Feature Article 845

This REIT Has all the “Right” Stuff

As many of you long-time subscribers know, I love Real Estate Investment Trusts! Their nice cash flow and general stability have kept many of my portfolios out of hot water during uncertain—and bullish—markets.

And National Retail Properties is a personal favorite! I have been in and out of these shares for more than 20 years, and my subscribers have made a bundle.

There are several reasons why I was, and continue to be, attracted to this REIT. First, it is a triple net lease REIT, which means that the the tenants or lessees agree to pay—in addition to rental and utility fees—all the expenses of the property, including real estate taxes, building insurance, and maintenance. In a typical lease, the landlord is responsible for these items. So, in effect, these very expensive outlays are passed on to the tenant, which gives the landlord (or owner) much more financial flexibility.

The second reason—which contributor Brad Thomas, editor of Forbes Real Estate Investor, mentioned—is that National Retail acquires single-tenant retail properties. Consequently, there is no need to worry about a huge shopping center with a primary anchor store that may ultimately go out of business—such as Sears, JCPenney, and others, which can take the entire center down. Also, the leverage held by a significant anchor can also limit the landlord’s net income over time.

Third, who doesn’t like 31 consecutive years of dividend increases? And with a dividend yield of 4.47%, that’s a lot of cash flow!

And lastly, I especially like the REIT’s geographic and industry diversification. As of second-quarter 2021, National Retail Properties operated 3,173 properties in 48 states, which gives the company significant protection against weak regional economies and natural disasters in particular regions. As an example, last year when COVID was at its worst, many states were hit so badly they locked down, but others didn’t suffer as much, so revenues there helped mitigate the losses.

Diversification Reduces Risk

Source: nnnreit.com

Top 10 Tenants Properties % Base Rent
7-Eleven 139 5
Mister Car Wash 120 4.7
Camping World 47 4.3
LA Fitness 30 3.8
GPM Investments (Convenience Stores) 153 3.3
Flynn Restaurant Group (Taco Bell/Arby’s) 204 3.2
AMC Theatre 20 3
Couche-Tard (Pantry) 83 2.7
BJ’s Wholesale Club 11 2.5
Sunoco 59 2.2

Source: NNN Presentation, as of 6/30/21

Even so, National Retail Properties’ funds from operations (FFO, the REIT equivalent of earnings) declined from 2019 to 2020 but began recovering this year. For the second quarter, FFO came in $.077 per share, up from $0.65 last year, and beating the consensus estimate of $0.74.

And for this year, the REIT expects that adjusted funds from operations will increase to $2.95 to $3.00 this year—5% to 7% over the pre-pandemic year of 2019.

In summary, I think National Retail Properties is a good bet on long-term economic prosperity.


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