NNN - NNN REIT Q3: Solid Growth Fuels A Strong Technical Rebound

2023-11-15 13:06:39 ET

Summary

• NNN REIT demonstrates robust growth and stability in Q3 2023, with increases in FFO, Core FFO, and AFFO per common share.
• The company maintains high occupancy levels and strategically invests in high-quality retail properties.
• Technical analysis suggests a potential upward trajectory for NNN REIT's stock price, with a bullish hammer candle.

NNN REIT, Inc. ( NNN ) emerges as a paradigm of growth and resilience amidst economic challenges in an era of economic uncertainties. The company's financial performance in Q3 2023 is a testament to its operational efficiency and strategic foresight. The company exhibits robust financial health, characterized by an increase in Funds From Operations (FFO) and Core FFO per common share and a rise in Adjusted Funds From Operations (AFFO) per common share. This piece analyzes NNN REIT's financial results and a technical evaluation of its stock price to identify future trends and investment possibilities. The examination indicates that the stock price forms a robust base at a significant support level, suggesting a potential upward trajectory.

Robust Growth and Stability in Challenging Times

NNN REIT's financial performance for Q3 2023 reported on November 1st demonstrates robust growth and stability in a challenging economic environment. The company achieved a 2.5% increase in FFO and Core FFO per common share compared to Q3 2022, indicating a steady improvement in operational efficiency. AFFO per common share also saw an uptick, increasing by 1.2%. This growth reflects the company's strategic investment decisions and effective cost management. Moreover, the nine monthly performance for NNN RIET is also robust, as seen by the 4.3% increase in FFO per common share and 3.0% increase in Core FFO per common share compared to the previous year.

A key highlight of NNN REIT's Q3 performance was its ability to maintain high occupancy levels, with a remarkable 99.2% occupancy rate for Q3 2023. This slight decrease from 99.4% earlier in the year is minimal, showcasing the REIT's ability to attract and retain tenants, a crucial factor for steady revenue streams. The weighted average remaining lease term of 10.1 years further strengthens the company's long-term income visibility.

Moreover, the company's investment activities in Q3 were notable, with $212.5 million invested in acquiring 46 properties totaling approximately 449,000 square feet. These acquisitions, made at an initial cash cap rate of 7.4%, signify the company's focus on high-quality retail properties. The sale of 13 properties for $49.0 million, resulting in $20.0 million gains, underscores the strategic divestment of assets to optimize the portfolio. NNN REIT remains robust, ending the quarter with $98.3 million in cash and no drawdowns on its $1.1 billion bank credit facility. The issuance of $500 million in senior unsecured notes at a 5.600% interest rate, due in 2033, strengthens its capital structure and supports future growth initiatives. The company's long-term debt maturity profile, with a weighted average of 12.6 years, is a testament to its financial prudence and risk management.

The company's Core FFO guidance for 2023 has been revised upwards from $3.17-$3.22 per share to $3.19-$3.23 per share. The revised guidance reflects management's confidence in the company's operational capabilities and market positioning. CEO Steve Horn's comments highlight the company's strategic positioning to navigate macroeconomic challenges, backed by solid cash flow generation and a substantial line of credit.

NNN REIT's focus on high-quality retail properties, demonstrated by its extensive portfolio of 3,511 properties across 49 states, positions it well for sustained growth. The company's record of increasing annual dividends for over 34 years speaks to its commitment to delivering shareholder value.

NNN REIT presents a compelling investment potential underpinned by its consistent financial growth, operational efficiency, and strategic asset management in a challenging economic landscape. The company's ability to maintain high occupancy rates and achieve significant increases in FFO, Core FFO, and AFFO per common share reflects its robust operational capabilities and sound financial management. With its long history of increasing annual dividends and a diversified, high-quality property portfolio, NNN REIT stands out as a resilient and promising option for investors seeking stability and growth.

Rising Trends in Bullish Price Patterns

The monthly chart below illustrates a robustly bullish long-term perspective for NNN REIT. Since reaching the 2008 low of $4.65, the stock price has demonstrated a significant and steady upward trajectory, climbing to record highs. This consistent growth highlights the strength and resilience of NNN REIT in the market.

