With stock off sharply, Schorsch's RCS Capital says 'We're not ARCP'

Both companies controlled by the REIT czar but broker-dealer not involved in accounting trouble at American Realty Capital Properties

Nov 5, 2014 @ 10:44 am

By Bruce Kelly

With its stock price plummeting since last week, RCS Capital Corp. took the extraordinary step Wednesday of issuing a statement that it is a separate and independent company from American Realty Capital Properties Inc., Nicholas Schorsch's flagship real estate investment trust that revealed a $23 million accounting error last week.

Shares of RCS Capital, or RCAP, were trading at $11.97 Wednesday morning, up $1.06, or 9.7%. But on Oct. 28, the day before American Realty Capital Properties, or ARCP, revealed a $23 million accounting mistake, the stock closed at $19.75. Over the past five days, RCAP shares have lost 42.3% of their value and ARCP has lost 32.5%.

Mr. Schorsch is executive chairman of RCAP and chairman of ARCP.

RCAP's market capitalization is currently $744 million. RCAP acquired the Cetera Financial network of broker-dealers earlier this year for $1.15 billion, funded in large part by a $700 million loan from Bank of America Merrill Lynch.

“RCAP reiterates that it and ARCP are two separate and independent public organizations,” the RCAP statement said.

The two companies have separate management teams, boards of directors and accounting departments, and are competitors in the nontraded REIT wholesaling and distributing business, RCAP said.

RCAP's CEO, Mike Weil, emphasized RCAP's independence of ARCP.

“I think it’s very important to communicate strongly to the market that RCS Capital, RCAP, is an independent company (from ARCP) and the situation is independent of us,” said RCAP’s CEO Mike Weil Thursday in Denver during an interview at the annual Schwab IMPACT meeting for advisers.

RCAP is scheduled to report third quarter earnings on Nov. 13 and at that time, “I’m very confident that the market will be able to hear the things that we need to tell them,” Mr. Weil said.

Because it is currently the earnings blackout period for RCAP, Mr. Weil said he could not disclose details before RCAP’s earnings release.

“I have held many conference calls” with advisers, Mr. Weil added. “I will continue to communicate with them and my message is going to be unchanged. RCS Capital does not have problems. The programs that are distributed by RCS Capital will give the market the information that they’re looking for in their earnings calls over the next week and a half. We’ll come through this a better company and we’ll be able to show the value of good process and transparency.”

Earlier this week, RCAP said it was backing out of a $700 million acquisition from ARCP of two highly prized nontraded REIT assets, Cole Capital Partners and Cole Capital Advisors Inc. Those companies package and distribute nontraded REITs.

Over the last week, several independent broker-dealers, including LPL Financial Holdings and the AIG Advisor Group network, cut ties, at least for now, with REITs associated with Mr. Schorsch.

RCAP “believes those broker-dealers that have temporarily suspended sales are likely to reinstate the selling agreements,” the company's statement said.

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