W.P. Carey CEO Jason Fox

For the most part and for various reasons REITs have been net sellers this year. An exception has been net lease REITs. Companies such as  Realty Income, Spirit Realty, Store Capital and W.P. Carey all reported more acquisitions than dispositions for the third quarter and in many cases for the year to date. The one exception has been VEREIT, which sold more than it bought in the past three months.

Furthermore there are signs that other investors, such as pension funds and private equity are gravitating to these income-producing investments.

Net Lease REITs' Acquisition Activity

• During the 2018 third quarter, W,P Carey made four acquisitions for $259.7 million. It disposed of four properties for a total of $20.9 million. W.P. Carey CEO Jason Fox noted in a prepared statement market conditions are competitive. But “through a combination of single-asset and portfolio acquisitions, as well as discretionary investments with existing tenants, we remain on track with our expectations for full-year investment volume,” he said.
• Store Capital originated $510.6 million of gross investments representing 129 property locations during the third quarter of 2018, adding nine net new customers. It sold 7 properties during the same time period.
• Realty Income invested approximately $609 million in property acquisitions, bringing the REIT to nearly $1.5 billion in acquisitions completed as it entered the fourth quarter. It sold 20 properties for $35.5 million during the quarter, with a gain on sales of $7.8 million.
• Spirit added 13 properties to its portfolio this past quarter, investing $223.9 million. The company disposed of one vacant property for $3.7 million in gross proceeds.
• VEREIT acquired 23 properties for approximately $98.6 million and disposed of 35 properties for an aggregate sales price of $181.1 million.

SERS Ups Its Net Lease Mandate

At the same time competition is heating up from other investors. IPE Real Assets, for example, reports that the Pennsylvania State Employees' Retirement System (SERS) is seeking to boost its exposure to net-lease real estate strategies. The pension fund told IPE Real Assets that it had made a $300 million commitment to Oak Street Real Estate Capital Net Lease Property Fund — one of the largest commitments ever made by a US public pension fund to a net-lease real estate strategy, the publication said, citing industry sources.

Private Buyers' Rising Allocation

Not to be ignored are private buyers, which are stepping into the net lease space, according to JLL's Investor.

It reports that private capital captured a record 37.9% of the net-lease market in the first half of 2018, up by 9.4 percentage points since 2015. In 2017, private investors accounted for 36.4% of all net lease acquisition volume.