American Realty Capital Trust Forecasts 13% Earnings Growth, Announces Dividend Increase, and Reports Operating Results through Second Quarter 2012

NEW YORK, July 31, 2012 /PRNewswire/ -- American Realty Capital Trust, Inc. (NASDAQ: ARCT) ("ARCT" or the "Company") announced today estimated earnings growth of 13% between 2012 and 2013 based on updated earnings guidance for 2012 and recently initiated 2013 earnings guidance. In addition, the Company announced a dividend increase and its operating results for the three and six months ended June 30, 2012. Operating highlights are provided below. All per share results are reported on a fully diluted basis.

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ARCT has published and clarified its earlier earnings guidance for the calendar year ending December 31, 2012, and is providing new guidance for 2013. Based on that guidance, the Company is projecting that full year 2012 AFFO will range between $0.755 and $0.775 per share, which is in line with its previous estimates. ARCT's newly published preliminary 2013 AFFO is expected to range between $0.840 and $0.870 per share. This AFFO guidance for 2012 to 2013 suggests estimated earnings growth of 13% for the period.

This guidance assumes $300 million of acquisitions in 2013. Both 2012 and 2013 guidance factor in 100% of physical and economic occupancy, with no lease expirations in 2012 or 2013, but assumes no benefit of interest expense reduction that may result from further mortgage debt recapitalization or upward credit ratings adjustments.

Additionally, the Company's board of directors authorized and the Company declared a 2.14% increase in its current annual dividend. The dividend rate will be increased from $0.700 per share to $0.715 per share per annum.  The new annual dividend rate will be payable monthly commencing September 15, 2012 to stockholders of record on September 8, 2012.

"We could not be more pleased with the Company's performance these last three months," said William M. Kahane, chief executive officer of ARCT.  "Since listing our shares on the NASDAQ on March 1, 2012, American Realty Capital Trust has outperformed the broader equities market, reaffirmed its earnings guidance, forecasted earnings growth of 13% based on AFFO estimates for 2012 and 2013, announced a dividend increase, confirmed its acquisition program by placing $64 million under contract of property purchases consistent with its investment strategy, and demonstrated continued improvements in its overall balance sheet metrics."

"We have solidified our financial position and have embarked on the next phase of our value creation strategy. Our 2013 earnings forecast calls for us to grow AFFO by approximately 13%, strong estimates for a net lease real estate company with a majority of investment grade corporate tenants subject to long term leases. Our board of directors approved an increase in the annual dividend from $0.700 per share to $0.715 per share, commencing September 15, 2012, and will review the dividend again following third quarter 2012.  Moreover, we believe the initiatives executed surrounding our balance sheet during the quarter strongly contributed to our improved credit ratings," Mr. Kahane offered. "For the remainder of the year, we expect to continue to grow the Company's assets and earnings through acquisition opportunities accretive to the dividend. In this regard, our recently announced $64 million of new acquisitions are at an average cap rate of 8.66%."

"The Company's strategy is to produce high, durable dividends with growth grounded in a consistent business model, namely corporate net leases.  The real estate portfolio remains 100% occupied with no dark stores, leased to a diversified group of over 60 corporate tenants representing 20 industries for an average term of 13 years, with virtually no leases expiring until 2018," explained Mr. Kahane.  "All of our real estate is domestic and our leverage remains modest at approximately 35%.  The portfolio generates top line contractual rent growth, while property expenses, as well as capital costs, are largely borne by the tenants, thus providing our investors a predictable income stream."

Second Quarter 2012 Operating Highlights (three months ended June 30, 2012 compared to the three months ended June 30, 2011)

  • Funds from operations: $30.7 million, or $0.193 per share, up from $6.2 million, or $0.055 per share.
  • Adjusted funds from operations: $30.4 million, or $0.191 per share, up from $17.2 million, or $0.153 per share.
  • Revenues: $45.6 million, up from $29.0 million.
  • Net operating income: $43.7 million, up from $28.1 million.
  • Net income attributable to stockholders: $4.3 million, or $0.03 per share, up from a loss of $9.5 million, or $0.09 per share. 
  • Total dividends paid to stockholders: $27.7 million, or $0.70 per share on an annualized basis, compared to $16.7 million, or $0.70 per share on an annualized basis.

