After shepherding a handful of nontraded real estate investment trusts to the public markets, American Realty Capital’s Nicholas Schorsch now plans an initial public offering for his broker-dealer and investment banking platform for illiquid REITs.
Management at RCS Capital Corp., a new venture launched by Mr. Schorsch, announced today that it intends to sell 2.75 million shares of company stock, with an expected
IPO price of $19 to $21 per share. After registering with the Securities and Exchange Commission in February, RCS Capital today issued a free writing prospectus outlining its
IPO.
Because RCS Capital is in its quiet period, Mr. Schorsch was not available to comment, said Tony DeFazio, a company spokesman.
American Realty Capital has been a leader in the nontraded-
REIT industry in creating “liquidity events.” In such events, capital is returned to clients through a
REIT merger or listing on an exchange. After the credit crisis, nontraded REITs were widely criticized for several shortcomings, including a lack of exit strategies for investors. But property trusts increasingly are staging liquidity events as investor appetite for listed REITs — and the dividends they throw off — remains strong.
One example: The formerly nontraded Chambers Street Properties
REIT, which has a $2.5 billion market capitalization, listed yesterday on the
New York Stock Exchange. According to the prospectus filed today by American Realty Capital, the company has executed four liquidity events in the past year and a half, creating $2.7 billion in shareholder value in total cash and stock appreciation, including dividends.
At the midpoint of $20 per share, the RCS Capital offering would raise $55 million if the allotment of shares were sold completely.
That’s a modest amount but would allow its broker-dealer and investment bank, Realty Capital Securities LLC, to expand its ability to sell other illiquid investments. Those nontraded REITs and business development companies would be created by sponsors looking for distribution into independent broker-dealers, which commonly have no investment banking groups of their own to create products for clients.
According to the prospectus, the company’s use of proceeds from the
IPO “is to expand lines of business by funding internal growth and by acquiring complementary businesses, as well as for general corporate needs.”
Mr. Schorsch is executive chairman of the new company, which is expected to price the week of June 3, with a ticker symbol of RCAP on the NYSE. RCS’s market capitalization is expected to be $535 million after the offering, based on a $20-per-share offering price. According to the prospectus, the company expects to pay an annualized
dividend of 72 cents, payable quarterly in the third quarter of 2013. That’s equivalent to a 3.6%
dividend yield, again based on a $20 price.
The managing underwriters are two small broker-dealers, JMP Securities and Ladenburg Thalmann & Co. Inc., which has a network of independent broker-dealers that have sold American Realty Capital REITs.
Realty Capital Securities, the broker-dealer, is expanding its market share of equity raised in the nontraded-
REIT industry. In 2012, the B-D accounted for 27.9% of the equity raised in the sector, according to the prospectus.
