American Realty Capital Trust Declines on Unresolved Merger Issues (ARCT)

In spite of reporting an increase in the fiscal 2012 third-quarter revenue and funding from operations, the shares of American Realty Capital Trust (NASDAQ: ARCT) declined primarily due to the ongoing controversy surrounding the merger deal with Realty Income Corp. (NYSE: O).

The New York-based American Realty is involved in the acquisition and leasing of a portfolio of commercial real estate properties. As of today, the real estate investment trust owns or controls 507 properties comprising 15.8 million rentable square feet. The average property age is 5.3 years and the average remaining lease term is 12.7 years. American Realty enjoys a 100% occupancy rate for its properties.

American Realty reported its fiscal 2012 third-quarter result on the evening of October 29. Total revenues for the fiscal 2012 third quarter increased 27% to $46.06 million from $36.20 million in the prior-year similar period.

The net loss for the reported quarter widened to $64.5 million, or $0.41 per share, from $5.66 million, or $0.03 per share, in the third quarter of fiscal 2011. During the third quarter of 2012, American Realty incurred NASDAQ listing, internalization and merger charges of $68.11 million compared to none in the corresponding quarter last year. Excluding charges, net income was $3.6 million, or $0.02 per share, for the third quarter of 2012.

Funding from operations for the third quarter of fiscal 2012 increased to $29.5 million, or $0.19 per share, from $17.0 million, or $0.10 per share, for the three months ended September 30, 2011.

Adjusted funding from operations (AFFO) for the third quarter was $30.1 million, or $0.19 per share, compared to $22.7 million, or $0.13 per share, reported in the last-year similar period.

The shares of American Realty, despite overall market turbulence, had remained stable in the range of $10.30 to $11.00 from March 2012 to the end of July. On the basis of a 13% growth in the earnings forecast for 2012 to 2103, a rise in the annual dividend rate and impressive fiscal 2012 second-quarter results, the share price went past the $11.00 mark to reach $11.80 on August 29. The news of American Realty being acquired by Realty Income lifted the share price of the former to a lifetime high of $12.74 on September 7. Following a downgrade by Ladenburg Thalmann from “buy” to “neutral”, as well as a case filed by the Carol L. Possehl Living Trust seeking class action status for the suit filed by the shareholders challenging American Realty’s acquisition, the share price of the company dropped back to $11.35 at the end of last week’s trading. Earlier on October 15, Luxor Capital Group, a New York-based investment manager, which owns more than 10 million shares or approximately 6.4% of American Realty, said that it would not support the proposed merger agreement in its current form.

On October 26, Forbes published a report stating that American Realty’s shares have entered into an oversold region and should be on the radar of active traders.

Today, the shares of American Realty opened 10 cents down from the previous closing price of $11.35 due to the unresolved controversy surrounding the merger agreement with Realty Income. The impressive results propelled the share price to the positive zone briefly. Notwithstanding the selling pressure, the share price dipped back into the negative territory and traded for the rest of the day.

On July 31, American Realty had announced an annual dividend of $0.715 per share, an increase of 2.1% from the previous annualized distribution rate of $0.70 per share. As a result of the merger agreement with Realty Income, Moody’s had placed American Realty’s Ba2 issuer rating on review for possible upgrade.

American Realty ended the day at $11.27 per share, down $0.08 or 0.7% on a volume of 2.03 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.