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These Shareholders Just Got Another Lump Of 'Cole' For Christmas

It appears that "winter is coming," again, for battered common shareholders.

American Realty Capital Properties Inc (NASDAQ: ARCP)'s corporate suite and boardroom has been in turmoil during the last quarter of 2014.

For optimistic investors who were hoping to receive a quarterly dividend based on the previously announced $1.00 per share annual dividend, hopes were dashed by ARCP's latest update on December 24.

The now-suspended quarterly dividend would have equated to a 12 percent yield based on the $8.33 per share closing price on Christmas Eve 2014.

Tale Of The Tape

This bad news caps off the horrific last quarter for ARCP investors.

arcp_-_finviz_chart_xmas_eve.jpg
arcp_-_finviz_chart_xmas_eve.jpg

Shares are down 35 percent year to date in 2014.

A Look Back

Shares of ARCP fell off of a cliff when accounting irregularities and apparent executive-approved cover-ups were revealed by former CEO David Kay.

The inevitable departure of Executive Chairman Nick Schorsch, the mastermind behind the ARCP M&A growth strategy, left at least as many questions as answers.

Related Link: The Saga Shaking The REIT World

More Bad News

On December 23, ARCP received another waiver and consent from its unsecured credit facility lenders to delay certifications of previous financial statements, as well as Q3 and FY 2014 statements until as late as March 2, 2015.

The release warned: "Following the delivery of its financial statements, ARCP will reevaluate a reinstatement of its dividend at a rate that is in line with its industry peers."

Interim ARCP CEO and Chairman William Stanley explained it this way: "The Board of Directors is focused on strengthening ARCP and generating cash flows to protect and grow investor capital."

What Could An In-Line Dividend Look Like?

A back-of-the-envelope calculation would indicate that slashing the now-suspended ARCP common dividend in half would result in a 6 percent yield.

Highly regarded industry peer W.P. Carey (NYSE: WPC) currently pays a dividend yielding just north of 5 percent. W.P. Carey is the only other peer to have a non-traded REIT business unit, along with its core single-tenant net-lease business of on-balance sheet assets.

However, W.P. Carey has a long history of paying and raising its dividend, which means Mr. Market will likely require ARCP to pay a risk premium compared to W.P. Carey.

'The Best Strategies To Stabilize And Grow'

ARCP went as far as auditing its own leases to confirm that, indeed, its core 4,400 single-tenant net-lease business was on firm ground.

Still, the future of its Cole Capital non-traded REIT business is far less certain.

"The evaluation will seek to best position ARCP and Cole Capital for future growth and may be further refined as the Board's review continues," a recent press release stated.

Stanley further clarified: "We are also evaluating the best strategies to stabilize and grow Cole Capital, an important business with strong prospects."

The Bottom Line

The latest news should not come as a surprise to savvy investors.

To some, a 12 percent dividend yield was a "red-flag," which appeared to signal that something was going to change at ARCP. Unfortunately, it was more bad news.

Now, shareholders must be concerned that Cole Capital -- which could be on the trading block again -- will lose more value if the bad headlines at ARCP continue.

Image credit: Greg Clarke, Flickr

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© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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