O REIT : Realty Income REIT

The Net Lease REIT Sector

You can have direct ownership of the same key core assets as the six largest REITs within the net lease sector:  National Retail (NYSE:NNN), Realty Income (NYSE:O), Spirit Realty (NYSE:SRC), STORE Capital (NYSE:STOR), VEREIT (NYSE:VER) and W.P. Carey (NYSE:WPC). These REITs, which account for nearly $50 billion in market value,  are holding over 16,000 total properties.

These REITs generally rent properties with long-term net leases (10-25 years) to high investment grade credit-quality tenants.  “Net lease” refers to the triple-net lease structure whereby tenants pay all expenses related to property management including property taxes, insurance, and maintenance. Triple-net leases result in long-term, relatively predictable income streams. The long-term leases are what have made the performance of this sector very durable and recession resilient.

The National Real Estate Investor, which is a leading authority on commercial real estate market trends, describes this as “a bond wrapped in real estate. It’s the closest thing to cash that sits inside real estate,” and points out that you are effectively “buying cash flow.”

The actual individual assets that these REITs hold vary by size, geographical focus, and quality focus. The “quality focus” is based on the credit quality of the tenants. High-quality tenants tend to be larger, more established companies with investment-grade credit ratings. You can get access to these investment-grade credit ratings below.

Now individual investors like you can own the same underlying assets that these REITs target. The advantage of direct ownership over REITs is that you ensure that 100% of your invested capital goes directly into real estate.  REITs carve out significant management fees for themselves. This is particularly evident on some non-traded REITs where only 85% of the capital invested makes it directly into real estate. The rest goes to fees and trust overhead.

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