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Is Cole on a Come Back?

Cole Capital, formerly one of the leading sponsors of non-traded real estate investment trusts, reported its third quarter financial results last week and participated in an earnings call hosted by its parent company, Vereit Inc., to give an update on the company that has been struggling since the ARCP accounting scandal rocked the firm back in October 2014.

Prior to the revelation that ARCP had filed falsified quarterly reports that inflated its adjusted funds from operations, Cole had enjoyed decades of success as an industry leader. Sales plummeted after the scandal broke, however, as numerous independent broker-dealers suspended selling agreements with the company.

Nearly a year after the scandal was revealed and the massive traded REIT severed ties with its founder, Nicholas Schorsch and his partners at AR Capital, there is evidence that Cole may be slowly recovering its lofty perch.

Glen Rufrano, Vereit’s new president and CEO, revealed during last week’s conference call with investors and analysts that the various Cole offerings had signed several new selling agreements in recent months with major broker-dealers. Rufrano also explained that Cole had embraced a new “institutionalized” management approach.

Cole signed selling agreements with 14 broker-dealers and had 36 more reinstate suspended selling agreements since he took the helm at Vereit earlier this year, including seven during the third quarter. While Rufrano declined to identify the broker-dealers, he did mention that four of them were among the nation’s 10 largest IBDs.

Rufrano also commented that he believed the non-traded REIT industry was on an “institutional” path, a direction Cole has embraced with the departure of many ARC insiders from the various boards of the Cole REITs and the election of independent directors to replace them. Rufrano emphasized that Cole would no longer allow a director to sit on more that one of its boards, and that chairmen were required to be independent.

He explained further, “It is the independent directors who will determine what is best for the investors of those funds, not the sponsor. And that is the way we will run this business, for the benefit of the investors in the funds, not for the benefit of the sponsor. And I believe we are a leader there, and that’s the way this business will go.”

On the call, Rufrano’s outlook was optimistic, and apparently for good reason. He explained that Cole had raised “$100.3 million this quarter, including $33.7 million from DRIP, a 14 percent increase in new capital from the prior quarter. During the same period, the non-traded REIT market declined 24 percent. In October, Cole’s new capital raised was $29 million, the highest month so far this year. Acquisitions on behalf of the managed funds for the quarter totaled $315.4 million, and we expect approximately $200 million to $250 million of acquisitions during the fourth quarter.”

This time last year, prior to the impact of the ARCP scandal, Cole raised $260.8 million, including $42.8 million of DRIP proceeds.

Cole Capital segment revenue for the third quarter also decreased $32.3 million to $27.5 million as compared to revenue of $59.8 million for the same quarter in 2014. This was a consequence of reduced capital raise and the resulting impact on transaction-related revenues. This quarter, Cole Capital invested $315.3 million in 32 properties on behalf of the Cole REITs, compared to $1.1 billion in 228 properties in the third quarter of 2014.

For the first time since the scandal, Cole appears to have its ship headed in the right direction. The DI Wire will continue to monitor and report its progress.


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