Investing for the Long Run
REIT Access to Equity Markets Could Accelerate Acquisitions in the Coming Year
REITs are working to find a seat at the table as active buyers for commercial real estate property as the transaction market regains momentum. One sign that REITs are positioning to take advantage of buying opportunities is a recent flurry of equity raising. Five REITs went to the market with secondary offerings in February, raising a combined $1.3 billion. W. P. Carey Inc. (NYSE: WPC) raised $496.8 million Essential Properties Realty Trust, Inc. (NYSE: EPRT) raised $350 million NETSTREIT Corp. (NYSE: NTST) raised $208 million Curbline Properties Corp. (NYSE: CURB) raised $204 million Getty Realty Corp. (NYSE: GTY) raised $131 million W. P. Carey is coming off a record $2.1 billion in new acquisitions in 2025. “It's a really good market right now for us. The stability in interest rates has brought bid-ask spreads in, and sellers who have been on the sidelines for the last few years are now back into the market. So, we took advantage of that in 2025,” says CEO Jason Fox. The company is targeting primarily manufacturing and logistics facilities, as well as select retail, both in the United States and Europe. The REIT is poised for more growth in 2026 thanks to a strong balance sheet that includes roughly over $850 million in equity forwards, a credit facility of more than $2 billion that is largely undrawn, and annual free cash flow of about $300 million per year. The company has issued conservative guidance for acquisitions of between $1.25 billion and $1.75 billion, with the expectation that those numbers will be adjusted depending on how the year progresses. “Our cost of capital is as strong as it's been for quite some time. That supports accretive investment activity, and it allows us to be competitive on pricing when needed,” Fox says. “I think a lot of REITs find themselves in a similar position.” For all those reasons, REITs are likely to be more active acquirers this year. That's reflected in deal volume to date, as well as many of the guidance numbers for 2026, he adds. Across the board, it’s safe to say that REITs have been preparing for an acquisition spree. “Operationally, REITs are very much ready to handle a significant increase in number of properties, and some of that's being helped by the technology investments that companies have been making to be efficient and manage more with less,” says Matthew Werner, managing director, REIT strategies, at Chilton Capital Management. REITs also have worked to strengthen balance sheets. Many are under-levered with some of the lowest debt ratios they’ve ever had and very low levels of floating-rate debt specifically. “They have tons of capital capacity, but except for a few sectors, their cost of equity doesn’t make sense for them to go and do transactions,” Werner says. Cost of Capital Hurdles After multiple years of low transactions volume, commercial real estate transaction volume started to recover and rose 23% last year to $545.3 billion, according to MSCI. Certainly, REITs were among the group of buyers. In fact, four REITs—Welltower Inc. (NYSE: WELL), Agree Realty Corp. (NYSE: ADC), W. P. Carey, and Starwood Property Trust, Inc. (NYSE: STWD)—ranked in the top 12 for most active buyers last year based on the total number of properties acquired, according to MSCI. However, REITs as a group were noticeably less active last year. REITs accounted for 5.5% of the total transaction volume compared to 9.6% of transaction volume the prior year, and more than 10% of transaction volume in 2020 and 2021, according to JLL. The key reason for that decline is that most REITs have been trading at discounts to NAV since mid-2022, when the Federal Reserve first began its rate-hiking cycle. “A lot of REITs, through no fault of their own, have been trading at perpetual discounts to NAV,” says Steve Hentschel, senior managing director and leader of the M&A and corporate advisory platform at JLL. “It's very hard to raise new equity when it's dilutive, and without raising new equity, it's hard to be an active acquirer,” he says. Over the last few years, many publicly traded REITs have been trading at discounts to both their underlying asset values and the broader equity markets. That dynamic constrained opportunities to make new investments, and instead resulted in some take-private activity, adds Bryan Connolly, chair of DLA Piper’s U.S. real estate practice. “Looking ahead, as the underlying real estate fundamentals improve, interest rates stabilize and potentially decrease, and values in the private market continue to adjust, there should be more opportunities for growth by public REITs,” he says. Haves and Have Nots The spike in interest rates and pricing volatility that sent both buyers and sellers to the sidelines in 2023 and 2024 appears to be reversing course. The availability of debt, cost of debt, and comfort level with valuations are all improving, which is good news for commercial real estate sales activity in general. For REITs, the ability to transact is still divided into those “haves” and “have nots” in terms of NAV. The “haves” are those sectors that are trading at large premiums to NAV, notably health care, net lease retail, and data centers. Health care REITs in particular are trading at historically large premiums that are 50%, 100%, or even close to 150% above NAV in some cases. As a result, companies such as Welltower, Ventas, Inc. (NYSE: VTR), American Healthcare REIT, Inc. (NYSE: ATR) and CareTrust REIT, Inc. (NYSE: CTR) have been very acquisitive. Welltower, for example, completed $13.9 billion in new investments in the fourth quarter alone, which is larger than the total asset size of some public REITs. CareTrust invested $1.8 billion in 2025, including $562 million in fourth quarter. At REITworld last December, CareTrust