NNN: Great Pick For Stability-Seeking Investors

Investment Thesis - NNN REIT has a strong balance sheet, excellent business metrics, and a defensive strategy that enhances its deal sourcing capabilities [1][21] - The company offers an attractive dividend yield of approximately 5.3% and is considered undervalued compared to peers [1][39] Growth Prospects - Despite modest growth expectations for 2024 based on AFFO per share, NNN presents a favorable risk-to-reward ratio, particularly for stability-focused investors, with potential for double-digit total returns [2][40] Business Strategy - NNN is a net lease REIT that targets middle-market retail and service-oriented properties, emphasizing a disciplined and selective investment approach [3][12] - The company has completed $10.4 billion in acquisitions from 2007 to Q1 2024, with 72% of these being relationship-based, enhancing competitive advantage [6][9] Financial Performance - In 2023, NNN invested $819.7 million to acquire 165 properties at a weighted average cap rate of 7.3% [8] - The company reported a 1.6% year-over-year growth in AFFO per share to $3.26, exceeding its 2023 guidance [20] Comparison with Peers - NNN's business metrics, such as occupancy rate (99.4%) and WALT (10.0 years), are competitive compared to peers like Agree Realty Corporation (ADC) and Realty Income (O) [24][25] - NNN maintains a BBB+ credit rating, with 100% of its debt being unsecured and 97% at a fixed rate, showcasing strong credit metrics [16][26] Dividend Metrics - NNN has a history of 34 consecutive years of dividend payments, with a current yield of 5.3% and an AFFO payout ratio of 68.9% [18][28] - The company’s lease agreements typically include ~1.5% rent escalators, contributing positively to long-term financial performance [19] Valuation Outlook - NNN is currently undervalued relative to peers, with a P/FFO multiple of 12.9x compared to 15.5x for ADC and 15.0x for Essential Properties Realty Trust [31][33] - A potential appreciation of the P/FFO multiple to 14.0-14.5x could yield a ~7.7% upside, combined with dividends and rent escalations for double-digit total returns [34]