Adding ARCP to our portfolio.

We will be adding to our portfolio this week with a REIT named American Realty Capital Properties.  This now little REIT will be getting bigger, a lot bigger, soon with the buyout of Cole Properties which it has been pursuing for some time.  ARCP will then become the biggest player in the triple net leasing space. 

Triple net leasing, which basically means the renter is responsible for all expenses at a property, is the fastest growing part of the real estate investment market.  Several more companies fall into this category, including NNN and O which we currently trade.  We like this line of business because much of the rental space is in small retail such as gas stations, and small strip centers.  These are the most popular of shopping venues now and tend to have the longest rentals.  In fact the average leases of ARCP will be over 11 years when the merger is complete.  Over 90% of that with grade A leases. 

Add in that the merger will actually be positive to the debt load of ARCP currently and be accretive to earnings.  The payout rate after the merger at current pricing will be about 7.5% and it is a monthly dividend.  

ARCP has been growing lately adding deals that improve it's cash flow and size making the firm a stronger player in this market.  I would expect some more consolidation in this space as the only way to compete here is to get bigger. But right now ARCP will soon be top dog even without a long history like NNN and O.  But I would expect it to 5 years down the line to be considered a blue chip like the other two  

So now it would seem to be a good bet for long term appreciation, a nice dividend, and some safety due to the leases it currently owns.  We will be trading this stock at $12.50, but frankly wonder if we will see it again at this price. Any pullback below $13 would make for a good buy.  

Note that REIT's dividends are not taxed at the lower federal rate since REIT do not pay taxes at the federal level. However at 7% plus even taxed it looks good and if you are in the lower two brackets you have zero tax liability.