Published On: Tue, Apr 11th, 2023

Triple-Net Buy Tips for High-Yield Investors

Would you like to invest in the Real Estate Income Trust (REIT) market? You can learn much about this type of investment by closely examining existing REITs. For example, two of the nation’s top high-yield triple net lease REITs are National Retail Properties (NYSE: NNN) and W. P. Carey (NYSE: WPC). Both have investment-grade credit ratings. Comparing the two will give you a better idea of what to look for in a REIT. Let’s review a few tips when buying triple net lease REITs for high-yielding investments.

photo/Gerd Altmann

At A Glance

National Retail Properties focuses on fast growth and maintains a more conservative balance sheet with retail real estate holdings in the US. W. P. Carey targets industrial warehouse real estate in both the US and Europe and leases link to inflation. Both are triple net lease REITs, meaning most properties are single-tenant free-standing real estate. In other words, they do not invest in shopping malls. Instead, National Retail Properties invest in residential buildings.

Investing in single-tenant, stand-alone properties produce a very low-risk method of building wealth through real estate. However, economic conditions do not typically impact occupancy rates making this investment stable and reliable. The triple net lease arrangement is primarily the reason. That is because it puts the responsibility on the tenant to cover various costs, including insurance, utilities, lawn care, and maintenance. Also, these leases are usually long-term, costly, or difficult for a tenant to break their contract.

Comparing The Balance Sheets

The most robust balance sheet in the triple net lease sector belongs to National Retail Properties. Here’s why: they have a stellar credit rating (BBB+) and a well-laddered debt maturity schedule, so they all do not come due at once and have massive liquidity. On the other hand, W. P. Carey has a slightly lower credit rating (BBB) but also holds a well-laddered maturity schedule and strong liquidity. As a result, this is the edge that W. P. Carey has over National Retail Properties is that they have a large footprint in Europe which benefits them in several ways. One is with debt. With European properties, debt is in a different currency (Euros) with a lower interest rate. As a result, this permits more flexibility for increasing debt when financing new properties.

Comparing The Dividend Outlook

The growth outlook for both REITs is small, although there is potential for some growth for each. Therefore, expect W. P. Carey to grow its AFFO per share at a CAGR of 2.7 percent through 2025. Over the same period, National Retail Properties should see its AFFO increase at a CAGR of 1.7 percent. As for dividends per share, W. P. Carey will see a minor increase to 2025 of a 0.8 percent CAGR. National Retail Properties will do better at 2.7 percent CAGR over the same time frame. The factors hampering the growth are high-interest rates, low cap rates, and the expiration of terms – several held by W. P. Carey.

Comparing The Final Valuation

There is a slight difference, with National Retail Properties coming out on top as being slightly cheaper to invest in than W. P. Carey when comparing both REITs. However, W. P. Carey offers a higher dividend yield than National Retail Properties. Aside from these points, both companies are evenly matched and provide real estate investors with great opportunities on many levels.

The Bottom Line

After looking at them under a microscope, both National Retail Properties and W. P. Carey have advantages. If you are an investor interested in industrial properties, European exposure, and strong protection against inflation, then W. P. Carey would be your choice. However, National Retail Properties should be your pick if you prefer a greater concentration on US properties, single-tenant free-standing retail space, and predictable growth. To learn more about how you can invest in the triple net market by purchasing a Walgreens franchise, visit Pharma Property Group.

Final Thoughts

Choosing a REIT to invest in really depends on your investment style. If you are a bit on the conservative side, you may feel more comfortable with National Retail Properties. However, W. P. Carey might be a better fit if you are more aggressive. Both provide significant investment opportunities in the triple-net lease market. 

Using a successful business model of only featuring single-tenant free-standing retail real estate, even as a new investor, you will appreciate the stability that comes from that type of building space. Both have advantages and disadvantages but have excellent credit ratings, and the chances of failure with either are virtually impossible. Also, remember it is always essential to research to help make an informed decision before investing.

Author: Codrin Arsene

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