Real estate investment trust Realty Income is buying American Realty Capital Trust Inc. for about $1.9 billion in stock.

Realty Income Corp., which owns and manages single-tenant retail properties, said Thursday that the deal will help it increase the revenue it derives from investment-grade tenants such as FedEx, Walgreen's and CVS. It will also diversify the company's holdings outside the retail industry, as American Realty focuses on commercial properties.

The buyout will give Realty Income 501 additional properties. This will give it more than 3,250 properties owned under long-term leases to major commercial and retail tenants.

Both companies' boards have unanimously approved the deal, which still needs approval from the companies' shareholders. American Realty stockholders would own about 25.6 percent of Realty Income's shares if the deal is completed.

Under the deal, Realty Income says it will issue approximately 45.6 million of its shares valued at $1.9 billion to American Realty shareholders. It says American Realty shareholders will get 0.2874 Realty Income shares worth about $12.21 at Wednesday's closing prices for each American Realty share.

That is 2 percent premium over American Realty's closing price of $11.96 on Wednesday.

Shares of both companies rose in premarket trading on word of the deal. American Realty stock jumped 92 cents, or 7.7 percent, to $12.99 before the market open while Realty Income shares gained $2.42, or 5.7 percent, to $44.90.

In addition to the share exchange, Realty Income will assume about $526 million in debt and repay about $574 million of outstanding debt and transaction expenses. The companies said that boosts the total value of the transaction to $2.95 billion and will make Realty Income, which is based in Escondido, Calif., the 18th largest REIT in the U.S., based on total pro forma equity market capitalization.

Realty Income CEO Tom Lewis said in a statement that the transaction is expected to immediately add to its financial results and is anticipated to generate about 20 cents to 22 cents per share in additional funds from operations annually.

Funds from operations, or FFO, which adds such items as amortization and depreciation back to net income, is considered a key measure of strength for real estate investment trusts because it provides a more accurate picture of cash performance.

The company also anticipates that the acquisition will allow it to increase its annual dividend by about 13 cents per share to approximately $1.94 per share.

Realty Income says that none of New York-based American Realty's employees will remain with it after the transaction is complete.

The acquisition is expected to close in the fourth quarter or early in the first quarter.

Realty Income anticipates 2012 adjusted FFO of $2.06 to $2.11 per share and 2013 adjusted FFO of $2.31 to $2.37 per share.

Analysts polled by FactSet expect 2012 FFO of $2 per share and 2013 FFO of $2.16 per share.