In a rarity, a nontraded real estate investment trust is preparing for an initial public offering after only four years as a private REIT.
American Realty Capital Trust Inc. yesterday said it had filed an application to be listed on the Nasdaq Global Select Market on or about March 1.
According to its registration filing with the Securities and Exchange Commission, the REIT expects the offering price of its shares to be $11.50. Most of the REIT's shares were sold to investors at $10 per share.
In addition, weeks after the IPO, the REIT intends to offer to buy shares worth between $200 million and $250 million,
American Realty Capital Trust, which plans to trade under the symbol ARCT, raised $1.8 billion from 40,000 investors between 2008 and 2011.
The REIT, which intends to continue its 7% annual dividend, has focused on the acquisition and operation of freestanding, single-tenant commercial properties with “net leases” to investment-grade and other credit tenants in the United States and Puerto Rico, according to the filing. In commercial real estate, net lease means that the tenant pays rent along with other expenses, such as taxes, insurance and maintenance.
Seventy-one percent of the REIT's portfolio is with tenants of investment-grade credit quality. Twenty percent is rated non-investment-grade, and the rest is not rated, according to the filing.
“The net-lease REIT market is perfect,” said Nicholas Schorsch, who will resign as chief executive of the REIT but remain its chairman. “This is a durable income-[producing] portfolio, and durable income that is tax-efficient is the in-vogue investment for the public. They're looking for yield.”
While a couple of nontraded REITs have gone public since the collapse of the real estate bubble, Mr. Schorsch noted that making the transition from a nontraded REIT to a traded one in four years is unusual.
Mr. Schorsch noted that REITs making the transition to the public market or sold to another group of investors has slowed. “Activity has been stalled recently. My personal opinion is, the fee load for [REIT] advisers is weighing down deals and they can't get the price they want.”
After the IPO and the buyback of shares, the REIT eventually will look to do a small secondary offering to bring in new investors, Mr. Schorsch said. “We believe there will be demand,” he said.
Through a reorganization of American Realty Capital's management and its adviser, the REIT is lowering expenses, and that was part of the decision to bring it to the public market, Mr. Schorsch said.