Workflow
W. P. Carey(WPC) - 2023 Q4 - Annual Report
WPCW. P. Carey(WPC)2024-02-09 21:56
Transcript

Portfolio Composition and Geographic Distribution - The company's portfolio consists of 1,424 properties net-leased to 336 tenants across 26 countries, with 58% of contractual minimum annualized base rent (ABR) generated in the U.S. and 37% in Europe[14] - As of December 31, 2023, the portfolio includes 96 operating properties: 89 self-storage properties, five hotels, and two student housing properties[14] - 80% of the company's ABR as of December 31, 2023, is concentrated in industrial/warehouse and retail assets[47] - 42% of the company's ABR as of December 31, 2023, is derived from real estate properties located outside the United States[48] - The company's portfolio consists of net-leased commercial real estate assets primarily in the United States and Northern and Western Europe, with a focus on industrial, warehouse, retail, and self-storage properties[168] - The United States accounted for 57.8% of total ABR, with the South region contributing the highest at 16.4%[177] - International ABR accounted for 42.2% of total ABR, with Germany being the largest contributor at 5.5%[177] - ABR from properties in Canada is predominantly denominated in U.S. dollars, accounting for 92.1% of the total[180] Lease and Occupancy Details - The portfolio's occupancy rate as of December 31, 2023, was approximately 98.1%[41] - Investment grade tenants account for 18% of total ABR, while implied investment grade tenants account for 6%[41] - The weighted-average lease term is 11.7 years, with 99.6% of leases providing rent adjustments: 56.2% tied to CPI, 40.7% fixed, and 2.7% other[41] - Approximately 21% of the company's leases, based on ABR as of December 31, 2023, are due to expire within the next five years[56] - Top ten tenants accounted for approximately 21% of total ABR at December 31, 2023[67] - Occupancy rate for net-leased properties slightly decreased to 98.1% in 2023 from 98.8% in 2022[169] - Lease expirations in 2024 include 29 leases with 23 tenants, contributing 60.32millioninABR(4.560.32 million in ABR (4.5% of total ABR) and 7,886 thousand square feet (4.6% of total square footage)[185] Financial Performance and Metrics - The company's total revenues for 2023 were 1,741,358 thousand, with real estate revenues contributing 1,738,139thousand[163]−NetincomeattributabletoW.P.Careyincreasedto1,738,139 thousand[163] - Net income attributable to W. P. Carey increased to 708,334 thousand in 2023, up from 599,139thousandin2022[163]−Adjustedfundsfromoperations(AFFO)increasedto599,139 thousand in 2022[163] - Adjusted funds from operations (AFFO) increased to 1,118,267 thousand in 2023, primarily due to investment activity and rent escalations[163][167] - Net-leased properties ABR decreased to 1,339,352thousandin2023from1,339,352 thousand in 2023 from 1,381,899 thousand in 2022, a decline of 3.1%[169] - Total assets decreased to 17,976,783thousandin2023from17,976,783 thousand in 2023 from 18,102,035 thousand in 2022[169] - Acquisition volume remained stable at 1,264.2millionin2023comparedto1,264.2 million in 2023 compared to 1,265.5 million in 2022[169] - Construction projects completed decreased significantly to 60.7millionin2023from60.7 million in 2023 from 148.1 million in 2022[169] - Total lease revenues for 2023 increased by 125.76millionto125.76 million to 1,427.38 million compared to 2022, driven by higher revenues from existing and recently acquired net-leased properties[191] - Income from finance leases and loans receivable increased by 32.91millionto32.91 million to 107.17 million in 2023, primarily due to reclassifications of net-leased properties to sales-type leases[191] - Operating property revenues surged by 121.03millionto121.03 million to 180.26 million in 2023, largely due to properties acquired in the CPA:18 Merger and recent reclassifications[191] Debt and Financing - Consolidated indebtedness as of December 31, 2023, was approximately 8.1billion,representingaconsolidateddebttogrossassetsratioofapproximately41.68.1 billion, representing a consolidated debt to gross assets ratio of approximately 41.6%[73] - 579.1 million of property-level mortgage debt on a non-recourse basis as of December 31, 2023[78] - 6.0billioninSeniorUnsecuredNotesoutstandingasofDecember31,2023[73]−6.0 billion in Senior Unsecured Notes outstanding as of December 31, 2023[73] - 403.8 million outstanding under the Unsecured Revolving Credit Facility as of December 31, 2023[73] - 1.1billionoutstandingundertheUnsecuredTermLoansasofDecember31,2023[73]−Thecompanymaintainsa1.1 billion outstanding under the Unsecured Term Loans as of December 31, 2023[73] - The company maintains a 2.0 billion unsecured revolving credit facility to fund immediate capital needs and unencumber assets[34] - The company entered into a new €500.0 million unsecured term loan maturing in April 2026, with a fixed interest rate of 4.34% through 2024[162] - The company amended its Senior Unsecured Credit Facility, increasing the capacity from 1.8billionto1.8 billion to 2.0 billion and extending the maturity to February 14, 2029[162] - The average outstanding debt balance in 2023 was 8,404,466thousand,withaweighted−averageinterestrateof3.28,404,466 thousand, with a weighted-average interest rate of 3.2%, up from 2.7% in 2022[213] - The company prepaid or repaid 483.1 million of non-recourse mortgage