Earnings Update: Net Lease REITs (Q4 2024)

Dear Landlords,

I want to extend a warm welcome to all our new members! We recommend that you start by reading our Welcome Letter by clicking here. It explains why we invest in real estate through REITs and how to get started.

As a reminder, our most recent "Portfolio Review" was shared with the members of High Yield Landlord on March 4th, 2025, and you can read it by clicking here.

You can also access our three portfolios via Google Sheets by clicking here.

New members can start researching positions marked as Strong Buy and Buy while taking into account the corresponding risk ratings.

If you have any questions or need assistance, please let us know.

============================

Earnings Update: Net Lease REITs (Q4 2024)

In our Q3 2024 Earnings Update for Net Lease REITs, we highlighted this type of real estate as among the most defensive in the entire sector due to long lease terms.

Admittedly, it doesn't always feel that way. When inflation runs hot and interest rates are rising, net lease REIT stock prices tend to perform poorly.

Fundamentally, however, net lease REITs tend to be far more resilient to inflation and rising interest rates than their stock price performance would imply. There are several reasons for this:

1. Net lease REITs typically structure their debt maturity ladders at similarly long durations as their leases.

2. Higher interest rates hurt more heavily leveraged private investors than lesser leveraged REITs.

3. Inflation raises construction costs, which reduces new construction and thus competing supply.

4. Higher interest rates gradually increase cap rates, which is a net positive for net lease REITs that are net acquirers.

On that last point, note that net lease cap rates are the highest they've been in over a decade for retail and office while being the highest since 2017 for industrial.

Boulder Group

While net lease REITs cooled their investment volume somewhat over the first few quarters of 2024 as their cost of capital remained elevated, they returned in Q4 with their highest acquisition volume in years.

CBRE Research

Generally speaking, when net lease REITs have a strong cost of equity, which means a relatively high price-to-FFO, their investment volume and AFFO per share growth increase.

The Q4 2024 spike in net lease REITs' acquisitions was driven by a rally from July through October that allowed them to issue equity at attractive spreads between cost of equity and cap rates.

Here's how net lease REITs (NETL) performed over the course of 2024 compared to the broader real estate index (VNQ):

Net lease REIT stocks do slightly worse than the average REIT during inflation scares and rising interest rate environments, as we can see toward the end of last year.

So far this year, however, net lease REITs are mounting an impressive comeback and slightly outperforming the broad real estate index:

Data by YCharts

If the general trajectory of inflation and interest rates remains downward, then we expect net lease REITs to continue this outperformance going forward.

With that, let's get to the Q4 earnings updates for our net lease REITs: