Compass Point on Retail REITs: Realty Income to Buy America Realty Capital Trust; Positive for MPG/OLP

September 6, 2012 10:03 AM EDT
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Price: $60.26 --0%

Rating Summary:
    6 Buy, 11 Hold, 4 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 15 | Down: 17 | New: 10
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Compass Point on Retail REITs: Realty Income to Buy America Realty Capital Trust

Analyst, Wilkes Graham, said, "Earlier this morning Realty Income (NYSE: O)(NotCovered) announced that it is acquiring American Realty Capital Trust (Nasdaq: ARCT)(NotCovered) for what equates to $12.21 per share. ARCT shareholders will receive 0.2874 shares of O. Recall that ARCT began trading back in March 2012 at $10.50/share and has traded at around $11.00/share since. In this morning's press release, O management estimated FFO accretion of 10% and expects to raise its dividend by 7% to $1.94/share (about 30 bps increase in dividend yield)."

"We view this transaction as very positive for the REIT space, particularly for triple net REITs but also for any other public REITs actively seeking take-outs such as MPG Office Trust (NYSE: MPG)(Buy, $4.75 PT). We estimate the takeout valuation for ARCT at a 5.95% cap rate, which ignoring any currently warranted liquidity discounts translates to a $40 NAV for ADC and a $35 NAV for One Liberty Properties (NYSE: OLP). Both stocks currently trade at abnormally high cap rates of around 9%. In particular, we believe the ARCT of single tenant net leased freestanding assets most closely resembles ADC's portfolio based on tenant makeup and overall geographic footprint."

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