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Net Lease REITs: A Safe Haven Amid Coronavirus Turmoil


  • Net Lease REITs have been a relative safe haven amid historic market volatility related to the COVID-19 outbreak. Performance from these "bond proxies" hasn't been quite as strong as many expected, however.
  • Social distancing? Investors are reminded that the net lease sector has heavy underlying exposure to the retail, restaurant, and experience-based categories, which may bear the brunt of the virus impact.
  • Thriving in the 'Goldilocks' economic environment, these REITs had reasserted themselves as the "external growth engine" of the REIT sector and were poised for a strong 2020 before recent turmoil.
  • With occupancy at 99%, net lease REITs have proven their ability to defy the retail-related headwinds that have bedeviled other retail REIT sectors, but this will be tested in 2020.
  • 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.
  • Looking for a helping hand in the market? Members of iREIT on Alpha get exclusive ideas and guidance to navigate any climate. Get started today »

REIT Rankings: Net Lease

In our Real Estate Rankings series, we introduce and update readers to each of the residential and commercial real estate sectors. We focus on sector-level fundamentals, analyzing supply and demand conditions and macroeconomic factors driving underlying performance. We update these reports quarterly with a breakdown and analysis of the most recent earnings results.

net lease REITs

(Hoya Capital, Co-Produced with Brad Thomas through iREIT on Alpha)

Net Lease REIT Sector Overview

Within the Hoya Capital Net Lease Index, we track the twelve largest net lease REITs, which account for roughly $90 billion in market value: Realty Income (O), W.P. Carey (WPC), VEREIT (VER), National Retail Properties (NNN), STORE Capital Corp. (STOR), Spirit Realty Capital (SRC), EPR Properties (EPR), Agree Realty Corp. (ADC), Essential Properties Realty Trust (EPRT), Four Corners Property Trust (FCPT), Global Net Lease (GNL), and Getty Realty Corp (GTY).

net lease real estate landscape

"Net lease" refers to the triple-net lease structure, whereby tenants pay all expenses related to property management: property taxes, insurance, and maintenance. While nearly every property sector uses the triple-net lease structure to some degree, we focus this report specifically on net lease REITs with heavy retail exposure - referred to as the "free-standing retail" - and REITs that don't otherwise fall neatly into one of the other property sectors. These net lease REITs generally own single-tenant properties leased to high credit-quality corporate tenants - primarily in the retail and restaurant industries - under long-term leases (10-25 years). Several of the REITs within the sector focus almost exclusively on a single industry, while other REITs own diversified portfolios of both retail and non-retail properties.

net lease diversification

Net Lease REITs have been one of the stronger-performing REIT sectors over the last decade and now comprise 3-7% of the broad-based Core REIT ETFs. Investors seeking direct exposure to the net lease REIT

Hoya Capital Teams Up With iREIT

Hoya Capital is excited to announce that we've teamed up with iREIT to cultivate the premier institutional-quality real estate research service on Seeking Alpha! In the spirit of March Madness, we're set to begin our 3rd year of REIT Bracketology on iREIT on Alpha where our team of analysts square-off to identify some of the best and most interesting REITs in the sector. Sign-up for the 2-week free trial today!

This article was written by

Hoya Capital profile picture

Alex Pettee is President and Director of Research and ETFs at Hoya Capital. Hoya manages institutional and individual portfolios of publicly traded real estate securities.

Alex leads the investing group Hoya Capital Income Builder. The service features a team of analysts focusing on real income-producing asset classes that offer the opportunity for reliable income, diversification, and inflation hedging. Learn More.

Analyst’s Disclosure: I am/we are long STOR, SRC, NNN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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. All commentary published by Hoya Capital Real Estate is available free of charge and is for informational purposes only and is not intended as investment advice. 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. Hoya Capital Real Estate advises an ETF. In addition to the long positions listed above, Hoya Capital is long all components in the Hoya Capital Housing 100 Index. Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (47)

Do you see current prices below your estimated NAV now?
which 3n to buy after price reset ?
gman1253 profile picture
Hoya - thank you. Great presentation - super job!
arlene2007 profile picture
Avoid Shorting Dividend-Paying Stocks (So why are they shorting EPR? 8.9 short ratio)

Because dividends tend to support a stock’s price, it is natural that you would prefer to short a stock that pays no dividends. The world is full of stocks that pay no dividends -- you might find one to short. The rub is that the day after you short the shares, the issuer’s board of directors might announce a new, recurring dividend. Income-oriented investors would probably flock to that stock and drive up prices. Higher prices and a new dividend are not the ingredients for a successful short sale.
There is so much useful information here. I have seen this format used before by Hoya but have not noticed it on other REIT sectors. Maybe I am just missing those Hoya articles. I have WPC and waiting for another 10% drop to add. Also, I have been adding to VER in small bites as it has gone down. Long WPC, VER, MPW and PLYM.
Hoya Capital profile picture
@Cantfixstupid Yes, we do these for every REIT sector. Glad you find these useful!
I had been wishing for WPC to come back down to the 60's to buy more. It only took a bear market. Next time I am going to be more careful what I wish for.
the preferreds of the least economically sensitive sectors (net lease, mfr housing) should be good bets to weather the storm

retests of their recent bottoms good limit targets
Thanks for another very informative article. I own EPR, SRC and WPC, and I've been adding shares in all of them as prices have dropped.