President and CEO Dave Sedgwick said that with a larger team and broader platform, the “table is set” for another strong year. The REIT kicked off 2026 with the January announcement of a $142 million acquisition of six skilled nursing facilities in the Mid-Atlantic region. “We've always said, if you’ve got it, flaunt it, and we’re seeing that now from a lot of these health care REITs where they are appropriately using that cheaper cost of equity to be acquisitive in the markets they operate in,” says Daniel Ismail, co-head of strategic research, managing director, at Green Street. Health care REITs have the added benefit of finding good buying opportunities within sub-sectors, particularly in senior housing, he adds. Net lease is another sector that has been leveraging its cost of capital advantage to make accretive acquisitions. And many of the same players that were active last year expect to keep their foot on the gas. For example, Agree Realty acquired $1.45 billion in retail net lease properties last year, and the company recently increased guidance for 2026 to $1.6 billion to be deployed across its three external growth platforms. “Our pipeline to start the year is very healthy, filled with typical assets and pricing that investors would anticipate from Agree Realty,” says CEO Joey Agree. However, the REIT is watching to see how the expectation of lower interest rates this year will play out in terms of pricing, sellers, and the competitive landscape. “One important misconception is that publicly listed and private capital are chasing the same assets,” he adds. “It’s important for investors to understand the size and scope of the net lease market and appreciate the divergent strategies and execution of the many players.” Positioning for Acquisitions On the opposite side of the spectrum, a number of sectors are trading at discounts to NAV of between roughly 10% and 20%, including office, apartments, industrial, self-storage, and lodging. REITs in those sectors are still buying assets, but they are less active. “It will be hard to see them ramp up acquisition activity throughout 2026, and they likely will be highly selective in the type of deals they do,” Ismail says. Digging into individual property sectors, there are multiple examples of companies that have done a lot of hard work to put themselves in better positions for the acquisitions to “turn back on,” Werner adds. “The market is paying attention to that and rewarding these companies,” he says. FrontView REIT, Inc. (NYSE: FVR), for example, was able to source a convertible preferred investment and now has the opportunity to prove their acquisition strategy. As a result, their share price is on a path toward being able to issue common equity again, and the company will be able to continue acquisitions after they use the cash from the convertible preferred issuance, Werner notes. REITs also have another lever to pull that could give them an edge in acquisitions—the ability to utilize the tax advantages of the REIT structure to allow private operators to sell their assets to REITs. Instead of a cash sale, an owner could consider an UPREIT, which would allow them to transfer their basis into operating partnership (OP) units. There have been one or two examples of that in strip centers, which has been experiencing good fundamentals. “So, we could see a few more of those as the year goes on,” Ismail says. Outlook for M&A Activity In addition to property sales, the environment could be more conducive for M&A deals this year, both in public-to-public and take-private deals. One recent announcement was the acquisition of Veris Residential, Inc. (NYSE: VRE) by a group led by Affinius Capital for $3.4 billion in cash. “If the math doesn't work for a REIT to go buy something on the private market, why not buy a public peer with an exchange,” Werner says. “I think the sector is ripe for that, but I do think that it's also ripe for take-privates because the debt markets are very open.” Many of the M&A deals that have occurred in the last year were take-privates that involved deals below $3 billion. Some of those transactions are getting done in “chunks” with perhaps one buyer acquiring a large portion of the portfolio, with other assets or smaller portions being sold off separately, Hentschel notes. For example, Aimco is reportedly sold seven of its Chicago-area properties to an investment group for $455 million as part of its liquidation. Buying Opportunities Ahead REITs could find more buying opportunities ahead in a market where transaction volume is rising and the bid-ask pricing gap between buyers and sellers is narrowing. Although transaction markets have not been entirely frozen, the inventory of for-sale properties has been thin, with more sellers that have opted to hold onto properties and wait out market volatility. “There was plenty of liquidity, but there was a bid-ask gap between buyers and sellers, and now that gap is closing, and more product is coming to market,” Hentschel says. In its 2025 Year-End Real Estate Trends Report, DLA Piper is predicting that U.S. commercial real estate transaction volume will increase by another 15% to 20% this year. “We expect REITs will be most active in sectors perceived to benefit from multi-year tailwinds such as health care and housing-related assets, including senior housing and multifamily properties,” Connolly says. Data centers are likely to continue to command interest, as well as manufacturing and logistics due to supply chain challenges, continued expansion of e-commerce, and on-shoring. “Public REITs have been challenged by the gap between how the public market values their stock and how the private market values the underlying real estate,” Connolly points out. “However, as private market values continue to adjust to the new reality, this headwind should diminish.”
