American Realty Capital quickly rose from relative anonymity to being one of the largest publicly traded REITs, becoming a huge player in the double and triple-net lease space. Much of the growth came from the parent company buying up its own public non-traded REIT offerings over the course of the last several years. Investors in the non-traded REITs were handsomely rewarded as many of the offerings reached full cycle liquidity within one year of the offering closing to new investors at premiums upwards of 20%. The acquisitions didn’t stop with ARCP offerings. ARCP swallowed up rival Cole in a deal that helped catapult ARCP and CEO Nick Schorsch into the spotlight. After the Cole merger ARCP owned nearly 3,710 double and triple-net lease assets across 48 states.
With its triple-net lease offerings tabled for the time being, ARCPs strategy shifted to incorporate multi-tenant shopping centers that are anchored by investment grade tenants. It’s this multi-tenant retail portfolio that ARCP is now planning to spin-off into another publicly traded entity, ARCcenters under the proposed ticker ARCM. The spin-off is expected to increase run rate AFFO for ARCP by $1.20 per share on a combined basis.
The technical picture for ARCP is rather encouraging as well. Since the start of the year the stock has been in an uptrend, peaking in mid-January then pulling back to the 25x5 SMA. The last run up to $15 has presented us with a similar technical situation to what we saw two months ago. ARCP is within ear shot of moving average support and has stochastics just about neutral with a slight overbought bias. A day or two of strength in this name could provide a buy signal and propel the stock higher above $15.
ARCP currently carries a Zacks Rank #3 (Hold) but if analysts revise their earnings estimates to account for the spin off, ARCP could quickly change rank in the coming weeks. In addition to earnings estimate revision, ARCP could potentially increase its dividend from the $1.00 it pays now giving a yield of 6.9%.
Compare this yield to Zacks Rank #3 (Hold) Realty Income Corp (O - Snapshot Report). Realty Income pays 5.17% and has a portfolio that consists mostly of single tenant triple net leases similar to what the new incarnation of ARCP will be post spin off. Realty Income’s technical picture is similar to the story we see with ARCP. Keep in mind that these REITs have sensitivity to the 10 Yr Treasury and rising rates are seen as a risk to prices. Still, Realty Income has pulled back off its high, reached support at its 25x5 SMA and could be heading higher from here.
If you’re intrigued by ARCP’s spin off ARCM, you have a few publicly traded options to look at. Simon Property Group (SPG - Analyst Report) has a Zacks Rank #2 (Buy) and a yield of 3.1%. Simon’s portfolio consists mostly of income-producing properties such as regional malls and community shopping centers. Earnings are expected to grow from $9.57 a share this year to $10.34 next year. Eleven analysts have revised earnings to the upside for the current year in the last 60 days.
SPG stock is less volatile that ARCP. So far this year the stock has traded between $150 and $165. Consistent with the other REITs we looked at in the space, SPG trades above its 25x5 SMA, indicating a solid uptrend.