Mid-Year 2012 Operating Highlights (six months ended June 30, 2012 compared to the six months ended June 30, 2011)

  • Funds from operations: $61.6 million, or $0.382 per share, up from $11.4 million, or $0.125 per share.
  • Adjusted funds from operations: $61.5 million, or $0.381 per share up from $29.3 million or $0.316 per share.
  • Revenues: $91.3 million, up from $49.8 million.
  • Net operating income: $86.6 million, up from $48.7 million.
  • Net income attributable to stockholders: $9.9 million, or $0.06 per share, based on adjusted first quarter net income, or $23.8 million loss, or $0.14 per share, as reported, compared to a net loss of $14.0 million, or $0.16 per share.
  • Total dividends paid to stockholders: $61.4 million, or $0.70 per share on an annualized basis, compared to $27.8 million, or $0.70 per share on an annualized basis.

Second Quarter 2012 Property Portfolio Highlights

  • Portfolio occupancy: 100% physical and economic occupancy (no lease expirations in 2012 or 2013).
  • Investment grade tenancy: 74.6% (based on average annual rents), up from 71.1% at March 31, 2012.
  • Announced $64 million of new acquisitions: announced agreements to acquire $64 million of properties with an average capitalization rate of 8.66%, consistent with our net lease investment strategy, which would increase geographic diversification by one state and two new tenants.
  • Acquisitions: completed acquisitions/expansions for a total purchase price of $12.9 million (as of June 30, 2012).

Second Quarter 2012 Capital Markets Activity

  • Completed self-tender: funded the modified "Dutch Auction" tender offer of 20.95 million shares of common stock on April 4, 2012, for cost of $220 million, reducing total shares outstanding to approximately 158.5 million shares.
  • Prepaid mortgage debt: funded prepayment of $161.2 million of secured mortgage debt on April 17, 2012, resulting in a net annual reduction in interest expense of $4.3 million.
  • 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.
  • Increased revolving line of credit: increased revolving line of credit led by RBS Citizens Bank, N.A., from $220 million to $330 million on May 4, 2012.
  • Upgraded by two major national credit rating agencies: upgraded from 'Ba3' to 'Ba2' with a "stable" outlook by one major national rating agency on April 5, 2012, and upgraded to a 'BB' with a "stable" outlook on June 8, 2012 by another major rating agency as a result of the strengthening of our balance sheet.
  • Incorporated into various indices: Company's common stock was included for the first time in over ten different market indices, broadening ARCT's institutional stockholder base.

Financial Results

Funds from operations and adjusted funds from operations

Funds from operations (FFO) for the three months ended June 30, 2012, totaled $30.7 million, or $0.193 per share, compared to FFO as adjusted for the sequential three month period ended March 31, 2012 of $30.9 million, or $0.189 per share, and $6.2 million, or $0.055 per share, for the three months ended June 30, 2011. 

Adjusted fund from operations (AFFO) for the three months ended June 30, 2012, totaled $30.4 million, or $0.191 per share compared to AFFO as adjusted for the sequential three month period ended March 31, 2012 of $31.9 million, or $0.190 per share, and $17.2 million, or $0.153 per share, for the three months ended June 30, 2011. 

For the six months ended June 30, 2012, and using adjusted first quarter FFO, FFO totaled $61.6 million, or $0.382 per share, compared to $11.4 million, or $0.125 per share, for the six months ended June 30, 2011. 

AFFO for the six months ended June 30, 2012, similarly calculated, totaled $61.5 million, or $0.381 per share, compared to $29.3 million, or $0.316 per share, for the six months ended June 30, 2011. 

2012 and 2013 earnings guidance

In March, ARCT provided annualized FFO and AFFO guidance for the 12 month period commencing April 1, 2012, in the range of $0.79 to $0.82 per share. The estimates assumed: (i) purchase of $220 million of common shares at the tender offer price of $10.50; (ii) recapitalization of approximately $161.3 million of fixed rate mortgage indebtedness; and, (iii) $100 million of acquisitions funded with available working capital and capacity under the existing revolving credit facility.

ARCT has clarified its guidance to provide data for the calendar year ending December 31, 2012 and is providing new guidance for 2013. The Company is projecting, based on adjusted first and second quarter FFO per share of $0.189 and $0.193, respectively, and adjusted first and second quarter AFFO per share of $0.190 and $0.191, respectively, that full year 2012 FFO and AFFO will range between $0.755 and $0.775 per share, which is in line with its previous estimates.  

