Starwood To Buy $2.2B Net Lease Firm From Brookfield
Starwood Property Trust will spend $2.2B to buy Fundamental Income and its 467-property net lease portfolio, the latest in a series of large trades in a defensive asset class.
The Miami Beach-based investment firm is buying Fundamental, which manages a 12M SF portfolio spanning 44 states, from Brookfield Asset Management. The 28-person team that had been supporting the portfolio will move to Starwood as part of the deal, which is expected to close next week.
The fully occupied portfolio serves 92 tenants across 56 industries, including food and beverage, auto services, retail, entertainment and education, according to a release. Rent increases at the portfolio average 2.2% annually with a 17-year weighted average lease term. The portfolio hasn't had any credit losses since its inception.
Starwood CEO Barry Sternlicht said the acquisition fit within the investment firm’s mission to develop a diversified portfolio that can weather economic cycles to deliver consistent returns.
“The acquisition of Fundamental marks the next evolution, but not the last, of our platform,” Sternlicht said in a statement. “The quality of the team, their robust structuring capabilities and deep credit focus align perfectly with our culture. While we have strong experience in the net lease sector, the scale and infrastructure of Fundamental provide us with the opportunity to significantly grow in this attractive asset class using our combined expertise.”
The purchase also gives Starwood access to specialized asset-backed security financing markets to find efficient financing solutions, according to the release.
“With nearly 20-year leases, annual rent escalators and access to attractive proven [asset-backed security] financing, the transaction highlights our safety focus,” Starwood President Jeffrey DiModica said in a statement. “We anticipate this investment to be accretive to distributable earnings after giving effect to projected refinancing of existing debt and projected acquisition volume.”
Starwood’s stock was trading down more than 4% Thursday morning. The acquisition announcement, which also included disappointing preliminary second-quarter results, came after markets closed Wednesday.
Starwood estimated its earnings per share at between 36 cents and 38 cents in Q2, below analyst forecasts of 40 cents, according to MarketWatch.
The firm invested $3.2B in the second quarter, including $1.9B in commercial lending and $700M in infrastructure lending. It had $1.4B in liquidity as of July 15 and will report final second-quarter figures Aug. 7.
Starwood will assume Fundamental’s $1.3B in financial facilities, including $900M in asset-backed security debt. It will fund the remainder of the acquisition with a combination of cash on hand and debt and equity capital, according to a release.
Net-leased assets have been drawing significant capital investment after a lull in 2024.
Earlier this month, BlackRock announced it would acquire net lease firm ElmTree Funds and its $7.3B in assets under management through an exchange of stock.
Atlanta-based Argonne Capital Group secured capital from investment giants Koch Real Estate Investments, Goldman Sachs and Ares Management to buy a $1.1B portfolio of multitenant retail assets in March from REIT Global Net Lease.
More than $9B in net-leased assets traded hands in the first quarter, according to CBRE. The brokerage expects volumes will continue to grow as investors turn to the asset class as a consistent source of returns in a world of higher interest rates.
