too many transformative transactions too quickly,” Mick McGuire, managing partner at Marcato, wrote in a letter to Leslie Michelson, American Realty’s lead independent director, that was included in a statement today. “ARCP should pause on large-scale transaction activity and give investors a chance to see multiple quarters of clean financial results.”
Marcato, based in San Francisco, owns 21.8 million shares of American Realty, according to the statement. The New York-based real estate investment trust, whose chairman and chief executive officer is Nicholas Schorsch, has expanded through acquisitions since it first sold shares to the public in September 2011. The company is now the largest owner of U.S. single-tenant buildings, which are leased to businesses such as drugstores and fast-food restaurants.
American Realty raised its acquisition target for the year to $4.5 billion from its initial plan of $3 billion, according to an investor presentation filed with regulators today.
“Our board of directors and management team regularly review the company’s strategic priorities and opportunities, including deleveraging, capital allocation, and assess a variety of strategic options,” American Realty said in a response to Marcato’s letter. “We are committed to driving value for all ARCP stockholders and will continue to take actions to achieve this important objective.”
The REIT didn’t need to offer shares to raise money because it agreed to sell most of its multitenant shopping centers to Blackstone Group LP for about $2 billion, Marcato said in the letter. American Realty on May 28 closed on a sale of 138 million shares at $12 each.
“Such willingness to destroy shareholder value, by issuing shares at an acknowledged discount to fair value, illustrates a disregard for existing shareholders that we find very problematic,” Marcato said.
American Realty rose 2.9 percent today to $12.73. The shares are down 18 percent in the past 12 months.
In addition to its single-tenant business, American Realty has a nontraded REIT management operation, Cole Capital, which it bought in the first quarter. American Realty expects Cole Capital to raise $3.1 billion from investors this year, according to today’s presentation. Nontraded REITs are generally illiquid and don’t trade on a stock exchange.
“Because we’ve been doing so much, many people don’t understand all the aspects of our business,” Schorsch told reporters after speaking at the National Association of Real Estate Investment Trusts investor conference in New York. “We’ve tried to clarify that today.”
American Realty expects to make fewer large deals, Schorsch said at the NAREIT conference.
“We will continue to grow the company but I think you’re going to see a lot less activity,” he said. “We are very disciplined about what we’re doing now.”
Marcato as of March 31 was American Realty’s sixth-largest shareholder, with about a 2.3 percent stake, according to data compiled by Bloomberg.
McGuire founded Marcato in 2010 with startup capital from Blackstone Group LP after he worked for Bill Ackman at Pershing Square Capital Management LP. Marcato recently targeted Sotheby’s in a campaign alongside fellow activist Third Point LLC, and called on InterContinental Hotels Group Plc to consider a merger with a bigger company.