W.P. Carey, Inc. Q4 FY2024 earnings call

2024 was a pivotal year for W. P. Carey, with the successful exit from the office sector and strong Q4 investment volume. The company expects AFFO growth in the mid-three percent range for 2025, supporting a total return of around 10% and a dividend yield over 6%. Key investment activity in Q4 included record quarterly investment volume. The company has access to efficient debt capital, with a mix of US dollar and euro-denominated debt. There are various equity sources available, including self-storage and non-core assets. The deal environment is uncertain due to factors like interest rates, inflation, and new administration impact, but the pipeline has over $300 million of identified transactions. Tenant credit updates: True Value resolved, Do It Best current on rent; Helvig's situation is stable with proactive steps; Elvig's on track to emerge from bankruptcy early 2025.

In the fourth quarter, W. P. Carey generated AFFO per share of $1.21, with full year AFFO reaching $4.70 per share. Fourth quarter investment volume totaled over $840 million, bringing full year investment volume to approximately $1.6 billion. Average initial cash cap rates in the fourth quarter were in the mid to low sevens, with a full year average of 7.5%. Approximately three-quarters of investment volume was in North America (vast majority US) and one quarter in Europe. Sixty percent of investments were in warehouse and industrial, with a meaningful portion in US retail. Dispositions in the fourth quarter were $119 million from 5 properties, with full year dispositions at $1.2 billion. Contractual same-store rent growth for the fourth quarter was 2.6% year over year, expected to be in the mid-two percent range in Q1 2025 and moderate to low to mid-twos for the full year. Comprehensive same-store rent growth for the fourth quarter was 2.5% year over year.

For 2025, AFFO is guided to be between $4.82 and $4.92 per share, implying ~3.6% growth at the midpoint. Investment volume is expected to be between $1 billion and $1.5 billion. Dispositions are targeted to be between $500 million and $1 billion, with the majority being non-core asset sales. DNA is expected to be between $100 to $103 million, non-reimbursed property expenses between $49 and $53 million, and tax expense between $39 and $43 million. The balance sheet in 2024 saw debt raised ~$1.7 billion at a 4.3% weighted average coupon, with 2025 debt expected to remain at or below a 3.2% average. Liquidity was ~$2.6 billion at the end of 2024, with a manageable debt maturity profile.

Uncertainties around interest rates, inflation, and the impact of the new administration. Competition from the private side picking up. Tenant credit risks, including Helvig's situation and others, though proactive steps are in place. Tariffs and broader economic impacts on the portfolio.

Q: Tariffs impact on portfolio and new investments?

A: Tariffs add uncertainty, but the portfolio is diversified. The company will continue rigorous underwriting for new investments.

Q: Joanne's and Advanced Auto Parts updates?

A: Joanne's has one warehouse, ~20bps of ABR with conservative modeling; Advanced Auto has 28 facilities, no near-term impact with flexibility to work on closed warehouses.

Q: Same-store growth deceleration?

A: First quarter expected to be the highest, then decline to low twos, factoring in inflation.

Q: Capital allocation to Europe?

A: Europe offers wider spreads, with the ability to borrow 150bps cheaper in euros, and diligent underwriting for incremental risks.

Q: Non-core bucket composition?

A: Bulk is self-storage, with some student housing and an operating hotel also likely to be sold.

Q: Cap rates on dispositions and pipeline cadence?

A: Dispositions cap rates are mid to low 6s, pipeline has over $300 million, likely back half-weighted.

Q: Mexico and Canada investments?

A: Deals in Mexico and Canada have US dollar-denominated leases, good credit, and are monitored with long-term concerns being minimal.

Q: Lease expirations 2025?

A: 1.8% of leases expiring, majority in warehouse and industrial, manageable.

Q: Euro debt and LTV?

A: Euro debt is attractive, with LTV in the 70-80% range, and flexibility to borrow more.

Q: Retail expansion complementarity?

A: Retail is complementary to industrial, expanding the opportunity set without replacing industrial focus.

Q: Data centers and car washes?

A: Data center deal done, car wash exposure small but Tidal Wave is a best-in-class operator.

Q: Competition impact on guidance?

A: Competition from the private side is factored into the conservative guidance.

Q: Helvig rent restructuring?

A: Expect no rent disruption, with Helvig on track to emerge from bankruptcy early 2025.

Q: Storage assets marketing and buyer pool?

A: Storage assets are in premarketing, with a flexible approach and buyer pool to be determined.

Q: Sale leasebacks and car wash industry?

A: Sale leasebacks remain important, with car wash exposure small but Tidal Wave being a good operator.