Reduced Cost of Capital, Net Leases Fuel ARCT
07/25/2012
| by
Matthew Bechard
The conversion from a public, non-listed REIT to being traded on the NASDAQ has been a very positive move for American Realty Capital Trust (NASDAQ: ARCT), according to its president and chief executive officer, William Kahane.
"The move has gone as scripted. We have found we have more access to capital and greater visibility in the capital markets," Kahane said during REITWeek 2012: NAREIT's Investor Forum. "Because our strategy is one of reducing our cost of capital to its lowest available amount, the public traded markets give us the opportunity to do just that."
American Realty Capital Trust acquires, owns and operates single-tenant, freestanding commercial properties. The company's triple-net lease portfolio is anchored with investment-grade corporate credit. Kahane said were you to buy their bond you would earn a certain level of yield.
"In the real estate, because it is an illiquid asset, you are paid for that lack of liquidity 200-300 basis points through the bond-type yield for the same duration," Kahane said. "But the fact of the matter is in a net-lease structure we take the real estate risk, though not the liquidity, and place it squarely on the shoulders of the tenant.
Among the expenses inherent in owning and operating real estate that are passed on to the tenant in this format are increases in operating costs, insurance premiums, real estate taxes and capital items.
"By doing that, we enjoy simply the rent, rent growth, its stability and predictability over time without the likely erosion of that rent pattern from expenses," he said.
In terms of maintaining the momentum the company has built, Kahane said the formula for success is clear.
"Staying with our discipline; ignoring style drift; continuing to buy within our core competency; keeping our cost of capital low; improving our credit rating; and keeping our head down and buying well," Kahane said.
"The move has gone as scripted. We have found we have more access to capital and greater visibility in the capital markets," Kahane said during REITWeek 2012: NAREIT's Investor Forum. "Because our strategy is one of reducing our cost of capital to its lowest available amount, the public traded markets give us the opportunity to do just that."
American Realty Capital Trust acquires, owns and operates single-tenant, freestanding commercial properties. The company's triple-net lease portfolio is anchored with investment-grade corporate credit. Kahane said were you to buy their bond you would earn a certain level of yield.
"In the real estate, because it is an illiquid asset, you are paid for that lack of liquidity 200-300 basis points through the bond-type yield for the same duration," Kahane said. "But the fact of the matter is in a net-lease structure we take the real estate risk, though not the liquidity, and place it squarely on the shoulders of the tenant.
Among the expenses inherent in owning and operating real estate that are passed on to the tenant in this format are increases in operating costs, insurance premiums, real estate taxes and capital items.
"By doing that, we enjoy simply the rent, rent growth, its stability and predictability over time without the likely erosion of that rent pattern from expenses," he said.
In terms of maintaining the momentum the company has built, Kahane said the formula for success is clear.
"Staying with our discipline; ignoring style drift; continuing to buy within our core competency; keeping our cost of capital low; improving our credit rating; and keeping our head down and buying well," Kahane said.