The MVP of the REITs

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Recent report displays an economic environment that is mildly darkening. China’s magnificent growth story is not over, but is significantly slowing, prompting officials to scheme up plans for a “soft landing.” The entire continent of Europe is engrossed in recession. The International Monetary Fund is meeting with the purpose of saving the euro currency, which has proven to be a monumental task. The American economy is puttering along, threatening to fall into another recession. Ben Bernanke has recently stated that steps would be taken to stimulate the economy if further slowing was seen, yet this only proves once again the uncertainty swirling around America’s future. Stable companies that pay investors to camp out in then have become the envy of Wall Street, with National Retail Properties (NYSE: NNN) leading the pack.

National Retail is a real estate investment trust (REIT) which at the current moment yields around 5.00%. Over the past year National has rallied around 25.00%, in line with the broader market. So what makes this company the MVP of the REITs?

<img src="/media/images/user_13174/nnn_large.png" />
 

Concrete Fundamentals

In 2009, National Retail reported earnings per share of $0.60. In 2014, the average analyst consensus believes the company will derive $1.26 from its business operations. This represents an increase of 110.00% over five short years. Based on these statistics, National Retail’s compound annual growth rate (CAGR) is 16.00%, a tremendous feat for any company. During this period the company’s growth trend is very distinct and consistent, but it is noteworthy to highlight the volatilely in the company’s earnings after the great recession of 2008. National Retail’s earnings are not projected to eclipse 2006’s earnings until after 2014, due to the tightening of margins which occurred after the economic downturn, with margins steadying then climbing in 2009. Additionally, currently National Retail Properties Incorporated pays out an annual dividend of $.60, which at the current price puts the company’s dividend as yielding 5.23%, putting its dividend in an elite group of 5.00% yielders. National Retail prides itself of raising its dividend, and has done so for the past 22 years, and should continue to do so well into the future. By 2014, the street anticipates the company’s dividend reaching $1.66, which at current prices would put the dividend as yielding 5.43%. From this we can see National Retail Properties’ underlying financial strength, as well as historic track record of raising dividends.

The chart below displays National Retail’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

<img src="http://www.4-traders.com/reuters_charts/3,2,605,375,National+Retail+Propertie/39010/2/Income+Statement+Evolution.png" />
 

<img src="http://www.4-traders.com/reuters_charts/5,2,360,280,National+Retail+Propertie/39010/2/EPS+Dividend.png" />
 

Predictably Is Key

As of December 31st, 2011, National Retail owned 1,422 properties. The company had a gross leasable area of 16,428,000 square feet, stretching its reach across 47 states. The chart below displays the regions National possesses properties in.

<img src="/media/images/user_13174/national-retail-properties-inc-annual-report-2011_large.png" />
 

The business model is simple and predictable. National Retail leases out its properties to reputable business such as LA Fitness, Dave & Busters, Best Buy, Car Quest Auto Parts, and many more, and then collects hefty rents on the properties. They use these huge intakes to pay their expenses, and the rest is paid out in the quarterly dividend. Additionally, a portion is utilized to acquire new properties to fuel the growth of tomorrow. In 2011 alone, National Retail invested $772 million to acquire 218 properties. With an occupancy rate of 97.4%, National Retail is able to consistently grow its dividend because of the transparency and predictably of its business. The chart below displays the company’s ever-growing dividend.

<img src="/media/images/user_13174/national-retail-properties-inc-annual-report-20111_large.png" />
             

In conclusion, National Retail’s simplistic business model is transparent and predictable, which allows the company to grow its dividend consistently.

Who Is the Monarch of the REITs?

Compared to some of National’s most prominent competitors, such as: Kimco Realty Corporation (NYSE: KIM), Inland Real Estate Corporation (NYSE: IRC), Retail Properties of America Incorporated (NYSE: RPAI), and Realty Income Corporation (NYSE: O), National Retail relates moderately favorably.

<table> <tbody> <tr> <td> </td> <td> <p>2009-2014 EPS Growth</p> </td> <td> <p>Current Dividend Yield</p> </td> <td> <p>2009-2014 Dividend Growth</p> </td> </tr> <tr> <td> <p>NNN</p> </td> <td> <p>110.00%</p> </td> <td> <p>5.17%</p> </td> <td> <p>10.67%</p> </td> </tr> <tr> <td> <p>KIM</p> </td> <td> <p>386.67%</p> </td> <td> <p>3.76%</p> </td> <td> <p>-23.64%</p> </td> </tr> <tr> <td> <p>IRC</p> </td> <td> <p>-190.00%</p> </td> <td> <p>6.86%</p> </td> <td> <p>-17.39%</p> </td> </tr> <tr> <td> <p>RPAI</p> </td> <td> <p>-47.83%</p> </td> <td> <p>6.32%</p> </td> <td> <p>5.97%</p> </td> </tr> <tr> <td> <p>O</p> </td> <td> <p>14.56%</p> </td> <td> <p>4.19%</p> </td> <td> <p>12.28%</p> </td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td> </td> <td> <p>Price/Earnings Ratio</p> </td> <td> <p>Price/Earnings/Growth Ratio</p> </td> <td> <p>Net Profit Margin</p> </td> </tr> <tr> <td> <p>NNN</p> </td> <td> <p>32..16</p> </td> <td> <p>8.17</p> </td> <td> <p>29.09%</p> </td> </tr> <tr> <td> <p>KIM</p> </td> <td> <p>57.92</p> </td> <td> <p>2.01</p> </td> <td> <p>17.48%</p> </td> </tr> <tr> <td> <p>IRC</p> </td> <td> <p>-64.00</p> </td> <td> <p>0.00</p> </td> <td> <p>-5.37%</p> </td> </tr> <tr> <td> <p>RPAI</p> </td> <td> <p>-31.79</p> </td> <td> <p>0.00</p> </td> <td> <p>0.00%</p> </td> </tr> <tr> <td> <p>O</p> </td> <td> <p>46.19</p> </td> <td> <p>4.79</p> </td> <td> <p>35.89%</p> </td> </tr> </tbody> </table>

In terms of growth, Kimco leads the industry, while Inland is the industry laggard. All companies in the industry pay out relatively large dividends, with Inland possessing the largest dividend, and Realty Income possessing the fastest growing dividend. In the fundamental ratio comparison, Kimco appears to be trading at a premium, while National Retail appears to be trading at the most reasonable multiple. All companies in the industry appear a little pricy when growth is taken into account. In the net profit margin comparison, Realty Income stands out to the upside, while Inland stands out to the downside.

The Foolish Bottom Line

Every morning economists jump on the television screens of Americans all over the country and fill their minds with stories of a world falling into recession. This has led to the savage hunt for yield all over Wall Street. Investors want to invest in businesses that offer money to wait and have highly predictable business models. National Retail is financially strong, and has an impressive annualized growth rate. Their business model is simple, predictable, and effective. The company has an incredible track record of increasing dividends, and should continue to do so into the future. In addition, its 5.00% yield is comforting in times of downturn. The foolish bottom line is that National Retail possesses a massive dividend, which is growing, transparent business model, and financial resolve, crowning National Retail Properties Incorporated the MVP of the REITs.      


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