KKR Pays $608M for 51% Stake in Realty Income European Net-Lease Portfolio

Private equity giant KKR is taking a substantial stake in a European net-lease portfolio run by a prominent U.S. real estate investment trust (REIT).

KKR announced Monday it has formed a joint venture with Realty Income — a publicly traded REIT specializing in net-lease properties — in which the private equity firm will make a $608 million (or 528 million euro) investment to control 49 percent ownership interest of a 54-property portfolio of industrial and retail assets in Spain, Ireland, Poland and the Netherlands.

Realty Income will hold a 51 percent interest in the portfolio and will continue to manage the assets, according to a release. Net-lease deals typically require tenants to pay expenses such as maintenance, insurance and taxes in exchange for lower rents.

Seb d’Avanzo, co-head of European real estate equity at KKR, noted in a statement that Realty Income is “one of the world’s largest net-lease REITs,” as the REIT has more than 15,000 assets. D’Avanzo described the firm’s European net-lease portfolio as “high-quality, hard-to-replace assets across key markets in Europe, supported by strong underlying real estate fundamentals.”

“We look forward to working together as Realty Income continues to grow its presence in the region,” d’Avanzo added.

The portfolio features 54 European properties totaling 140 units, with tenants encompassing grocery retail, transportation services, home improvement stores and automotive parts suppliers. The portfolio carries a 5.9 percent initial cap rate, with an average lease term of seven years.

Sumit Roy, president and CEO of Realty Income, called the joint venture “another important step in Realty Income’s evolution as the leading global net-lease platform,” in a statement.

“We believe the long-term cost and structure of this equity financing create meaningful upside for our shareholders, while further diversifying our capital sources beyond the public markets,” he said.

The term of the joint venture is at least 17 years.

The transaction is expected to close by the end of this month.