Stress-Free Real Estate

Stress-Free Real Estate

Peter SlatinPeter Slatin, Contributor
Office building at Jazdy Polskiej rondabout.
This story appears in the Dec. 5 Investment Guide issue of Forbes Magazine. Click here for the full Investment Guide 2012 special report.

By packaging sale-leasebacks together, triple-net lease REITs offer solid ­income with maximum safety and minimum hassles.

Triple-net leases, a type of sale-leaseback deal, have been a great option for commercial landlords seeking hassle-free steady income. Luckily for small investors,  they are now gaining popularity among the operators of real estate investment trusts.

Several publicly traded REITs specialize in triple-net leases. Realty Income (O, 34), in Escondido, Calif., has a long history of dividend hikes and a historic average yield of 7.7%. This retail REIT, which owns buildings leased to companies from FedEx to BJ’s Wholesale Club, now yields 5.2% and pays monthly. In the last 15 years its holdings have grown from 600 properties to 2,600 today. Longtime CEO Tom Lewis is highly regarded for amassing properties on the cheap in the postbubble world, and the company still has ample cash for more acquisitions. Dividends and profits are on the rise, thanks to a recovering retail sector as well as escalating rents tied to inflation.

Markedly smaller but no less worthy is National Retail Properties (NNN, 27). National Retail has about 1,500 properties across the country and a dividend yield of 5.7%. Like Realty Income, it has a long history of dividend increases and a solid balance sheet. Janney Capital Markets analyst Andrew DiZio notes that although “we’ve just come through the worst period in 75 or 80 years, these companies not only maintained but also raised their dividends.”

W.P. Carey (WPC, 40) diverges from others in that it prefers to work with non-investment-grade firms, essentially providing financing for tenants that don’t have access to unsecured credit. Carey’s dividend yield is 5.5%.

If you want higher yields and a better chance of near-term price appreciation,Lexington Realty Trust (LXP, 7.9) and tiny CapLease (LSE, 3.9) are worth a look. CapLease, which owns retail and office buildings and also provides financing, should benefit from increased attention as investors continue to turn to the net-lease property sector in the hunt for income. It is also a takeover target.
LTC Properties (LTC, 29), an owner of nursing and health care facilities, has been a strong gainer of late. It sports a fat 5.9% yield and rides the trend of an aging population.

Prices as of Nov. 7. Sources: Interactive Data and Thomson Reuters Fundamentals via FactSet Research Systems. (click to enlarge)