O - Who Else Is Buying The Dip On NNN REIT?

2023-08-11 14:00:00 ET

Summary

• NNN REIT is a premier REIT that every investor should consider adding to their portfolio, due to their strong free-cash flows and 34 year dividend track record.
• NNN's price has dropped 6% over the last month making it a strong buy in my opinion.
• NNN missed on revenue during its recent Q2 earnings, but increased their FY23 core FFO guidance.
• NNN has a BBB+ credit rating and a strong balance sheet with no debt maturities until 2024 making them well-prepared for the current macro environment.

I last wrote about NNN REIT back in June (NNN) where I talked about how every dividend portfolio needs a stock like this one. During these times investors deserve a consistent, and efficient income stock that just gets the job done quarter after quarter, year after year. NNN is just that. The REIT has delivered time and time again and has never seemed to disappoint. Due to the current macro environment many investors are choosing to stay parked on the sidelines with cash, or prefer to have their money stored in high-yielding money market accounts or Certificates of Deposits. They're considered safer alternatives as you don't stand to lose any money on your initial investment. I have no issues with this as I have a little bit of money in a CD myself. It's smart to diversify your funds. But when the market offers an opportunity like this on a high-quality stock, investors should consider buying at this price to get a nice margin of safety on a stock like NNN. Like the picture above, I expect everyone to be raising their hand and taking advantage of this dip in this under-appreciated REIT.

Why I Am Buying the Dip

REITs have fallen over the last month, giving investors a great opportunity to buy many high-quality REITs like Realty Income ( O ), Agree Realty ( ADC ), and VICI Properties ( VICI ). Some of this had to do with Fitch's recent downgrade of its U.S. credit rating. Out of all of these, NNN is down the most at a little over 6%. This baffles me a little that the stock has dropped further than many of its peers. But maybe this is because they matched analysts' estimates on FFO during its Q2 earnings, instead of a beat, or that they missed on revenue estimates. Maybe because of the economic uncertainty, investors needed some reassurance, and they just didn't feel like they got that from NNN. But those who are familiar with this REIT know that they're not the flashy stock that's going to wow you with their earnings. They're just going to deliver consistently, even if they miss on earnings or revenue occasionally like they did in Q2.

Raised Guidance

Since my last article the REIT raised its dividend by 2.7% and managed to boost its 2023 core FFO guidance in Q2. They now expect 2023 guidance to come in between $3.17-$3.22, up from its prior guidance of $3.14-$3.20. And while they're known as a boring, conservative company, the REIT was busy during the quarter. The company made $181.3 million in property investments, including 36 of those which had a gross leasable area of 278,000 square feet with an initial cap rate of 7.1%. They also sold seven of their properties for a nice $13.9 million in gains at a cap rate of 5.1%. Their portfolio now stands at 3,479 free-standing single tenant properties. Additionally, the stock was recently upgraded to buy , citing their under-appreciated track record.

Track Record Of Success

Speaking of its track record, NNN has delivered consistent and growing dividends for 34 years with its latest 2.7% raise back in July. Currently, there are only two other REITs that have achieved this feat, showing its resilience, and also the strength of the management team. One reason they have been able to deliver since 1990 is their conservatism, and because of this, the REIT sometimes goes unnoticed. It is to be noted that they also have one of the lowest payout ratios in the sector at 68%, which has allowed them to consistently navigate through times of economic difficulty such as the GFC of 08-09 and the recent pandemic.

Acquisition Volume vs. Peers

Below is NNN's superior acquisition volume compared to other REITs over the past 18 years. NNN also has a weighted average lease expiration of 10.2 years with only 3.3% expiring through year 2024 and had a 99.4% occupancy rating for the 4th consecutive quarter.

Strong Balance Sheet

When looking to invest in companies in the current macro environment, one should pay close attention to the balance sheet of the company they're looking into. With rates at their highest in history and not expected to come down anytime soon, well-laddered debt maturities are crucial. NNN has a BBB+ investment grade rating with a 12.3 weighted-average debt maturity and 4.6x Fixed-coverage charge ratio. Furthermore, NNN has no debt maturities until year 2024.

Undervalued

Currently, the stock is trading under $40 which I think makes it a strong buy. The stock typically trades in the $43-$45 range and doesn't dip below $40 often. The last time the stock traded this low was back in September of last year where it traded below $39 and reached a 52-wk low of $38.05. Most have a price target of around $47, offering investors an almost 18% upside from here. With a Forward P/AFFO ratio below its 5-year average, NNN is considered undervalued and a strong buy in my opinion.

Bottom Line

NNN is an under-appreciated REIT trading at a nice discount, having seen its share price dip over 6% in the last month. The stock is among the elite as one of only three REITs currently with 34 years of consecutive dividend raises. They also have one of the best balance sheets in the sector with a BBB+ credit rating and no debt maturities until 2024 making them well-prepared for the current high-interest rate environment. NNN normally trades in the $43-$45 dollar range and rarely dips below $40. Investors looking to start or add to their current position should buy this stalwart of a dividend payer while their price is low.

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