American Realty Capital Trust Announces Third Quarter 2012 Operating Results

NEW YORK, Oct. 29, 2012 /PRNewswire/ -- American Realty Capital Trust, Inc., (NASDAQ: ARCT) ("ARCT" or the "Company") announced today its operating results for the three and nine months ended September 30, 2012. Operating highlights are provided below. All per share results are reported on a fully diluted basis.

"Following the positive performance for the first half of the year, American Realty Capital Trust had another impressive quarter," said William M. Kahane, Chief Executive Officer of ARCT.  "We not only posted solid financial results, but our common stock returned over 9% for the quarter on a total return basis, outperforming the S&P 500, the MSCI REIT Index the Russell 2000 and a portfolio of its triple net peers by wide margins. We purchased over $30 million in new acquisitions at an average capitalization rate of 8.38%, bringing the total portfolio tenant base to 63 high-quality, primarily investment grade, tenants.  We also increased the Company's annualized monthly dividend commencing in September from $0.70 to $0.715 per share."

"We are extremely proud of the portfolio we have built for our shareholders. With the recent announcement of the pending acquisition of ARCT by Realty Income Corporation, we believe that we are delivering to our shareholders the best publicly-traded net lease REIT in the real estate industry. In an industry where size matters, upon completion of the transaction, Realty Income will be the 18th largest REIT and, we believe, financially stronger than any of its competitors. Our companies' combined portfolio will be exceptionally well positioned for continued earnings growth and increasing dividends. While in some respects this transaction is bittersweet for me and those who built ARCT, we are confident in Tom Lewis, CEO of Realty Income, and his team, and are proud to pass the torch to them."   

Third Quarter 2012 Operating Highlights (three months ended September 30, 2012 compared to the three months ended September 30, 2011)

  • Funds from operations: $29.5 million, or $0.19 per share, up from $17.0 million, or $0.10 per share.
  • Adjusted funds from operations: $30.1 million, or $0.19 per share, up from $22.7 million, or $0.13 per share.
  • Revenues: $46.1 million, up from $36.2 million.
  • Net operating income: $43.3 million, up from $34.7 million.
  • Net loss attributable to stockholders: $64.5 million, or a loss of $0.41 per share, compared to a loss of $5.7 million, or $0.03 per share.  Excluding listing, internalization and merger related costs, net income attributable to stockholders was $3.6 million or $0.02 per share.
  • Total dividends paid to stockholders: $27.9 million, or $0.70 per share on an annualized basis ($0.715 per share on an annualized basis for September), compared to $28.0 million, or $0.70 per share on an annualized basis.

Year-to-Date 2012 Operating Highlights (nine months ended September 30, 2012 compared to the nine months ended September 30, 2011)

  • Funds from operations: $91.2 million, or $0.57 per share, up from $28.5 million, or $0.24 per share.
  • Adjusted funds from operations: $91.6 million, or $0.57 per share up from $52.0 million or $0.43 per share.
  • Revenues: $137.3 million, up from $86.0 million.
  • Net operating income: $129.8 million, up from $83.4 million.
  • Net loss attributable to stockholders: $54.6 million, or $0.35 per share, based on adjusted first quarter net income, or $88.3 million loss, or $0.54 per share, as reported, compared to a net loss of $19.7 million, or $0.17 per share. Excluding listing, internalization, merger and extinguishment of debt related costs from as reported net loss, net income attributable to stockholders was $4.4 million or $0.03 per share.
  • Total dividends paid to stockholders: $89.4 million, or $0.70 per share on an annualized basis ($0.715 per share on an annualized basis for September), compared to $55.8 million, or $0.70 per share on an annualized basis.