EPR, especially, has been severely pressured due to COVID-19 fears. I'm hoping it will snap back quickly once these fears have subsided, but my guess is we're looking at several months, not weeks, before that happens. Any thoughts on that?
IIPR has triple net leases with 3% annual increase & 1.5% mgmt fee. And has huge growth in EPS FFO & dividends. Riskier than most cuz tenants are cannabis cultivators that are mostly still losing money. If you can afford more risk, check out IIPR.
richjoy403 profile picture
I'm 'nibbling' at quality stocks I want to own trading below FV...but haven't found a REIT meeting my needs.

@richjoy403 would you be open to sharing what you're nibbling at?
richjoy403 profile picture
pran -- Yesterday, I initiated a very modest position in TFC.

This month, I've also added to existing positions in CAT, DIS, & VIAC.

I like CAT down here too.
Other Side Of Trade profile picture
The best of the Net Reits will be lower before they are higher---and they are way overpriced. Look for a 5%+ yield on WPC, for instance--and it's probably the best one. Though no one seems to care, WPC writes leases with inflation protection.
Hoya Capital profile picture
As we alluded to in the article, the more richly-valued net lease REITs have significantly outperformed the "cheaper" REITs over essentially every measurement period.

Not saying that is sure to continue, but we think investors should look at valuations as one of the *final* metrics in the evaluation process, rather than as the first or primary metric to choose REITs.
stocklicker profile picture
You got it, 5.46% yield on WPC at the close today!
Very interesting.
Not all REITs are created equal. You have clearly proved that.
I have held EPR for over a decade. Now it seems that EPR has
hit a pothole in the road for now. Question: Is EPR good for another
decade with the changing trends in the experience industry.?? Millennials, again!
Have concerns about Disney and Six Flags is this same industry??
Hoya Capital profile picture
Glad you found this interesting, @labman106.

EPR was delivering strong performance before stumbling in 2018, and the CV-19 issues certainly aren't helping them get back on their feet.
It is just a question of time. People will not stop going out to cinemas, skiing or swimming.
The dip is a buying chance in my eyes.
EPR navigated its education tenant problems wuite deftly. social distancing is the new but hopefully temporary normal. Vail's warning wasn't welcome and the recent stock decline will put the kibosh on acquisitions due to cost of capital acquisitions. I'm not sure I want to acquire zoos and aquariums, either.
Have O,WPC,NNN,and STAG. At this point,my fingers are crossed.
Have been holding a couple net-lease REITs (WPC and O) for quite some time with no plans to change that. Might even be adding somewhere down here.

Thank you for sharing your expertise, Hoya Capital.

Retired income investor
"[...] the net lease sector has heavy underlying exposure to the retail, restaurant, and experience-based categories, which may bear the brunt of the virus impact."

This is why I avoid those categories in my net lease REIT selections. Even so, the leases and income from them will almost certainly outlast the current virus scare, and they'll recover. It's a great time to DRIP them.
Fantastic Article.Thanks for the insights.
Hoya - - Any reason MNR - - Monmouth Realty is not listed?
Hoya Capital profile picture
We include MNR in the Industrial REIT report.

FringDook profile picture
take a look at $STAR iStar
it is the managing partner of $SAFE (Safehold was spun off from iStar 2017).

iStar market cap is worth less than the sum of its holdings in $SAFE.
Hugely hugely undervalued.
Hoya Capital profile picture
Thanks for the thoughts, @FringDook.
So should I be buying STAR or SAFE?
FringDook profile picture
I will not tell you what to buy, but I hold $STAR and have been watching $SAFE. $STAR is the master developer of the town that I live in and they have made MAJOR progress in the past few years. Look up the Asbury Ocean Club.
arthur_bishop1972 profile picture
Thanks for the article. I added some STOR yesterday at $29.90, and will keep adding if it's under $30 (when funds become available).
Way to go !

Any miscellaneous comments regarding NETL - and its low volume?
Hoya Capital profile picture
@A-ASTON As all ETFs are required to have a Lead Market Maker (LMM), liquidity shouldn't be an issue with any ETF, regardless of the trading volume. There should always be an active buyer and seller.

That said, it's always prudent with ETFs to use a limit order and to check the iNAV (Morningstar provides that) to double-check that the bid/ask is in-line with the NAV. (Generally, there should be no issues there.)
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