RCAP sales slow, but Schorsch confident nontraded REIT 'freight train' will roll

May 1, 2014 @ 11:59 am

By Bruce Kelly

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(Bloomberg News)

RCS Capital Corp. on Thursday reported a drop in revenue for the first quarter due to a slowdown in the sale of nontraded real estate investment trusts but executive chairman Nicholas Schorsch isn't worried.

The wholesaling and investment banking broker-dealer reported revenues of $187.2 million for the quarter ended March 31 compared with $218.6 million in the same quarter of 2013. Total equity raised from nontraded REITs and other investment programs declined to $1.6 billion from $2.4 billion in the same quarter last year.

“The year-over-year decrease was primarily attributable to lower wholesale broker-dealer revenues, which was partially offset by a $41.8 million increase in transaction management, investment banking and transfer agent revenues,” the company said in a statement.

Earnings per share were 22 cents for the period versus 70 cents for the three months ending in December. RCS Capital Corp., known by its ticker symbol RCAP, went public last May.

Despite the slowdown in the first three months of the year, Mr. Schorsch was sanguine about RCAP's near- and long-term prospects.

“There are $46 billion of other nontraded REITs looking for liquidity, and four nontraded (business development companies),” Mr. Schorsch said Thursday on a conference call. “This is a freight train that isn't going to slow for a decade.”

Mr. Schorsch is also the founder and CEO of American Realty Capital, the largest sponsor of nontraded REITs, a booming business that saw sales double in 2013 to almost $20 billion. RCAP wholesalers distribute ARC REITs and other investment products.

RCAP is well positioned for growth, Mr. Schorsch said. Last quarter, the company introduced four new products with a total of $6.3 billion in equity to raise.

RCAP's army of wholesalers is raising an astounding $40 million of equity a day, Mr. Schorsch said. That tally could climb to $50 million to $60 million of daily equity raised in the third quarter and even higher by the end of the year, he said.

Such a rise would come as RCAP introduces more new products and the nontraded REIT industry as a whole sees a greater number of “liquidity events,” meaning listings or mergers that return capital to investors.

The company's target is to raise $14 billion in equity this year, Mr. Schorsch said. RCAP wholesalers could be selling up to two dozen different products by the end of the year, with half nontraded and the other half liquid alternatives, Mr. Schorsch said.

With the closing earlier this week of its acquisition of Cetera Financial Group, RCAP has 8,000 independent registered reps and advisers under its umbrella. That will climb to 9,000 when three other pending broker-dealers acquisitions close, which is expected by the end of June. RCAP's pending acquisition of liquid alternative manager, The Hatteras Funds Group, is also scheduled to close by the end of the second quarter.

The company's first quarter results did not include the results from the four Cetera broker-dealers.

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