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C-Stores: A Smart Investment

Real-estate firm NRP shows healthy growth on back of retailer leases
ORLANDO, Fla. -- With tough economic times gripping the nation, one real-estate investor--a firm currently saddled with four Circuit City properties and one Value City site it needs to lease to new tenants--is finding convenience stores a relatively safe investment. "The investment per property is modest, which contributes to very broad geographic and tenant diversification within the c-store category," said Craig Macnab, CEO of National Retail Properties (NRP).

Over the past four years, NRP has purchased more than 350 convenience stores, most often as part of sale-leaseback [image-nocss] deals, making the convenience channel of retail the company's largest line of trade, representing more than 25% if its annual rent base. The Pantry, Sanford, N.C., also is the company's largest tenant.

And the channel is largely responsible for NRP reporting a healthy 25.2% increase in revenue in 2008, as reported in its annual earnings report earlier this month.

"We are very pleased that the convenience store industry had a strong 2008 in the face of a very difficult retail environment," Macnab said on an earnings call with analyst. "The Pantry, which is our largest individual tenant, announced solidly profitable first-quarter results with extremely good cash generation. The performance...highlights the defensive attributes of the convenience store industry."

He added, "We continue to like the real-estate attributes of convenience stores, which are situated on busy streets and signalized intersections with excellent ingress, egress and visibility."

While company officials hinted at additional investment in the c-store channel, they also offered a conservative front in light of the recession. "As a landlord to retailers, we are clearly seeing stress in our portfolio," Macnab said. "In terms of where it is going, I wish that I had a better idea of the depth or the duration of the recession and when consumers will reopen their pocketbooks.... We are cautious about the outlook, and we are projecting a challenging 2009 but our investment plan reflects that conservatism."

Orlando, Fla.-based NRP invests in retail properties subject generally to long-term, net leases. As of Dec. 31, 2008, the company owned 1,005 investment properties in 44 states with a gross leasable area of approximately 11.3 million square feet.

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