Investing properly can help you live a better life
Investing is not a panacea but if done properly it will help you enjoy a better life and a more successful retirement. After all, no one should be forced to spend their golden years working at subsistence level positions to survive. And investing is not rocket science.
A basic understanding of economic trends, a little finance to analyze earnings, and a dollop of common sense will enable you to establish a basic portfolio with a reasonable return. Unfortunately, investors are often wedded to the rear view mirror concept. That is wrong. It is a company’s projected performance going forward that should drive your investment decision.
Yes, it is natural to lose faith when the markets are volatile with red ink. However, investing is at least a one to three year undertaking. And the key to achieving success is that you will need to find those corporations with winning records of accomplishment. One possibility might be National Retail Properties (NNN), a real estate investment trust (REIT).
When I last wrote about National Retail Properties a year ago, my earnings estimate was $2.03 per share with a 12-month forecasted share price of $39 per share. So how did the company do? Earnings for fiscal 2014 came in at $2.08, while the shares recently closed at $37.46, so I was a little light on the share price, but considering the markets of late it was not too bad.
Within the commercial real estate world, single-tenant freestanding properties are the jewels and are usually leased for 10-20 years. NNN’s holdings are mostly single-tenant and it owns higher quality real estate than the national average. And with 98 percent of its portfolio committed to long term leases, National Retail Properties is not significantly affected by the sluggishness in the economy.
When evaluating REITs, you use a metric called Funds from Operations (FFO) in lieu of earnings per share and Adjusted Funds from Operations (AFFO) when analyzing a REIT’s cash flow from operations.
FFO is defined as net income less gains or losses from property sales plus depreciation of real estate and amortization of capital expenditures. AFFO goes a step further and subtracts routine expenditures that are required to maintain a portfolio of properties.
So how did National Retail Properties perform for the first half of 2015? The company reported that its FFO per share increased 6.9 percent over the same period a year ago, while its recurring FFO per share increased 7.9 percent. AFFO per share increased 8.8 percent. The company invested $303.0 million in 93 properties with an aggregate 1,451,000 square feet of gross leasable area at an initial cash yield of 7.2 percent. It sold nine properties for $25.5 million producing $7.2 million of gains on sales, net of income tax and non-controlling interest. It also raised $87.4 million in net proceeds from the issuance of 2,207,144 common shares.
Looking forward, National Retail Properties announced an increase in 2015 FFO guidance to a range of $2.16 to $2.19 per share before any impairment expense. The 2015 AFFO is estimated to be $2.21 to $2.24 per share. The FFO guidance equates to net earnings before any gains or losses from the sale of real estate of $1.23 to $1.26 per share, plus $0.98 per share of expected real estate depreciation, amortization and impairments.
National Retail Properties' strong fundamentals translated into a dividend increase $0.435 per share in the third quarter for an indicated a yield of 4.63 percent and marks the 26th consecutive annual dividend increase.
At the end of the second quarter, the company had 2,138 properties with 23.7 million square feet of gross leasable space in its portfolio. The portfolio occupancy rate stood at a 98.8 percent compared to 98.6 percent at the end of 2014. As a matter of fact, National Retail Properties' real estate portfolio is fully leased.
My earnings estimate is 2.22 for 2015 with a 12-month forecasted share price of $41 per share for a 10 percent capital gain.
Lauren Rudd is a financial writer and columnist.