Triple-Net REITs: Down, But Certainly Not Out

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The triple-net real estate investment trust (REIT) subsector consists of some of the most popular and well-performing REITs over time. This group of REITs is known for consistent dividend payments, dividend growth, and at times, solid appreciation. However, these REITs have taken a beating over the past two years, largely because of inflation and rising interest rates.

A triple-net lease is one in which in addition to rent, tenants pay all the operating expenses of the properties they lease, including real estate taxes, building insurance, maintenance and utilities.

Recently, some of the triple-net REITs have underperformed other REIT subsectors, but on the positive side, this represents an opportunity for income investors to acquire them at lower prices and higher dividend yields.

Take a look at four triple-net REITs that could prove to be tremendous bargains once the Federal Reserve pulls the trigger to begin cutting interest rates.

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Realty Income Corp. O is a San Diego-based, triple-net lease REIT, with over 15,450 properties around the world. The Monthly Dividend Company, as it's widely known, is a member of the S&P 500 and an S&P 500 Dividend Aristocrat. Realty Income has increased its dividend 123 times since 1994. At the end of 2023, its portfolio occupancy rate was 98.6%.

In 2023, when Realty Income acquired Spirit Realty Capital, Wall Street was not particularly pleased, and as a result, the share price declined. One of the criticisms of Realty Income heard frequently was that it had become too large to grow, yet when the acquisition of Spirit Realty significantly increased Realty Income's portfolio, it was still not seen as a positive.

The recent fourth-quarter earnings report also disappointed the Street, as adjusted funds from operations (AFFO) of $1.01 per share missed the consensus estimate by a penny and was four cents below AFFO from Q4 a year ago. However, revenue of $1.08 billion beat the estimates of $1.02 billion and its fourth-quarter 2022 results of $888.65 million.

After a recent rally that brought it back from a low of $43.95 to $59.26 in two months, Realty Income has once again declined to a recent close of $52.28. The present monthly dividend of $0.2565 now yields 5.89% annually, well above its four-year average of 4.48%.

At this price and yield, this long-time outstanding performer could be an incredible bargain.

Agree Realty Corp. ADC is a Bloomfield Hills, Michigan-based triple-net-lease REIT that focuses on retail properties. Its portfolio includes 2,135 owned and operated properties totaling 44 million square feet across 49 states. Sixty-nine percent of its tenants are investment grade, including well-known names like Walmart Inc. WMT, Best Buy Co. Inc. BBY Dollar General Corp. DG and Kroger Co. KR.

Like Realty Income, Agree Realty also pays a monthly dividend. The present dividend of $0.247 yields 5.18% annually. Those who favor Agree over Realty Income point to its smaller portfolio size, making future growth somewhat easier to accomplish.

Agree Realty's fourth-quarter operating results were also better than Realty Income. AFFO of $1 per share was in line with estimates and up from $0.96 per share in the fourth quarter of 2022. Revenue of $144.17 million beat the estimates of $141.23 million and topped revenue of $116.53 million in the fourth quarter of 2022.

Unlike Realty Income, Agree Realty has also seen a great deal of insider buying activity over the past seven months with shares falling in price. Agree Realty was $67 in August, but its most recent close was $56.25. If insiders love it at this price, perhaps investors should take note.

NNN REIT Inc. NNN, formerly known as National Retail Properties, is an Orlando, Florida-based triple-net-lease REIT that owns a diversified group of standalone retail outlets across the U.S. It presently has 3,511 properties of approximately 35.8 million square feet over 49 states.

NNN REIT has a stable base of approximately 400 tenants, including 7-Eleven, Sunoco, Best Buy, Wendy's, Camping World, BJ's Wholesale Club, Taco Bell and Chuck E. Cheese. At the end of 2023, its portfolio was 99.5% occupied.

On Feb. 8, NNN reported its fourth-quarter operating results. FFO of $0.85 per share was in line with estimates and a 6.25% increase over FFO of $0.80 per share in the fourth quarter of 2022. Revenue of $216.23 million beat the consensus estimate of $206.86 million and was an 8.92% increase over NNN's revenue of $198.52 million in the fourth quarter of 2022.

NNN pays a quarterly dividend of $0.565 per share, which presently yields 5.36%, and is one of only three REITs that have increased annual dividends for 34 or more consecutive years.

From its October low of $33.37, NNN has now risen an impressive 25% to a recent close of $41.72. It's still below its early 2020 high of $47.71, so more gains could be on the way.  

Four Corners Property Trust Inc. FCPT is a Mill Valley, California-based diversified REIT, with a focus on owning net-leased restaurants, medical and dental services, automotive services and other retail properties in the Sun Belt region.

Four Corners was created in November 2015 with 418 restaurants spun out from Darden Restaurants Inc. DRI. As time has progressed, many of the Darden properties were sold, but Olive Garden and LongHorn Steakhouse restaurants still make up about 47% of Four Corners' total rents.

Over the past seven years, Four Corners has steadily acquired more diversified properties and its most recent total portfolio was 1,111 long-term leased properties with 148 brands across 47 states. Four Corners has a strong occupancy rate of 99.8% with a weighted annual lease term (WALT) of 7.8 years.

Four Corners' fourth-quarter operating results were quite positive. FFO of $0.41 was in line with estimates and beat fourth-quarter 2022 FFO of $0.40. Revenue of $65.14 million beat the estimates of $64.83 million and was 13.6% above fourth-quarter 2022 revenue of $57.36 million.

Four Corners pays a quarterly dividend of $0.345, which presently yields 5.72% annually.

NNN and Four Corners have outperformed the other triple-net REITs listed above over the past month, with total returns of 5.67% and 5.14%, respectively. The other two have negative total returns over that time.

But investors would do well to consider all four triple-net REITs at present prices.

Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it's too late. Benzinga's in-house real estate research team has been working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for the Weekly REIT Report.

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