BNL - Triple Net REITs Mispriced As Tenancy Shifts
2024-06-03 01:54:07 ET
Summary
- There is significant mispricing among triple net REITs due to a lack of consideration for changing the tenant landscape.
- Net store openings indicate positive occupancy and rental rates, but some REITs are exposed to troubled areas.
- REITs with exposure to CVS and Walgreens may face challenges with lease expirations, requiring substantial capex and potential revenue disruption.
I posit that there is significant mispricing among triple net REITs as valuation has not properly considered the changing tenant landscape. Net store openings bode well for the general occupancy and rental rates of the sector, but trouble is lurking in select pockets. Some of the triple nets most exposed to the troubled area are trading at premium valuations, while others which are evading the difficulties are discounted to peers. Over time, as the tenancy shift plays out, I think the multiples will reverse, providing significant capital gains to the cheaper triple nets with better tenancy.
Changing tenant landscape
The retail tenant landscape generally looks strong. In 2023 retail had net openings with 5645 new stores while 4913 stores closed. 2024 looks stronger as Coresight estimates 1500 net openings ....
Triple Net REITs Mispriced As Tenancy Shifts