Despite Disappointing Q2, WPC Remains Safe

 

As usual, we keep our eyes open for the most potentially profitable REITs. W.P. Carey fell on our radar. Let’s take a quick look at what we discovered.

  1. Despite having poor Q2 results, W. P. Carey (WPC) appears to be solid choice amid several overvalued REITs.
  2. The stock has performed better than Vanguard REIT ETF and is in sync with the FTSE NAREIT All Equity REITs.
  3. The portfolio is geared towards traditional REIT sectors (self-storage, industrial, retail, and office).
  4. The company continues to move forward with their full year guidance.
  5. This diverse portfolio has overseas ties.

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Unlike June and July, when REITs were performing well, the month of August has not been that kind to REITs. More popular sectors such as self-storage, net lease retail, and data centers have begun to fall off. Yet, it has been difficult to spot good buying opportunities. This has encouraged us to showcase a fairly valued stock that may be a good choice for a REIT.

W.P. Carey (WPC) has generated an 18% return at this point. This is better than the more popular Vanguard REIT ETF (VNQ). Also, Vanguard’s dividend yield was 3.2%, while the dividend yield for W.P. Carey was 5.6%. The stocks we monitor from the FTSE NAREIT All Equity REITs have returned on average 18%.

It is clear that WPC is not as diversified as those indices (which totals more than 150 stocks), but it is important to point out that they are diversified. The REIT has split its investments in conventional sectors such as office, retail, self-storage, and industrial. U-Haul is one of their top customers and their lease terms can go as far as twenty-five years.

This portfolio has a two-thirds stake in domestic investments (spread evenly across U.S. regions) and a third in international. They have a small stake in the United Kingdom so Brexit should not be a big deal for the REIT. The management does not believe the currency fluctuations will have an impact on the company’s success. Most of the company’s earnings come from owned properties, but they also manage REITs for other entities.

During the anticipated release of their Q2 results this month, the firm revealed that their AFFO per share dropped 5% year over year. They indicated that the managed REIT segment generated a smaller amount of investment and debt placement transactions, reducing structuring revenues. Despite this drop in activity, their owned REIT segment performance continues to stay strong. They also revealed that their full year AFFO guidance is at an acceptable midpoint of $5.10 per share. This gives us a multiple of 14 times AFFO, which is on pace with the REIT’s historic multiple.

Despite its recent disappointing results, WPC remains a safe choice.

Source: W. P. Carey Inc.(NYSE:WPC)

Written on 11 Aug 2016

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author is long FCH, XHR, CLDT, and PEB.

 

Oh W.P. Carey,There’s a Wild World Out There

chart04The torchbearer of separating W. P. Carey into more focused entities, left the company abruptly last week, leaving us with questions about what’s going to be announced in the fourth quarter results next Thursday, Feb. 25. WPC’s CEO, Trevor Bond, stepped down to pursue other interests, according to the company. The stock dropped by 7%, but it has shown signs of recovery.

In the third quarter results, W. P. Carey tested out the possibility of separation of its entities. The separation was given a great amount of attention in the report and even the disclaimer referred to the potential separation. It sounded like the company had already made its decision; it was just testing the waters before sailing ahead

chart03W.P. Carey has a dual structure; besides being an REIT, it also has an investment management branch that oversees publicly-owned, non-listed REITs under the brand, Corporate Property Associates, or CPA®. A rough split of assets under management between REITs and the CPAs is half-and-half. The total AUM is $22 billion.

The company has not mentioned how the split would take place; however, REIT peers that have been both REIT and advisor to other funds have split the REIT from the management–external management is on one side and assets are on the other. They’ve also come up with long-term management agreements with strict clauses, tying management to the assets. Recent examples have been NorthStar Realty and Ashford Prime.

Nevertheless, these two companies have not had successful separations. Both NorthStar and Ashford Prime saw their share price plummet and occupy the bottom position of the stock performance last month.

We all know it is a wild, wild world out there. As if that’s not enough, besides the drop, they’ve been the subject of activist attacks who are looking to close the gap between their NAV and the discounted share price.

