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There are a slew of real estate exchange traded funds on the market today, and as that universe expands, offerings are becoming more focused.
For investors looking to home in on net lease real estate investment trusts (REITs) while capturing elevated levels of income, there’s the NETLease Corporate Real Estate ETF (NETL). In layman’s terms, a net lease is a rent structure, typically deployed in corporate real estate, whereby the tenant is responsible for upkeep and maintenance of the property – not the landlord. However, the property owner still collects rental income, making this an attractive structure for landlords and investors alike.
NETL, which debuted in March 2019, holds 25 net lease stocks and tracks the Fundamental Income Net Lease Real Estate Index (NETLXT). The fund may be a valid near-term consideration for investors seeking above-average income as some analysts are bullish on select corners of the net lease market.
In Baird’s recent “Finding Opportunities in REITs” webcast, the research firm examined opportunities in several REIT segments, including net leases, that have the potential to reward investors through the end of 2021.
“In net lease, it notes that tenant issues have ‘largely abated,’ and there’s some competition for acquisitions, though it notes ‘cap rates have moved only modestly,’” reports Seeking Alpha.
Among the net lease names Baird likes are MGM Growth Properties (NYSE: MGP) and VICI Properties (NYSE: VICI) – two of three publicly traded casino REITs in the U.S.
Both have been recent dividend boosters and are outperforming broader REIT benchmarks over the past year. In the case of MGM Growth, that REIT owns essentially all of the real estate of MGM Resorts’ domestic properties. The Bellagio Las Vegas is an exception, and MGM Growth has a partner in owning Mandalay Bay and MGM Grand.
MGM Resorts is MGP’s only tenant and the former still owns a significant portion of the latter’s equity, but it’s reducing that stake. Analysts like that and they’re betting more autonomy will benefit the REIT in the future.
As for VICI, that company owns Caesars Palace Las Vegas and counts Caesars Entertainment (NASDAQ: CZR) as its largest client, but it has multiple tenants and derives less of its rental revenue from the Strip than does MGP. Baird likes VICI on the basis of its pricing power and inflation-fighting positioning.
The other gaming REIT, Gaming and Leisure Properties, Inc. (NASDAQ: GLPI), wasn’t mentioned by Baird, but that company has an expansive regional portfolio. All three proved adept at navigating the coronavirus pandemic with nary a hiccup in collecting rent from casino companies. The trio combine for over 9% of NETL’s weight.
For more on income strategies, visit our Retirement Income Channel.
