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Net Lease REIT ETF offers steady income returns


Net lease REITs offer diversified access to the real estate sector according to Alexi Panagiotakopoulos and Chris Burbach (pictured) of Fundamental Income, who launched their NETLease Corporate Real Estate ETF (NETL) back in March this year.

The ETF is the only pure-play net lease fund traded in the public market, they say. Net lease REITs own commercial properties with long-term lease agreements that require the tenant to pay for most, if not all, property expenses and include a variety of property types such as restaurants, fitness centres, pharmacies, distribution centres and so on. Burbach says that this means the cash flows come from a diverse group of industries and are more predictable than the cash flow coming from more traditional REITs.

Burbach explains that he and his colleague, Panagiotakopoulos, came from the net lease REIT industry and were responsible for investments in over USD7 billion of net lease properties prior to launching their firm.

“Our company was founded at the beginning of 2019 and we launched our first ETF in March with Exchange Traded Concepts which has quickly grown to nearly USD30 million in assets as a result of investors taking notice of this low-rate environment,” Burbach says, “The hunt for income with growth is becoming insatiable.”

The public REIT sector carries a USD1.1 trillion market cap, with just 11 per cent in net lease REITs. “Net lease REITs are a subset of the REIT business model,” Burbach explains. “They buy properties such as restaurants and industrial buildings leased to tenants who pay their rent as well as the property expenses. The net lease REIT only has to collect the rent, so it’s a predictable long-term stream of cash flow with the average remaining lease standing at 11 and a half years, so you know what your cash flow is going to be.”

Burbach comments that in a world where people are looking for income, this steady cash flow along with several predictable growth components from net lease REITs: “was getting lost in the weeds, without people seeing how predictable these cash flows are.”

Much of the REIT space is dominated by broad-based ETFs based on market cap weighted indices. “There is an over concentration in a few sectors and companies with the highest market values amongst REITs,” he says. “So, capital has flowed into these larger segments of the REIT market and the net lease sector has been left behind, trading at a discount to the overall REIT market. We have broken these out on their own to give investors a chance to invest in them directly.”

Fundamental Income has been talking directly to institutions, RIAs and independent financial advisers about their strategy. “We created this fund as an avenue to access the sector directly, giving investors a different, value-orientated way to play the REIT market that they didn’t have access to before as a publicly traded fund,” Burbach says.

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