Mr. Bond was very positive about the separation during the third quarter conference call. This is what he said during the call:

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Former CEO

“We believe that separation would provide for a more focused and simplified structures that would be easier for investors to understand. We think that aligning each platform with sector specific shareholders is desirable and that we could achieve a cost of capital most appropriate to each entity by this alignment. We think that would allow us to allocate capital in a more focused way. We think this this idea allows for better alignment of currency exposure, each of the platforms are different investors.

Most importantly, I think we feel that this could potentially allow us to pursue individual growth and business opportunities for each of the separate entities. For instance, our investment management arm would have a greater ability to grow unconstrained by REIT status. We can also pursue individual inorganic growth strategy, strategic opportunities having a public currency that we could use for that.

So, I think the bottom line here is that this creates even stronger business that can pursue better growth opportunities as separate entities and create long-term value, and we look forward to posting you more in the future as that unfolds.”

If I were on the board right now, I would not pursue the split–very bad timing. Besides the NorthStar and Ashford bad examples, the market has been very volatile and big changes in this environment can go south quickly. The market can either say ‘we’re glad you did it’ or ‘what a bad idea, let’s sell off’.

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The new CEO

Despite the dual nature and having become an REIT in 2012, W. P. Carey carries a good reputation in the market. It has been managing real estate for 40 years, its assets are net leased, and diversified. The portfolio is pretty much split among office, industrial, warehouse, and retail. Occupancy has reached 99%; it has been rated investment grade, and they have distributed dividends consistently since 1998.

With the share price drop, the dividend yield is now at 7.2% and the AFFO multiple has been around 11x. As for being diversified, it is more challenging to compare with its peers; but on the surface, it looks underpriced.

Source: Seeking Alpha,W. P. Carey Inc.(NYSE:WPC), Fast Graphs

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Is the self-storage sector moving toward consolidation? (Part 2/2)

Click here if you have not read part 1.

So, which companies have the potential to alter the self-storage landscape? Let’s look at the options.

National Storage Affiliates

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National Storage Affiliates is a REIT that was achieved by combining a variety of smaller companies to achieve better access to funding and lower corporate costs. As a result, the small companies received the benefits of larger companies, while retaining management of their original properties. It started with six affiliates (known as PROs) has become the sixth largest self-storage operator in the country. Their 2014 national ranking (with the exception of SecurCare) include: Northwest (16th), Optivest Properties (21st), Storage Solutions (29th), Move It (34th), Guardian Storage Centers (36th), and SecurCare (6th in 2013).

Today, National Storage anticipates adding more affiliates, which should act as an industry catalyzer.

Privately Owned Companies

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Two private companies, Simply Self Storage (founded in 2003 with headquarters in Orlando, FL) and StorageMart (founded by Gordon Durnam after selling his previous company, Storage Trust, to Public Storage in 1999) have the potential to alter industry dynamics. Currently, Simply Self Storage operate more than 160 facilities with over 12 million square feet of rentable space, while StorageMart operates 165 stores in Canada and the United States and has 11 million rentable square feet.

 

W.P. Carey

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Self-storage only accounts for 5% of W.P. Carey’s annualized base rent (ABR), yet they are still one of the top 10 self-storage operators in the US. With 3.5 million square feet of rentable space, they generate an ABR of $32 million. They have only one tenant, U-Haul Moving Partners and Mercury Partners, which makes them the second largest W.P. Carey tenant.

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Currently, W.P. Carey has an 88% interest in this venture and also operates industrial, office, retail, and warehouse space, which contribute greatly to their total revenue. Self-storage is a component of the company’s strategy to be diversified across different types of property.

U-Haul International

The shareholders of Amerco (U-Haul International’s parent company) decided not to pursue the conversion of its real estate assets into a REIT platform at their annual meeting in August 2015. As a result, it doesn’t appear that they will be repositioning the company in the short term.

