11/19/2013 | By Allen Kenney
Nicholas Schorsch, chairman and CEO of American Realty Capital Properties (NASDAQ: ARCP), joined REIT.com for a CEO Spotlight video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.
American Realty Capital has completed a series of high-profile acquisitions and mergers this year. Schorsch talked about the market conditions that have made 2013 the right time to be so active, including the $11.2 billion deal for Cole Real Estate Investments Inc.
“The great thing we’re seeing in the market is that transaction was a strength-for-strength merger. Creating the largest net lease REIT is a great thing for both the cost of capital and both size and scale. The net lease space was an ‘other’ space for so long—it wasn’t even its own designated space. Today the net lease space is pushing up on $70 billion.”
Schorsch noted that his company’s market capitalization of approximately $22 billion “really gives us that ability to raise capital, have more float, lower the cost of capital and also be able to do larger transactions on an organic basis with the actual large corporate credits—whether it be a McDonald’s or a Lowe’s or a Wal-Mart—and not have a concentration issue.”
Schorsch discussed some of the other benefits of growing larger as a result of his company’s recent deals.
“Most people think size is for size,” he said. “It really isn’t. It’s really about building something that has a lower cost of capital. It gives us lower operating expense. It gives us scale and trading volume. And then it comes down to how does the investor see it. From a capital standpoint, a lot of the larger funds are able to buy it because we have the fund flows.”
Schorsch offered his thoughts on why size and scale create competitive advantages for companies in the net lease sector.
“The arms race is really about scale for synergy purposes,” he said. “When you look at a net lease REIT, you can’t buy a large portfolio if you don’t have enough size, because you become over-concentrated.”
Schorsch also said larger companies in the net lease sector can “dramatically” reduce their operating expenses by achieving greater scale.
“We can be much, much more efficient with a larger platform,” he said.