W. P. Carey(WPC) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AFFO for Q1 2024 totaled $1.14 per share, reflecting a decline from prior periods primarily due to the office exit strategy and a 3-month rent abatement under the Hellweg lease restructuring, impacting AFFO by about$ 0.03 per share [24][25] - The company ended Q1 with liquidity totaling approximately $2.8 billion, including$ 1.7 billion of availability under the revolver and close to $800 million in cash [32][34] - The weighted average interest rate remained at 3.2% for Q1 and is expected to average in the low to mid-3% range for the rest of 2024 [33] Business Line Data and Key Metrics Changes - Year-to-date investments totaled$ 375 million, with $280 million closed in Q1 and a$ 94 million acquisition completed in early April [5][10] - Sale leasebacks comprised the largest portion of investments year-to-date, with 99.6% of ABR generated by leases with built-in rent growth, currently just over 3% on a contractual same-store basis [7][8] - The company completed 72 property dispositions under the Office Sale Program for gross proceeds totaling $411 million, leaving just 7 office assets remaining [25][26] Market Data and Key Metrics Changes - Approximately 70% of the investment volume year-to-date has been in Europe, where bid-ask spreads have narrowed significantly, creating more opportunities compared to the previous year [6][10] - The company expects to target initial cap rates averaging in the mid-7s and average yields over the life of the leases in the 9s for the full year [10][61] Company Strategy and Development Direction - The company is nearing the completion of its strategy to exit office assets, which is expected to set a new baseline AFFO for future growth without the headwinds from deteriorating office fundamentals [15][22] - The company aims to generate full-year AFFO in line with the midpoint of its guidance range, with a robust pipeline of over$ 500 million in investments [10][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the rent growth built into the portfolio, positioning the company for long-term growth [22][38] - The company anticipates a significant uptick in year-over-year growth in 2025, driven by the deployment of capital and the strength of rent escalations [23][37] Other Important Information - The company has enrolled more than half of its portfolio in an electricity usage reporting program as part of its sustainability efforts [35][36] - The company continues to monitor its top tenants closely, with 85% of ABR coming from tenants generating over $500 million in annual revenue or government entities [18][19] Q&A Session All Questions and Answers Question: Capital market strategy and refinancing plans - Management indicated that they are considering refinancing upcoming maturities and have seen positive movement in rates in Europe, which presents interesting opportunities [39] Question: Competitive landscape for capital in deals - Management noted that the private bid remains thinned out, with cash buyers being valued more highly, giving the company a competitive advantage [40][41] Question: Clarification on Hearthside's status - Hearthside is on the watch list due to potential restructuring, but management expects no disruption in rents as they are current on payments [43][44] Question: Comprehensive revenue growth expectations - Management expects comprehensive same-store growth to be relatively flat for the year, with no major credit disruptions anticipated beyond 2024 [49][50] Question: Insights on tenant financials and credit quality - Management confirmed that overall credit quality remains consistent, with about 5% of ABR on the watch list, primarily due to the addition of Hearthside [72][73] Question: Lease renewal process and timing - The company takes a proactive approach to lease renewals, typically starting discussions around three years in advance of lease expiration [66][67]