W. P. Carey Is Just Getting Started

seekingalpha09-12

June this year, I wrote a bullish piece on WPC arguing that the market was not valuing the stock properly.The largest disconnect was that the market assigned a multiple to WPC that is similar or even ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2466859200?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/155141923/image_155141923.jpg","is_english":true,"pubTime":"2024-09-12 23:16","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2466859200","market":"us","top_or_hot":-1,"title":"W. P. Carey Is Just Getting Started","media":"seekingalpha","content":"<div>\n<p>June this year, I wrote a bullish piece on WPC arguing that the market was not valuing the stock properly.The largest disconnect was that the market assigned a multiple to WPC that is similar or even ...</p>\n\n<a href=\"https://seekingalpha.com/article/4720722-w-p-carey-stock-just-getting-started\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>W. P. Carey Is Just Getting Started</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nW. P. Carey Is Just Getting Started\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-12 23:16 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4720722-w-p-carey-stock-just-getting-started><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>June this year, I wrote a bullish piece on WPC arguing that the market was not valuing the stock properly.The largest disconnect was that the market assigned a multiple to WPC that is similar or even ...</p>\n\n<a href=\"https://seekingalpha.com/article/4720722-w-p-carey-stock-just-getting-started\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4160","symbol_name":"多样化房地产投资信托v","start_time":0,"source_url":"https://seekingalpha.com/article/4720722-w-p-carey-stock-just-getting-started","article_id":"2466859200","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/155141923/image_155141923.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2466859200","pubTimestamp":1726154171,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"June this year, I wrote a bullish piece on WPC arguing that the market was not valuing the stock properly.The largest disconnect was that the market assigned a multiple to WPC that is similar or even ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4160":"多样化房地产投资信托v","BK4224":"工业房地产信托","BK4231":"零售房地产信托","BK4080":"零售业房地产投资信托","CFA.SI":"NikkoAM-STC Asia REIT","BK4585":"ETF&股票定投概念","BK4588":"碎股","STAG":"STAG Industrial","BK4171":"工业房地产投资信托","O":"Realty Income Corp","WPC":"W. P. Carey Inc"},"translate_title":"W.P.Carey才刚刚开始","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"O":1,"STAG":1,"WPC":1,"CFA.SI":0.9},"content_text":"June this year, I wrote a bullish piece on WPC arguing that the market was not valuing the stock properly.The largest disconnect was that the market assigned a multiple to WPC that is similar or even below that of retail property based REITs.Looking at the recent earnings data, I see that the opportunity for investors has actually become even more attractive, despite ~11% increase in the share price.In this article I elaborate in detail why I have remained extremely bullish on WPC.   JamesBrey Back in June this year, I wrote a fairly bullish piece on W. P. Carey Inc. (NYSE:WPC) titled - W. P. Carey: The Market Is Fundamentally And Temporarily Wrong Here. As it could be already implied from the title, the outlined investment case was predicated on WPC having stronger fundamentals than what the market had priced. The issue or rather opportunity for investors was that WPC being priced at P/FFO of 12.2x traded well below the net lease retail REIT sector average of 13.5x and somewhat in line with the diversified REIT sector average. This was (and to a large extent still is) clearly wrong as the bulk of WPC AFFO generation stems from industrial and warehouse properties, which are per definition subject to lower cap rates (i.e., higher multiples) than pure play retail or typical properties that are owned by diversified REIT sector players carrying a mixture of office, retail, industrial and even lodging. On top of this, the presence of investment grade balance sheet, robust cash generation that is underpinned by well-laddered lease expiration profile and conservative AFFO payout ratio (which is supportive for growth) made the case even more attractive. Since the publication of my previous article, WPC has delivered solid total returns, where as we can conclude from the chart below, most of the gains stemmed from price appreciation component. Ycharts However, because of the continued earnings growth and positive outlook ahead, the FWD P/FFO multiple still stands at an attractive level of 13.1x. For example, it is much lower than for some of my favorite REITs, which I own such as Realty Income (NYSE:O) and STAG Industrial (NYSE:STAG) that current trade at FWD P/FFO of 14.9x and 16.5x, respectively. Granted, it is not apples to apples comparison as WPC is neither pure play retail (Realty Income) or industrial (STAG Industrial) player, but it still provides a nice context of WPC being undervalued. In theory (or at least in my opinion), WPC should trade somewhere in the middle between O and STAG as it has a heavy bias towards industrial / warehouse property segment. Having said that, let me now explain why the recent returns are nowhere near of indicating that the future price appreciation potential is exhausted. Instead, I would even argue that based on Q2, 2024 data (including recent interest rate dynamics), the investment case has improved. Thesis review In Q2, 2024 WPC delivered AFFO per share of $1.17, which marks an increase of $0.03 per share compared to the prior quarter. One of the key drivers behind this movement was the organic same store rent growth, which landed at 2.9%. Here the embedded rent escalators have played the most important role by helping WPC capture higher top-line