Boring Can Be Good!

I first learned about our Spotlight Stock, National Retail Properties (NNN) back in 2000, when I was writing my UnTapped Opportunities newsletter. At that time, I traveled to Orlando to meet with the company’s CFO, Kevin Habicht (who is still the company’s CFO—you have to admire loyalty and stick-with-it-ness!)

I didn’t know much about single-tenant Real Estate Investment Trusts, but after researching the sector and meeting with Kevin, I decided that a company with recurring revenue, little vacancies, long-term leases and a healthy dividend was a nice alternative to the high-flying, no profits in their near future, technology companies that were quickly wearing out their welcome in the marketplace.

That prognosis served me well, and my subscribers brought home returns of 54% in that particular foray into the stock. Since then, I’ve bought and sold NNN several more times, always making double-digit gains.

So when I read Todd Johnson’s recommendation in his Dividend Lab newsletter, I was already primed to be positive on the stock, and his article just added to my optimism.

You see, National Retail Properties is far from an exciting stock. It rents out buildings to retailers—and that’s certainly a fairly volatile—and boring—sector. But NNN has proven that just because its tenants operate in an industry that sees a lot of coming and going, that doesn’t mean its financial health must follow suit. Instead, the company is a paragon of how to do retail tenancy right: Find stable, financially strong “best in class” tenants, put your buildings in prime locations, enter long-term leases in which you don’t have to pay for repairs and improvements, and make strategic—and profitable acquisitions. And it doesn’t hurt to continually increase your dividend payments to your shareholders for 26 years.

In other words, NNN is predictable—something we don’t see often in the stock market.

And Todd Johnson and I aren’t the only two analysts who think highly of the company. In a recent article, Brad Thomas, editor of The Intelligent REIT Investor—and also one of our contributors—had this to say about National Retail Properties:

• Unlike most of the larger net lease REITs, NNN focuses exclusively on “small-box retail” and the company maintains a consistent strategy of owning relatively smaller (around $2-$4 million investments) transactions. The universe of these smaller single tenant retail properties is vast and their historical return profile has been above average in terms of amount and consistency.

• The balance sheet remains in great position to fund future acquisitions and weather potential economic and capital market turmoil. Over the past five years, 71% of acquisitions were funded with permanent capital. Additionally, the more granular, small asset size provides increased diversification benefits, which mitigate risk.

• Most of NNN’s leases are “triple net” (meaning the tenant is responsible for taxes, insurance and maintenance) and the “triple net” lease structure produces higher initial returns with lower volatility than typical gross leases.

Brad also shared the chart above demonstrating the company’s enviable occupancy history. 

There are many things to like about NNN, and one is the 3.69% dividend yield. The company is firing on all cylinders, and six analysts have boosted their EPS estimates for NNN in the past 30 days. Perhaps this is the “right” time for this REIT in your portfolio.


You must be logged in to post a comment.