We are also publishing preliminary 2013 FFO and AFFO guidance. FFO is expected to range between $0.822 and $0.852 per share and AFFO is expected to range between $0.840 and $0.870 per share. This guidance assumes $300 million of acquisitions in 2013.

Both 2012 and 2013 guidance factor in 100% physical and economic occupancy, with no lease expirations in 2012 or 2013, but assume no benefit of interest expense reduction that may result from further mortgage debt recapitalization or upward credit ratings adjustments.

Revenues

Total revenues were $45.6 million for the three months ended June 30, 2012, compared to revenues for the sequential three month period ended March 31, 2012 of $45.6 million, and increased 57% from $29.0 million for the three months ended June 30, 2011.  Rental income increased 57% to $44.1 million for the three months ended June 30, 2012, compared to $28.1 million for the three months ended June 30, 2011.

Total revenues increased 83% to $91.3 million for the six months ended June 30, 2012, compared to $49.8 million for the six months ended June 30, 2011.  Rental income increased 81% to $88.2 million for the six months ended June 30, 2012, compared to $48.8 million for the six months ended June 30, 2011. Increases in revenues were driven by the acquisition of approximately $500 million of net leased properties subsequent to June 30, 2011. 

Net operating income

Net operating income (NOI) increased to $43.7 million for the three months ended June 30, 2012, compared to NOI for the sequential three month period ended March 31, 2012 of $42.9 million and NOI of $28.1 million for the three months ended June 30, 2011. NOI increased 78% to $86.6 million for the six months ended June 30, 2012, compared to $48.7 million for the six months ended June 30, 2011.  Increases in NOI were due to the acquisition of approximately $500 million of net leased properties subsequent to June 30, 2011. 

Net income (loss) to stockholders

Net income attributable to stockholders totaled $4.3 million, or $0.03 per share, for the three months ended June 30, 2012. Net income includes the effect of the recognition of $0.4 million of expenses related to our NASDAQ listing and termination of our advisory agreement with our former advisor and $0.3 million of expenses related to the early extinguishment of debt.

For the six months ended June 30, 2012, net income attributable to stockholders totaled $9.9 million, or $0.06 per share, based on adjusted first quarter net income, which excludes charges for the NASDAQ listing and internalization. As reported, net loss attributable to stockholders for the six months ended June 30, 2012 was $23.8 million, or $0.14 per share.

Dividend Increase

The Company paid $27.7 million for the three months ended June 30, 2012, equal to three $0.05833 per share monthly dividends or, $0.70 per annum. For the six months ended June 30, 2012, dividends totaled $61.4 million, equal to six $0.05833 per share monthly dividends. On July 30, 2012, the Company's board of directors authorized 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 will be payable commencing on September 15, 2012 to stockholders of record on September 8, 2012.  The Company's board of directors plans to review its dividend policy on a quarterly basis, including a review of current and projected earnings, and increase dividends to the Company's stockholders when warranted.

Real Estate Portfolio Grows, Strengthens and Diversifies

Property Portfolio

As of June 30, 2012, the Company owned 486 freestanding, single-tenant, net leased properties, totaling 15.6 million square feet, located in 43 states plus Puerto Rico. This compares to 368 properties totaling 11.0 million square feet as of June 30, 2011.  ARCT's portfolio is comprised of 62 corporate tenants, operating in 20 distinct industries.  The weighted average remaining primary lease term of the portfolio is 13.0 years. The portfolio has de minimis lease expirations in the next five years, and 75% of annualized rental income is from tenants with an investment grade rating from a major credit rating agency.

During the six months ended June 30, 2012, ARCT acquired three Tractor Supply retail properties, a Family Dollar retail property and an expansion space to a previously acquired FedEx distribution facility, all 100% occupied, for a total purchase price of $12.9 million at an average capitalization rate of 8.55%. Gross leasable area for these buildings total 82,154 square feet.

On July 12, 2012, ARCT announced that it had entered into agreements to acquire approximately $64 million of new properties, which include the Family Dollar and FedEx described above. These purchases are from multiple sellers, and include a Shaw's grocery store, seven Ruby Tuesday restaurants, 16 Family Dollar stores, five Dollar General stores, a Walgreens pharmacy, a FedEx distribution facility expansion, and a Fresenius distribution facility expansion.  The portfolio has an average remaining lease term of approximately 12 years and is priced at an average cap rate of 8.66%.  The acquisitions will add two new tenants to the ARCT property portfolio, bringing the Company's total number of discrete corporate tenants to 64, while maintaining our currently high investment grade tenancy, and increasing the geographic presence to 44 states.  The acquisitions are in line with the Company's strategy to achieve a diversified portfolio with a 60% concentration in the retail sector.

