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General Electric Company (GE), American Realty Capital Properties Inc (ARCP): Who Wins in This Asset Sell-Off?

Editor’s Note: Koninklijke Philips NV (ADR) (NYSE:PHG) is Dutch, not Danish. This version has been corrected.

According to multiple sources, General Electric Company (NYSE:GE) is putting together a multi-part asset sale with a total value of nearly $3 billion. The asset basket in question consists of two principal components: two real estate tranches valued at about $2.3 billion in the aggregate and a $550 million auto fleet. Although the sale of the company’s Canadian auto fleet has plenty of interesting implications for investors across North America, the offloading of the real estate assets to American Realty Capital Properties Inc (NASDAQ:ARCP) might be even more exciting.

General Electric Company (NYSE:GE)

Indeed, the New York-based REIT has made no secret of its desire to obtain this basket of assets. It contains plenty of high-quality commercial properties, including hundreds of standalone restaurant franchise locations that are currently operated by well-known companies like Wendy’s (WEN – NYSE), Burger King (BKW – NYSE) and Jack-in-the-Box. As such, it permits American Realty Capital Properties Inc (NASDAQ:ARCP) to adhere to its “single-tenant” strategy while reducing its reliance on big-name corporations that resist long-term leases. Investors who aim to earn income in the red-hot REIT space without exposing themselves to questionable financial instruments or risky mortgage portfolios may wish to take a closer look at this situation.

About GE, ARCP and the Competition

American Realty Capital Properties Inc (NASDAQ:ARCP) competes with a number of REITs that own baskets of commercial properties in high-visibility locations. It is important to note that GE’s business model bears very little resemblance to that of this small-footprint REIT. This is most jarringly illustrated by the two companies’ respective headcounts: American Realty Capital Properties Inc (NASDAQ:ARCP)’s eight-person New York office looks positively cozy in comparison to GE’s 300,000-strong global workforce.

As such, it might be useful to compare these two companies against a firm that adheres more closely to GE’s business model. Although it is much smaller than GE, Dutch industrial conglomerate Koninklijke Philips NV (ADR) (NYSE:PHG) is a good candidate for such a comparison.

General Electric Company (NYSE:GE) has a market capitalization of over $240 billion. This compares to a valuation of about $25 billion for KP and about $2.4 billion for American Realty Capital Properties Inc (NASDAQ:ARCP). Unsurprisingly, GE’s revenue and income figures are both substantially higher than the corresponding numbers for the two other firms. Its 2012 earnings of $15.1 billion came on revenues of $145.6 billion. For comparison, KP earned about $272 million on revenues of $32 billion. American Realty Capital Properties Inc (NASDAQ:ARCP) reported a loss of $140 million on revenues of just over $50 million. However, this seemingly abysmal figure is expected to improve with this blockbuster purchase.