Third Quarter 2012 Property Portfolio Highlights

  • Closed on $30.3 million of new acquisitions: acquired $30.3 million of properties with an average capitalization rate of 8.38%, consistent with ARCT's net lease investment strategy.
  • Acquisitions year-to-date: completed acquisitions/expansions for a total purchase price of $43.2 million year to date with an average capitalization rate of 8.43%. Including joint venture non-controlling interest redemptions, acquisitions totaled $54.7 million.
  • Portfolio occupancy: 100% physical and economic occupancy (no lease expirations in 2012 or 2013).
  • Increased dividend: 2.14% dividend increase, effective September 15, 2012, announced on July 31, 2012, bringing the annualized distribution rate from $0.70 per share to $0.715 per share.

Third Quarter 2012 Capital Markets Activity

  • Secured permanent term loan: secured $235 million permanent term loan led by Wells Fargo Securities, LLC on July 2, 2012, replacing $200 million interim term loan funded on April 16, 2012 by Wells Fargo Bank, N.A.
  • Repurchased joint venture interests: Paid $11.6 million through September 30, 2012 ($24.3 million through October 28, 2012) to non-controlling interest holders in property joint ventures with the Company to repurchase their joint venture interests.
  • Rating under review for possible upgrade: Moody's Investor Services ("Moody's"), a national major credit rating agency, placed ARCT's Ba2 issuer rating on review for a possible upgrade.  This action followed the merger announcement described immediately below.

Entered into an Agreement to Merge with Realty Income Corporation

On September 6, 2012, ARCT and Realty Income Corporation ("Realty Income") entered into a definitive agreement for Realty Income to acquire all of the outstanding shares of ARCT in a transaction valued at approximately $3.0 billion. Both companies' board of directors have unanimously approved the agreement. Following a stockholder vote by both companies, the transaction is expected to close during the fourth quarter of 2012 or early in the first quarter of 2013. Under the terms of the agreement, ARCT stockholders will receive a fixed exchange ratio of 0.2874 Realty Income shares for each share of ARCT common stock that they own. Upon closing of the transaction, ARCT's stockholders are expected to own approximately 26% of Realty Income's shares. By combining the two portfolios, Realty Income will become the 18th largest REIT and the largest net lease REIT by a factor of two times once the transaction is completed.

Realty Income and ARCT filed preliminary joint proxy materials (Form S-4) with the Securities and Exchange Commission on October 1, 2012. Complete information on the merger, including the merger background, reasons for the merger, who may vote, how to vote, and the time and place of the ARCT shareholder meeting, will be included in a definitive proxy statement to be filed in November. 

Financial Results

Funds from operations and adjusted funds from operations

Funds from operations (FFO) for the three months ended September 30, 2012, totaled $29.5 million, or $0.19 per share, compared to $17.0 million, or $0.10 per share, for the three months ended September 30, 2011. 

Adjusted fund from operations (AFFO) for the three months ended September 30, 2012, totaled $30.1 million, or $0.19 per share compared to $22.7 million, or $0.13 per share, for the three months ended September 30, 2011. 

For the nine months ended September 30, 2012, and using adjusted first quarter FFO, FFO totaled $91.2 million, or $0.57 per share, compared to $28.5 million, or $0.24 per share, for the nine months ended September 30, 2011. 

AFFO for the nine months ended September 30, 2012, similarly calculated, totaled $91.6 million, or $0.57 per share, compared to $52.0 million, or $0.43 per share, for the nine months ended September 30, 2011. 

Third quarter FFO and AFFO are in line with the Company's expectations and previously issued guidance for the year ending December 31, 2012.  The Company also reaffirms its previously issued 2013 guidance. 

Revenues

Total revenues were $46.1 million for the three months ended September 30, 2012, an increase of 27% from $36.2 million for the three months ended September 30, 2011.  Rental income increased 27% to $44.4 million for the three months ended September 30, 2012, compared to $34.9 million for the three months ended September 30, 2011.

Total revenues increased 60% to $137.3 million for the nine months ended September 30, 2012, from $86.0 million for the nine months ended September 30, 2011.  Rental income increased 58% to $132.6 million for the nine months ended September 30, 2012, compared to $83.7 million for the nine months ended September 30, 2011. Increases in revenues were driven by the acquisition of approximately $327.8 million of net leased properties subsequent to September 30, 2011. 