Rents Grow

During the three months ended June 30, 2012, cash rents on the 318 "same store" properties held for the full period in both 2011 and 2012 increased 1.5% to $24.7 million, compared to $24.3 million for the three months ended June 30, 2011.  The Company, since its inception, has had no lease turnover, "dark stores" or lease renegotiations.

Investment grade tenancy increased

On April 30, 2012, the corporate credit rating of tenant Dollar General Corp. was upgraded by a major national credit rating agency from 'BB+' to investment grade 'BBB-' with a "stable" outlook.  Following this upgrade and recent acquisitions, ARCT's investment grade tenancy increased to 74.6% from 71.1%.  Approximately 92.0% of the company's tenants are rated by a major national credit rating agency. (Percentages are based on average annual rents.)

Capital Market Activities Improve Financial Position

Tender offer completed

On April 4, 2012, ARCT completed its tender offer and purchased 20.95 million shares of its common stock at a purchase price of $10.50 per share for an aggregate cost of $220.0 million, excluding fees and expenses.  The source of funds was $218.9 million from the RBS facility.  This transaction reduced total outstanding shares of common stock from 179.4 million to 158.5 million.   

Permanent term loan secured

On July 2, 2012, ARCT secured a $235 million 5-year term loan led by Wells Fargo Securities, LLC, which replaced a $200 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. The net proceeds from the term loan were used to repay outstanding balances on the Company's $330 million revolving line of credit and for general working capital purposes. The effective interest rate on the term loan was 2.62% at June 30, 2012. The weighted average interest rate on the $912.7 million of outstanding debt at June 30, 2012 was 4.01%.

Revolving line of credit increased

The Company increased its revolving line of credit on its RBS facility from $220 million to $330 million on May 4, 2012.  The RBS facility matures on August 17, 2014 and has an accordion feature up to $500.0 million. The RBS Facility bears interest at the rate of (i) LIBOR with respect to Eurodollar rate loans plus a margin of 205 to 285 basis points, depending on our leverage ratio; or (ii) the greater of the federal funds rate plus 1.0% and the interest rate publicly announced by RBS Citizens as its ''prime rate'' or "base rate'' at such time with respect to base rate loans plus a margin of 125 to 175 basis points depending on our leverage ratio. As of June 30, 2012, $201.1 million was outstanding on the RBS Facility, and the effective interest rate was 2.32%.

Two credit rating agency upgrades

The Company was upgraded from a 'Ba3' to a 'Ba2' credit rating with a "stable" outlook by Moody's on April 5, 2012.  Additionally, on June 8, 2012, ARCT was upgraded by another national credit rating agency by two notches to a 'BB' with a "stable" outlook. The Company believes that these upgrades reflect its strong asset base and the reduction of ARCT's effective leverage and secured debt levels, all of which were accomplished while maintaining a strong fixed charge coverage. 

Included in multiple indices

ARCT was added to various indices in the month of June.  The Company's inclusion into the Russell Global Index and the Russell 2000® Index became effective after the close of market trading on June 22, 2012.  Its inclusion in both the FTSE NAREIT and S&P Indices became effective after the close of market trading on June 18, 2012.  These indices included the FTSE NAREIT Composite Index, the FTSE NAREIT Equity REIT Index, the FTSE/EPRA Global Real Estate Index, the S&P Total Market Index, both the S&P Developed and Global BMI (Broad Market Index) and other smaller custom S&P indices, thus broadening ARCT's institutional stockholder base.

Second Quarter 2012 Conference Call Details

ARCT will be hosting its second quarter 2012 conference call and webcast on Wednesday, August 1, 2012 at 11:00 a.m. ET. 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: 9905547
Webcast:
:
www.arctreit.com/q2earningscall
*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)








June 30, 2012


December 31,
2011



(Unaudited)



ASSETS





Real estate investments, at cost:





Land


$

328,448



$

325,458


Buildings, fixtures and improvements


1,537,166



1,528,962


Acquired intangible lease assets


273,504



271,751


Total real estate investments, at cost


2,139,118



2,126,171


Less: accumulated depreciation and amortization


(153,576)



(101,576)


