In This Article:
Key Points
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Realty Income is a giant net lease REIT with a diversified global portfolio.
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NNN REIT is a modestly sized, U.S.-focused net lease REIT that specializes on the retail sector.
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NNN REIT is small enough to benefit from its tight retailer relationships.
Realty Income (NYSE: O) is a great option for dividend investors who want a diversified net lease real estate investment trust (REIT). However, there are drawbacks to consider when looking at this slow and steady tortoise.
Some investors might prefer its smaller peer NNN REIT (NYSE: NNN), which is focused on investing in retail properties located in America. Here's why NNN REIT might be a better, American-made choice than Realty Income for some dividend investors.
What does NNN REIT do?
NNN REIT was once called National Retail Properties, which is an accurate description of what the company does. Its portfolio of more than 3,500 properties is located entirely within U.S. borders. It has more than 375 tenants that span across 37 different lines of trade within the retail sector.
Net lease retail assets tend to be very similar to each other, allowing for easy acquisitions, sales, and re-leasing, if necessary.
Net lease properties are integral to the story for NNN REIT. A net lease requires the tenant to pay for most property-level expenses. That gives the lessee effective control of the asset and reduces risk for the landlord.
Acquisitions, however, usually come in the form of sale-leaseback transactions. In essence, the seller wants to raise cash but doesn't want to give up operational control of the property it's selling. A deal with NNN REIT can make that happen.
This brings up the most important aspect to consider about NNN REIT: Roughly 72% of its transaction volume since 2007 has come from companies with which it has an existing relationship.
Given the intimate knowledge NNN REIT has on the performance of the retailers it works with, it can make well-informed investment decisions with these properties, and it's helping to finance the growth its tenants are experiencing. So NNN REIT is growing along with its tenants.
How does NNN REIT beat Realty Income?
Realty Income, meanwhile, is one of the largest REITs you can buy, has a globally diversified portfolio, invests in industrial assets in addition to retail properties, and has a gargantuan 15,600 buildings in its portfolio. There's really nothing wrong with any of that, but Realty Income is so large at this point that it has to make massive investments to move the needle on the top and bottom lines.