Vereit: 2021 Should Mark The Turning Point Toward Growth

Summary

• As recently as November 2020, I believed VER had at least another year until growth would resume. But I may have spoken too soon.
• A preliminary look at operational performance from Q4 2020 and Q1 2021 shows encouraging signs that revenue and FFO growth might come sooner than I expected.
• Analysts are turning bullish, the CEO recently bought a large chunk of shares, and the payout ratio has plenty of room to rise.
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Investment Thesis

Net lease REIT Vereit Inc.'s (VER) management team has made one good capital allocation decision after another over the last five years. That was my argument in my November 2020 article on VER pitching the stock as a good long-term, income growth investment. (If you are unfamiliar with VER or need a refresher, I recommend reading that article before this one.)

In that article, I indicated that the REIT's transformation and portfolio right-sizing probably wasn't done yet.

The management team that came onboard at VER in 2015 after American Realty Capital morphed into Vereit has done a phenomenal job of slowly and steadily transforming the company. AFFO per share growth hasn't come yet, and it likely won't come next year either.

But, after some recent developments, I think I may have spoken too soon. In fact, 2021 may just be the year that VER shareholders have been waiting on for half a decade.

In 2021, analysts estimate revenue growth of 2.6% year-over-year and FFO growth of 3.5% YoY. That may not sound impressive, but longtime VER shareholders know that it's better than the continual decline in revenue and FFO since the transition from American Realty Capital to the new Vereit company and management. From 2015 to 2020, revenue declined around 20% due to the REIT's continual selling of more properties than it acquired as it firmed up portfolio quality.

Wall Street analysts are turning bullish, CEO Glenn Rufrano recently (in September, 2020) purchased over $250,000 of shares, and the stock still trades very cheaply compared to peers.

VER sits at an 11x FFO multiple based on estimated 2021 earnings, compared to:

• Spirit Realty Capital's (SRC) 14.2x,
• W.P. Carey's (WPC) 14.6x,
• National Retail Properties' (NNN) 15.0x,
• NetSTREIT's (NTST) 17.1x,
• Realty Income's (NYSE:O) 17.4x, and
• Agree Realty's (ADC) 18.7x.

Analyst’s Disclosure:I am/we are long VER, SRC, WPC, NNN, NTST, O, ADC. 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.