Investment Community Views Schorsch’s Stepping Down Favorably

Chairman & CEO of the $10 billion American Realty Capital Properties Inc. Nicholas Schorsch announced in a June 20 letter to shareholders that he will be passing the CEO torch to company president David Kay, effective Oct. 1.
Nicholas Schorsch

Nicholas Schorsch

Chairman & CEO of the $10 billion American Realty Capital Properties Inc.  Nicholas Schorsch announced in a June 20 letter to shareholders that he will be passing the CEO torch to company president David Kay, effective Oct. 1, 2014. It’s big news, but it’s not new news; during ARCP’s first quarter earnings call in May, Schorsch said that the company anticipated “accelerating the succession planning process for David to take the rein to CEO of the company in the near future.”

In the letter to shareholders, Schorsch explained that the transition would provide him the freedom to focus his efforts on “long-term strategic initiatives,” leaving the day-to-day operations and investor communications to Kay.

ARCP has made quite a few major moves under Schorsch’s guidance over the last 18 months. In February of this year, the company closed the $11.2 billion acquisition of Cole Real Estate Investments Inc., a transaction that made ARCP the largest publicly traded net lease REIT. The merger came on the heels of ARCP’s completion of the $3.2 billion purchase of American Realty Capital Trust IV in January. And in February 2013, ARCP wrapped up the acquisition of American Realty Capital Trust III for $2 billion.

David Kay

David Kay

The investment community views Schorsch’s stepping down favorably, to a certain extent. “It’s modest positive; I don’t think he was spending a lot of time doing the day-to-day ARCP activities anyway,” Jonathan Pong, senior research associate with financial services firm Robert W. Baird & Co. Inc., told Commercial Property Executive.

On paper, Schorsch’s decision to focus on his role as chairman appears to be the right step toward alleviating a certain perception: conflict of interest. “ARCT III and IV were both were multibillion deals that eventually got rolled up into ARCP, so they basically bought out ARCT III and IV using ARCP capital, which definitely has the flavor of self-dealing there,” Pong added. “So as long as he has a partnership interest vested in ARCP as chairman of the board or chairman emeritus, there’s always going to be that overhang.”

Ultimately, it seems the big move is not as big as it may appear. “It’s a modest positive,” Pong reiterated, “but it’s certainly not a game changer because Nick, for all intents and purposes, is still theoretically going to be making the final decision on big strategic moves for ARCP.”

Schorsch’s passing of the torch marks quite a rapid ascension to the top for Kay, who only joined ARCP in November 2013, having previously served as CFO and CIO of Capital Automotive Real Estate Services Inc.