ARCP to Spin Off $2B in Multi-Tenant Shopping Centers

Looking to unlock the value of its shopping center portfolio, American Realty Capital Properties plans to spin off most of its multi-tenant retail centers into a publicly traded REIT valued at $2 billion and focus on its single-tenant net lease business.
Whittwood Town Center, Calif.

Whittwood Town Center, Calif.

Looking to unlock the value of its shopping center portfolio, American Realty Capital Properties, Inc. plans to spin off most of its multi-tenant retail centers into a publicly traded REIT valued at $2.2 billion and focus on its single-tenant net lease business.

The new entity, American Realty Capital Centers, will operate under the name ARCenters and is expected to trade on the NASDAQ Global Market under the symbol, ARCM. ARCP will own 25 percent of the new company. Nicholas Schorsch, ARCP’s chairman & CEO, will also serve as ARCenters chairman.

“By separating the two high-quality portfolios, we intend to create more clarity, more efficiency and more opportunity for our stockholders,” Schorsch said in a news release. “Not only have we taken a step to enhance ARCP’s growth profile, but we have created another vehicle with the intention of facilitating even more growth.”

“We will be unlocking the value embedded in our shopping center portfolio,” said ARCP President David Kay during a conference call. “ARCP will be a pure-play net-lease focused entity and ARCM will become a pure-play shopping center-focused entity.”

ARCP shareholders will get one ARCM share for every 10 shares of ARCP they own.

Schorsch said they will file with the U.S. Securities and Exchange Commission during the second quarter and expect to complete the spinoff by the end of the second quarter.

The move comes five weeks after ARCP closed on the $11.2 billion acquisition of Phoenix-based Cole Real Estate Investments, Inc., making it the world’s largest net-lease REIT with an estimated enterprise value totaling $21.5 billion. In January, New York-based ARCP merged with American Realty Capital Trust IV, Inc. in a $3.1 billion deal. Late last year, ARCP acquired CapLease, Inc. in a $2.2 billion merger, just one of several high-profile acquisitions ARCP made in 2013.

ARCP had tried unsuccessfully early last year to acquire Cole Credit Property Trust III, a non-listed REIT, for $10 billion. CCPT III, in a very public feud with Schorsch, rejected ARCP’s bid and was acquired by its sponsor, Cole Holdings Corp., and created Cole Real Estate Investments. In October, Schorsch surprised many by announcing ARCP was acquiring Cole to create a company with 3,732 properties occupying more than 100 million square feet in 49 states and Puerto Rico.

Schorsch said during the conference call that most of the multi-tenant properties in the ARCenters portfolio came from Cole and its Private Capital Management business. Much of the Cole team remained with ARCP after the merger.

“We expect that ARCenters will truly benefit from ARCP’s best-in-class, investment grade platform given our dominant aggregation expertise and by having access to our deeply experienced acquisition, underwriting, leasing and management teams,” said Lisa Beeson, ARCP COO.

ARCenters, which will start off with 69 multi-tenant properties in its 11.8-million-square-foot portfolio, will focus on investments in power centers, grocery-anchored neighborhood centers and anchored community centers that generate attractive risk-adjusted returns. The portfolio, located in 26 states, is 96.3 percent leased. Fifteen multi-tenant shopping centers with about 1.5 million square feet of space will not be spun off due to mortgage obligations. But ARCenters will have right of first offer on those properties as they become available.

Beeson said the team is already looking at $1 billion in possible shopping center acquisitions.

“We truly see an opportunity and the balance sheet at ARCenters will support this growth,” she said during the conference call.

Most of the assets in the ARCenters portfolio¸73 percent, are power centers. The remaining breakdown is 12 percent anchored, 12 percent grocery-anchored and 3 percent single-tenant. Nearly half are located in the top 20 metropolitan areas nationwide. The portfolio’s top five states are California, Florida, Georgia, Texas and Michigan. The top five companies are PetSmart, Kohl’s, Dick’s Sporting Goods, Ross, and Best Buy.

Two California power centers are among the portfolio’s largest assets. Eastland Center in West Covina, Calif., has 805,000 square feet of space and stores including Target, Walmart and Dick’s Sporting Goods. Whittwood Center in Whittier, Calif., is a 700,000-square-foot power center with stores including Target, Vons, Kohl’s, JC Penney and Sears.