This significant turnaround in 2008 is attributed to several key factors. Firstly, the REIT's strong focus on high-quality, single-tenant properties meant that it had a stable and predictable cash flow, which is highly valued in uncertain economic times. The company's prudent financial management, including maintaining a strong balance sheet and a conservative leverage profile, enhanced its resilience and appeal to investors. Furthermore, as the economy gradually recovered, retail sectors that NNN invested in, such as convenience stores and auto-related services, demonstrated robust performance. The low-interest-rate environment post-crisis also played a significant role, making the high dividend yields offered by NNN REIT more attractive to investors seeking income. These factors, combined with the company's strategic acquisitions and effective asset management, contributed to the continuous rise in NNN's stock price from the 2008 bottom through to 2019.

However, the price peaked in 2019, followed by a significant decline, marking a bottom in March 2020 before recovering sharply. This fluctuation was primarily attributed to the macroeconomic environment and market dynamics. The peak in 2019 was possibly due to a culmination of several years of steady growth, buoyed by a robust real estate market and favorable interest rates, which eventually led to overvaluation concerns. The subsequent sharp drop aligns with the onset of the COVID-19 pandemic, drastically affecting global markets and investor sentiment, especially hitting sectors like retail real estate hard. This led to a rapid decline in NNN's stock value as investors reacted to the potential impact on retail spaces and tenant solvency. The bottom in March 2020 coincided with the broader market downturn during the early stages of the pandemic. However, the sharp recovery thereafter was attributed to a combination of stimulus measures, adaptation to new retail realities, and investor confidence in the resilience and long-term potential of NNN REIT, along with the gradual reopening and normalization of economic activities.

The significant price decline in 2019, followed by a low point in 2020, has led to an ascending broadening wedge pattern, signaling notable volatility. The stock has been oscillating within this pattern, and the recent downturns in August and September 2023 have brought it back toward this wedge. Notably, a robust recovery in November 2023 within this wedge has formed a bullish hammer pattern, suggesting a potential for an upward price trajectory.

To delve deeper into this market volatility, the weekly chart below shows a symmetrical broadening wedge pattern. Interestingly, the stock price, currently at $33.83, is breaking out from this pattern with a bullish outlook. Additionally, the RSI is rising from oversold levels, mirroring the conditions during the 2020 price drop, which led to substantial price recoveries. This sharp rebound from the support level underscores the momentum for an upward price movement.

Furthermore, the short-term daily chart below highlights a double bottom at $33.83 and $34.22, indicating a rapid price increase following the earnings report, reflecting the initial impact of the earnings release. This surge post-earnings has contributed to bullish market sentiment.

Investors may consider entering the market at the current price levels in anticipation of further upward movement. Increasing positions could also be strategic if the stock experiences further dips.

Market Risk

Despite the strong performance, NNN REIT's operations are sensitive to broader economic conditions. Changes in consumer spending, retail trends, and economic downturns can impact occupancy rates and the value of retail properties. Moreover, NNN REIT is vulnerable to rising interest rates. Higher interest rates can increase borrowing costs and potentially reduce investment in real estate, affecting property values and investment returns. A high occupancy rate is positive, but if a significant portion of revenue relies on a few key tenants, there's a risk if these tenants face financial difficulties or choose to relocate.

The stock’s history of volatility, as shown in the ascending broadening wedge pattern, suggests that it could experience significant price swings, which could be a risk for short-term investors. While technical patterns indicate potential future movements, there's always a risk of pattern failure. A break below $33.83 might negate the bullish hammer candle and indicate further downward momentum.

Bottom Line

In conclusion, NNN REIT stands out as a model of resilience and growth amidst economic uncertainties, as evidenced by its strong financial performance in Q3 2023. The company's strategic investments, operational efficiencies, and robust financial health, marked by increased FFO, Core FFO, and AFFO per common share, reflect its strong position in the market. NNN REIT's consistent track record in maintaining high occupancy rates, strategic portfolio management, and ability to navigate through macroeconomic challenges reinforce its potential for sustained growth and stability.

However, investors should be mindful of the inherent market risks, including sensitivity to economic fluctuations and the impact of rising interest rates. While the technical analysis of NNN REIT's stock suggests a promising upward trend, the historical volatility of the stock and broader market dynamics warrant a cautious approach. The appearance of a bullish hammer pattern on the monthly chart, emerging from an ascending broadening formation, underscores a considerable price resilience at a critical support level. This technical indicator suggests a strong potential for upward price movement. Consequently, investors might consider purchasing stocks at the current levels in anticipation of continued bullish momentum.

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