Triple Net Lease REITs: 5% Yields, Rate Risk, and What Investors Get Wrong

The Interest Rate Sensitivity Problem

Here is what most investors discover too late. NNN REITs are leveraged bond proxies. When interest rates rise, their prices fall — just like bonds, but worse, because leverage amplifies the move.

From early 2022 through late 2023, the Federal Reserve raised the federal funds rate from near zero to over 5%. Realty Income's stock fell roughly 35% during that cycle. NNN REIT dropped by a similar magnitude. These were not distressed companies. Their dividends kept coming. Their tenants kept paying. But the price of the income stream collapsed because investors could suddenly get 5% from Treasury bonds with zero credit risk and zero leverage.

This is the core mechanic: a 5.2% dividend yield from a leveraged REIT looks attractive when risk-free rates are 2%. It looks less attractive when you can get 4.5% from a 10-year Treasury. The spread between REIT yields and Treasury yields drives much of the price action, independent of the underlying operating performance.

I am not saying this to scare you away. I am saying it so you don't hold these with a 12-month time horizon and then panic when rates spike.

NNN REIT has partially hedged this risk. It locked in SOFR-based debt at 3.25–3.43% through 2029 on a portion of its floating-rate exposure. Its 10.7-year weighted average maturity means it does not face a wall of refinancing in the next two to three years. That structural positioning matters. A REIT that has to refinance $2 billion in debt at 6.5% when it previously paid 3.5% is a different credit story than one with debt spread out over a decade.

Tenant Credit Risk: The Walgreens Problem

The second risk is tenant credit quality. NNN REITs depend on their tenants to keep paying rent. Most NNN tenants are investment-grade or near-investment-grade retailers: Walgreens, Dollar General, 7-Eleven, McDonald's, CVS, Taco Bell. When those tenants are healthy, the income is as predictable as it gets.

When they are not healthy, you have a problem. Walgreens announced hundreds of store closures in 2024 and 2025 as it restructured under significant financial pressure. Rite Aid filed for bankruptcy in 2023 and closed over 1,400 locations. Any REIT with material concentration in those chains took a direct hit to occupancy and income.

Realty Income's 15,500-property portfolio across 86 countries provides real insulation. If Walgreens closes 50 locations, that is a fraction of 1% of Realty Income's portfolio. The same 50 locations would hit a 500-property REIT much harder. Scale and diversification are real risk management tools here, not marketing language.

You should read the tenant concentration disclosures in any NNN REIT's 10-K before buying. If any single tenant represents more than 5% of base rent, you have meaningful concentration risk. Realty Income's largest tenant — 7-Eleven — represents roughly 3.7% of annualized base rent as of its most recent filing. That is a reasonable number. Some smaller NNN REITs carry 15–20% exposure to a single chain. That is not.

When NNN REITs Make Sense in a Portfolio

NNN REITs make sense when three conditions line up: interest rates are stable or declining, tenant credit quality across your chosen REIT's portfolio is strong, and you have a multi-year time horizon.

They are income instruments, not growth instruments. If you are 58 years old, building a portfolio that generates $5,000–$8,000 per month in passive income, and you want to avoid the operational headaches of owning physical property, Realty Income and NNN REIT are serious candidates. The yield is real. The monthly check from Realty Income is real. The 36-year consecutive dividend growth track record from NNN REIT is real.

NNN REITs do not make sense as a short-term trade. They do not make sense if you need your capital back within three years. They do not make sense as your primary inflation hedge — the fixed-lease-escalation structure limits upside during high-inflation periods. A 2% annual rent bump written into a 15-year lease looks different in a 7% inflation environment.

They also do not make sense as a substitute for equity growth. Your principal will not compound at 10–12% annually. The total return picture for these REITs over a full rate cycle is often 7–9% annualized — yield plus modest price appreciation. That is a reasonable income-focused return. It is not a wealth-building engine for someone in their 30s with a 30-year runway.

NNN REITs vs. Direct Real Estate Ownership

I get this question constantly: why not just buy a NNN property directly? A single-tenant Walgreens building or a Dollar General on the edge of a mid-sized city. The math sometimes shows a 6.5–7% cap rate, which beats the public REIT yield.

The honest answer is that direct ownership has real advantages and real costs. The advantages: no management fees, no REIT overhead, direct control, and the ability to execute a 1031 exchange to defer capital gains. The costs: you typically need $1–3 million in equity minimum, you own a single property with a single tenant, and if that tenant leaves, your income goes to zero — not down 3%, zero.

Public REITs give you liquidity, instant diversification, and professional management for a fee. You can buy $50,000 of Realty Income tomorrow and sell it in 30 seconds if you need the capital back. Try selling a standalone Walgreens building in 30 seconds.

Non-traded NNN REITs exist as a middle ground. They offer slightly higher yields than the public vehicles and less price volatility because they are not marked to market daily. The tradeoff is higher fees and dramatically reduced liquidity. Some non-traded NNN REITs charge acquisition fees of 5–7% and ongoing management fees of 1–2% annually. Those fees compound against your returns. Read the prospectus before you write a check.

For most accredited investors I work with, the public REITs are the cleaner choice. The liquidity premium is worth it. The fee structures are transparent. And the scale of Realty Income's 15,500-property portfolio genuinely cannot be replicated at the individual investor level.

What Accredited Investors Get Wrong

The most common mistake I see is treating NNN REITs as simple real estate. They are not. They are leveraged bond proxies with equity-like downside. The 5–6% yield comes attached to 5.2–5.6x debt leverage and duration risk tied to the interest rate environment. When you buy Realty Income, you are partly betting on where the 10-year Treasury yield is headed over your holding period.

The second mistake is ignoring the cost-of-capital spread. A REIT buying properties at a 7% cap rate and funding them at 4.5% earns a healthy spread. If funding costs rise to 6.5%, that same 7% cap rate acquisition is barely accretive. The entire growth model depends on that spread staying positive and wide enough to justify the leverage. Watch what the Fed does. Watch what happens to BBB-rated corporate bond yields. Those numbers tell you whether the NNN REIT spread model is intact.

The third mistake is underestimating the power of NNN REIT's 10.7-year weighted average debt maturity. That is a real competitive advantage. It means the company does not face a catastrophic refinancing wall when rates are high. That structural conservatism is why NNN REIT has raised its dividend for 36 straight years through three recessions, the 2008 financial crisis, and a global pandemic. The debt ladder did not break when it needed to hold.

I hold positions in this sector in my own income portfolio. I think Realty Income is the better vehicle for conservative income investors who want global diversification and a monthly check. I think NNN REIT is the better vehicle for investors who want the longest consecutive dividend increase track record in the sector and are comfortable with the smaller, U.S.-focused portfolio. Both can work. Neither is risk-free.