Commercial Lease Types Explained: Find the Best Lease for Your Business
People who are relatively new to leasing commercial real estate often mistakenly think it is similar to a residential lease on a house or apartment. In fact, commercial leases are quite different and often much more complicated. There are different commercial real estate lease types, each of which suits the needs of different businesses and landlords. It's vital to understand what kind of lease you are being offered for your commercial property so you can ensure it’s the right lease for your business. Here are the various lease types and how they work. Gross Lease A gross lease is one where you pay a flat rental fee that includes everything. This means taxes, insurance, utilities and maintenance costs are all included in the lease. You might compare this with the rare residential lease that includes utilities and possibly cable. Gross leases work well if you are renting office space or retail space in a mall. The lease is calculated to include your share of all of the common operating costs of the space. In other words, your rent will include a prorated share of real estate tax, utilities, building insurance and janitorial costs. This allows landlords to avoid having to meter individual spaces. Gross leases are typically calculated by analysis or past data, but you can often negotiate specific terms of the lease. For example, the standard lease on an office building might include your share of janitorial services in common areas and other common area maintenance, but it can be to your benefit to negotiate a lease that also includes janitorial services inside the office. This saves money because you are paying for extra time from a company that is already coming in vs. hiring a new company altogether. Modified Gross Lease This is a lease where you might have negotiated not to pay for certain things, such as electric utility. This is also very common for commercial spaces with multiple tenants. Full-Service Lease This is a lease where you only have to worry about your rent. Everything else is handled by the landlord. This is often a lot more expensive than other lease types, but it can be easier to budget as you don't have to worry about, for example, seasonal increases in utility bills. It is also called a service gross lease. Choosing a gross lease may seem like the simpler option, but you will pay a bigger rent check every month compared to other lease types. You also need to trust that the landlord will keep up their end of the bargain and ensure that everything is paid for, and maintenance gets done when needed. Net Lease A net lease, on the other hand, is one which works from the base assumption that the tenant will be taking on responsibility for some or all of the costs of running and maintaining the building. This is more common with single-tenant buildings such as warehouses or restaurants, although can be executed in multi-tenant buildings as well. A pure net lease makes you responsible for all the costs related to a property. The rent is thus lower, and although you are responsible for other costs you can typically keep operating costs down by exploring sustainable retrofit projects like a solar panel installation if your facility does not already have. One advantage beyond the benefit of a lower base rent of a net lease is that you often have more control over the property and thereby maintain a sense of ownership. You can, for example, freely choose your own utility providers and maintenance workers instead of being stuck with the landlord's preferred vendor. While your operating costs may be less predictable compared to a gross lease, net leases tend to be long-term in nature so the uncertainty of operating costs is offset by the predictability in rental fees. Here are the three major types of net leases: Single-Net Lease: In a single-net lease, the tenant pays property tax and other taxes and rent while the landlord covers everything else. Also called an N lease. Double-Net Lease: In a double-net lease, the tenant pays taxes, rent and property insurance while the landlord covers everything else. Also called an NN lease. Triple-Net Lease: In a triple-net lease, the tenant pays all costs related to property management including taxes, rent, property insurance, maintenance and other costs. Also called an NNN lease. This is the most common type of net lease. Percentage Lease A percentage lease is a lease where instead of paying a fixed rent, you pay your landlord a percentage of your sales. This includes a certain amount of base rent, and also a negotiated break-even point, which might be a fixed amount or the base rent divided by the agreed percentage. Percentage leases can sometimes be beneficial to both parties for retail space, especially in a mall or shopping center. The terms can be net or gross, with the amount of the base rent set according to what the landlord is responsible for in terms of operating costs. Operating versus Capital Lease Most commercial real estate leases are operating leases, meaning you do not get ownership of the property after the lease is done. In many cases you will be able to renew and renegotiate the lease. With a capital lease, the property is treated as a purchase for accounting purposes, and you may gain ownership at the end of the lease. Capital leases have fairly strict requirements and are relatively rare in commercial real estate. They are similar to finance leases, where you automatically gain ownership at the end of the lease term. Ground Lease A ground lease is when you own the building, but another party owns the land it is located on. Ground leases tend to be very long, averaging 50 to 99 years (compared to the 10 to 30 year lease term of net leases and the typically even shorter gross leases). While ground leases can offer you full control over the building, with some limitations, you are adding another stakeholder with other interests and opinions. It can also be harder to get out of a ground lease if you need to relocate your business. So, what is the best type of commercial lease agreement? The answer is that it depends on your business and the kind of space you are leasing. W. P. Carey is a long-term owner of real estate focused on triple-net leases. We primarily own single-tenant industrial properties that tend to be critical to business operations and therefore unlikely to be vacated for many years. This type of lease makes the most sense for these businesses as it gives the tenant full operational control over the property and is most similar to ownership. The added benefit of selling to W. P. Carey is that we are a long-term holder of real estate and do not look to flip our assets. We have a vested interest in maintaining the quality of our portfolio and pride ourselves in serving as a partner to our tenants should you have additional real estate or capital needs past the point of initial sale. That said, with over 50 years of experience providing customized solutions to our sellers, W. P. Carey can work with you on a lease type that is best for you and your business. Want to learn more? Contact & start the conversation with W. P. Carey today!
