Rest invests into triple-net lease REIT expected to benefit from systemic shifts in debt financing

Rest, one of Australia’s largest profit-to-member superannuation funds, says a new property investment shows how growing demand for alternative sources of commercial finance reflects the opportunities created by changes to debt financing markets.

Rest has contributed US$250 million (around A$390 million) as part of a co-investment with funds managed by Blue Owl Capital, a leading alternative asset manager, into US-based real estate investment trust STORE Capital.

The co-investment comprises a minority equity stake in STORE Capital’s operating business.

STORE Capital acquires commercial properties from business owners and then leases those properties back to the business owners under long-term ‘triple-net leases’, commonly for durations of around 20 years.

Under a triple-net lease, the tenant is responsible for operating the business at the property subject to the lease, keeping the property and improvements in good order and repair, and paying the insurance, property taxes and other property-related expenses.

Rest’s Head of Real Assets, Investments, Andrew Bambrook, says the investment reflects growing demand among business owners for alternative sources of commercial financing.

“The commercial finance sector has shifted in recent times. Many traditional lenders in the US have exited the sector, which has provided an opportunity for asset owners to step into this void and help businesses finance their growth,” says Mr Bambrook.

“Sale-and-leaseback transactions can allow business owners to unlock the capital tied up in their premises and redeploy it into their operations, while maintaining security and continuity through a long-term lease.

“For asset owners, like Rest, triple-net leases can offer long-term, predictable cashflows – often over 15 and 20-year periods.

“The majority of our 2 million members are decades from retirement, so we think deeply about the major forces shaping the global economy and society now and into the future. This investment is expected to benefit from one of these megatrends: systemic changes to debt markets.

“Inflation and interest rates are likely to stay higher for longer, which increases the attraction for businesses to rent rather than own real estate. We expect this shift will create more attractive investment opportunities for our members.”

Mr Bambrook adds the STORE Capital portfolio will assist with diversifying Rest’s property holdings with greater exposure to assets in the retail and industrial sectors.

“The portfolio is much more diversified than you’d typically see in real estate portfolios. This can create a durable portfolio that is more resilient to economic volatility, providing stable income streams and downside protection for Rest members,” Mr Bambrook says.

STORE Capital’s portfolio comprises more than 3,000 properties with more than 600 tenants across 49 US states. All the properties are subject to long-term triple-net leases.

The co-investment has been made together with funds managed by Blue Owl Capital.

Alicia Gregory, Managing Director at Blue Owl states: “We are pleased to co-invest with Rest on this transaction and for Blue Owl to continue serving as a partner of choice for private markets investors based in Australia.”