Business Description
W. P. Carey (WPC) is a diversified triple-net lease REIT that focuses on direct origination of sales leaseback for large tenants with “mission-critical” assets.
SWOT analysis
Strengths
Once WPC is done selling its last remaining office properties, it will generate about 2/3 of its revenue from industrial properties, and the remaining 1/3 will come mostly from defensive service-oriented net lease retail properties. This is arguably one of the most desirable portfolios of any net lease REIT. (as of 2024/01/27)
WPC has some of the best leases of any REIT. They provide great protection against inflation in the form CPI-based rent adjustments but provide great protection against deflation as well in that they enjoy very long terms at 11 years and include minimum annual rent escalations. Moreover, its leases are also true triple net, putting the responsibility for all property expenses, including the maintenance, on the tenant.
Footprint in both the US, and Northern and Western Europe. That allows the company to raise debt in different countries as well.
Protect downside by combining credit and real estate underwriting with sophisticated structuring and direct origination (sales leaseback origination)
Large in size allowing in getting large tenants, often with mission critical assets, while maintaining a diversified portfolio.
Long track record since 1973.
Development capability.
Weaknesses
Slow in pivoting the portfolio, which caused the controversial and arguably mishandling of the office disposal in 2023 Q4. While the disposal enhanced the overall quality of the portfolio, it cost a significant reduction in FFO of the company, so it harmed the shareholders before the disposal.
Opportunities
With the portfolio reset by disposing of its offices portfolio in 2023 Q4, WPC got a portfolio with better growth profile and less forward capex, along with some dry powder for potential accretive acquisition.
Threats
Spread compression due to its reliance on investment-grade tenants, which usually does not give a good spread between cap rates and cost of capital.
References
2024/02/09 W. P. Carey Announces Fourth Quarter and Full Year 2023 Financial Results (Presentation)
2024/01/27 Top 5 Picks For 2024 - Part 4 by High Yield Landlord
Updates
2024/02/13 Valuation
Due to the disposal of the offices portfolio, I expected WPC can sustain a 5% annual growth going forward. It belongs to the category of companies with average return on equity and I am going to use a 11% discount rate to valuate it.
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