Total real estate investments, net


1,985,542



2,024,595


Cash and cash equivalents


12,383



33,329


Investment securities, at fair value


19,207



17,275


Restricted cash


2,731



2,728


Investment in unconsolidated joint venture




11,201


Prepaid expenses and other assets


23,020



27,564


Deferred costs, net


13,183



13,883


Total assets


$

2,056,066



$

2,130,575


LIABILITIES AND EQUITY









Revolving credit facility


$

201,138



$

10,000


Note payable


200,000




Mortgage notes payable


511,543



673,978


Mortgage discount and premium, net


815



679


Below-market lease liabilities, net


7,998



8,150


Derivatives, at fair value


162



8,602


Accounts payable and accrued expenses


11,966



11,706


Deferred rent and other liabilities


6,849



6,619


Dividends payable




10,637


Total liabilities


940,471



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 June 30, 2012 and December 31, 2011, respectively


1,586



1,780


Additional paid-in capital


1,338,382



1,548,009


Accumulated other comprehensive income (loss)


1,429



(5,053)


Accumulated deficit


(241,159)



(166,265)


Total stockholders' equity


1,100,238



1,378,471


Non-controlling interests


15,357



21,733


Total equity


1,115,595



1,400,204


Total liabilities and equity


$

2,056,066



$

2,130,575



AMERICAN REALTY CAPITAL TRUST, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except for per share data)

(Unaudited)






Three Months Ended June 30,


Six Months Ended June 30,


2012


2011


2012


2011

Revenues:








Rental income

$

44,110



$

28,054



$

88,190



$

48,772


Operating expense reimbursements

1,538



922



3,072



1,061


Total revenues

45,648



28,976



91,262



49,833














Operating expenses:












Acquisition and transaction related

58



10,691



699



17,823


Property operating

1,993



911



4,691



1,124


Fees to affiliate



950



4,143



1,550


General and administrative

3,030



562



5,014



732


Equity-based compensation

650



370



1,157



725


Depreciation and amortization

26,154



15,244



52,212



25,187


Listing and internalization

391





17,660




Total operating expenses

32,276



28,728



85,576



47,141


Operating income

13,372



248



5,686



2,692














Other income (expenses):












Interest expense

(10,078)



(8,769)



(19,935)



(15,515)


Extinguishment of debt

(276)



(720)



(6,902)



(720)


Equity in income of unconsolidated joint venture

14



25



36



49


Other income (loss), net

1,452





1,716



(102)


Gain (loss) on derivative instruments

(9)



6



(4,055)



148


Loss on disposition of property







(44)


Total other expenses, net

(8,897)



(9,458)



(29,140)



(16,184)


Net income (loss)

4,475



(9,210)



(23,454)



(13,492)


Net income attributable to non-controlling interests

(203)



(307)



(347)



(545)


Net income (loss) attributable to stockholders

4,272



(9,517)



(23,801)



(14,037)














Other comprehensive income (loss) items:












Designated derivatives, fair value adjustment

30



(728)



4,551



(26)


Unrealized gain on investment securities, net

663





1,931




Total other comprehensive income (loss)

693



(728)



6,482



(26)


Comprehensive income (loss)

$

4,965



$

(10,245)



$

(17,319)



$

(14,063)


















Basic and diluted net income (loss) per share
    attributable to stockholders

$

0.03



$

(0.09)



$

(0.14)



$

(0.16)


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


Three Months Ended June 30,


Six Months Ended June 30,


2012


2011


2012(1)


2011

Net income (loss) attributable to stockholders (in
    accordance with GAAP)

$

4,272



$

(9,517)



$

9,873



$

(14,037)


Non-cash mark-to-market adjustments

9



(6)



(465)



(148)


Expenses related to the listing and internalization

391





391




Expenses related to the extinguishment of debt

276



720



276



720


Depreciation and amortization

25,788



15,007



51,566



24,718


Loss on disposition of property







44


Other non-cash losses







102


FFO

30,736



6,204



61,641



11,399


Acquisition and transaction related

58



10,688



699



17,820


Amortization of below-market lease liabilities

(76)



(76)



(152)



(152)


Amortization of deferred financing costs

942



1,520



1,890



2,148


Straight-line rent

(1,881)



(1,483)



(3,842)



(2,624)


Equity-based compensation

650



370



1,290



725


AFFO

$

30,429



$

17,223



$

61,526



$

29,316



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