Keepin' It Real  

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

Net Lease REITs: Rising Rates Not A Concern, Yet

  • Following a punishing sell-off early in the pandemic, net lease REITs have displayed notable resilience in the face of stiff macroeconomic headwinds and entered 2021 with momentum at their backs.

  • Despite their heavy retail and restaurant exposure, net lease REITs - with some exceptions - fared far better than their retail REIT peers with rent collection "normalizing" by late 2020.

  • Recent earnings reports confirmed that acquisition-fueled growth kicked back into gear in late 2020 and is expected to power a rebound in AFFO growth after the 7% average decline in 2020.

  • Before the pandemic, net lease REITs' performance was largely determined by movements in long-term interest rates due to their bond-like nature and reliance on low-cost capital to fuel external growth.

  • For now, macroeconomic conditions remain in the "Goldilocks zone", and net lease REITs should be beneficiaries of the reopening trade so long as rates are rising for the "right" reasons: economic growth expectations rather than inflation.

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Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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