Net operating income

Net operating income (NOI) increased 25% to $43.3 million for the three months ended September 30, 2012, compared to $34.7 million for the three months ended September 30, 2011. NOI increased 56% to $129.8 million for the nine months ended September 30, 2012, compared to $83.4 million for the nine months ended September 30, 2011.  Increases in NOI were due to the acquisition of approximately $327.8 million of net leased properties subsequent to September 30, 2011. 

Net loss to stockholders

Net loss attributable to stockholders totaled $64.5 million, or $0.41 per share, for the three months ended September 30, 2012. Net loss includes the effect of the recognition of $68.1 million of expenses related to our NASDAQ listing, termination of our advisory agreement with our former advisor and merger related expenses, including $63.2 million paid in the form of an Incentive Listing Fee Note to ARCT's former sponsor, AR Capital, LLC, and $4.9 million of merger expenses. Excluding these charges the Company realized net income of $3.6 million or $0.023 per share.

For the nine months ended September 30, 2012, net loss attributable to stockholders totaled $54.6 million, or $0.35 per share, based on adjusted first quarter net income. As reported, net loss attributable to stockholders for the nine months ended September 30, 2012 was $88.3 million, or $0.54 per share. Excluding charges for the NASDAQ listing, internalization, merger and extinguishment of debt related costs, net income was $4.4 million or $0.03 per share.

Dividend increase

On July 31, 2012, the Company's board of directors announced an increase in its annual dividend from $0.70 per share to $0.715 per share, or $0.05958 per month. This equates to a 2.14% annual increase from the current dividend and commenced payment on September 15, 2012, to stockholders of record on September 8, 2012. 

The Company paid dividends of $27.9 million for the three months ended September 30, 2012, equal to two $0.05833 per share monthly dividends or, $0.70 per annum and one $0.05958 per share monthly dividend, or $0.715 per annum. For the nine months ended September 30, 2012, dividends totaled $89.4 million, equal to eight $0.05833 per share monthly dividends and one $0.05958 per share monthly dividend.

Real Estate Portfolio Grows

Property portfolio

As of September 30, 2012, the Company owned 507 freestanding, single-tenant, net leased properties totaling 15.8 million square feet, located in 43 states plus Puerto Rico. This compares to 405 properties totaling 13.2 million square feet as of September 30, 2011.  ARCT's portfolio is comprised of 63 corporate tenants, operating in 20 distinct industries.  The weighted average remaining primary lease term of the portfolio is 12.7 years. The portfolio has de minimis lease expirations in the next five years, and 74% of annualized rental income is from tenants with an investment grade rating from a major credit rating agency.

During the nine months ended September 30, 2012, ARCT acquired 10 Family Dollar retail properties, seven Ruby Tuesday restaurants, four Bojangles' quick service restaurants, three Tractor Supply retail properties, and one Advance Auto retail property, as well as expansion spaces to a previously acquired FedEx distribution facility and a Lockheed Martin facility, all 100% occupied. For those properties purchased in the nine months ended September 30, 2012, the Company paid a total purchase price of $43.2 million, at an average capitalization rate of 8.43%. Gross leasable area for these buildings total 239,494 square feet.

Rents grow

During the three months ended September 30, 2012, cash rents on the 368 "same store" properties held for the full period in both 2011 and 2012 increased 0.9% to $31.5 million, compared to $31.2 million for the three months ended September 30, 2011.  During the nine months ended September 30, 2012, cash rents on the 259 "same store" properties held for the full period in both 2011 and 2012 increased 0.6% to $51.8 million, compared to $51.5 million for the nine months ended September 30, 2011.  The Company, since its inception, has had no lease turnover, "dark stores" or lease renegotiations.

