RCS Capital Corp., or RCAP, had a challenging fourth quarter as the wholesaling unit responsible for marketing nontraded real estate investment trusts suffered a revenue drop of more than 50%.
`The wholesaling unit, led by Realty Capital Securities, raised $9.7 billion in equity capital for the full year, but only $1.1 billion in the fourth quarter. As a result, the unit lost $10.2 million on a pro forma basis in the period, compared with $6.03 million in fourth quarter of 2013.
In November, the firm
warned that sales of nontraded REITs and other alternative investments offered by the wholesaling division had slowed as some broker-dealers temporarily suspended sales in light of accounting problems at a then-related firm, American Realty Capital Properties Inc.
“The fourth quarter was particularly challenging for RCS Capital,” chief executive Mike Weil said on a conference call discussing earnings.
“We had planned for significantly higher equity sales in the quarter prior to the temporary suspension of some of our sales agreements,” he noted.
(More: Nontraded REIT sales at Realty Capital slip in 2014 but big drop avoided )
Overall, the company reported a loss of $122 million in the quarter on a pro forma basis, wider than the $1.4 million loss reported in the fourth quarter of 2013. RCAP's fell nearly 11% to around $10 in afternoon trading Tuesday.
Still, executives said they were confident that the wholesaling unit was on track to “normalize” in 2015, and expected that adjusted EBITDA would be as much as $15 million to $25 million annualized as broker-dealers continued to reinstate selling agreements.
“We will continue to see growth in the number of sales agreements going forward,” said Bill Dwyer, chief executive officer of Realty Capital Securities. “The ongoing reinstatement of our selling agreements and the expansion of our selling group will continue to be a positive contributor to our capital raising activities.”
He did not mention any specific broker-dealers on the call. In November, the company
said it had reinstated at least 51 agreements with broker-dealers.
Overall, Realty Capital Securities had 1,132 selling agreements at the end of 2014, down from 1,151 in January.
Nicholas Schorsch had been executive chairman of RCAP before resigning in December around the same time he resigned from ARCP, which revealed in October a
$23 million accounting cover-up.
The firm's independent broker-dealers operating under the Cetera Financial Group umbrella posted good results. Retention among the firm's 9,023 advisers remained strong at 97%. The firm said it brought in 242 advisers.
Larry Roth, Cetera's chief executive, said he and other executives spent time during the fourth quarter meeting with and reassuring advisers in the wake of the accounting errors at ARCP, stressing that
RCAP was distant from the scandal.
“Some of the market confusion even had some of our advisers unclear [if] ARCP is a distinct and separate business,” Mr. Roth said. “We did spend a fair amount of time communicating with [advisers] and helping them understand how healthy Cetera is.”
Cetera expects to close on
two acquisitions — VSR Financial Services Inc. and Girard Securities — later in the first quarter. Those will put the combined companies at more than 9,500 advisers and $214 billion in client assets.
Executives said that the firm would continue to look for additional acquisition targets.
