Real estate is crucial to most companies' operations. They need a physical location to house their corporate headquarters and critical manufacturing operations, or to serve their retail customers.
However, while real estate is often mission critical to a company, many find owning these buildings is optional. They can free up the capital tied up in their real estate by selling the properties to investors in sale-leaseback transactions, enhancing their financial flexibility. That's opening the door for real estate investment trusts (REITs) to steadily acquire these buildings, allowing them to grow their portfolios, rental income, and dividends.
There's an estimated $13 trillion of owner-operated properties across North America and Europe. They're ideally suited for sale-leaseback transactions, with REITs focused on owning freestanding single-tenant net lease real estate. Three of the leaders in this sector are Realty Income (O 0.11%), National Retail Properties (NNN 0.86%), and W. P. Carey (WPC 0.16%). These REITs have a long runway to continue growing their portfolios and dividends.
Realty Income: A leader in net lease real estate
Realty Income owns over 12,000 properties across the U.S. and Europe, primarily leased to tenants in the retail and industrial sectors. Its portfolio is worth over $60 billion, making it the fourth-largest global REIT.
However, the company is only scratching the surface of its market potential. It estimates that there's about $4 trillion of commercial real estate in the U.S. suitable for the net lease structure, and another $9 trillion in Europe.
Currently, publicly traded REITs only hold about $100 billion of U.S. commercial real estate and $6 billion in Europe. That leaves a massive market opportunity for Realty Income and its peers.
Given the enormity of the market, Realty Income focuses on acquiring corporate-owned real estate from large blue chip companies. That's a sizable opportunity.
Data source: Realty Income investor relations presentation.
As that slide showcases, there's a more than $2 trillion opportunity to acquire real estate from large corporations in the U.S. and Europe. Realty Income is ideally suited to capture this opportunity because its significant scale enables it to complete larger deals.
For example, the company recently acquired 415 single-tenant convenience stores from EG Group in the U.S. in a $1.5 billion deal. Large deals like that tend to be more accretive than smaller transactions.
The company's ability to continue making acquisitions should allow it to keep growing its 5%-yielding dividend. Realty Income has increased its payout more than 100 times since its public market listing in 1994.
National Retail Properties: Consistent growth
National Retail Properties focuses solely on acquiring single-tenant net lease retail properties in the U.S. It has more than 3,400 properties worth over $12 billion.
The company primarily partners with regional and national retailers with growing brands. That enables it to steadily acquire more properties as those partners expand their retail footprint. This strategy also enables it to earn higher income yields on the properties it buys, since those companies often have fewer financing options.
National Retail Properties' strategy has paid big dividends over the years. The REIT has increased its 5.1%-yielding dividend for 33 straight years. That's the third-longest growth streak of all publicly traded REITs. It's also longer than 99% of all other publicly traded companies.
W.P. Carey: The steady diet of acquisitions continues
W. P. Carey is among the world's biggest net lease REITs. It owns almost 1,500 properties across the U.S. and Europe. The company's well-diversified portfolio includes offices, industrial, warehouse, retail, and self-storage properties. It has about $24 billion of real estate, making it a top 20 REIT.
The company focuses on acquiring mission-critical real estate assets vital to its tenants' operations and profitability. It spent $1.42 billion on acquisitions last year. Two-thirds of its investment volume last year was high-quality warehouse and industrial properties.
W. P. Carey expects to continue making acquisitions this year. Its near-term pipeline has around $700 million of investment opportunities that it's pursuing. Meanwhile, the company estimates it could acquire $1.75 billion to $2.25 billion of properties this year.
Those deals will help grow W. P. Carey's rental income, enabling the company to continue increasing its 5.4%-yielding dividend. W. P. Carey has grown its payment every year since its public listing in 1998.
These dividends should continue growing
Realty Income, National Retail Properties, and W. P. Carey are among the largest REITs focused on net lease real estate. They are only scratching the surface of that market's potential. This means they should have plenty of opportunities to continue growing their portfolios of income-producing real estate. That should enable these REITs to keep increasing their attractive dividends.
