ExchangeRight REIT Acquires Dow-Leased Texas R&D Campus in 721 Exchange
ExchangeRight Essential Income REIT has acquired the Dow Texas Innovation Center, a 664,100-square-foot research and development campus in Lake Jackson, Texas, from Brixton Capital through a Section 721 exchange, the company said.
Brixton, a privately held real estate investment firm, contributed the property in exchange for operating partnership units in the nontraded real estate investment trust, according to ExchangeRight. The 34-acre campus, in the Houston metropolitan area, is fully leased to The Dow Chemical Company under a long-term, single-tenant triple-net lease. The company did not disclose a purchase price, the remaining lease term, or the amount of debt the REIT assumed.
The company’s announcement identifies the property and seller in a transaction AltsWire first reported Oct. 14.
“By completing a tax-deferred 721 exchange into the REIT’s operating partnership, Brixton Capital was able to transition into the greater diversification of the REIT’s portfolio via a tax-deferral solution that met their needs,” said Joshua Ungerecht, managing partner at ExchangeRight. “In exchange, the REIT gained an investor aligned with our strategy, another investment-grade tenant, and the assumption of below-market fixed-rate financing, which we believe collectively will be accretive to the REIT’s net asset value and AFFO, for the benefit of all investors in the Essential Income REIT, including Brixton Capital.”
On Oct. 2, the REIT’s operating partnership created Class T units to buy a net-leased R&D facility leased long-term to Dow, which is rated BBB- by S&P and BBB by Fitch. The class is fixed at approximately 1.82 million units paying $3 million a year, or $1.650691 per unit, at a rate that moves with changes to the REIT’s Class I dividend. Ungerecht said at the time that the fixed rate was based on the property’s cash flow and set to maintain distribution coverage and keep the deal accretive to adjusted funds from operations.
ExchangeRight said the acquisition adds to the REIT’s diversification by tenant, industry, and geography. Most of the portfolio is what the firm describes as necessity-based retail. As of March 31, Walgreens and Dollar General were the only tenants accounting for more than 10% of contractual base rent, at 17.8% and 15%, AltsWire reported in July. The REIT said its AFFO continues to fully cover current annualized distributions on all of its shares, as it has since inception.
Brixton bought the campus, which was built in 2016, in November 2020. At the time, Brixton said Dow’s lease ran through 2036. Brixton is based in Solana Beach, California, and is an affiliate of Brutten Global, a family office-led investment management platform. Brixton said it owns and operates a portfolio of approximately $2 billion in the western United States, focused on multifamily and retail properties.
As of Sept. 30, the REIT’s operating partnership held 475 properties net-leased to 44 tenants across 39 states, according to ExchangeRight. That is up from 436 properties in 38 states as of June 30. Earlier this month, the REIT also designated new series of operating partnership units to acquire Net-Leased Portfolio 51 DST and Net-Leased Portfolio 53 DST. Ungerecht said those deals brought the number of ExchangeRight Delaware statutory trusts the REIT has closed on to 30.
The REIT reported a net asset value of $27.72 per share as of Sept. 30. Through Sept. 30, it had raised nearly $548 million in its continuous private offering, which is open only to accredited investors.
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