Q4 2019 Earnings Call
Hello, and welcome to W.P. Carey fourth quarter 2019 earnings Conference call. My name is Jesse and I will be your operator today.
All lines of the placed on mute to prevent any background noise. Please note today's event is being recorded.
Today's prepared remarks, we will be taking questions via the phone line instructions on how to do so we'll be given at the appropriate time.
Well now turn to today's program over to Peter Sands Director of institutional Investor Relations Mr. Sam. Please go ahead.
Good morning, everyone. Thank you for joining us today brought 2019 fourth quarter earnings call.
We have again I would like to remind everyone. Some of the statements made on the school I noticed stark facts and may be deemed forward looking statements factors that could cause actual results to differ materially W.P. Carey's expectations are provided in our 60 colleagues.
An online replay of this conference call will be made available in the Investor Relations section of our website W.P. Carey Dot com.
I will be archived for approximately one year and where you can also find copies of our investor presentations.
And with that I'll hand, the call over to our Chief Executive Officer textbooks.
Peter and good morning, everyone.
Today I'll start by briefly reviewing some of the highlights of 29 cheap before focusing my remarks on a selection by recent investments in the context of the market environment.
Tony Sanchez, our CFO will calibrate our 2019 results are 2020 guidance and our balance sheet positioning, including the further flexibility we've gained with renewal and upsizing of our credit facility.
We're joined by our President John Park, or head of asset management, Brooks, Gordon where available to take questions.
During 2019, we executed on a variety of important initiatives.
Coming to the year, we were focused on fortifying the benefits associated with our merger with SCPA 17.
While taking advantage of opportunities to further enhance our portfolio and balance sheet and continuing to replace investment management fees with higher quality lease revenue.
On the portfolio front, our weighted average lease term continue to increase while enhancing the quality of our portfolio, including lowering tenant concentration reducing office assets and converting a large operating self storage portfolio to net lease with investment grade rated extra space at the tenant.
Okay.
For our merger in a regular investment activity, we increased real estate assets AFFO per share like 8% year over year, which we feel particularly good about in the context of simultaneously, reducing leverage and eliminating earnings from investment management.
Our balance sheet is stronger than ever and the quality of our earnings EBITDA and dividend coverage all significantly improved in 29 team with investment management, representing just 5% of total either so the percentage that we'll continue to decline that's remaining funds roll off.
In the capital markets, we accessed a variety of channels raising your record amount of capital either public markets, we prepaid over $1 billion of mortgage debt and achieved the lowest coupons and spreads in our history in both the U.S. and euro bond markets, while reducing secured leverage below 10%.
As result of our strong execution on multiple fronts, we generated a total shareholder return of 29% were placed on positive outlook by S&P.
Most importantly, we believe our efforts will benefit shareholders not just in 29 team, but over the long run as we complete the wind down of our investment management business focused on delivering consistent and steady performance from our real estate portfolio.
Turning to the fourth quarter.
From an investment standpoint, it wasn't especially after the quarter completing close to half of our 2019 investment volume primarily into warehouse and industrial properties at attractive spreads to our cost of capital and that will mention has continued into the new year.
The market environment in the fourth quarter was again defined by the competitive conditions that prevailed throughout 2019 underpinned by low interest rates.
In Europe, very low rates continued to spur capital flows into the region with increasing amounts of money chasing widely marketed deals.
Progress with Brexit health renewed interest in UK assets and the Nordic commercial real estate market had a record year for deal flow.
In the U.S. industrial and logistics continued to be the most sought after property types amid continued economic growth supported by low unemployment low inflation and the low cost of credit.
Throughout 2019, we continue to view sale leasebacks, an off market acquisitions, as well build to suits and other capital projects at the best ways to put capital to work on a risk adjusted basis.
Well, the warehouse and industrial sectors presented the best opportunities in 2019, comprising close to 80% of our full year investment volume, we maintained our diversified approach completing investments totaling $868 million that span all major property types across 55 properties not least to 29 tenants operate.
Leading in 14 different industries, located primarily in the U.S. and northern and Western Europe.
During the year, we also creatively converted the bulk of our operating self storage assets to net lease, adding further diversity to our net lease portfolio as well as a potential source of future net lease opportunities as operators look to take an asset light approach.
In 2019, we actively use our improved cost to capital to extend our investments into higher quality industrial and logistics assets. The trade at lower cap rates. However, this did not displace are ongoing focus on the broader opportunity set of net lease assets that we've traditionally invested in namely operationally critical properties.
That leads to growing companies that said just below investment grade, thereby providing additional spread and compelling risk adjusted returns over long leases.
In aggregate, our 2019 investments were executed at an initial weighted average cap rate of 6.7% and had a weighted average lease term of 19 years.
As anticipated our 2019 investment activity is backend weighted within especially active fourth quarter during which we completed $412 million investments at a weighted average initial cap rate of 6.3% in a weighted average lease term of 20 years.
