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I'm a firm believer that checking your stock portfolio too much is a bad habit. Not only can it stress you out, but short-term price swings can cause you to make rash investment decisions that can cost you big money over time. With that in mind, here are two real estate investment trusts you don't need to check too often to know your portfolio's future is secure.
The right kind of retail
Many investors view retail as a risky industry, but not if you invest through National Retail Properties (NYSE: NNN). This REIT specializes in freestanding retail properties and has generated 15.8% average total returns over the past 25 years, and has increased its dividend for 27 years in a row.
The company has achieved this with a low-risk and highly disciplined approach to building a property portfolio. First of all, the majority of the company's tenants fall into one of three business categories:
- Service-based retail, such as automotive service businesses and restaurants. Immune from online competition, these are businesses that consumers physically need to go to.
- Non-discretionary retail, such as gas stations and drug stores. These businesses sell products that people need, not just things they want.
- Deeply discounted retail -- wholesale clubs are a good example. These businesses can offer deals generally not available from even the biggest online retailers.
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In addition, tenants sign long-term leases with initial terms ranging from 15 to 20 years. And, these are triple-net leases (hence the company's stock symbol). Tenants are responsible for variable expenses such as property taxes, insurance, and maintenance. All National Retail Properties has to do is put a tenant in place and collect a gradually increasing rent check for the next couple of decades. Because of the low-risk, low-turnover approach, the company's occupancy is at an impressive 99.1%, and hasn't fallen below 96.4%.
National Retail Properties occupancy history. Image source: SNL Financial via National Retail Properties investor presentation.
Finally, to add to the stability, National Retail Properties likes to keep a conservative balance sheet, financing most of its acquisitions with equity, not debt. Over the past five full years, debt financed just 29% of newly acquired properties, and the company has interest coverage of 4.7-to-1.
In a nutshell, National Retail Properties is about as close to a low-risk stock as you can get, especially one that's capable of consistent double-digit returns.
Demand for urban apartments isn't going away
Apartment REIT Equity Residential (NYSE: EQR) has a pretty simple business model. The company develops and owns apartment buildings in six core markets Boston, New York, and Washington, D.C., on the East Coast, and Seattle, San Francisco, and Southern California on the West Coast. All of these markets have high barriers to entry, strong rental demand, and constrained supply. Seventy-eight percent of the portfolio is located in urban areas, with the rest mainly in high-density suburban areas within these markets.
There are several demographic trends that point toward continued strong performance for Equity. Homeownership rates are near the generational low, and younger people especially are more likely to rent. In fact, more renter households were added from 2010-2014 than in the 1990s and 2000s combined. And, this is expected to continue, especially in urban areas, which are projected to experience a rapid population expansion in the years ahead.
Combined vacancy rates in Equity's six core markets are about half of the U.S. average, and median incomes and home values have been on the rise as well. In other words, there is an extremely high demand for apartments in these markets, and the increasing cost of homeownership should keep the demand growing.
So, this demand should keep apartments full and rent rising,which should produce higher income for shareholders. In addition, since the value of rental real estate is mainly based on the ability to generate income, we should also see value creation in the form of increased equity. And that's exactly what we've seen over the past 15 years -- high- and mid-rise apartments have appreciated at a 7.5% annualized rate, well above the 4.4% average for garden apartment properties.
The Foolish bottom line
These are just two great examples of stocks you don't need to constantly monitor, and the reasons I've discussed here can be applied to other companies as well.
And, to be perfectly clear, while you don't need to check these stocks often, you do need to check them occasionally -- say, once a month or so. Even though there's no reason to believe they're in any danger, it's still important to keep up with any news related to your stocks in order to ensure the reasons you decided to buy them in the first place still apply.
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Matthew Frankel owns shares of National Retail Properties. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.