American Realty Capital Trust (ARCT) is a REIT that owns commercial properties with triple net leases. ARCT was a private REIT that went public in March although there was no IPO. On March 1 the shares started trading and private holders were able to sell their shares on the public market.
When ARCT opened for trading it traded much cheaper to other comparable triple net lease REITs. It still trades at a big discount to its peers today. The most expensive stock in the triple net lease sector is Realty Income Corp (O). Below are some comps:
ARCT trades roughly 30% cheaper than O, has better tenants and longer lease terms. It is not even a contest deciding which is the better investment. I believe the reason for the discount is that ARCT is below the radar because of the manner in which it came public. It did not have a formal IPO and many REIT investors are unfamiliar with the stock. I believe there are a number of catalysts on the horizon that will close the valuation gap between these two REITs:
- ARCT will likely be added to the MSCI US REIT Index (RMZ) in November. This is the main US REIT index and is considered to be the benchmark.
- Jana Partners recently filed a 6.2 million share position and is now the largest shareholder. This may bring attention to the stock as well.
- ARCT should receive more sell side coverage in the next few months.
- As ARCT reports more quarters and gains analyst coverage it should start to screen very well. Many dividend investors use stock screens.
The large valuation gap between ARCT and its peers is unwarranted. There are numerous catalysts on the horizon that may serve to close the valuation gap between ARCT and its peers. ARCT could trade well over $13 if the market values it similarly to its peers.
Disclosure: I am long ARCT.
Additional disclosure: I am short O