W. P. Carey: A Transformational Net Lease REIT That's Cheap For A Reason

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W. P. Carey has successfully pivoted from office properties to retail, boosting its competitiveness with other net lease REITs and diversifying its portfolio.Despite tenant credit issues, Carey ...

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Carey has successfully pivoted from office properties to retail, boosting its competitiveness with other net lease REITs and diversifying its portfolio.Despite tenant credit issues, Carey ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738555-wp-carey-transformational-net-lease-reit-cheap-for-reason\">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. 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P. Carey: A Transformational Net Lease REIT That's Cheap For A Reason\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-19 20:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738555-wp-carey-transformational-net-lease-reit-cheap-for-reason><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>W. P. Carey has successfully pivoted from office properties to retail, boosting its competitiveness with other net lease REITs and diversifying its portfolio.Despite tenant credit issues, Carey ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738555-wp-carey-transformational-net-lease-reit-cheap-for-reason\">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/4738555-wp-carey-transformational-net-lease-reit-cheap-for-reason","article_id":"2484948459","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/692025519/image_692025519.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484948459","pubTimestamp":1732017600,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"W. P. Carey has successfully pivoted from office properties to retail, boosting its competitiveness with other net lease REITs and diversifying its portfolio.Despite tenant credit issues, Carey mainta","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","WPC":"W. P. Carey Inc"},"translate_title":"W.P.Carey：转型净租赁房地产投资信托基金，其便宜是有原因的","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WPC":0.9},"content_text":"W. P. Carey has successfully pivoted from office properties to retail, boosting its competitiveness with other net lease REITs and diversifying its portfolio.Despite tenant credit issues, Carey maintains a strong balance sheet, with a 6.2% dividend yield and a 70% payout ratio.The company's European exposure and strategic debt issuance provide financial flexibility, enhancing its investment opportunities.I recommend a Buy for W. P. Carey, targeting a potential 20% annualized total return, driven by its retail pivot and solid financial management.   Monty Rakusen  The Net Lease sector has evolved considerably since I was a commercial real estate developer. My first ground up project was an Advance Auto Parts (AAP) store in Union, SC and over the next decade I built for dozens of companies such as Dollar General (DG), Dollar Tree (DLTR), Sherwin-Williams (SHW), Goodyear Tire (GT), PetSmart, Walmart (WMT), and many others. There were just a handful of net lease REITs back then. Namely, Realty Income (O), NNN REIT (NNN), and Agree Realty (ADC). There was also an MLP (Master Limited Partnership) known as W. P. Carey (NYSE:WPC) which converted to a REIT in 2012. Carey was legendary for its roots, a sale-leaseback pioneer, as I explained in an article back in 2012. “As a pioneer in the sale/leaseback industry, W. P. Carey was one of the first companies to focus exclusively on financing sale/leaseback opportunities and to provide companies with capital to invest in growth or balance sheet efficiencies.” Over the decades, Carey has evolved into a “pure play” net lease landlord that is now one of the largest Net Lease REITs with a market capitalization of around $12 billion. In June 2024, I wrote an article explaining Carey’s “decision to pivot and remove the troubled office property sector from its balance sheet” and since that time the New York-based REIT has successfully transformed from an Industrial/Warehouse (64%) and Retail (22%) landlord. The company has a few remaining office assets along with self-storage, lab space hotels, and R&D. The company continues to boost its retail exposure, as CEO Jason Fox explains, “U.S. retail, it's clearly one of the biggest pieces of the net lease market, and we believe that we can drive incremental deal volume in that area with investments that fit our return profile and underwriting requirements.” He adds, “Adding more retail to our portfolio will help us further diversify and importantly, increase the pool of investment opportunities available to us. We have the advantage of currently not having a particularly large exposure to U.S. retail tenants or concepts, and we're noticing that retailers and developers are increasingly looking to expand their buyer pool in an effort to diversify away from current landlords, something we're well-placed to take advantage of.” This means that Carey will be more competitive with REITs like Realty Income, Agree