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Free-Standing REITs: Separating the Best from the Rest

Stocks in this article: STAGOLSEARCPARCT

Free-Standing REITS Getting Busy

As I wrote in a previous article on The Street, I Can't Believe It! What an O-mazing Dividend Machine, Realty Income (O) announced it was acquiring American Realty Capital Trust (ARCT) in a deal valued at $2.95 billion. When the deal closes in a few months, Realty Income will be the 18th largest REIT in the U.S., based on total pro forma equity market capitalization. It will be twice as large as the next largest net lease REIT.

Realty Income will finance the purchase by issuing $1.9 billion of common stock to American Realty Capital Trust shareholders. It will assume about $526 million in debt and immediately repay about $574 million of outstanding debt and transaction expenses.

In another article I wrote recently, W. P. Carey Traditionally 'Investing for the Long Run' I detailed the recent merger of W. P. Carey & Co. LLC and Corporate Property Associates 15 Inc. --now one, W. P. Carey Inc. The new REIT now has more than $5 billion in net-leased real estate ($3.1 billion in equity market cap and $1.9 billion in debt).

Also, last week I wrote an article, This Small Cap REIT Is a Diamond in the Rough in which I recommended CapLease's (LSE) CapLease's (LSE) preferred Series A issue that has a yield of 8.22%. As I wrote, the common shares have sky-rocketed over the last year (perhaps because of the muted risks of a tenant) and the company's year-over-year total return is an extraordinary 64.11%.

Another hidden gem in the free-standing sector is American Realty Capital Properties (ARCP). Not to be confused with ARCT (mentioned above), the smaller sister, ARCP, has an interesting value proposition in that the company invests in older, more mature, triple-net properties leased to companies like HomeDepot (HD) , Family Dollar (FD) and CVS (CVS) . The company started climbing in mid June (from $10.00 per share) and it has rocketed up to around $12.88 (closed last). That's a whopping 32% total return in just six months.

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