When ARCT opened for trading it traded much cheaper than 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. 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 30% valuation gap between ARCT and O is unwarranted. There are numerous catalysts on the horizon that may serve to close this gap. Hence, I am long ARCT and short O.