Spotlight Stock 845

National Retail Properties, Inc. (NNN): A REIT with a Single Purpose

One of our favorite areas of the REIT sector to invest is in the net lease subsector.

This is where you’ll find the well-known triple net lease names who’ve not only provided reliably growing dividends for investors for decades, but also generated tremendous amounts of wealth for individuals who were confident enough to stick with these names through thick and thin.

National Retail Properties offers a quality score of 94/100 and a value score of 70/100, meaning that its total IQ+IV rating of 164 is even higher than Realty Income’s, which comes in at 159.

Not only does NNN have a higher aggregate IQ/IV score than O, but it also has a longer annual dividend increase streak. Realty Income often gets the love from income-oriented investors (and rightfully so), but the fact is, NNN’s 31-year annual dividend increase streak is more impressive than O’s 26-year streak.

What’s in the past is in the past—we know that. But multi-decade streaks like this show that management teams have the proven ability to conservatively navigate a wide variety of economic conditions and environments.

A 30-plus-year streak means that NNN has successfully navigated numerous dips, sell-offs, and several deep recessions, all the while providing its shareholders with the safe and reliable dividend income that they desire.

It appears that the company can now add the COVID-19 pandemic and recession to that list as well. NNN struggled a bit early on in the recession with rent collection and AFFO results; however, the company has quickly bounced back. We recently reported on NNN’s second-quarter report. In this article, one of the most impressive stats was NNN’s Q2 occupancy ratio of 98.3% and its 99% rent collection figure.

In short, NNN is now achieving pre-pandemic type of performance metrics and after seeing its AFFO fall by 10% during 2020, the company’s management team has the ship righted again, with 20% AFFO growth expected to occur this year.

Price w Fundamentals

Source: F.A.S.T. Graphs

With this 20% AFFO growth in mind, we see that NNN currently trades with a forward P/AFFO ratio of 15.75x.

Not only is this much cheaper than the ~20x multiple that we’re seeing attached to Realty Income, but it’s cheaper than NNN’s long-term average P/AFFO multiple of 16.1x.

NNN’s growth is expected to slow, back down to the low single digits in future years, which plays a role in our relatively conservative price target. Right now, we place a “Buy Up To” price of $49/share on NNN, pointing towards near-term upside potential of approximately 3.5%.

NNN currently yields 4.47%, which is roughly 50 bps higher than O; this high yield, combined with the stock’s relatively low valuation, reliable bottom-line growth prospects, and the potential for multiple expansion to occur, pushing NNN’s P/AFFO back up towards its long-term average, presents investors with an opportunity to pay a sub-market multiple for a dividend aristocrat that has the potential to generate high-single-digit/low-double-digit total return CAGRs over the medium to long term.

Due to the attractive nature of the triple net lease business model, where landlords pass along expenses related to taxes, maintenance, and insurance costs onto tenants, these companies generate some of the highest margins and most reliable cash flows that we’re aware of in the entire market.

For investors looking to put cash to work in today’s market and to take advantage of this model, the net lease space provides a handful of attractive opportunities.
Brad Thomas, Forbes Real Estate Investor, forbes.com/newsletters, brad@theintelligentreitinvestor.com, August 31, 2021

National Retail Properties, Inc. (NNN)

52-Week Low/High: $31.41 – 50.33
Shares Outstanding: 175.6 million
Institutionally Owned: 92.31%
Market Capitalization: $8.336 billion
Dividend Yield: 4.47%
Website: nnnreit.com

Why National Retail Properties:

  • 31 years of annual dividend increases

  • Enviable occupancy and rent collection stats

  • Geographic and tenant industry

  • Double-digit growth

  • Undervalued

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Enter Your Log In Credentials

This setting should only be used on your home or work computer.

Need Assistance?

Call Financial Freedom Federation Customer Service at
(800) 777-2658

Send this to a friend