W. P. Carey Inc., a global net-lease real estate investment trust (REIT) that owns more than 100 self-storage facilities nationwide, has signed a 25-year, triple-net-lease agreement for 36 storage properties with Extra Space Storage Inc., a publicly traded REIT and third-party management firm. Extra Space already manages 31 of the properties and will add five locations to its New York City operating portfolio, according to a press release.
Most of the assets were acquired by W. P. Carey in October when it completed a $5.9 billion merger with its managed fund CPA:17 – Global. The properties are spread primarily across California, Hawaii, New York and the Southeast, a source reported. Taken together, the 36 facilities represent about 90 percent of W. P. Carey’s self-storage net operating income.
Triple-net leases typically require the tenant to pay a portion, or all, of property taxes, building insurance and maintenance costs, along with contractually escalating rent, according to Investopedia. Under the Extra Space agreement, rent across the portfolio will generally commence this August and increase annually by a fixed percentage, along with a percentage of revenue growth, the release stated.
The transaction includes termination rights for both companies on the 10- and 20-year anniversaries. Beginning with the third anniversary, W. P. Carey will have the right to terminate the agreement in the event of a sale, with Extra Space given first right of refusal on a purchase.
Jason Fox, CEO of W. P. Carey called the deal “an innovative win-win” for both REITs. “By creatively converting these operating assets to long-term triple-net leases, they now align well with our core investment thesis of diversification, best-in-class organic growth and minimal exposure to capital expenditures,” he said. “The structure allows us to maintain our exposure to self-storage, an asset class we have invested in for over 15 years and know well. It also underscores self-storage as a potential source of additional net lease investment opportunities.”
“Extra Space is pleased to announce this creative and mutually beneficial net-lease transaction, and to deepen and expand our long-standing relationship with W. P. Carey,” added Joe Margolis, CEO of Extra Space.
The deal is expected to rank Extra Space among W. P. Carey’s top 10 tenants, Fox said.
Based in New York, W. P. Carey is an investment-management company that oversees a global investment portfolio and has an enterprise value of more than $19 billion. Its diversified portfolio of commercial real estate includes 1,168 net-lease properties comprising approximately 134 million square feet. Sixty-four percent of the REIT’s portfolio is in the United States, with the remainder primarily in Northern and Western Europe. Net-lease self-storage facilities comprise 3.3 percent of its properties.
Headquartered in Salt Lake City, Extra Space owns or operates 1,696 self-storage properties nationwide and in Puerto Rico. The company’s properties comprise approximately 1.2 million units and 130 million square feet of rentable space.
Sources:
Commercial Property Executive, W.P. Carey, Extra Space Storage Strike Net-Lease Deal
W. P. Carey, W. P. Carey Inc. and Extra Space Storage Inc. Announce Self-Storage Net Lease Transaction