 

Source: Public Storage (NYSE:PSA), Extra Space Storage, Inc. (NYSE:EXR), CubeSmart Common Shares (NYSE:CUBE), Sovran Self Storage Inc. (NYSE:SSS), National Storage Affiliates Trust (NYSE:NSA), Amerco (NASDAQ:UHAL), W.P. Carey, Inc. (NYSE:WPC).

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Is the self-storage sector moving toward consolidation? (Part 1/2)

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In the United States, there are more than 50,000 self-storage facilities and 30,000 operators that account for $24 billion in annual revenue. While around 11% of the industry’s total rentable square footage are self-storage REITs, the other 89% are privately owned and run by operators. Although these statistics indicate that there is significant potential for consolidation in this profitable industry, it remains to be seen whether or not this will actually take place.

In all honesty, it will take considerable effort to make any changes in the industry. Outside of the ten leading operators, there is no single operator with the power to make big changes in the industry’s landscape. Any that do attempt growth will have to do so a little bit at a time through development or the acquisition of smaller players.

chart02Currently, Public Storage, a $43 billion market cap company, is in the industry’s top spot as the largest company. In the United States and Europe, they operate 142 million net rentable square feet of real estate. No other company is anywhere near this. Public Storage has aggressively gobbled up private operators, but, in recent years, due to increasing acquisition competition, they have ramped up a development process. Even if the remaining REITs combine together, they would have no chance of overcoming Public Storage.

In second, Extra Space Storage has an $11 billion market cap with 87 million square feet of rentable space. In September 2015, Extra Space Storage closed on the acquisition of SmartStop Self Storage, which had been the 7th largest operator in the industry, for $1.4 billion USD.

Additional players in the self-storage sector include REITs CubeSmart, Sovran, and W.P. Carey (minority self-storage), as well as recently publicly traded REIT National Storage Affiliates, Amerco (the publicly traded company that operates U-Haul International), and two additional private operators, Simply Self Storage and StorageMart.

So, which companies have the potential to alter the self-storage landscape? Let’s look at the options tomorrow.

Source: Public Storage (NYSE:PSA), Extra Space Storage, Inc. (NYSE:EXR), CubeSmart Common Shares (NYSE:CUBE), Sovran Self Storage Inc. (NYSE:SSS), National Storage Affiliates Trust (NYSE:NSA), Amerco (NASDAQ:UHAL), W.P. Carey, Inc. (NYSE:WPC).

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Top Yield REITs – Net Lease (21 May 15)

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Below we have selected a group of real estate investment trusts (REITs) classified as net lease. The list has been ranked by dividend yield, from highest to lowest (#Div Yield).

  • Reference date: 21 May 2015
  • Price to FFO: Using Company’s FFO
  • 2015 AFFO per share growth percent change: 2015 (guidance) vs. 2014 AFFO per share percent change (In case of AFFO was lacking, we used Company FFO instead)

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# Div Yield Company Ticker Year to date share price change Div. Yield Group’s Median Div. Yield   Price to FFO Group’s Median Price-to-FFO   2015 AFFO per share growth
1 Select Income REIT SIR (3.2) 8.5 6.0 8.4 13.7 1.8
2 Lexington Realty Trust LXP (14.2) 7.2 6.0 9.1 13.7 (7.2)
3 EPR Properties EPR 2.2 6.2 6.0 14.3 13.7 6.3
4 Spirit Realty Capital, Inc. SRC (6.6) 6.1 6.0 13.9 13.7 3.7
5 W.P. Carey Inc. WPC (9.7) 6.0 6.0 13.0 13.7 1.7
6 Getty Realty Corp. GTY (6.5) 5.2 6.0 13.7 13.7 (2.8)
7 Realty Income Corporation O (1.5) 4.8 6.0 17.3 13.7 4.5
8 National Retail Properties, Inc. NNN (3.0) 4.4 6.0 17.7 13.7 4.5
9 American Realty Capital Properties, Inc. Class A ARCP 1.8 6.0 11.0 13.7 (2.2)

Notes from the author: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best choice for your portfolio. The purpose of this ranking is to shorten your stock analysis by enabling comparison of stock and sector performance. This is a snapshot of information available on 21 May 2015. Please perform your own due diligence before acting. The equity REITs are constituent companies of the FTSE NAREIT All REITs Index as of 30 April 2015.

Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​

W.P. Carey – A Future Pure Play REIT?

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Since 1979, the history of W.P. Carey (NYSE: WPC) has been very transformative. In an effort to gain scale and become one of the largest net lease players, the company has merged the multiple funds under management (Corporate Property Associates – CPA). However, W.P. Carey has maintained the investment management branch that is responsible for raising capital, making investments, managing assets, and, when necessary, liquidating assets.

Recently, W.P. Carey changed their focus from investment management to an ownership strategy and, in September 2012, converted the company into a REIT. Given the company’s history and strategy, this transformation begs the following question:

Will W.P. Carey continue merging with the CPAs and become a pure play REIT, or remain as an investment management firm breeding real estate portfolios for future ownership?

Due to the potential conflict of interest between the real estate ownership and investment management groups, W.P. Carey’s stock performance would benefit more as a pure play REIT. Please click here to read additional thoughts on this issue regarding another REIT security.

The following details some of W.P. Carey’s latest developments:

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  • In September 2012, the merger with CPA 15 added a portfolio of 305 diversified net lease assets. As a result of the merger, W. P. Carey had a total market capitalization of approximately $5.0 billion.
  • In January 2014, the merger with CPA 16 added a portfolio of 333 net-leased properties. As a result of the merger, W. P. Carey had a total market capitalization of approximately $9.6 billion.
  • On December 31, 2014, W.P. Carey had an enterprise value of approximately $11.1 billion and managed a series of publicly registered, non-traded REITs, CPAs 17 and 18, and Carey Watermark Investors, with assets under management of approximately $9.2 billion. The managed REITs generate 29 percent of the company’s revenues through structuring and negotiating investments, conducting debt placement transactions, and managing real estate investment portfolios.

W.P. Carey is quite diversified by industry. The company has 783 net-leased properties across numerous industries with the largest concentration in the Retail sector at 20 percent of the annualized base rent. Two self-storage properties and two hotels are also included in the portfolio. With a total net-leased square footage of 87.3 million, W.P. Carey boasts a 98.6% occupancy rate.

The company takes great pride in their international footprint with a strong presence in Europe. As of December 31, 2014, approximately 65% of their contractual minimum annualized base rent was generated by their US properties. The balance was generated by non-US properties primarily located in Western and Northern Europe. The US market has been very competitive with a due to an influx of foreign sovereign capital. This has resulted in a compression of cap rates mostly felt in the retail space. Europe has less competition resulting in no cap rate compression.

The Board of Directors announced W.P. Carey’s 56th consecutive quarterly dividend increase to $0.9525 per share.

Despite the potential conflict of interest, the balance of the analysis has been positive. W.P. Carey sports an attractive dividend yield of 5.8% and a price-to-FFO that is on par with its peers.

Before making a final assessment, other net lease peers of W.P. Carey will be examined in future posts.

Summary

 Metrics 2011 2012 2013 2014 2015P
Revenues – Total, in percent 26 14 39 85
Dividends declared per common share, $ 2.19 2.44 3.50 3.69 3.81
Q4 Dividend, $ 0.56 0.66 0.98 0.95 0.95
Dividend payout ratio, in percent 46 65 83 77 78
Dividend yield, in percent 5.3 4.7 5.7 5.3
FFO per share, $ 4.56 2.47 2.78 4.56
FFO per share (Q4 only), $ 0.68 0.65 0.84 0.99
AFFO per share, $ 4.71 3.76 4.22 4.81 4.89
Debt to total capitalization, in percent 26.4 35.4 33.2 34.4
Weighted average interest rate, in percent 5.0 4.8 4.1 4.2
Occupancy – Net leased, in percent 97 99 98 99
Share Price on 31 December, $ 40.94 52.15 61.35 70.10
P/FFO on 31 December 9.0 21.1 22.1 15.4
 2015P =2015 Projections

Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​