From Property to Partnership
At W. P. Carey, underwriting is the cornerstone of our investment strategy. Whether we’re evaluating a mission-critical distribution center, a top-producing grocery store, a well-located data center or a newly developed healthcare facility, our process is grounded in four essential pillars: The creditworthiness of the tenant The criticality of the asset The quality of the real estate The structure and pricing of the transaction Together, these criteria help us identify assets that deliver durable, long-term value to our shareholders. Creditworthiness of the tenant We begin with a deep dive into the tenant’s financial health. Our team evaluates balance sheets, income statements, liquidity levels, leverage ratios and access to capital. We also look beyond the numbers – analyzing the company’s industry position, growth trajectory and ability to withstand economic cycles. As long-term owners, our ideal tenant is one that will remain operational – and ideally continue to grow – for many years to come. Criticality of the asset Not all real estate is created equal. We focus on acquiring assets that are essential to a tenant’s operations – whether that’s a key distribution center, a top-performing retail location or a specialized manufacturing facility. Our goal is to understand how integral the property is to the tenant’s revenue generation, product development and supply chain. Assets that are truly critical are the ones that tenants are most likely to remain in – and invest in – over time. Quality of the real estate In addition to tenant credit and building criticality, we assess the real estate itself. This includes local market analysis, property condition assessments, third-party valuations, replacement cost estimates as well as understanding downside scenarios and re-leasing risk. Our goal is to ensure that the real estate stands on its own as a high-quality, income-generating asset. Transaction structure and pricing We structure each transaction to support both tenant operations and investor expectations. That often means negotiating long-term leases (typically 10-30 years) with built-in rent escalations and appropriate protections if needed – such as security deposits or letters of credit. Our pricing reflects both the fundamentals of the asset and the strength of the tenant, always with the goal of striking the right risk-return balance. A proven approach Throughout our more than 50-year history, this disciplined underwriting approach has enabled us to navigate complexity and build a portfolio of 1,600+ high-quality, operationally critical assets. Regardless of property type, these four pillars remain constant – highlighting that execution rooted in underwriting discipline is what ultimately drives long-term value. Interested in selling your real estate? Contact us today!
Net Lease REITs Poised for Continued Growth
In a commercial real estate market where transaction activity remains subdued, net lease REITs have been busy deploying billions in capital and steadily growing their portfolios. Many companies in the sector have good liquidity and a desire to grow and are expected to actively pursue deals they view as attractive—despite ongoing market volatility. Net lease REITs are by nature an acquisitive group. They need to make accretive investments to grow their FFO per share, and the sector is coming off a robust year of deal-making with an especially active fourth quarter. Notable highlights include: Realty Income Corp. (NYSE: O) invested $3.9 billion last year, with $1.7 billion occurring in the fourth quarter. Essential Properties Realty Trust, Inc. (NYSE: EPRT) invested $1.2 billion last year, which included $333.4 million in the fourth quarter W. P. Carey Inc. (NYSE: WPC) closed on $1.6 billion in acquisitions in 2024, including a record high of $840 million in the fourth quarter. Agree Realty Corp. (NYSE: ADC) invested $951 million in 2024, with $371 million in the fourth quarter. “One can make the argument, isn't the fourth quarter usually the biggest acquisition quarter in the year?” says Scott Merkle, managing director at SLB Capital Advisors, a real estate advisory firm specializing in sale-leasebacks. “That's usually accurate, and that probably played a role here. But more importantly, the net lease REITs coming into 2025 were trading at very attractive levels, so they had good currency with which to acquire properties.” Fourth quarter investment activity also accelerated along with signals that the Federal Reserve was moving into a rate-easing cycle, adds Jason Fox, president and CEO of W. P. Carey. “That flowed through to the 10-year Treasury and helped propel sellers who had largely been on the sidelines for much of 2024 into action, with bid-ask spreads between buyers and sellers coming in meaningfully,” he says. Appetite for Growth Despite market volatility fueled by President Trump’s proposed tariff policy, net lease REITs are maintaining cautious optimism for more growth ahead with guidance, thus far, that is similar to 2024. “The appetite to do deals and deploy capital is still there. We're seeing it every day in the transactions that we're working on with REITs that are actively offering on sale-leasebacks,” Merkle says. Net lease REITs are buying existing net lease properties and also investing in sale-leasebacks, both on a one-off and portfolio basis. However, all buyers are being a bit more cautious right now given uncertainty surrounding the impact from tariffs on consumer spending, supply chains, and the global economy. “The biggest headwind to the sector is volatility,” says Spenser Glimcher, managing director, self-storage & net lease, at Green Street. “It's one thing if the economy is slowing, but it's the uncertainty of the swings in markets week-to-week or day-to-day,” she adds. Companies are navigating in