Year-to-Date 2012 Capital Market Activities

Permanent term loan secured

On July 2, 2012, ARCT secured a $235.0 million 5-year term loan led by Wells Fargo Securities, LLC, which replaced a $200.0 million interim term loan previously funded by Wells Fargo Bank, N.A.  The facility bears interest at the rate of LIBOR plus 195 to 275 basis points, depending on the Company's leverage ratio. Net proceeds from the term loan were used to repay outstanding balances on the Company's $330.0 million revolving line of credit and for general working capital purposes. The effective annualized interest rate on the term loan was 2.61% at September 30, 2012. The weighted average interest rate on the $948.5 million of outstanding debt at September 30, 2012 was 3.99%.

Potential rating upgrade

Moody's placed ARCT's Ba2 issuer rating on review for possible upgrade. This action was a result of the announcement that Realty Income entered into an agreement with ARCT to acquire all the Company's outstanding shares. Moody's will continue to monitor the progress and completion of the proposed transaction. Once the transaction closes, ARCT's issuer rating will be withdrawn since there will be no remaining outstanding shares of common stock available.

Repurchase of joint venture non-controlling interests

Through October 28, 2012, the Company has acquired non-controlling joint venture interests in six joint venture arrangements totaling $22.1 million and representing 90.5% of the outstanding non-controlling interests at the beginning of the year. The Company has agreements in place to acquire 100% of the outstanding joint venture minority interests.  Upon completion of these repurchases, the Company will save $2.0 million annually in cash distributions to the non-controlling interest holders and increase AFFO by approximately $1.8 million.

Incentive listing fee paid

In connection with the listing of the Company's common stock on the NASDAQ on March 1, 2012, and as previously disclosed, our former sponsor was entitled to receive an incentive listing fee based on total shareholder return from inception of the Company through the listing date in excess of a return of capital plus a specified hurdle. As of September 30, 2012, the Company recorded and accrued expenses related to the subordinated incentive listing fee note, in the amount of $63.2 million.  On October 12, 2012, the incentive listing fee was paid in cash to the sponsor.

Third Quarter 2012 Conference Call Details

ARCT will be hosting its third quarter 2012 conference call and webcast on Tuesday, October 30, 2012 at 9:00 a.m. ET. Nicholas S. Schorsch, Chairman, William M. Kahane, Chief Executive Officer, and Brian D. Jones, Chief Financial Officer, will conduct the call. Conference call details are as follows:

Live Conference Call and Webcast Details*
Domestic Dial-In Number: 1-877-883-0383
International Dial-In Number: 1-412-902-6506
Canada Dial-In: 1-877-885-0477
Conference ID: 9185621
Webcast: www.arctreit.com/q3earningscall/  
*Participants should dial in 10-15 minutes early.

AMERICAN REALTY CAPITAL TRUST, INC.


CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)








September 30, 2012


December 31, 2011



(Unaudited)



ASSETS





Real estate investments, at cost:





Land


$

334,470



$

325,458


Buildings, fixtures and improvements


1,558,105



1,528,962


Acquired intangible lease assets


276,819



271,751


Total real estate investments, at cost


2,169,394



2,126,171


Less: accumulated depreciation and amortization


(179,730)



(101,576)


Total real estate investments, net


1,989,664



2,024,595


Cash and cash equivalents


5,819



33,329


Investment securities, at fair value


20,247



17,275


Restricted cash


2,772



2,728


Investment in unconsolidated joint venture




11,201


Prepaid expenses and other assets


26,528



27,564


Deferred costs, net


14,471



13,883


Total assets


$

2,059,501



$

2,130,575


LIABILITIES AND EQUITY





Revolving credit facility


$

202,307



$

10,000


Long-term note payable


235,000




Mortgage notes payable


511,144



673,978


Mortgage discount and premium, net


756



679


Below-market lease liabilities, net


7,922



8,150


Derivatives, at fair value


135



8,602


Accounts payable and accrued expenses


78,211



11,706


Deferred rent and other liabilities


4,049



6,619


Dividends payable




10,637


Total liabilities


1,039,524



730,371







Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding





Common stock, $0.01 par value; 240,000,000 shares authorized, 158,576,630 and 177,963,413 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively


