National Retail Properties (NYSE:NNN) is a real property investment trust, or REIT, that because the call implies, makes a speciality of retail homes. But you won’t locate department stores or shopping centers in its portfolio — the organization invests in a single sort of property handiest.
All 2,969 of the properties in National Retail Properties’ portfolio are unmarried-tenant (freestanding) retail houses. Think of corporations like vehicle washes, eating places, and comfort stores, just to call some examples.
Unlike a few different leaders within the internet-hire space, National Retail Properties is a natural play on single-tenant retail. In different phrases, it’s the simplest assets kind you’ll locate in its portfolio.
A approach designed for regular, growing profits
National Retail Property has additives to its approach that permit it to generate profits this is fear-loose and gradually growing in any kind of retail environment.
First, the business enterprise invests in freestanding homes occupied handiest with the aid of certain sorts of retail businesses. Generally, while you listen about retail bankruptcies and keep closures, they usually observe to businesses who sell complete-retail priced merchandise, promote discretionary goods, or things you could without difficulty purchase on-line for a lower fee.
National Retail Properties invests in retail groups that do not match into any of those classes. Many sell nondiscretionary goods, inclusive of convenience stores, which make up 18% of the portfolio. Others are service-primarily based groups, which means businesses that cannot be conveniently duplicated on-line consisting of restaurants, car service centers, and fitness facilities. And some are bargain-orientated groups like warehouse golf equipment — these businesses provide offers better than what is often available on-line, and in case you’ve been to a Costco or Sam’s Club currently, you know this business version is not struggling.
In addition, honestly all of National Retail Properties tenants sign triple-net rentals (this is wherein the enterprise’s “NNN” stock image comes from), this means that that the tenant covers the charges of assets taxes, constructing coverage, and maximum maintenance prices. In different phrases, the variable charges of proudly owning a assets are largely taken care of. Plus, triple-net leases typically have lengthy (suppose 15 years or extra) preliminary lease phrases, with annual lease will increase, or “escalators,” built proper in. Also, the organization has an eighty%-eighty five% renewal charge on the cease of these already lengthy lease phrases.
To sum it up, all National Retail Properties has to do is positioned a super tenant in region or buy a belongings that is already occupied and experience year after yr of fear-unfastened earnings.
The aggregate of recession- and e-commerce-resistant tenants and the proper triple-net hire shape is why National Retail Properties runs incredibly high occupancy fees every 12 months. The portfolio ended 2018 with a 98.2% occupancy price and never fell under 96% even in the depths of the monetary disaster.
Dividends, overall returns, and valuation
Thanks to the company’s commercial enterprise version it’s designed for fear-unfastened, developing profits, it’s harder to discover a stock with a higher combination of a high payout and an outstanding tune record of dividend increases.
Based on the current percentage price, National Retail Properties pays a dividend yield of 3.7% in quarterly installments — and the agency has elevated its dividend for 29 consecutive years, with the yearly payout price almost doubling throughout that term.
The combination of dividends and cost advent has produced a few astounding total returns through the years. In reality, during the last 25 years, National Retail Properties has generated 12.Eight% annualized total returns as opposed to the nine.Nine% REIT common and 9.1% from the S&P 500.
REITs have brought splendid overall performance these days, thanks specifically to lower-than-anticipated hobby costs. And National Retail Properties is not any exception, up by using a marvelous 35% over the last yr, so it’s obviously no longer as attractively valued as it was no longer too lengthy ago.
However, that does not necessarily suggest that it is pricey. At 19.2 instances anticipated 2019 FFO (the REIT model of “income”), it is now not exactly cheap, however this isn’t a excessive more than one for a agency with National Retail Properties’ record of steady double-digit general returns.
Is it a buy?
To be perfectly clean, I would not call National Retail Properties a screaming bargain. However, with a near-bulletproof business model, it’s far an extraordinary and reliable lengthy-term return generator that may be a clever addition on your portfolio if you plan to hold on to it for a while.