a market where there is less certainty around the ability to deploy capital and execute on acquisition opportunities. Will deals take longer to get done? And will buyers and sellers try to renegotiate different pricing or cap rates? “The volatility in the market, if anything, has made it even more important in terms of having balance sheets and liquidity because there is a certain amount of acquisition expectation that's built into this sector every year,” says Haendel St. Juste, managing director and senior REIT analyst at Mizuho Americas. Net lease REITs rely on acquisitions because it is not an internal high-growth sub-sector. Historically, more than two-thirds of growth in the sector has come from acquisitions, he notes. Tapping Equity Markets Historically, net lease REITs have funded acquisitions with roughly 50-50 equity and debt, and they’re often tapping equity via ATMs as well as traditional equity issuance. For example, EPRT has pre-funded its growth for the coming year thanks to an upsized stock offering in March that raised $254.2 million. “Because these companies are serial acquirers, the sub-sector requires lots more fresh equity every year,” St. Juste says. “Their stock price and cost of capital matters because they’re spread investing, and that’s why you see their balance sheets a little bit more liquid.” Investors often gravitate to net lease REIT stocks during cyclical downturns and volatility because of the bond-like characteristics of the sector. And the defensive nature of the sector has garnered attention this year as investors have looked for a safe spot to place capital. Net lease REITs have diversified tenancy with long-term leases that also have embedded rent bumps. Balance sheets are typically liquid and low-levered, and investors also like the steady dividend yield they deliver. “From a positioning perspective, we've seen a number of investors that have built their portfolios a bit more towards long-duration sectors in the last couple of months. If you look at what's worked year to date, it's been health care, towers, gaming, and triple net,” St. Juste says. Varied Approach to Acquisitions Although the desire to grow is there, the capacity for growth within the sector is a mixed bag. Most net lease REITs like to invest on a leverage-neutral basis and tend to be conservative allocators of capital. “If you're not trading in a premium–5% or greater to your NAV–you're kind of in the cost of capital penalty box because you're not able to go out and issue equity to grow,” Glimcher says. Triple net REITs without the need to raise any additional capital to reach, and potentially exceed, acquisition targets should be net winners, according to St. Juste. W. P. Carey is among the net lease REITs sitting in a strong capital position. “We've talked this year about having a clear path to fund our investments in 2025 without the need to raise any equity,” Fox says. The REIT plans to fund acquisitions with the sale of non-core operating assets, primarily dispositions of its legacy self-storage properties. The REIT also has a $2 billion credit facility that’s largely undrawn. W. P. Carey started 2025 with guidance for acquisitions in a range between $1 billion and $1.5 billion. “I've characterized that as appropriately conservative given the market uncertainty,” Fox says. The REIT has completed about $449 million in investments through April, primarily involving single-tenant industrial assets. The biggest and obvious headwind is the uncertainty in the world right now, where interest rates are going, where tariffs are going to land, and how that’s all going to flow through to inflation. “This uncertainty tends to chill transaction markets, and we'll probably see some of that, especially from portfolio sellers who may not be as motivated to be in the market right now,” Fox notes. However, some of those same challenges also could provide tailwinds by creating buying opportunities and perhaps motivate sellers to pursue a sale-leaseback to raise capital for their business. “We've done some of our best deals over the years during times of significant uncertainty or when there's capital markets dislocation,” he adds. Searching for Buying Opportunities Finding buying opportunities could be a near-term challenge with uncertainty that may keep sellers on the sidelines. The M&A market is typically a big source of investment opportunities for REITs as sale-leasebacks are often used as a financing tool. However, the pipeline for M&A deals has been relatively quiet this year, given the uncertainty and volatility in capital markets that make pricing more challenging. REITs also are seeing increased competition from private equity groups. According to SLB Capital Advisors, there were three large sale-leaseback deals announced in first quarter by SouthState Bank, AT&T and REI totaling more than $1.5 billion, and all three of those deals went to private equity buyers. “We hear from all the buyers we talk to that there is a shortage of quality sale-leasebacks out there, so there’s probably not as much acquisition volume as they would like, but REITs are actively pursuing those deals that they view as being attractive,” Merkle says. REITs also are well-positioned to win deals when they choose to do so, he says. “They're not stretching; they're not overpaying; but when they like an acquisition they're going after it and putting forth attractive, compelling offers,” he adds. Despite an appetite for growth, net lease REITs are keeping a close eye on their capital costs, potential credit risk and slowing economic growth. “I think the sub-sector is a net winner here, and acquisitions will be part of the story,” St. Juste says. “But we'll probably hear of deals taking a little bit longer, and in some cases, maybe a bit more competition from new private equity sources in the space.”
