National Retail Properties – A Solid REIT In The Retail Sector


National Retail Properties is a REIT with a focus on properties leased to retail tenants. Listed on the New York Stock Exchange (NYSE: NNN), their properties are leased under triple net lease contracts leading to the nickname Triple N. Company management believes triple net lease properties provide a stable and predictable return as well as creating potential for future increased returns and capital appreciation. In addition to the lease payment, with a triple net lease, the tenant is responsible for the property operating expenses including insurance, utilities, repairs and maintenance, capital improvements, and real estate taxes.

National Retail Properties management also believes success comes one step at a time. Over the past 25 years, the company has built a stellar reputation by increasing dividends in small increments, sometimes by just one penny, every year. Management impressively navigated the company through the Great Recession maintaining its impressive dividend track record, even in 2010 when the dividend was not covered (current dividend payout is 78 percent). Occupancy was also little affected with a small dip to 96.4 percent. The portfolio has since improved to a current occupancy rate of 99 percent.

National Retail Properties owns, acquires, develops, and invests in properties that are primarily leased to retail tenants through long-term net leases. As of March 31, 2015, the company owned 2,104 properties across 47 states with 23.1 million square feet of gross leasable space and an average remaining lease term of 12 years. The company’s portfolio is geographically concentrated in the south and southeastern United States with a significant portion of their tenants being convenience stores and restaurants.

NNN has employed both debt and equity to drive growth. The company’s balance sheet has a relatively low level of leverage and they have wisely staggered debt maturities. The bulk of NNN’s debt is unsecured with a zero floating rate and the metric debt-to-total capitalization is 23 percent.

In terms of the company’s valuation, price-to-FFO has been in line with the sector’s median. The same is true for its dividend yield making NNN a low risk solid equity investment.

 Metrics  2015
Revenues – Q1, in percent 11.6
NOI – Q1, in percent 13.0
FFO per share – Q1, in percent 5.9
Alternate FFO per share – Q1, in percent 5.9
AFFO per share – Q1, in percent 7.8
Dividend per share, Q1, percent 3.7
Dividend payout ratio – Q1, in percent 76.4
Occupancy – Q1, in percent 98.8
Total debt to total enterprise value – Q1 23
FFO per share, in percent (Projected) 2.9
AFFO per share, in percent (Projected) 4.5
Implied Cap Rate – Q1 8.1

Written by Heli Brecailo

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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​