Fundamental Income & Net Lease REITs

by Mike Hunter

Fundamental Income was founded late last year to identify and create investment strategies rooted in solid, understandable fundamentals that are expected to generate sustainable income with predictable growth. Co-founders and partners Alexi Panagiotakopoulos and Chris Burbach, the firm’s principals, have extensive experience in net lease real estate, capital markets and credit opportunities. The company’s inaugural strategy, the Fundamental Income Net Lease Real Estate Index calculated by NASDAQ, was created to help define and track the rapidly expanding publicly-traded Net Lease Real Estate sector. Fundamental Income is also the Index Provider to an ETF launched by Exchange Traded Concepts.

“We started Fundamental Income with a simple view that investments with cash flows built upon identifiable underlying fundamentals, that are stable and predictable, should be worth more than those without a clear foundation or less certainty. We quickly realized there was no publicly traded index or vehicle that invested solely in Net Lease REITs and saw a void — and thus an opportunity,” says Panagiotakopoulos, explaining that Net Lease REITs have the potential to provide investment income and capital preservation in a market searching for both. “We believe this strategy offers investors broad exposure to the tangible U.S. economy through the underlying predictable rents of Net Lease REITs. 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, and we created the Index to do just that, in a low-cost, transparent, tax-efficient, liquid and tradeable manner available to all investors.”

Net Lease REITs Come of Age
Properties owned by Net Lease REITs are leased to the corporations that are the backbone of America: the neighborhood grocery store, children’s day care, favorite drive-thru restaurant, local gym, date night movie-theater and closest e-commerce distribution center. In founding Fundamental Income, Alexi Panagiotakopoulos and Chris Burbach are shining a light on a sector that has delivered outsized returns over history and they feel is now big enough to be defined on the public markets.

Although historically viewed solely as a real estate investment, Net Lease REITs more properly identify with commercial finance companies. They do own real estate; however, Panagiotakopoulos explains that Net Lease is a conduit to corporate cash flows offering investors broad based exposure to the U.S. economy, diversified by management teams, tenant, tenant industry, property type and geography. “Our strategy,” he says, “invests in 24 publicly traded companies which, together, are over $108 billion in market cap, diversified across all 50 states, 23,000-plus properties, more than 2,000 tenants, more than 30 industries — including no more than 3.4 percent exposure to any one tenant, no more than 21 percent exposure to any one tenant industry, and no more than 10 percent exposure to any one state.”

Approaching the Challenge
One of the biggest challenges in starting and growing the company has been building awareness, defining their investment thesis and gaining traction with a very sophisticated client base. “Finance professionals, portfolio managers, investment advisors and investors across the board each have a very specific perspective and investment approach,” Panagiotakopoulos explains. “Our biggest challenge is to convince them to turn their perspective upside down and view Net Lease in a very different manner than the market, media and analysts have historically portrayed it in the past.”

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