KKR is investing €528m to take a 49% stake in a new euro-denominated joint venture holding a portfolio of European net lease real estate.

The portfolio is being contributed at an effective initial cap rate of 5.9% after recurring asset management fees payable to Realty Income. Realty Income holds a call option to redeem the firm’s equity interest between years 10 and 17 of the venture, with the price set to deliver KKR a capped internal rate of return expected to fall between 6.3% and 6.5%, to be fixed on closing. The structure is designed as a long-term, flexible capital solution. Christopher Sheldon, partner at KKR, views it as a tailored arrangement built to scale with Realty Income’s needs. “We are proud to support Realty Income as it extends its private capital strategy into Europe through this bespoke capital solution, designed with the flexibility to expand in line with the company’s evolving needs,” he said, tying the deal to KKR’s five-decade history of pairing partnership with scaled, long-term capital. Notably, the equity is expected to receive 100% permanent equity treatment from rating agencies, a point of importance for the REIT’s balance sheet.

The underlying portfolio comprises 54 properties and 140 units across Spain, Ireland, Poland, and the Netherlands, generating estimated first-year cash net operating income of €67.7m. It carries a weighted average remaining lease term of 7.2 years, investment-grade exposure of 59% of total base rent, and an expected compound annual contractual rent growth rate of 1.6%.