Remaining Lease Term
Equity Cash Flow
Wtd. Avg. Debt Term
Avg. Annual Return
NOTE: It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. Data obtained from Capital IQ and most recent constituent company filings including 10Ks, 10Qs, earnings supplementals, and investor presentations. Weights based on NETLXT Index weightings as of 12/31/2019. Market data as of 12/31/2019. *Average Annual Return includes the period from 1/1/2008 to 12/31/2019.
DISCLAIMER: Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the Index’s current constituents. Prior to 2017 the back-test used an actual weighted methodology. The Index inception date was 12/27/2017 and was revised 12/21/2018. All data prior to the inception date is back-tested. Index returns are before fees and expenses.
Simple. Sustainable. Predictable. Generating an adequate total return with those qualities is hard to do. Net Lease REITs have a business model that is designed to deliver a total return that is straight forward and repeatable. Combining long lease terms with built in rent escalations makes revenue projections simple to understand. Net Lease REITs are also operationally efficient because the lease structure shifts nearly all responsibility for maintaining the property to the tenant, relieving that burden and expense from the REIT and shielding it from expenses that may rise over the life of the lease. In addition, Net Lease REITs enhance equity returns by borrowing a portion of their capital at rates lower than the investment cap rates which helps capture the “spread” between the two, directly benefiting equity investors and further enhancing returns. The cap (or capitalization) rate is the rate of return expected to be generated by the property in the first year.
The result is a sustainable, predictable stream of cash flow. On average, Net Lease REITs use approximately 80% of the equity cash flow stream to pay a dividend with the remainder serving as an important protector of the dividend and productively used to grow the cash flow stream by reinvesting in new assets. Net Lease REITs also grow cash flows through acquisitions by raising capital to make accretive investments. When REITs trade at a yield that is less than the investment yields available in the market, Net Lease REITs can raise capital to make acquisitions which further increases the cash flow for existing shareholders.
Sources of Return
Continued Growth Potential
While the Net Lease business model has a solid foundation built upon the existing portfolios, growth from acquisitions is an important part of the return story. Making growth a dependable source of return requires a large market that can continue to be tapped for a long time going forward. In the case of Net Lease, the size of the market opportunity is enormous relative to the amount of capital addressing it. According to industry estimates, operating businesses own more than $3 trillion of real estate. To put this in context, Net Lease REITs collectively acquired just over $7 trillion in new properties in the 12 months ending 9/30/2019, and had gross assets of $150 billion as of 9/30/2019, or approximately 5% of the assets owned by operating businesses.