1,586



1,780


Additional paid-in capital


1,338,453



1,548,009


Accumulated other comprehensive income (loss)


2,497



(5,053)


Accumulated deficit


(333,601)



(166,265)


Total stockholders' equity


1,008,935



1,378,471


Non-controlling interests


11,042



21,733


Total equity


1,019,977



1,400,204


Total liabilities and equity


$

2,059,501



$

2,130,575


 

AMERICAN REALTY CAPITAL TRUST, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except for per share data)

(Unaudited)



Three Months Ended September 30,


Nine Months Ended September 30,


2012


2011


2012


2011

Revenues:








Rental income

$

44,400



$

34,943



$

132,590



$

83,715


Operating expense reimbursements

1,662



1,252



4,734



2,314


Total revenues

46,062



36,195



137,324



86,029










Operating expenses:








Acquisition and transaction related

534



5,554



1,233



23,377


Property operating

2,797



1,542



7,488



2,666


Fees to affiliate



1,022



4,143



2,572


General and administrative

1,586



371



6,600



1,104


Equity-based compensation

798



375



1,955



1,099


Depreciation and amortization

26,309



19,828



78,521



45,015


Listing, internalization and merger

68,106





85,766




Total operating expenses

100,130



28,692



185,706



75,833


Operating income

(54,068)



7,503



(48,382)



10,196










Other income (expenses):








Interest expense

(10,512)



(10,167)



(30,447)



(25,879)


Extinguishment of debt





(6,902)



(720)


Equity in income of unconsolidated joint venture



22



36



71


Other income, net

264



379



1,980



473


Loss on derivative instruments



(3,114)



(4,055)



(2,967)


Loss on disposition of property







(44)


Total other expenses, net

(10,248)



(12,880)



(39,388)



(29,066)


Net loss

(64,316)



(5,377)



(87,770)



(18,870)


Net income attributable to non-controlling interests

(179)



(284)



(526)



(830


Net loss attributable to stockholders

(64,495)



(5,661)



(88,296)



(19,700)










Other comprehensive income (loss) items:








Designated derivatives, fair value adjustment

27



(838)



4,578



(864)


Unrealized gain (loss) on investment securities, net

1,041



(433)



2,972



(433)


Total other comprehensive income (loss)

1,068



(1,271)



7,550



(1,297)


Comprehensive loss

$

(63,427)



$

(6,932)



$

(80,746)



$

(20,997)










Basic and diluted net loss per share attributable to stockholders

$

(0.41)



$

(0.03)



$

(0.54)



$

(0.17)



The below table reflects the items deducted or added to net loss in our calculation of FFO and AFFO for the three and nine months ended September 30, 2012 and 2011 (in thousands). Items are presented net of non-controlling interest portions where applicable.


Three Months Ended September 30,


Nine Months Ended September 30,


2012


2011


2012 (1)


2011

Net loss attributable to stockholders (in accordance with GAAP)

$

(64,495)



$

(5,661)



$

(54,622)



$

(19,700)


Non-cash mark-to-market adjustments



3,114



(465)



2,991


Listing, internalization and merger expenses

68,106





68,497




Debt extinguishment expenses





276



720


Depreciation and amortization

25,938



19,591



77,504



44,310


Loss on disposition of property







44


Other non-cash losses







102


FFO

29,549



17,044



91,190



28,467


Acquisition related expenses

534



5,554



1,233



23,374


Amortization of below-market lease liabilities

(76)



(76)



(228)



(228)


Amortization of deferred financing costs

1,139



1,492



3,029



3,641


Straight-line rent

(1,842)



(1,725)



(5,684)



(4,349)


Equity-based compensation

798



375



2,088



1,099


AFFO

$

30,102



$

22,664



$

91,628



$

52,004




(1) As adjusted, see reconciliation below for the three months ended March 31, 2012. Adjustments relate to the Listing and Internalization, as well as to normalize periodic expenses based on the Company's anticipated expense structure subsequent to the Internalization.