figures. Another element, which supported growth in the top-line was positive rent recapture of 116% adding 6.5 years of incremental weighted average leases with 50 basis points of incremental ABR. Plus, the occupancy reached almost perfect levels, ending the quarter at 98.8%. If we, however, compared Q2, 2024 AFFO result to that of Q2, 2023, we would arrive at a slight decrease. Yet, we have to contextualize this with WPC's active asset recycling strategy from which the total property base has materially shrunk as most of the office buildings are now fully divested. This clearly reduces WPC's top-line generation and introduces a headwind on the AFFO, while the received proceeds are not deployed in other yield-producing assets. With that being said, the most important takeaway here is that the active asset recycling process has almost finished and as Q2, 2024 results already indicate, WPC should be able now to register positive quarter to quarter growth.  Speaking of the growth, the Q2 data points confirm that WPC is really seeking to take the advantage of its liquidity by acquiring new assets with a focus on increasing its exposure to industrial and warehouse property segment. On a YTD basis WPC has completed investments of $641 million at an initial weighted average cash cap rate of 7.7%, which is sufficient to capture positive spread from its cost of capital. Most of these acquisitions have been tilted towards warehouse and industrial properties with very attractive rent escalator clauses attached. For example, circa 60% of the investment volume was tied to CPI linked clauses with an average cap of ~ 4.5%. Such escalators could be easaly deemed as one of the most attractive ones in the entire REIT space (i.e., the most comment rent escalator clause is based on fixed rate at max 1.9 - 2.3%). The commentary in the recent earnings call by by Jason Fox - Chief Executive Officer - provides also a somewhat encouraging color that going forward we could see an increased M&A activity by WPC that should boost the AFFO generation even further: As I noted earlier, on margin, some sellers are looking for greater visibility on rate cuts before moving forward with sale leasebacks. If the Fed lowers rates during the third quarter, it will likely spur them to act, adding to what is traditionally a strong fourth quarter and there is also some evidence that there has been a recent increase in brokers conducting BOVs or broker opinions of value, which we find is typically a leading indicator for deals coming to market.  Now, if we look at the balance sheet, we will notice some favorable activity as well. In my previous article on WPC, I identified 2024 debt maturity as a potential risk for WPC to face an increased cost of financing expense since the outstanding borrowing was attracted at fixed rate, which was clearly below the market level pricing rate. However, just as I also predicted (which was actually largely pre-communicated by the Management), WPC during this quarter almost fully retired this 2024 borrowing through the use of it available liquidity. As a result of this, WPC has now only $61 million of debt outstanding for 2024 followed by $700 million in 2025 at a blended average interest rate of 4.2%, which is already closer to the current market financing level. From the 2024 financing activity, where WPC issued $1.1 billion in unsecured notes consisting of €650 million of eurobond with a coupon rate of 4.25% and $400 million of U.S. dollar bonds at a 5.375% coupon, the message is clear - the forthcoming debt rollovers should not put too much of a pressure on the future AFFO generation levels as the spreads are not that material. Plus, if we factor in the expected interest rate declines and the incremental M&A steps from WPC, the AFFO growth seems very likely. Key risks As described above, the main risk I was concerned about in my previous piece was the refinancing risk and the consequences on the increased cost of financing for WPC that would potentially push down the future AFFO results. Yet, the fact that WPC has managed to attract fresh financing at relatively tiny spread to the 2024 and, importantly, 2025 cost of debt levels, it is clear that on a go forward basis WPC will be able to grow its AFFO generation. Furthermore, given the current interest rate dynamics, it is very likely that when 2025 debt maturities kick in, the SOFR will already be lower by 25 – 100 basis points, which will provide an additional boost for WPC’s positive spread capture. Apart from the refinancing risk I do not see any major negatives for WPC, as the underlying business is based on a fortress balance sheet, well-laddered lease maturity profile and property segment, which is subject to secular tailwinds. The bottom line In a nutshell, the Q2, 2024 results have sent several important messages. The most important signal is that WPC should register a continued AFFO growth as the asset recycling program has been almost fully completed and the retained AFFO proceeds together with the obtained liquidity from divestitures are put at work at enticing cap rates. The second critical nuance to consider is that the refinancing risk has been neutralized, leaving very minor risk of actually depressing the future AFFO levels. The forthcoming interest rate cuts in combination with periodic rent escalators and additional properties from the M&A should driver positive AFFO per share growth. Finally, while the earnings prospects are there and the balance sheet with the debt maturity profile looks robust, the P/FFO multiple is still materially below sector average, especially considering WPC's active strategy (and already notable presence) in higher multiple industrial and warehouse segment.  As a result of this, I am maintaining a strong buy rating on W. P. Carey Inc.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.1","shortVersion":"4.28.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2466859200"}