ARCP reports "weakness" in financial reporting controls

Troubled REIT finally reports Q3 2014 earnings, adjusted funds from operations get revised down

Mar 2, 2015 @ 8:25 am

By Bruce Kelly

The audit committee for troubled traded real estate investment trust American Realty Capital Properties Inc. said Monday it “found certain material weaknesses in the company's internal controls over financial reporting and its disclosure controls and procedures.”

The committee also reported that “certain payments by the company to ARC Properties Advisors and certain of its affiliates were not sufficiently documented or otherwise warrant scrutiny,” according to a company statement. ARCP has recovered $8.5 million of those payments the company deemed “inappropriate.”

In its filing Monday with the Securities and Exchange Commission, the company did not identify any individual executives who received the inappropriate payments. Nicholas Schorsch was chief executive of ARC Properties Advisors, the REIT's former manager, from its formation in November 2010 until the company became self-managed in January 2014, according to the company's 2014 proxy statement.

(More: Schorsch, ARCP dodge bullet as defamation suit dropped)

That information was part of ARCP's third quarter 2014 earnings report released Monday after being delayed in the fall. In addition, the company restated its results for 2013 as well as the first six months of 2014.

ARCP said Monday its adjusted funds from operations — AFFO — in 2013 was overstated by 20 cents per share and AFFO from the first half of 2014 was overstated by 10 cents per share. AFFO is an important measure of cash flow for REITs.

ARCP also did not reinstate its dividend and will address that later in the year when it has a new management team.

In late October, the company revealed a $23 million accounting error in the first half of 2014 that was intentionally uncorrected. Two executives resigned at the time, and in December the company's chairman, Nicholas Schorsch, and its CEO, David Kay, also resigned.

The audit committee did not identify any material changes relating to ARCP's real estate ownership, rental revenue or fundamental business operations. The investigation did not find any changes to the financial statements or operations of the Cole Capital-sponsored nontraded REITs.


What do you think?

View comments

Recommended for you

Featured video


What's behind the TCA, ETrade deal?

Deputy editor Bob Hordt talks with senior columnist Jeff Benjamin about what each party in the recent acquisition stands to gain by joining forces.

Latest news & opinion

What's in a name? For TCA by ETrade, everything

Trust Company of America is gone, and there's big buzz over the name change. But turning the custodian into an industry powerhouse will take a lot longer — if it happens at all.

When it comes to regulating AI in financial services, murky waters are ahead

Laws are unclear on how the technology fits in with compliance.

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print