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National Retail Properties: Key Takeaways From COVID-19

May 06, 2020 5:37 AM ETNNN REIT, Inc. (NNN)17 Comments


  • 52% of tenants paid April rent and 37% have requested deferrals.
  • NNN may have a difficult time collecting rent from non-payers.
  • NNN has raised its dividend for 30 consecutive years, but that may not be enough to prevent a cut.
  • I reiterate my buy rating for NNN and its 6.6% yield.
  • Looking for a helping hand in the market? Members of Best Of Breed get exclusive ideas and guidance to navigate any climate. Get started today »

National Retail Properties (NYSE:NNN) gave a glimpse as to what to expect in the months following COVID-19. NNN collected only 52% of April rent, and noted that there are a sizable amount of tenants choosing not to pay rent. NNN does not anticipate any change to their investment strategy or leverage profile as a result of COVID-19. Its dividend policy now faces a dilemma between preserving the 30 consecutive years of growth versus financial flexibility. I rate shares a buy on account of its strong balance sheet and valuation.

National Retail In The Age Of COVID-19

Adjusted FFO grew 4.4% to $0.71 per share, but I don’t think anyone really cares about pre-coronavirus numbers. NNN announced that it has collected 52% of April rent, and tenants representing 37% of rent have requested rent deferrals of 1-3 months which would be repaid between 2020 and the end of 2021. NNN noted that they have for the most part been able to collect rent from their 19% investment grade roster. NNN estimates that for the number of open tenants, “it’s probably around close to maybe half, half, fully open and another 30% or so percent maybe partially open and quarter maybe fully closed but that's anecdotal. Those are very rough numbers.” I now discuss some key takeaways from their earnings call.

Expect A Legal Fight

As mentioned above, NNN is already working on deferred rent agreements with a significant amount of its tenant base. NNN noted that the vast majority of non-paying tenants that haven’t reached deferred rent agreements seem to be able to pay rent, but are choosing not to. Some of their language surrounding these tenants suggested some uncertainty as to whether or not they will eventually be paid:

“But we're still in dialog with those folks and optimistic maybe

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This article was written by

Julian Lin profile picture

Julian Lin is a financial analyst. He finds undervalued companies with secular growth that appreciate over time. His approach is to look for companies with strong balance sheets and management teams in sectors with long growth runways.

Julian is the leader of the investing group Best Of Breed Growth Stocks where he only shares positions in stocks which have a large probability of delivering large alpha relative to the S&P 500. He also combines growth-oriented principles with strict valuation hurdles to add an additional layer to the conventional margin of safety. Features include: exclusive access to Julian's highest conviction picks, full stock research reports, real-time trade alerts, macro market analysis, individual industry reports, a filtered watchlist, and community chat with access to Julian 24/7. Learn more.

Analyst’s Disclosure: I am/we are long NNN, O. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

DISCLAIMER: Julian Lin is not a Registered Investment Advisor or Financial Planner. While the information in his articles and his comments on SeekingAlpha.com or elsewhere may seem like financial advice, it is not, and it is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions.

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Comments (17)

52% April rent collection seems a little low for supposedly high quality tenants. I was surprised when I read that.
Julian Lin profile picture
Agreed - I too was surprised that it differed so much from O
Julian Lin profile picture
The Best of Breed portfolio features 4 NNN REITs - a detailed analysis of the entire sector is available exclusively for subscribers.

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smurf profile picture
Since NNN's and O's business models and tenant bases are very similar, how's the latter making out in this regard?

Long both, NNN via preferred.
smurf profile picture
Never mind...should have read comments below first.
smurf profile picture
@Julian Lin

Thanks, Julian, I missed that one.

I think you're the best in covering these eREITs because your articles are concise, yet with all the details and easy to read graphics and data. I like your definitive conclusions as well.

Keep up the good work.
Just read the earnings call transcript - I'd forgotten Chuck E. Cheese's still existed! (and it's still a top tenant)

"I anticipate many peers like Realty Income (O) to seek... higher investment grade tenant roster moving forward." -- I hope so, they've come a long way but theaters are dinosaurs, especially since this asteroid landed.

Long O, NNN, WPC
Julian Lin profile picture
Great observations... I note that the local Chuck E. Cheese's seems to get by selling pizza :)
I think O and WPC are better choices.
Both have had better rent collection in April than NNN. NNN has a better balance sheet than WPC however. I think O has a similarly strong balance sheet as compared to NNN but 82% of the rent instead of 55%. WPC got over 90% of their rent in April. The rent collection data suggests that WPC and O have stronger (healthier) tenants than NNN. NNN is good but I think WPC and O are better.
NNN has been good to me for 20+ years. I trust whatever they have to do.
Julian Lin profile picture
It’s amazing that you’ve held for so long!
Thanks I appreciate your work - can you comment on VER and SRC which both look to be outperforming NNN but are trading at significant discounts to NNN? April rent collection - VER 77% / SRC 70% / NNN 52%
Julian Lin profile picture
In short: they seem cheap
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