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A New ETF For An Untapped Real Estate Market

ETF Professor

Dozens of exchange traded funds are dedicated to real estate investment trusts, including some new kids on the block.

That doesn't mean all corners of the real estate market are adequately represented in the ETF space.

What Happened

One of the overlooked corners of the real estate market, at least in the ETF world, is the net lease REIT space. The new NetLease Corporate Real Estate ETF (NYSE: NETL), which debuted Friday, is bringing net lease REIT investing to a broader swath of investors.

Under the net lease structure, “the tenant pays taxes, maintenance and insurance in addition to the monthly rent. This reduces the REITs’ exposure to rising operating expenses and helps make cash flows more predictable,” according to Nareit.

The new NETL “encompasses a variety of REITs that provide sustainable cash flows by leasing their properties through long-term contractual leases on a triple-net lease basis,” according to the issuer. “The leases have terms that are generally 10 years or longer, predetermined rental rate increases and minimal landlord responsibilities.”

Why It's Important

The new ETF tracks the Fundamental Income Net Lease Real Estate Index.

“The Fundamental Income Net Lease Real Estate Index defines and tracks the rapidly expanding, publicly traded Net Lease Real Estate sector in a diversified manner,” according to Nasdaq. “The index includes only Net Lease Equity REITs which derive the majority of their revenue from triple-net leases.”

The index debuted on Dec. 28, 2017 at a value of 1,000 and closed just over 1,117 on Thursday. Twenty-four REITs reside in the index. Members of the index include Agree Realty CP (NYSE: ADC), EPR Properties (NYSE: EPR), Essential Properties (NASDAQ: ESPR) and Four Corners Properties (NASDAQ: FCPT).

What's Next

“Net Lease REITs have the potential to provide investment income and capital preservation in a market searching for both,” Fundamental Income co-founder Chris Burbach said in a statement.

“We believe this ETF offers investors broad exposure to the tangible U.S. economy through the underlying predictable rents of NETL. The time has come for investors to shift their focus from property appearances to results and for Net Lease real estate to stand on its own — we created the Index to do just that.”

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