The retail industry has been under a lot of pressure in recent years. Consumers are changing their spending habits, shifting more of their purchases online. That's driving retailers to shrink their store footprints so they can make money in this increasingly challenging environment, made worse by the pandemic, which accelerated the shift online. Unfortunately, those headwinds have also hurt landlords focused on leasing properties to retailers as they're experiencing falling occupancy levels and rental rates.
However, while e-commerce will steadily steal market share from brick-and-mortar stores, it won't completely displace the entire industry. Consumers will continue relying on physical stores to make some purchases. Because of that, retail-related real estate isn't going away.
One company focused on leasing properties to retailers built to withstand the threats of e-commerce is National Retail Properties (NYSE: NNN). Here's a closer look at this real estate investment trust (REIT).
National Retail Properties profile
National Retail Properties' name defines its strategy. It's a retail REIT focused on leasing properties to nationally known brands. Also of note, the company focuses on investing in single-tenant freestanding properties secured by triple net leases (known as "NNN" leases, hence its chosen ticker symbol).
As of the end of 2021's first quarter, the REIT owned 3,161 properties with 32.7 million square feet of space across 48 states. The company focuses on owning properties leased to retail categories less susceptible to the threat of disruption from e-commerce. It also concentrates on leasing space to national and regional retail tenants. Finally, unlike some of its peers, it doesn't focus on investment-grade tenants since leasing to those with lower credit ratings can yield better pricing and rent growth.
Its top retail categories by the percentage of annual base rent (ABR) were:
- Convenience stores: 18%
- Automotive service: 10.7%
- Full-service restaurants: 10.2%
- Limited-service restaurants: 9.5%.
- Family entertainment centers: 6%
- Health and fitness: 5.2%
- Theaters: 4.4%
- RV dealers, parts, and accessories: 3.5%
- Equipment rental: 3.1%
- Automotive parts: 3.1%
Meanwhile, its ten largest tenants were:
- 7-Eleven: 140 properties and 5% of its ABR
- Mister Car Wash: 115 properties and 4.5% of its ABR
- Camping World: 47 properties and 4.3% of its ABR
- LA Fitness: 30 properties and 3.8% of its ABR
- Flynn Restaurant Group (Taco Bell/Arby's) 202 properties and 3.4% of its ABR
- GPM Investments (Convenience Stores): 153 properties and 3.3% of its ABR
- AMC Theater: 19 properties and 2.8% of its ABR
- Couche-Tard (Pantry): 82 properties and 2.7% of its ABR
- BJ's Wholesale Club: 11 properties and 2.5% of its ABR
- Sunoco: 59 properties and 2.2% of its ABR
Overall, the company leases space to more than 370 national and regional tenants across over 30 categories. Its top 25 tenants supply 57% of its annual rent. Those factors give it a very diversified portfolio by retail property type and tenant.