As investors struggle to find attractive yield-generating opportunities in a lower-for-longer interest rate environment, many are diversifying into corporate real estate.
In the upcoming webcast, Smart Late Cycle Strategies for 2020, Alexi Panagiotakopoulos, Co-Founder and Partner, Fundamental Income; Christopher Volk, President, Chief Executive Officer and Director, STORE Capital; and Joshua Brown, CEO and Co-Founder, Ritholz Wealth Management, will focus on the real estate sector that leases corporate properties to single tenants and a strategy to help financial advisors access total return strategies, targeting sustainable income and predictable growth.
Specifically, investors can look to the Fundamental Income Net Lease Real Estate ETF (NYSEArca: NETL). as a way to gain exposure to real estate companies that generate income from net leases primarily in commercial property.
Net lease refers to a contractual agreement where the individual leasing the property pays a portion or all of the taxes, insurance fees and maintenance costs for a property, along with rent. Most commercial real estate follow a net lease model. Basically, the tenant is expected to pay for all the costs related to a property as if the tenant were the owner.
Net Lease REITs are equity REITs that own properties leased to single tenants under long-term, net lease agreements which specify that, in addition to rent, the tenant is responsible for most, if not all, property expenses. The most common net lease is a “triple-net lease” which requires the tenant pay property taxes, insurance, and maintenance – the three nets in a lease agreement.
The Fundamental Income Net Lease Real Estate ETF tries to reflect the performance of the Fundamental Income Net Lease Real Estate Index, which tracks U.S. listed Net Lease real estate sector in a diversified manner by screening for real estate companies that focus on investments in net lease real estate and assigning only those companies identified to the Index. The Index places constraints on constituents to protect against concentration in any one company or tenant.
Net Lease REITs offer a source of potential income for your portfolio. Tenant pays most expenses which may make cash flows more predictable. The stable dividends may also act as an inflation hedge since rent escalation provision in leases may help income grow and keep pace with inflation. Additionally, IRS Tax Code clarification on the deductibility of certain income distributed by REITs may improve after-tax returns.
Financial advisors who are interested in learning more about real estate investment trusts can register for the Tuesday, February 25 webcast here.