BofA Downgrades Getty Realty, National Retail Properties, Names Top Triple-Net REITs For 2022

On Thursday, Bank of America analyst Joshua Dennerlein updated his coverage of triple-net real estate investment trusts (REITs), and adjusted his ratings for several stocks.

The Analyst: Dennerlein made the following changes to his coverage:

Essential Properties Realty Trust Inc (NYSE: EPRT) downgraded from Buy to Neutral, price target cut from $31 to $30.
Getty Realty Corp. (NYSE: GTY) downgraded from Neutral to Underperform, price target cut from $34 to $31.
National Retail Properties, Inc. (NYSE: NNN) downgraded from Buy to Underperform, price target cut from $52 to $47.
WP Carey Inc (NYSE: WPC) upgraded from Underperform to Neutral, price target reiterated at $78.

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The REIT Thesis: In the note, Dennerlein said he is focusing on assessing triple-net REITs using their "PEGY," which he defined as "a REIT’s price-to-AFFO ratio divided by the sum of its (1) growth rate (2022 over 2021 growth or a fwd. 3-year CAGR); and (2) forward 12m dividend yield."

Dennerlein's top-rated triple-net REIT stock picks for 2022 have the lowest 2022 PEGY scores of the group, including EPR Properties (NYSE: EPR), NetSTREIT Corp (NYSE: NTST), Spirit Realty Capital Inc (NYSE: SRC) and Realty Income Corp (NYSE: O).

"Our ratings reflect our view that net lease investors should focus on a mixture of dividend yield and earnings growth," Dennerlein said.

He said EPR has the lowest PEGY of the group for 2022 at just 0.25 thanks to its discounted AFFO multiple of just 12x, but EPR deserves to trade at somewhat of a discount due to the uncertainty surrounding the movie theater business.

Benzinga's Take: The real estate sector performed extremely well during the periods of hyperinflation in the 1970s. Since the beginning of 2021, the Real Estate Select Sector SPDR Fund (NYSE: XLRE) has outpaced the SPDR S&P 500 ETF Trust (NYSE: SPY), generating a total return of 36%.