loans with a weighted-average interest rate of 4.8% since January 1, 2022[212] - The company issued senior unsecured notes totaling 334.8millioninSeptember2022withaweighted−averageinterestrateof3.6334.8 million in September 2022 with a weighted-average interest rate of 3.6%[212] Strategic Transactions and Programs - The company sold 79 out of 87 office properties under the Office Sale Program, generating gross proceeds of approximately 608.1 million[15] - The company completed the spin-off of 59 office properties into Net Lease Office Properties (NLOP) on November 1, 2023[16] - The CPA:18 Merger in August 2022 added approximately 2.2billionofrealestateassetstothecompany′sportfolio[17]−Thecompanycompletedtheacquisitionof16investmentstotaling2.2 billion of real estate assets to the company's portfolio[17] - The company completed the acquisition of 16 investments totaling 1.2 billion and three construction projects costing 60.7millionin2023[158]−Thecompanydisposedof31propertiesfortotalproceeds,netofsellingcosts,of60.7 million in 2023[158] - The company disposed of 31 properties for total proceeds, net of selling costs, of 446.4 million, including eight properties sold under the Office Sale Program for 216.9million[159]−Aportfolioof70propertiesleasedtotheStateofAndalusia,contributing216.9 million[159] - A portfolio of 70 properties leased to the State of Andalusia, contributing 32.5 million in ABR, was sold in January 2024[186] - U-Haul Moving Partners, Inc. and Mercury Partners, LP provided notice to repurchase 78 properties in Q1 2024, contributing 38.8millioninABR[186]−Thecompanyacquired34investments(196properties)sinceJanuary1,2022,contributingtothegrowthinleaserevenuesfromrecentlyacquirednet−leasedproperties[194]RisksandChallenges−Thecompanyfacespotentialfluctuationsinexchangerates,withprincipalexposuretotheeuro,whichcouldadverselyaffectforeignoperationsiftheU.S.dollarstrengthens[51]−Inflationandhighinterestratessince2021couldincreaseoperatingexpensesanddebtservicecosts,potentiallyimpactingthecompany′sfinancialcondition[52][53]−Thecompanymayincursubstantialcompliance,retrofit,andconstructioncostsduetonewclimatechangelawsandregulations,includingtheSEC′sproposedrulesandtheEU′sCSRD[59][60]−Thecompanyisexposedtoenvironmentalliabilities,includingpotentialcostsforinvestigation,remediation,andthird−partyclaimsrelatedtohazardoussubstances[64][65]−Thecompany′srealestatevaluesaresubjecttofluctuation,whichcouldleadtodeclinesinresidualpropertyvaluesandleaserevenueinsufficiency[66]−Thecompany′sabilitytocontrolESGdisclosuresislimitedduetothelackofdirectcontrolovernet−leasedproperties,potentiallyimpactinginvestorrelationsandaccesstocapital[58]−Thecompanymayfacechallengesinre−leasingorsellingpropertiesduetouniquetenant−specificdesigns,whichcouldlimitportfolioadjustmentsinresponsetoeconomicchanges[56]−Bankruptcyorinsolvencyoftenantscouldleadtoareductioninrevenueandanincreaseinexpenses[68]−Highinterestrates,inflation,andapotentialeconomicdownturnmayseverelyaffecttenants′businesses,leadingtoincreasedbankruptcyorinsolvencyrisks[69]−ThecompanymaynotachievethefullstrategicandfinancialbenefitsexpectedfromtheSpin−OffandtheOfficeSaleProgram[71]CorporateGovernanceandREITCompliance−Thecompany′scharterlimitsindividualownershipto9.838.8 million in ABR[186] - The company acquired 34 investments (196 properties) since January 1, 2022, contributing to the growth in lease revenues from recently acquired net-leased properties[194] Risks and Challenges - The company faces potential fluctuations in exchange rates, with principal exposure to the euro, which could adversely affect foreign operations if the U.S. dollar strengthens[51] - Inflation and high interest rates since 2021 could increase operating expenses and debt service costs, potentially impacting the company's financial condition[52][53] - The company may incur substantial compliance, retrofit, and construction costs due to new climate change laws and regulations, including the SEC's proposed rules and the EU's CSRD[59][60] - The company is exposed to environmental liabilities, including potential costs for investigation, remediation, and third-party claims related to hazardous substances[64][65] - The company's real estate values are subject to fluctuation, which could lead to declines in residual property values and lease revenue insufficiency[66] - The company's ability to control ESG disclosures is limited due to the lack of direct control over net-leased properties, potentially impacting investor relations and access to capital[58] - The company may face challenges in re-leasing or selling properties due to unique tenant-specific designs, which could limit portfolio adjustments in response to economic changes[56] - Bankruptcy or insolvency of tenants could lead to a reduction in revenue and an increase in expenses[68] - High interest rates, inflation, and a potential economic downturn may severely affect tenants' businesses, leading to increased bankruptcy or insolvency risks[69] - The company may not achieve the full strategic and financial benefits expected from the Spin-Off and the Office Sale Program[71] Corporate Governance and REIT Compliance - The company's charter limits individual ownership to 9.8% of aggregate outstanding shares to protect REIT status, with potential Board exemptions or adjustments[84] - Business combination provisions restrict transactions with interested stockholders (10%+ voting