National Retail Properties a Solid REIT Investment

A long-term dividend player in the industry for your portfolio

    View All  
National Retail Properties a Solid REIT Investment

Overall, I like what I found about National Retail Properties in general. One thing that I like to calculate is distribution coverage, in order to determine whether the dividend is sustainable. For REITs, the typical indicator used is Funds From Operations (FFO).

FFO is calculated as follows: net earnings (computed in accordance with GAAP) plus depreciation and amortization of assets unique to the real estate industry, excluding gains (or including losses) on the disposition of certain assets and National Retail Properties  share of these items from National Retail Properties s unconsolidated partnerships and joint ventures.

However, when I tried to find comparable FFO values over the past five years, I noticed that the company never provided this information on a per share basis in a consistent format. For example, FFO listed in the 2011 annual report is $1.57 per share. The FFO listed in the 2010 report is at $1.45 per share.

However, the 2009 report discussed AFFO of $1.65 per share, therefore eliminating any comparability to the 2008 report, which listed FFO of $1.99 per share. I realize that the 2007 to 2009 recession made it very difficult on REITs to cover their dividends well. I also praise the firm for maintaining distributions at a very difficult time.

However, the fact that FFO is not comparable and does not agree to prior year reports, mostly due to changes in the formula for calculating FFO looks like cheap trickery to me. This is not accounting wrongdoing, as FFO is not a GAAP term, and financial statements have been certified by E&Y, but it is very confusing for the person who reads financial statements. You can view the annual reports from this link.

The FFO payout has ranged dramatically over the past five years. Based on estimated FFO per share of $1.71 – $1.73 and annualized dividend of $1.58 per share, the forward FFO payout comes out to roughly 91.30% – 92.40%, which is still rather high.

 
Year
2011
2010
2009
2008
2007
2006
Dividends Paid to Shareholders
133,720
125,391
120,256
110,107
92,989
76,035
Diluted Funds from Operations
139,665
108,328
89,506
132,996
110,589
86,749
FFO Payout Ratio
95.74%
115.75%
134.36%
82.79%
84.09%
87.65%



This is the data from the 2009 annual report:

Year
2009
2008
2007
2006
2005
 
Dividends Paid to Shareholders
120.256
110,107
92,989
76,035
69,018
 
Diluted Funds from Operations 
90,087
142,355 121,602 96,416 81,803
 
FFO Payout Ratio
133.49%
77.35% 76.47% 78.86% 84.37%

 

At this point I view National Retail Properties as a hold that could be attractive on dips. The slow distribution growth is something that does not look very appealing at this point, particularly given the high payout ratio.

The yield chasing crowd has taken the stock price to multi-year highs, and could probably go as high up as $39 to $40 per share, for a yield of 4%. That being said, I might be interested in purchasing some shares of National Retail Properties on dips below $29  per share. I would be particularly interested in National Retail Properties on dips below $26 per share.

Full Disclosure: Long O, NNN


Article printed from InvestorPlace Media, http://investorplace.com/2013/03/national-retail-properties-a-solid-reit-investment/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.