The accountant for eight nontraded real estate investment trusts managed by Nicholas Schorsch's privately held real estate manager, American Realty Capital, has resigned.
Grant Thornton on Jan. 22 resigned as the independent registered public accounting firm for the eight REITs, including American Realty Capital Trust V, the last of the extremely popular ARC net lease REITs that Mr. Schorsch brought to the market after the financial crisis.
Although the accounting firm resigned last week, the filings announcing the action weren't filed with the Securities and Exchange Commission until Wednesday.
NO REASON GIVEN
Grant Thornton did not give a specific reason for its resignation in any of the eight filings. Instead, it stated that there were “no disagreements” between the specific REIT and Grant Thornton “on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure,” according to the filings. There were also no “reportable events” that led to Grant Thornton's resignation, according to the filings.
At the end of October, Mr. Schorsch's nontraded REIT empire was turned upside down when it was revealed that his flagship REIT, the publicly traded American Realty Capital Properties Inc., had
a $23 million accounting error that was left intentionally uncorrected during the first half of 2014. Sales of ARC REITs slowed as broker-dealers began suspending the product.
Mr. Schorsch in December
resigned as chairman of ARCP as well as the broker-dealer holding company he controls, RCS Capital Corp., or RCAP. An RCAP subsidiary, Realty Capital Securities, is the wholesaling broker-dealer for the ARC REITs.
Each of those ARC REITs is now without an independent registered public accountant but is in discussions with firms for the position. For example ARC V is in discussions with CohnReznick to replace Grant Thornton.
“Consistent with firm protocol and professional standards, we are unable to discuss this matter,” said Grant Thornton spokeswoman Kristen Bugaris.
American Realty Capital “announced previously that as part of its continuing efforts to incorporate best practices initiatives into all of the investment programs that it sponsors, it would seek to ensure that accounting services provided to each program were sufficiently differentiated as to minimize concentration in audit firms,” said Andrew Backman, an ARC spokesman, in an email to
InvestmentNews. “Grant Thornton previously audited 16 of American Capital's current or recently closed investment programs.”
GRANT THORNTON REPLACED
Mr. Backman noted that ARC had replaced Grant Thornton this month as the external auditor for two global REITs and decided that Grant Thornton would not provide audit services for new ARC investment programs. “Finally, as part of these best practices initiatives, ARC previously announced that Deloitte Touche would become the internal auditor to all ARC-sponsored programs.
The other ARC REITS that Grant Thornton resigned from on Wednesday are: ARC – Retail Centers of America Inc., ARC – Retail Centers of America II Inc., ARC Daily Net Asset Value Trust Inc., ARC Healthcare Trust II Inc., ARC Healthcare Trust III Inc., ARC New York City REIT Inc. and ARC Realty Finance Trust Inc.
Since October, ARC and RCAP executives have repeatedly stressed that any accounting issues at the disparate companies formerly controlled by Mr. Schorsch were isolated to ARCP.
(More: Nicholas Schorsch downplays ARCP's $23M accounting debacle)
“As we previously stated, we learned of the accounting issues at ARCP along with the rest of the market, when ARCP issued its release on the morning of Oct. 29,” said RCAP CEO Michael Weil on a conference call with investors in November. RCAP's board then retained outside counsel and a forensic accounting firm to review RCAP's accounting and reported financial statements for the first nine months of last year.
“Our accountants, a separate third-party accountant firm, our independent directors and our audit committee have all opined positively on our financials and accounting controls, and we consider the question of RCS Capital's accounting integrity as closed,” he said.