Tips for Ensuring a Successful Sale-Leaseback
A “great tool in really uncertain times,” the sale-leaseback can give immediate access to capital and minimize debt market exposure during uneasy economic periods. But for many looking to utilize it, the uncertainty of whether or not a deal will be successful can be a barrier to fully exploring it. Jason Patterson, SVP, investments at W. P. Carey, starts by recommending thorough planning and transparency and careful selection of the buyer and future landlord. “Especially with interest rates being volatile, knowing that your counter-party—the buyer—is experienced and well-capitalized is increasingly important, and will ensure that they show up at the closing table to complete the deal that you bargained for,” he says. Pre-Deal Prep Work Preparation and due diligence are always key in real estate investing, and it’s no different with sale-leasebacks. The seller/future tenant must figure out in advance its economic needs and preferences, including the term, rent level and rent escalators that make sense for the business. “Doing the pre-vetting process upfront on the big economic terms is key,” Patterson says. “Knowing the tenant has thought about and committed to the term and all the key economic points in a lease upfront makes a big difference and prevents the derailing of the process later on when a group might realize they can only do a 15-year lease versus a 20-year one.” Being timely and transparent about potential property issues is also critical to keeping the sale-leaseback deal on track. Whether environmental concerns, title complications or a problem with an old survey, issues will come out during the due diligence process so address them early on. Partnership Essentials: Real Estate to Relationship To enjoy the immediate access to capital, full market-value realization, preservation of operational control and other sale-leaseback benefits, corporate real estate sellers and private equity sponsors must do the deal. That means they must find the right buyer. “The biggest criteria in determining the best sale-leaseback partner is really access to capital and high certainty to close,” Patterson says. “That means finding a buyer who isn’t relying on a third-party financing source and doesn’t employ buying contingencies.” And the finish line isn’t the closing table. A buyer that is experienced in the market and a responsive, reliable landlord over the ensuing long-term lease is invaluable. “Make sure you’re choosing the right party for a long-term relationship,” says Patterson. “It’s great peace of mind knowing you have a landlord you can turn to in situations for flexibility or additional capital.” A strong partnership born of a sale-leaseback emphasizes the relationship versus a mere transaction. One of the resulting benefits for tenants is the ability to do more “bespoke-type” agreements, according to Patterson. Perhaps there’s an existing vendor the business wants to maintain ties with or the tenant has a big project underway on site; the long-term landlord can provide a flexible structure to accommodate. W. P. Carey’s sale-leaseback business has the capital to fund future tenant expansions, build-to-suits, building renovations, energy retrofits and more after the initial deal has been completed.
The Power of REITs
Inflation, interest rate volatility and market dynamics have shaken the foundations of standard investment models. As a result, investors are looking for avenues that promise long-term growth and security. Investing in Real Estate Investment Trusts (REITs) has gained considerable attention, particularly because REITs have a unique blend of income generation, diversification and stability. So, what exactly are REITs, and why should investors consider them? What is a REIT? A REIT is a specialized company that owns, operates or finances income-producing real estate assets, including commercial and residential properties, hotels, healthcare facilities, industrial spaces and more. REITs were created by the U.S. Congress in 1960 to allow individual investors to access the benefits of real estate investment once reserved for institutions and wealthy individuals. One of the key distinguishing features of a REIT is its tax structure. A REIT must meet the following IRS requirements: Income Distribution: Distribute at least 90% of taxable income to shareholders as dividends. Asset Composition: At least 75% of assets must be invested in real estate, cash or U.S. Treasuries. Shareholder Requirements: Must have a minimum of 100 shareholders and no more than 50% of its shares can be held by five or fewer individuals during the last half of the taxable year. Types of REITs There are three main REIT types, each with different specializations: Equity REITs: Own, manage and develop income-generating properties (e.g., industrial, retail or warehouse facilities). Mortgage REITs: Invest in or originate mortgage loans and mortgage-backed securities, often borrowing money at lower short-term rates and investing in higher-yielding mortgage assets. Hybrid REITs: Combine features of both equity and mortgage REITs. Benefits of Investing in a REIT REITs have gained significant popularity among investors in recent years, and for good reason. They offer a range of potential advantages, including: Accessibility: Offer access to the real estate market with a lower initial investment. Diversification: Enable investors to diversify investments across different properties in various real estate sectors and geographic locations. Steady Income Stream: Can provide reliable income due to requirement to distribute 90% of their taxable income to shareholders as dividends. Liquidity: Publicly traded REITs offer more flexibility as investors can quickly buy or sell shares on the stock exchange. Professional Management: Typically have a management team of experienced real estate professionals who leverage their expertise in portfolio management to optimize property performance. Portfolio Growth Potential: Offer portfolio growth potential from property appreciation and higher rental income. Tax Advantages: Provide a tax-efficient investment option, with dividends often taxed at lower rates than ordinary income, allowing investors to grow their wealth more efficiently. Why Should Individuals Invest Now? REITs offer investors a unique opportunity to gain exposure to the real estate market without the burden of property ownership and can provide steady income streams and the potential for long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier, which can help reduce overall portfolio risk. As a result, REITs may be a valuable addition to an investment portfolio for individuals seeking steady income, diversification or a combination of both.
