Netsreit: 4.4% Dividend Yield From 64% Investment Grade Tenants

Seeking AlphaREITsNetsreit: 4.4% Dividend Yield From 64% Investment Grade TenantsOct. 23, 2020 12:19 PM ET|| About: NetSTREIT Corp. (NTST), Includes: ADCby: Julian LinJulian Lin Best Of BreedHigh conviction investment ideas in the high quality space.SummaryNTST is the newest NNN REIT on the block.
NTST has a diversified portfolio consisting of 64% investment-grade tenants.
The forward dividend yield is 4.4%.
I predict that shares will trade up to its closest comparable peer, with 25% total return upside.
Netsreit (NTST) is a recent net lease REIT IPO that may be flying under the radar. That’s a shame because its portfolio appears to be of high quality, deserving of a premium multiple. While the analysis of financial results is a little messy due to the substantial capital raise from the IPO, the forward dividend yield suggests that shares are materially undervalued. I rate shares a buy with at least 25% total return upside.
Agree Realty 2.0?
When I look at the portfolio of NTST, I can’t help but think of Agree Realty (ADC), the true “best-in-class” net lease operator as determined by investment-grade exposure. NTST may be able to give ADC a run for its money, as its 64% narrowly beats the 61% exposure at ADC:

(Investor Presentation)
Why does investment grade exposure matter? The major net lease retail tenant bankruptcies over the past decade have primarily been of tenants without that investment-grade designation. This year, NNN REITs with high investment grade exposure have outperformed peers with less investment-grade exposure:

(Investor Presentation)
The stock price outperformance is closely tied to fundamental outperformance. After collecting 87% of second-quarter rent, NTST has collected 98% of third-quarter rent. Such results make it seem like NTST has been minimally affected by the pandemic.
Should investors expect to see NNN REITs across the board begin prioritizing investment-grade exposure? While I... Read more

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