• Despite a wave of dividend hikes and robust external growth, net lease REITs have been among the weakest-performing property sectors this year amid concerns over soaring inflation and rising interest rates.
• Despite their reputation as bond substitutes, net lease REITs have historically delivered above-average earnings growth as accretive external growth has more than offset the drag from muted property-level growth.
• Thriving in the "lower for longer" macroeconomic environment that defined the 2010s, the new regime of higher inflation rates has raised questions about these REITs' ability to continue to outperform.
• We’ve developed additional metrics to measure the inflation-hedging characteristics and potential risks. Since net lease REITs are among the more bond-like sectors, the need for diversification becomes especially important.
• Net lease REITs are currently firing on all cylinders, taking full advantage of cheap capital to fuel a "buying spree" of property acquisitions. We see recent underperformance as a buying opportunity, particularly for net lease REITs that provide better inflation protection.

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