Three Ways Real Estate Investors Can Recession-Proof Their Portfolios
Economic experts are continuing to signal that a recession could be on the horizon. A number of factors are contributing to this sentiment, but recent bank failures, tightening credit, interest rate increases and sustained high inflation are among the biggest. To help prepare in case of a downturn, below are three things real estate investors can do to “recession-proof” their portfolios and position their business for long-term success. Prioritize diversification When it comes to portfolio resiliency, diversification is key. Investing in a range of geographies, asset types and industries reduces potential risks tied to individual market volatility. If one particular asset class is more heavily impacted by a recession than others, having a diverse portfolio comprising several asset classes reduces the overall impact. Portfolio diversification also allows investors to allocate capital to where they are seeing the best risk-adjusted returns. This means investors can be nimble and take advantage of unique opportunities should they arise. Focus on mission-critical real estate To be successful in commercial real estate investing, it’s important to focus on properties with strong fundamentals, such as location, size and quality. However, when positioning a portfolio to weather all economic cycles, arguably the most important aspect of a property to focus on is “mission criticality,” or how important the property is to the tenant’s operations. When a property is mission critical, a tenant is more likely to remain in the facility – both in good times and in bad – for the long term. The worst thing that could happen during an economic downturn is to have a portfolio of vacant assets – and therefore limited rent payments – so by focusing on mission criticality, investors can better ensure durable, long-term cash flows. Analyze tenant credit and business Disciplined credit underwriting is critical to long-term portfolio success. Large tenants with a strong underlying credit and revenue history will be better equipped to weather downturns through access to liquidity, or in a worse-case scenario, have the ability to restructure and continue operating in their mission-critical properties. In addition to a tenant’s financials, it’s also important to examine the long-term outlook of the tenant’s business and industry. For instance, a tenant that produces electric car engines may have a better long-term outlook – and therefore be better suited to a long-term lease – than one that produces gas-powered engines given the trend toward electric vehicles. Final thoughts It’s never too late for real estate investors to look at their investment strategies and take steps to enhance their portfolio resiliency. Focusing on long-term stability – through diversification, mission-critical real estate and creditworthy tenants – versus short-term gains will help investors to build portfolios that will carry them through all market cycles.
Five Milestone Moments to Commemorate Five Decades of Investing for the Long Run®
This year marks W. P. Carey’s 50th anniversary, the company’s most exciting milestone yet. Throughout its history, the company has gone through different stages on its journey from a small, privately held investment management firm to a $24 billion publicly traded REIT – but through all the twists and turns, at its core has remained dedicated to Founder Wm. Polk Carey’s commitment to Investing for the Long Run. To commemorate five decades, W. P. Carey reflects on five defining moments in its history and celebrates how far it has come since its humble beginnings. Raise a glass and cheers to #50yearsofWPC! 1. W. P. Carey & Co is founded by Bill Carey W. P. Carey Founder Bill Carey was a born entrepreneur. As a child he sold soda and writing ink he made in his basement to his neighbors. When he arrived at college to begin his freshman year, he soon discovered he owned something many of his schoolmates did not – a small dorm room refrigerator. Seeing an opportunity, he purchased as many refrigerators as he could afford and leased them to his schoolmates for a small fee. By the end of his sophomore year, he had made over $10,000. This simple idea laid the groundwork for the founding of W. P. Carey (then W. P. Carey & Co) on April 3, 1973. Through W. P. Carey, his goal was twofold; to support growing companies with an immediate cash infusion through the purchase of their real estate and to provide individual investors with the opportunity to easily invest in income-producing real estate without the significant financial burden of purchasing an investment property. 2. W. P. Carey Begins trading on NYSE On January 21, 1998, Carey Diversified LLC – the consolidation of Corporate Property Associates 1-9 which would later merge with W. P. Carey & Co to become W. P. Carey – began trading on the New York Stock Exchange under the ticker symbol “CDC” (now “WPC”). When the company started trading, it had a portfolio of 198 properties in 37 states. This milestone made W. P. Carey accessible to all investors and broadened the company’s opportunities for future capital. It was also the year W. P. Carey issued its first dividend, laying the foundation for its reputation today as a reliable income-producing stock. This year, W. P. Carey celebrated 25 years of trading on the NYSE! 3. W. P. Carey expands to Europe with opening of its London office In 1999, W. P. Carey expanded into Europe with the opening of its London office. This launched a whole new avenue of investment opportunities and reinforced the company’s commitment to diversification – now across geography, in addition to property type and tenant industry. W. P. Carey was among the pioneers of the sale-leaseback model in Europe, helping to introduce the financing tool and its benefits for corporate owner-occupiers seeking capital. In 2008, W. P. Carey further grew its European foothold with the launch of its Amsterdam office. To date, W. P. Carey has invested over €8 billion in Europe, building a portfolio of more than 600 European assets across 20+ countries. 