Three top executives resigned from American Realty Capital Properties Inc. (ARCP), the U.S. real estate investment trust that has lost more than a quarter of its value since disclosing accounting errors.
Nicholas Schorsch, whose dealmaking made American Realty Capital Properties one of the biggest REITs in a matter of a few years, stepped down as executive chairman and a director of the New York-based company, according to a statement today. Chief Executive Officer David Kay also resigned, as didLisa Beeson, president and chief operating officer. William Stanley will act as CEO and chairman until permanent replacements are named. The changes are effective immediately.
American Realty Capital Properties, or ARCP, fell 27 percent through last week after reporting on Oct. 29 that it found accounting errors that were intentionally concealed, leading to the resignations of its chief financial officer and chief accounting officer. Today’s departures leave a void at the company, according to Kevin Gannon, president of Robert A. Stanger & Co., an investment bank that focuses on nontraded REITs. Kay, who became CEO in October, said as recently as Nov. 14 that he wasn’t planning to quit.
“The first concern you have is there’s a leadership vacuum inside the company now,” Gannon said in a telephone interview. “You’re missing a chairman, a CEO, a COO and a president. They didn’t give a reason for why they resigned, and that’s an oddity.”
Schorsch, who controls an empire of real estate companies through his closely held firm AR Capital, was co-founder of ARCP and also its CEO until Kay took over under a planned succession in October. He stepped down as chairman and director of ARCP on Dec. 12, according to a regulatory filing. Kay and Beeson quit today.
“The actions taken today will stabilize the company and are necessary to strengthen future leadership and strategy, improve governance, and complete a separation from Nick Schorsch and his affiliates,” Stanley said in the statement from ARCP. “These actions build on ARCP’s significant real estate assets and asset management capabilities, and will further restore investor confidence in ARCP.”
While the investigation into the accounting errors is continuing, “we understand that to date there has not been any conclusion of unlawful conduct” by Schorsch, William Kahane, co-founder of AR Capital, said in a separate statement today.
ARCP will unwind all of its relationships with entities in which Schorsch has an executive or director-level role or is a significant stockholder, the company said. Schorsch will focus his attention on the strategy, growth and management of AR Capital, the largest sponsor of nontraded REITs, according to that entity’s statement.
Under Schorsch’s leadership, ARCP became the biggest U.S. owner of single-tenant properties in less than three years, overtaking Realty Income Corp. (O) ARCP focuses on buildings with only one tenant, such as pharmacies and restaurants.
ARCP now has a market value of about $7.8 billion, about $2.5 billion less than Realty Income. ARCP owned more than 4,400 properties as of the second quarter, according to the company’s website. Realty Income, based in Escondido, California, owns more than 4,200.
As chairman and CEO of ARCP, Schorsch, 53, was the public face of the company since it first sold shares to the public in September 2011 at $12.50 each. Schorsch’s appetite for acquisitions sometimes drew criticism from stockholders. In June, activist investor Marcato Capital Management LP asked ARCP to curb its dealmaking.
“After evaluating the company’s current situations and the leadership needs of the business going forward, the independent members of the board felt strongly that the changes in strategy, leadership and governance needed to be made,” Stanley said today on a conference call. He took no questions after making a statement.
Kay, who joined ARCP as president a year ago, said last month that he wasn’t going anywhere.