Realty, NETSTREIT (NTST), and Essential Properties (EPRT). Carey’s net lease portfolio consists of 1,430 properties (346 tenants) that generate around $1.33 billion in annual rent. Similar to Realty Income, Carey operates a global platform:  North America (64%) Europe (36%) Other (1%)    WPC Investor Presentation Carey has been investing internationally for over 25 years and through financing and hedging strategies the company has significantly mitigated currency risk through a combination of over-weighting debt in foreign currencies and utilizing contractual cash flow hedges. As shown below, Carey has diversified industry exposure with a tilt towards retail (23% exposure):   WPC Investor Presentation The Credit Watchlist Carey has three top 25 tenants on the watch list: Hellweg, Hearthside, and True Value, which in aggregate account for 4.7% of ABR.   WPC Investor Presentation  WPC Investor Presentation As Carey pointed out on the recent earnings call, “Hellweg remains current on rent as it executes its turnaround plan, although it still faces a challenging demand environment.” Hellweg is Carey's #4 tenant with 35 locations that generate $26 billion in ABR. Carey pointed out, “should there be additional weakness in its business in 2025, we're confident that our stores have good underlying demand.” Hearthside is Carey's 17th largest customer representing 1.3% of ABR, and as Carey’s management pointed out, “we continue to expect no rent disruption, even in the event of a restructuring, although we continue to closely monitor the situation.” True Value recently filed for Chapter 11 bankruptcy and is also Carey’s 15th largest tenant, accounting for 1.3% of ABR. As Carey management pointed out, “True Value remains current on rent, having paid substantially all rent owed through the end of the year. We, therefore, don't expect any meaningful impact on our fourth quarter or full-year AFFO for 2024.” The Balance Sheet During the first half of 2024, Carey refinanced just over $1 billion of maturing bonds, and as of Q3-24, the company has total liquidity of approximately $2.6 billion. Leverage metrics (in Q3-24): debt to gross assets of 41.1% (within the target range of low to mid-40s) and net debt to EBITDA of 5.4x, which remained below the low end of the target range of mid to high 5x.   WPC Investor Presentation Carey’s debt maturity profile remains very manageable, with no bonds maturing in 2024 and one $450 million U.S. bond due in 2025. The company has no material mortgage debt due in the fourth quarter of this year and about $240 million due in 2025.   WPC Investor Presentation  iREIT® HOYA Latest Earnings & Forecast In Q3-24, Carey generated AFFO of $1.18 per share, with a $.01 increase over Q2-24. The company is on track to fall within the full-year AFFO guidance range of $4.65 and $4.71.   iREIT® HOYA The company also affirmed acquisition volume of $1.25 billion to $1.75 billion for 2024. Management said, “We continue to see deals averaging in the mid 7s compared to earlier in the year when we were generally seeing deals averaging in the high 7s. Year-to-date, our closed investments reflect a 7.6% weighted average going-in cap rate and an average yield above 9% when factoring in our rent bumps, although we continue to evaluate deals across a range of cap rates given our diversified approach.”   FAST Graphs As seen above, $4/68 per share at the midpoint represents -10% growth in 2024 and analysts are estimating consensus growth of 3% in 2025 and 2% in 2026. 2025 AFFO Estimates  W. P. Carey +3% Realty Income +3% Agree Realty +5% Essential Properties +9% Getty Realty (GTY) +3% VICI Properties (VICI) +3%    iREIT® HOYA How To Play It I like the fact that Carey can opportunistically benefit from its European exposure by issuing favorably priced debt. The management team has proven that it can maintain a healthy balance sheet in any market cycle. That being said, Carey’s tenant credit issues have come to light during 2024 that has created rent collection uncertainty, which is part of the reason shares are now trading at a discount to the closest peers.   iREIT® HOYA Carey’s dividend yield is 6.2% with a payout ratio of 70%:   iREIT® HOYA I find it interesting that Carey is pivoting into retail, especially since the company has previously steered clear of retail exposure in North America. Perhaps this will open up the M&A spigot for the company to pounce on another REIT like NETSTREIT or Alpine Net Lease (PINE). As I’ve said many times here on Seeking Alpha, I expect to see more consolidation in the net lease sector and I could see REITs like Getty Realty (GTY) or Four Corners (FCPT) becoming targets as well. But M&A is not a catalyst for recommendations… While I was not a fan of the dividend cut or more specifically the poorly communicated messaging (regarding the dividend cut), I’m happy to see the pivot away from office into retail. We’re recommending a Buy with a projected annualized total return target of 20%.   FAST Graphs  Author's note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. 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