Net Lease REITs: The Right Kind Of Retail?
Despite mounting concerns of a “Retail Apocalypse 2.0” given the unexpected surge in store closings this year, net lease REITs have bucked the negative retail trends and continue to outperform.
Net lease REITs have become adept at swimming upstream against these retail-related currents. The top net lease REITs command clear competitive advantages over the private market through access to capital.
While nearly two-thirds of a net lease REIT’s revenue comes from retail-based tenants, it’s primarily the “right kind” of retail. Restaurants, convenience stores, fitness, and home improvement are top tenants.
Amid the search for yield, however, we think that investors discount the retail-related risks in other critical net lease sectors including pharmacies and movie theaters with higher risk of disintermediation.
The net lease sector has been revitalized by lower interest rates, which has boosted equity valuations and re-opened accretive external growth opportunities that should fuel AFFO growth this year.