Summary
- Triple-net REITs occupy an exalted place in the "REIT-sphere" but the pandemic has taken some of their shine.
- The pandemic also has created opportunities to get in at the ground floor (or close to) of solid businesses.
- To this end, we compare the recent metrics of two quality triple-net REITs and give you our preference.
- Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »
Co-produced with Trapping Value
Real estate traditionally has been a defensive asset as tenants shell out the rent in almost all cases. That was the theory. In practice however, things got far more out of control than what anyone envisioned. Today, we look at one of our favorite segments in real estate, the triple-nets.
Triple-Nets
The triple-net REIT space is one that attracts a fair deal of investment capital. Transferring all the capital expenditures onto the tenant reduces risk in the business, which in turn lowers the cost of capital. Landlords sit back and collect rent from mainly single-tenant properties with extremely long leases. Rents go up annually with inflation or via some other fixed escalators. This is about as close to getting an equity with "bond-like" features as there is. In addition, since real estate appreciates over time, it also has built-in inflation protection.
There are a fair number of triple-net REITs out there, many of which we have covered at some point or another. We recently highlighted Spirit Realty Capital (SRC) which came back into our buy zone after we had booked nice profits a few months earlier. Today, we do a head-to-head comparison of two picks and tell you why each one can have a role in your portfolio. We also pick a winner for this unusual environment.
Realty Income Corporation & W. P. Carey Inc.
Realty Income (O) is one of the newest "Dividend Aristocrats," being introduced into the S&P Dividend Aristocrats Index in early February 2020. It got this title after raising its dividend for each of the past 25 consecutive years. O prides itself on being a monthly dividend entity and is one of the few REITs listed in the US (unlike all those listed in Canada) that pays dividends monthly.
W. P. Carey (WPC) was founded more than 46 years ago by William Polk Carey. His mission statement was "investing for the long term" and he understandably chose the real estate sector to do it in. After nearly half a century of steady growth, WPC has evolved into one of the largest triple-net lease REITs. They are internally managed and own a portfolio of operationally-critical commercial real estate around the globe.
