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Schorsch exit hits American Realty empire
From the Financial Times of Mon, 15 Dec 2014 18:26:19 GMT
Nicholas Schorsch, chairman and chief executive officer of American Realty Capital Healthcare Trust Inc., speaks at the annual Milken Institute Global Conference in Beverly Hills, California, U.S., on Tuesday, April 29, 2014. The conference brings together hundreds of chief executive officers, senior government officials and leading figures in the global capital markets for discussions on social, political and economic challenges. Photographer: Patrick T. Fallon/Bloomberg *** Local Caption *** Nicholas Schorsch©Bloomberg

Shares across Nicholas Schorsch’s expansive real estate and financial empire fell sharply after he stepped down from the board of American Realty Capital Properties, one of the largest US real estate investment trusts.

Mr Schorsch relinquished the executive chairmanship of the company on Monday, several weeks after American Realty announced that it had discovered accounting irregularities and would need to restate financial results.

Independent board members at American Realty presented the departure as an opportunity for the company to “simplify our business relationships”, amid investor concern about potential conflicts of interest across firms where Mr Schorsch is a director or a major shareholder.

The trust, which owns a $23.8bn portfolio of commercial properties across the US, said it was also making progress with a financial restatement and a review of its capital structure and strategy that is being conducted by Morgan Stanley.

In October, news of the accounting irregularities at American Realty scuppered a planned deal for RCS Capital, a broker-dealer where Mr Schorsch is a significant shareholder, to buy Cole Capital, an American Realty subsidiary.

Shares in American Realty were down 7 per cent in midday trading in New York. Shares in RCS were off 10 per cent, and New York Reit, another property company where Mr Schorsch is chief executive, was down 1.5 per cent.

As well as Mr Schorsch, American Realty’s chief executive David Kay and its chief operating officer Lisa Beeson also stepped down on Monday. Its former chief financial officer, Brian Block, and Lisa McAlister, chief accounting officer, left the company six weeks ago.

“The steps taken today enhance American Realty’s corporate governance structure, increase transparency and further simplify its business relationships,” said Bill Stanley, its lead independent director, who has become interim chairman and chief executive.

Mr Schorsch will relinquish equity compensation valued at over $8m under the terms of his severance, the company said in a regulatory filing, but $8m in previously-awarded shares will vest immediately. The award is subject to clawback, in the event of any legal finding he “breached his fiduciary duty of loyalty or there is a finding or admission of fraud or misconduct”, it said.

American Realty said on October 29 that it had overstated its adjusted funds from operations — a key financial measure used by real estate investment trusts known as “AFFO” — by $12m during the first quarter of the year and by $10.9m in the second quarter.

No irregularities have been announced by any other company related to Mr Schorsch. RCS has been working to restore confidence with clients of its Reit-focused broker-dealer business, and last month it put out a statement saying it has no overlapping directors with American Realty and had full confidence in its financial statements and accounting processes.

Real estate investment trusts like American Realty have attracted considerable interest from investors since the financial crisis because they offer high dividends at a time of low interest rates. The trusts fall under a tax structure that compels them to return almost all of their income to investors.

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