Until There's A Dividend, This REIT Remains A Pig In A Poke

Check year-end 2014 financials off the list…check a new CEO off the list…Mr. Market seemed almost unresponsive to American Realty Capital Properties (NASDAQ:ARCP) business update today.

Don't get me wrong, this REIT is definitely headed back up, but there are few other hurdles to clear before the stock trades north of $10.00. Let's recap the year-end highlights:

1. Q4-14 consolidated revenue was $418.8 million, an increase of $282.6 million over the prior-year period. Year-end revenue was $1.58 billion. Here's the breakdown of Rental Revenue and Cole Capital Income.

2. Reported consolidated FFO was ($.06) and AFFO was $.22 per diluted share for the quarter, and consolidated FFO was $.18 and AFFO was $.90 per diluted share for 2014. Here's a chart of the historical AFFO results:

3. ARCP acquired only $21 million in Q4-14 (at a cap rate of 7.32%) and the year-end acquisition total was $3.8 billion (cash cap rate of 7.9%). ARCP sold 81 properties in Q4-14 for total net proceeds of around $1.9 billion. The majority of the disposition activity was the multi-tenant portfolio sold to Blackstone-DDR. In addition, ARCP sold a building leased to Apollo in which the company "expects to book a GAAP loss of $20 million in Q1-15"...a sign of more ahead?

Is Anyone Forgetting About the Conflicts of Interest?

ARCP's leadership team was bullish about Cole Capital Corp.'s ability to restore its relationships with the broker-dealers that suspended sales of Cole and ARC-sponsored entities in the wake of last fall's damaging accounting disclosure.

Interim Chairman and interim CEO Bill Stanley said that the company's filing of 2014 year-end earnings should mark a turning point in its relationships with firms that ceased sales of certain non-traded REIT products. With the 2014 filing, the company is current with the SEC's reporting requirements. Stanley remarked,

Our team looks forward to resuming normal operations with these business partners.

Stanley elaborated during the call's Q&A segment, as questions rolled in about Cole's ongoing problems and prospects.

The Cole team … has been going literally almost daily, back and forth, helping our broker-dealer partners and due-diligence teams understand, first the [2013 Form 10-K] and the [2014 third-quarter Form 10-Q]. And after today we'll be going out.

[What] we believe, from indications, is that many if not most have been waiting for this 2014 10-K as the event to reinstate the selling agreement. So we believe … going forward, we will start to see fairly robust activity with broker-dealers coming online and our cash raise incrementally going up.

Responding to an analyst's inquiry about Cole's ability to invest today, Stanley put the level of dry powder at roughly $200 million to $300 million, assuming 50% leverage, "based on funds that have already been raised inside of our non-traded REITs." He added,

Our intent is to continue to raise money and we think that we're going to re-enter the marketplace pretty vigorously after today's call.

One these days I'll put together a detailed analysis of the massive cost to investors who purchased Cole; however, the more important issue today is what can Cole be monetized for?

I have always viewed Cole as a highly conflictive piece of the ARCP puzzle. If you really examine the relationships that exist within the two companies (Cole and ARCP), it's quite clear to see the self-dealing that goes on within these organizations. I'm not impressed with the potential for earnings growth at Cole, the best way for investors to profit is to liquidate the operation and reduce exposure to self-dealing.