There are a number of attractive real estate investment trusts (REITs), but one essential firm to consider is American Realty Capital Properties (VER).

Compelling business dynamics against peers
ARCP is one of the largest REITs there is, as at last count it has more assets -- $20.4 billion worth -- than two of its competitors combined. Like ARCP, Realty Income (O 0.52%) and W.P. Carey (WPC 0.27%) each lease property to tenants, but it turns out those two firms have remarkably fewer assets --$11.0 billion for Realty Income and $7.2 billion for W.P. Carey -- meaning ARCP has the size advantage. 

It would be naïve to think carrying a bigger balance sheet and managing more properties is a reason for an investment. In fact, one of the more compelling considerations surrounding ARCP is half of its revenue is devised from tenants who are investment grade -- think those who are safer and more secure -- versus 40% of those at Realty Income and just 22% at W.P. Carey.

Ultimately, REITs are dependent on successful companies for revenue, so having more income derived from those that are deemed to have safer businesses is a great thing.

3.5% of ARCP Properties are Walgreens. Image Source: Flickr / Phillip Pessar.

The reason behind this larger portion of high quality tenants isn't that its portfolio is concentrated among a few good ones, as the very opposite is true. It actually has the greatest amount of diversification among the firms which lease its properties. Its top 10 tenants only account for 24% of its net operating income, versus 31% at W.P. Carey and 35% of those at Realty Income.

While having a focused and concentrated business is often a good thing, when a business is dependent on other businesses for its revenue and income, having a uniquely diverse stream from a variety of high-quality peers is something to be applauded.

Attractive value
Stocks with attractive underlying business dynamics often receive higher valuations relative to peers, yet surprisingly, that is not the case here. This is part of the reason why it pays out a strong 7% dividend, which -- like the other metrics mentioned -- is higher than both W.P. Carey and Realty Income. 

In addition, the firm itself noted in a recent presentation the multiple on its estimated 2014 adjusted funds from operations -- essentially the key to evaluating bottom line earnings at a REIT -- was in fact the lowest among its peers:


Source: Company Investor Relations.

Countless people have noted the relative valuations across the entire stock market have grown higher and higher in recent years, and causing many to question whether or not there are any firms that look attractive from a value perspective. But ARCP shows it's still presents a reasonable relative value.

The Foolish bottom line
ARCP recently announced it will be spinning off its $2.2 billion multi-tenant shopping center operations into a new firm later this year. The company CEO, Nicholas Schorsch suggests this move will "create more clarity, more efficiency and more opportunity for our stockholders," and will in fact boost its AFFO by 4% in 2014 alone.

It's clear few other firms can combine strong business performance, a compelling valuation, and an executive team focused on creating value to its shareholders, quite like American Realty Capital Properties.