4. W. P. Carey converts to a REIT On September 28, 2012, W. P. Carey converted to a Real Estate Investment Trust. Somewhat limited by its existing structure, the REIT conversion helped increase the company’s visibility and expanded its access to institutional capital. As a result, W. P. Carey was able to significantly increase the size of its portfolio, grow dividends and diversify its shareholder base with both active and passive REIT investors. In 2014, the company completed its inaugural public equity and US bond offerings and received investment-grade ratings from Moody’s and S&P. 5. W. P. Carey concludes its exit from the non-traded REIT business On August 1, 2022, W. P. Carey announced the completion of its merger with its final Corporate Property Associates program, CPA®:18 – Global. This marked the exit of the company from the non-traded REIT business, effectively completing its transition to a pure-play net lease REIT. This transition enabled W. P. Carey to not only simplify the business, but become a more valuable company with improved earnings quality, enhanced size and scale, improved cost of capital and a strong, more flexible balance sheet. Today, this enables W. P. Carey to focus on generating long-term earnings growth and delivering long-term value to its shareholders. Closing Thoughts While reflecting on all that’s been accomplished over the past 50 years, it’s important to also note that W. P. Carey’s future has never looked brighter! With a team of talented and dedicated employees and a simpler, stronger company, W. P. Carey is poised to continue delivering on Bill Carey’s mission of Investing for the Long Run for many years to come.
Sail Through Inflationary Headwinds with Net Lease REITs
Experts are sounding the alarm bells regarding an impending recession due to sustained inflation, rising interest rates and conflict in Europe. As a result, some investors are questioning whether their portfolios are resilient enough to weather an economic downturn. For investors seeking a reliable dividend stock to add to their portfolio, one worth considering is a net lease real estate investment trust (REIT). REITs are companies that own or finance different types of properties and net lease specifically refers to the triple-net lease structure, whereby tenants are responsible for paying expenses related to property taxes, insurance and maintenance. Net lease REITs generally own single-tenant properties leased to creditworthy tenants and operate like corporate bonds due to their long-term leases. However, unlike bonds, net lease REITs can grow substantially through a combination of rent increases and external acquisitions, offering both stability and the potential for long-term growth. In today’s volatile market, here are three reasons why investors should consider adding net lease REITs to their portfolio. Stable dividend yields provide long-term income REITs have high and reliable dividend payouts compared to other stocks due to the REIT structure which requires at least 90 percent of taxable income to be distributed to shareholders as dividends. Several REITs have also increased their dividend over time, which has historically outpaced the rate of inflation and provided investors with steadily growing income. Furthermore, REITs can offer long-term capital appreciation through stock price increases, providing investors with total returns comparable, and often higher, than those of other stocks and fixed income investments. This demonstrates that REITs can be an attractive investment option for both income- and growth- focused investors. Contractual rent increases offer hedge against inflation Some net lease REITs provide natural protection against inflation due to contractual rent increases imbedded in their leases. These can be fixed or linked to an inflationary index such as the consumer price index (CPI). CPI-linked rental increases enable REITs, in particular net lease REITs that are not responsible for property management expenses, to directly offset inflation and pass on rising costs to the tenant. Inflation also tends to increase property prices which increases the overall value of a REIT’s portfolio; however, this growth is tempered by a REIT’s increased cost of debt due to rising interest rates. Regardless, these characteristics help protect investor returns against inflationary pressures, adding resiliency to a portfolio. Diversification protects against certain market risks Some net lease REITs offer diversified portfolios of real estate, meaning they invest across a range of property types, geographies and tenant industries. This ensures that no individual tenant, asset type or industry will have an outsized impact on overall performance, insulating investors from individual market risks and offering stability in economic downturns. Net lease REITs also offer diversification compared to other stocks and bonds an investor may own in their portfolio, as real estate is a distinct asset class that has demonstrated low correlation with other sectors of the stock market. In other words, net lease REITs tend to outperform when other assets in a portfolio are struggling, offsetting market volatility. Conclusion When investors are choosing a net lease REIT for their portfolio, it’s important to consider that not all are created equal. Selecting a REIT with an established history and experience performing in all market cycles will ensure investors are protected from adverse impacts, while reaping the benefits of stability and growth over the long term.