New York-based REIT W.P. Carey has struck a deal with Extra Space Storage in which the self-storage operator will lease 36 self-storage properties from W.P. Carey for 25 years.

The triple net lease agreements include termination rights for both companies on the 10 and 20 year-anniversaries, contingent on performance metric. W.P. Carey may also terminate the leases after the third year in the event of a sale, with Extra Space maintaining the right of first refusal.

A joint press release provided additional detail:

Rent generally commences by August 2019 and increases annually by a fixed percentage plus a percentage of revenue growth. The transaction includes a large majority of the self-storage properties that W. P. Carey acquired in its merger with CPA:17, representing approximately 90 percent of its total operating self-storage net operating income.

“We are delighted with today’s announcement, which represents an innovative win-win for both companies. 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,” said Jason Fox, CEO of W. P. Carey.

W. P. Carey Inc. ranks among the largest net lease REITs with an enterprise value of approximately $19 billion and a diversified portfolio of operationally-critical commercial real estate that includes 1,168 net lease properties covering approximately 134 million square feet. The company’s investments include high-quality single-tenant industrial, warehouse, office and retail properties subject to long-term leases with built-in rent escalators.

“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,” Fox added.

Joe Margolis, CEO of Extra Space Storage described the transaction as mutually beneficial and that it will serve to deepen the company’s long-standing relationship with W. P. Carey.

“The transaction allows us to expand our capital-light growth model on 31 assets we already managed, and to add five more assets to our platform in the boroughs of New York City,” Margolis said.

 

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Alexander Harris