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.
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