Alex Pettee, CFA
Net Lease REITs: Exploiting A Competitive Advantage
Net Lease REITs may be expensive, but perhaps that's a good thing. Utilizing "cheap" equity capital, Net Lease REITs have reasserted themselves as the external growth engines of REITs.
Access to the public equity markets to fuel-accretive acquisitions has been the defining competitive advantage for these REITs, explaining much of the consistent outperformance over the last three decades.
3Q19 earnings were generally better than expected across the sector as AFFO and dividend growth look poised to turn decidedly positive in 2020 after a challenging two years.
With occupancy at 99%, net lease REITs have defied the retail-related headwinds that have bedeviled other retail REIT sectors. While net lease REITs have heavy retail exposure, it’s primarily the “right kind” of retail.
Quality is critical in the REIT sector, particularly with net lease REITs, where "cost of capital" is paramount. Cheap REITs tend to stay cheap and expensive REITs stay expensive.