power) for five years, requiring supermajority approval thereafter[84] - Control share provisions deny voting rights to control shares unless approved by two-thirds of stockholders, excluding interested shares[84] - The company must distribute at least 90% of REIT taxable income annually to maintain REIT status, with potential federal corporate income tax on undistributed amounts[88] - Failure to qualify as a REIT would subject the company to federal income tax at corporate rates and a 4.0% excise tax on insufficient distributions[88][89] - Debt covenants may limit the company's ability to make required REIT distributions, risking REIT qualification or triggering corporate income tax[90] - The company may need to borrow, sell assets, or raise equity under unfavorable conditions to meet REIT distribution requirements[91] - Non-compliance with REIT asset tests within 30 days of a calendar quarter could force liquidation of investments, reducing income and distributions[92] - REIT rules limit hedging activities, potentially increasing costs and exposing the company to greater interest rate risks[94] - TRS operations are subject to corporate income taxes, reducing earnings and cash available for distributions[103] - The company may be subject to a federal corporate level tax at a rate of 21% on gains from the sale of assets acquired from a C corporation within a five-year period, based on the built-in gain exceeding the tax basis[104] - Foreign stockholders may be subject to a 30% U.S. withholding tax on ordinary dividends unless reduced by an applicable income tax treaty, with additional rules for those owning more than 10% of the company's common stock[105] - The company's net income from prohibited transactions, such as sales of property held primarily for sale to customers, is subject to a 100% penalty tax[106] - The company's Board has the authority to revoke the REIT election without stockholder approval, which could result in adverse tax consequences and affect the total return to stockholders[107] - Changes in federal and state income tax laws governing REITs could negatively impact the company and its stockholders, with potential retroactive application[108][109] - The company is subject to capital market volatility, which may impact its ability to deploy capital and could lead to adverse tax consequences and reduced acquisition opportunities[110] - Future issuances of debt and equity securities may negatively affect the market price of the company's common stock, with potential dilution of existing stockholders' holdings[111] - The company has reset its dividend policy, targeting an AFFO payout ratio of approximately 70% to 75%, but there is no assurance that future dividends will be maintained at expected levels[112][113] - The company may expand its investments into new asset classes or geographic markets, which could increase complexity and regulatory risks[114][115] Cybersecurity and Operational Measures - The company has implemented cybersecurity measures, including employee training, third-party monitoring, and incident response plans, but there is no guarantee that these measures will prevent all cyber incidents[117][119][124][128][134][135] Stock and Dividends - The company's common stock is listed on the NYSE under the ticker symbol "WPC" with 8,163 registered holders of record as of February 2, 2024[147] - The company declared cash dividends totaling 4.067 per share in 2023, with a fourth-quarter dividend of 0.860persharereflectingastrategicexitfromofficeassetsandalowerpayoutratio[150][161]ExpensesandCosts−Depreciationandamortizationexpensesincreasedin2023duetonetacquisitionactivity,includingpropertiesfromtheCPA:18Merger,partiallyoffsetbytheSpin−Offimpact[204]−Generalandadministrativeexpensesincreasedby0.860 per share reflecting a strategic exit from office assets and a lower payout ratio[150][161] Expenses and Costs - Depreciation and amortization expenses increased in 2023 due to net acquisition activity, including properties from the CPA:18 Merger, partially offset by the Spin-Off impact[204] - General and administrative expenses increased by 7.1 million in 2023 compared to 2022, primarily due to higher compensation, employee benefits, and professional fees from the CPA:18 Merger[205] - Property expenses, excluding reimbursable tenant costs, decreased by 6.3millionin2023,mainlyduetothereleaseofrealestatetaxesaccruedforatenantrepaidinQ22023[207]−Stock−basedcompensationexpenseincreasedby6.3 million in 2023, mainly due to the release of real estate taxes accrued for a tenant repaid in Q2 2023[207] - Stock-based compensation expense increased by 1.7 million in 2023, driven by higher amortization of restricted share units[208] - Interest expense increased by $72.7 million in 2023, largely due to non-recourse mortgage loans from the CPA:18 Merger and higher interest rates on senior unsecured credit facilities[212] - Merger and other expenses in 2023 were primarily related to the Spin-Off completed in November 2023[209] - Impairment charges on real estate are detailed in Note 10 of the financial statements[206] - Gain on sale of real estate, net, includes gains and losses from property sales, lease modifications, and purchase agreements during the reporting period[210] Credit Ratings and Market Position - Moody's upgraded the company's rating to Baa1 in September 2022, and S&P Global Ratings upgraded it to BBB+ in January 2023[77]