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Arvi Luoma


The evolving face of net-lease property transactions in Europe

By Arvi Luoma, Director, W. P. Carey, London

From a corporate’s perspective, arguably the most common reason for undertaking a sale-leaseback transaction since the onset of the global financial crisis has been paying down imminently maturing corporate debt. Banks were focused on reducing loan exposure and so by entering into a sale-leaseback transaction, a company was able to convert its short-term debt into much longer-term fully amortising financing. In addition, developers and prospective tenants seeking business growth took advantage of the depressed real estate sector to initiate cost-effective pre-let developments for new critical assets. All of this combined, re-sulted in a significant number of investment opportunities across Europe. This boded well for investors who were acting cautiously and looking for opportunities with secure income and limited re-tenanting and re-financings risks.

Now, five years on, the market seems to have reached a turning point with signs of recovery. Consequently, many of the institutional investors and developers that acquired or constructed such assets are trying to meet their liquidity objectives and realise their exit strategies. This has resulted in a growing trade of long-term net-leased real estate and is where W. P. Carey continues to provide liquidity. For the past 40 years, W. P. Carey has established a reputation as a specialist in sale-leaseback financing and grown its global portfolio to approximately $16bn in 20 countries, of which some €2.9bn has been invested in Europe. However, 2013 saw the subtle broadening of W. P. Carey’s investment strategy to include significant acquisitions of pre-existing single-tenant net-leased real estate. Hence W. P. Carey has become, a more diverse provider of finance – a trend the company anticipates to continue in 2014. As a $6.5bn market cap public REIT with a BBB S&P rating, and with two managed non-traded REITs focused on net-leased commercial real estate, W. P. Carey has access to multiple sources of capital giving it the flexibility to operate dynamically in an evolving global real estate market.

Last year, W. P. Carey acquired several assets under pre-existing long-term net-leases that met its traditional investment criteria based on credit-worthiness and long-term criticality of the assets to the operations of the tenant. In essence the same disciplined, opportunistic strategy and investment criteria to deploy capital have been extended to this wider pool of assets. One example of net-lease asset acquisitions during the year was the purchase of Royal FrieslandCampina’s new European Innovation Center from the developer. The facility, located in the Netherlands, is leased for a term of 15 years to Royal FrieslandCampina, the fourth largest dairy company in Europe. Construction of the new facility was completed in July 2013 by development and construction company, Hurks.

W. P. Carey acquired the facility from Hurks on the date of handover. W. P. Carey also acquired the central distribution centre for H&M from Invesco, leased to H&M for 12 years. Located in Poznan, the second largest logistics market in Poland outside of Warsaw, the modern centre is critical to the supply chain of H&M in Europe. It is H&M’s European distribution centre for eastern Europe, as well as its primary e-commerce and online-retail logistics hub for Europe.

Similarly, W. P. Carey’s acquisitions of Adler Modemärkte’s headquarters in Germany from Metro, and Tommy Hilfiger’s central distribution hub in the Netherlands from Aspen Group, were also examples of W. P. Carey helping institutions meet their liquidity objectives.

In terms of the competitive arena, this sector can often be dominated by local life insurance and pension funds (or at the smaller end of the scale, high-net-worth individual investors), looking for the security of long-term income. However these institutions often have stricter limitations on geography, asset class, location and tenant creditworthiness. With long-term income being popular (the UK by example has far too much money chasing such deals) and rates expected to increase in the near to medium term, pre-existing single-tenant net-leased real estate may not be for the opportunistic buyer, but for a long-term investor like W. P. Carey, it provides opportunity to continue to grow a stable long-term cash-flow focused global portfolio. Given its resources and the changing nature of the market, W. P Carey anticipates it will continue to apply its established investment principles to a wider pool of single-tenant net-leased real estate throughout Europe in 2014. al

The author can be reached at aluoma@wpcarey.com.

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