Why to Get Caught in a Net Lease REIT | ETF Trends

Not all REITs are alike—and not all REITS perform alike, either.

For example, the NETLease Corporate Real Estate ETF (NETL), is up 56.8% over the past year, making it one of the top five performing REIT ETFs in that time period.

Many REIT ETFs will hold one or two net lease REITs, such as VEREIT Inc. (VER), on their rosters, but what makes NETL unique is that it focuses exclusively on net lease REITs.

NETL 1 Year Performance

What Are Net Lease REITs?

Net lease REITs utilize a model which leases out properties to single tenants under “triple net leases,” which keep the responsibility for paying for the property’s operating costs on the tenant.

For these REITs, property is purchased using sale leaseback transactions where the tenants sell the real estate to the REIT, who then leases it back to them long-term.

This is advantageous for all parties. Imagine that you own a sporting goods store but need liquidity. One of the few assets you might have available is the building you are in. If you sell it to a REIT, then they’ll give you an influx of capital and allow you to retain management and control over your space (as well as the ability to deduct your rent as a business expense). Meanwhile, the REIT gets to add your property to their portfolio.

Nothing But (Triple) Net

Because these leases are all triple net, cashflow is much more predictable for investors.

The REIT itself is off the hook for paying property taxes, management costs, and other operational overhead that comes from maintaining a property. Unexpected costs and setbacks are sponged by the tenant.

Furthermore, because the property was purchased as a sale leaseback, the risk of a vacant property hemorrhaging money without any rent coming in is greatly mitigated. Each new acquisition comes with a tenant locked into a long-term lease. Low vacancy rates and low overhead add up to steady, reliable income.

That in turn can offer investors attractive source of income, as well as a hedge against inflation, as leases have rent escalation provisions that allow them to adjust for inflation levels.

NETL is up 14% year-to-date. Its top holdings included Vereit (VER), at 8.77%; Realty Income, at 8.19%; and W.P. Carey, at 8.11%.

NETL ETF Holdings

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