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American Realty Capital Properties, Inc. (ARCP) has just been assigned a 'Baa3' credit rating by Moody's with a "Stable Outlook." This news comes after I made a 25% purchase of shares of ARCP in my Roth IRA. That's good news considering ARCP had its IPO back in September 2011 and after two years its share price hasn't made much progress. Don't be fooled by its stagnant share price though. American Realty Capital Properties, Inc. has been busy aggressively growing its portfolio of properties. It's continuing its investment in additional net lease properties while maintaining its liquidity in this capital intensive sector. A quick glance through ARCP investor presentations shows acquisitions are on the rise.

Property Portfolio Growth

 

12/31/12

03/31/13

05/03/13

06/30/13

Total Square Feet

2.4 million

16.7 million

17.0 million

19.4 million

% Investment Grade(1)

97.00%

79.00%

79.00%

69.30%

Avg. Remaining Lease Term

6.7 years

11.1 years

11.1 years

10 years

Occupancy

100%

100%

100%

100%

No. of Properties

146

701

721

1181

No. of Tenants

17

52

55

180

No. of Industries

11

20

20

21

States

26

45+PR

45+PR

48+PR

Source: ARCP financial reports

The property portfolio increased from 146 at the end of 2012 to 1181 at mid-year 2013, that's a 700% increase since the end of 2012. Between May and June of this year alone they increased their portfolio by almost 64%. The number of tenants skyrocketed from 17 at the end of 2012 to 180 in 2013. That a jump of almost 960%. The largest jump of over 220% occurred between May and June 2013.

These are not your ordinary tenants either. They are investment grade businesses that do very well in good or bad economic cycles. The table below represent American Realty Capital Properties, Inc.'s top ten tenants and make up almost half of their tenant portfolio.

Owned:

Percentage

Investment Rating

Dollar General (DG)

8.00%

BBB-

Citizens Bank (RBSCFG)

7.70%

A-

FedEx (FDX)

7.00%

BBB

Walgreens (WAG)

5.80%

BBB

AON Corporation (AON)

4.80%

BBB+

General Mills (GIS)

2.90%

BBB+

Dine Equity, Inc. (DIN)

2.40%

B

Advanced Auto (AAP)

2.30%

BBB-

Jack in the Box (JACK)

2.30%

NR

Family Dollar (FDO)

2.10%

BBB-

Source: Fact Sheet | June 30, 2013

ARCP Total Return Performance

American Realty Capital Properties, Inc. has done exceptionally well beating the REIT and Small Cap indexes by a wide margin.

 

Q2 '13

YTD

1-Yr

ARCP

5.52%

28.82%

57.07%

Triple Net Peers

-3.43%

12.69%

25.02%

MSCI US REIT Index

-1.58%

6.36%

9.03%

Russell 2000 Index

3.08%

15.86%

24.21%

Source: Fact Sheet | June 30, 2013

* All performance time periods are based on total return performance and use an end date of June 30, 2013. Triple net peer universe includes: O, NNN, WPC, SRC, LXP, EPR, ADC, and GTY.

Dividend Growth

American Realty Capital Properties, Inc. plays a significant part in my dividend growth strategy. The company has rewarded investors with a monthly dividend check rather than a quarterly dividend payment like other REITS. But that's not all; American Realty Capital Properties, Inc. has increased its dividend six times since its IPO in 2011. That's three increases per year.

Source: ARCP Fact Sheet | June 30, 2013

Earnings Performance

Unfortunately, because it's only a couple of years old, there's not enough data to compare fiscal years. One key metric needed to accurately assess corporate earnings is Funds from Operation (FFO). The company has 2012 reported FFO, but we're not done with 2013 yet and 2011 doesn't really count since that's the IPO year. Although, it's too early to accurately compare FFO without 2013 year end numbers, we can already see that earnings will be positive barring some negative event in the last quarter of 2013.

Period Ended

% Change between 2012 and 2013

2013 FQ2 YTD 06/30/13

2012 FY 12/31/12

2011 FY 12/31/2011

FFO

789%

38,009

4,275

(1,252)

Operating Funds from Operations, as Reported

25%

58,744

46,906

(1,252)

Adjusted FFO

35%

63,490

47,111

2,334

Modified FFO

 

N/A

N/A

N/A

Source: ARCPReit.com Financial Highlights

Conclusion

Moody's assignment should bring increased awareness and interest by institutional investors. Although preliminary data is insufficient, American Realty Capital Properties, Inc. appears to be undervalued based purely on the amount of growth its portfolio has experienced. This company is on its way to becoming one of the largest net lease REITS in the real estate sector. Once investors recognize what a gem American Realty Capital Properties, Inc. is, they will be picking up shares fast. Based on these facts, I will be continuing to purchase shares of ARCP.

Source: American Realty Capital Properties Finally Getting Noticed