Just over two years ago American Realty Capital Properties (ARCP) listed on NASDAQ by raising around $70 million in proceeds to launch a 63 asset portfolio with just two tenants. Now, around twenty six months after listing, the New York-based REIT has blossomed into a dominant REIT that will soon consist of 2,709 properties and over 57 million square feet.
To put that into perspective, ARCP went public on September 6, 2011 and by the end of this year (after merging with ARCT4), the combined company will have an enterprise value of $10.2 billion - compared with Realty Income (NYSE:O), the largest Triple Net REIT with a current capitalization of over $13 billion, that has been a public company for just under twenty years.
To fuel the fire, ARCP recently announced that it was planning to merge with Cole Real Estate Investments (NYSE:COLE) in a deal valued at $11.2 billion and that combination will create the largest net lease REIT with an enterprise value of $21.5 billion. ARCP has secured $2.75 billion of fully committed financing from Barclays in connection with the transaction, which is expected to close in the first half of 2014.
Also, ARCP recently closed on the acquisition of Caplease (NYSE:LSE) - a 68 property portfolio of industrial and office assets that spans 13 million square feet with 80% investment grade tenants.
ARCP has had incredible growth and the COLE deal puts the "rubber stamp" on ARCP as the king of the Net Lease jungle. There is no other REIT that has grown so quickly while aggregating such a high-quality portfolio of assets. For investors, there is an added opportunity to purchase such a high credit portfolio with such an attractive dividend yield.
Two years ago ARCP's dividend was around 8.5% and that was based on a portfolio of assets that had just two tenants: Citizens Bank and Home Depot (NYSE:HD).
Today, ARCP's portfolio has a much more diverse composition, yet the dividend yield of 7.03% makes the shares an attractive BUY. The current price is $12.95 with a valuation or Price to Funds from Operations (P/FFO) multiple of 11.2x - making the shares "soundly valued" based on earnings.
The proposed COLE merger will substantially increase the "margin of safety" with regard to ARCP's asset base and the economies of scale will provide considerable pricing power with regard to the combined company's G&A model. Arguably, ARCP's dividend yield is one of the most attractive today and with a 7.03% monthly dividend yield, I'm going to keep investing and compounding. However, keep an eye on the payout ratio (currently 85%) as that is the best way to determine if the dividend is at risk. For now, I'm going to keep the free share machine plugged in and watch the monthly dividends compound while ARCP invests in "nothing but net".
To learn more about ARCP and other Net Lease REITs, check out my monthly newsletter, iREIT Investor, HERE.
Source: SNL Financial.
Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am long O, ARCP, VTR, HTA, CSG, ROIC, STAG, CBL, GPT, DLR, UMH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.