This included the completion of three capital investment projects totaling $44 million, bringing the full year total for completed projects to $127 million, which represented about 15% of our total 2019 investment volume.
These are truly off market transactions, enabling us to negotiate better terms compared to widely marketed deals and create value to their lease structure itself.
Such transactions not only provide a ready source of incremental deal flow given the size and breadth of our portfolio. They also at high quality real estate at cost.
Let's go through a handful the more notable deals from the quarter.
Our largest investment during the fourth quarter with the $94 million sale leaseback of logistics facility net leased the Stanley Black <unk> Decker the widely known manufacturer of hand in power tools, which has an a rating from S&P.
The facility is located in the greater Charlotte area in close proximity to keep transportation routes and as the tenant second largest distribution center in the U.S. Triple net lease with fixed annual rent increases and has below market rent that provides potential upside at the end of the 12 your term.
In December we completed the $56 million acquisition of an experienced retail store net leased to bass Pro group, a leading provider of outdoor sporting goods in the U.S. in Canada.
This is a true destination retail location that's been in operation for more than 17 years, It's triple net leased on a 24 year term CPI based rent growth.
We remain selective in our approach the retail sector continued to focus on top performing locations with strong coverage, where the tenant has a differentiated strategy shielding it from E Commerce competition.
Earlier in the quarter, we closed a 53 million dollar cross border sale lease back for three industrial facilities net leased the apex tool group, which is one of the largest producers of high performance tools to the facilities are located in the U.S. and one in Mexico, all of which are critical to the company's global operating footprint.
The properties our lease on a triple net basis in us dollars for a period of 25 years with fixed annual rent escalations.
The last one I'll mention is the $38 million sale leaseback be close in November for two logistics facilities in Denmark, and Sweden net leased to start group, which is the largest supplier building and construction projects products in the Nordic region.
Both assets are strategically located with easy access to major highways and shipping routes. They are triple net leased for a 20 year term with annual Cpis base rent Escalations.
Our 2900 investments in conjunction with our proactive approach to asset management also improved the quality of our portfolio across many key metrics HDR generated from warehouse in industrial properties increased to 45% of FBR, while Hbr from office was reduced to 22% compared to 25% a year ago.
We increased the proportion of FBR generated by investment grade tenants to 30% and further reduced our top 10 tenant concentration to 22%, which remains one of the lowest in the net lease peer group.
We also extended the portfolios weighted average lease term to 10.7 years, which is six months longer than it was a year earlier, despite the passage of time and edged closer to full occupancy ending the year, 98.8% occupied.
Looking ahead, we expect market environment to remain competitive in 2020 central banks, both in the U.S. and Europe signaling their intentions to keep rates low Brexit has made some meaningful progress in fears of a trade with China have eased somewhat however, the impact of the Corona virus and global growth and supply chains has become an unknown.
Over the long term, we believe the market opportunity for net lease remains bass, our diversified approach enables us to invest across property types in on two continents and our cost of capital allows us to do so incredibly supported by established access to capital markets and are well positioned balance sheet with ample liquidity to execute.
On our investment pipeline.
As I mentioned the transaction momentum we saw in the fourth quarter has extended into 2020.
Year to date, we've added $206 million of investments comprising two closed acquisitions totaling $139 million and three completed capital projects totaling $67 million. We also have an additional six projects totaling $176 million scheduled for completion by the end of this year. So we currently a good bit.
Stability into about $380 million of investment volume for 2020, and a healthy pipeline of additional new investments an excellent excellent position to be and this early in the year and with that I'll hand, the call over to Tony.
Good morning, everyone.
Jason said, we're very pleased with the progress we made on several fronts in 2019 and believe we're well positioned for the year ahead, given our current outlook.
Starting with our results.
As a reminder, our 2019 results reflect the full year impact with the merger with SCPA 17, which significantly improve the composition of our earnings with 95% of total FFO generated by our core real estate business.
As our investment management fee stream decline overtime, we are actively replacing them with more highly valued and steady real estate cash flow.
We were pleased to generate 8% year over year growth in real estate AFFO per share while at the same time significantly de leveraging and strengthening our balance sheet.
Total FFO for the fourth quarter was $1.28 per share, bringing full year, a AFFO to $5 per share a decrease of 7.2% driven by the expected decline in investment management or any.
Hey, AFFO from real estate totaled $1.21 per share for the quarter and $4.74 per share for the full year, an increase of 8% over the prior year.
Driven by substantially higher lease revenues from the properties, we acquired in the SCPA 17 merger as well as our net investment activity and strong same store growth.
Real estate AFFO in 2019 also included two significant lease related settlements and recoveries totaling $16 million, which we discussed on prior calls.
As Jason discussed our fourth quarter investment volume totaled $412 million, representing close to half of our full year total of 868 million.
And because the majority of investments close near the ended the quarter they had minimal impact on fourth quarter and full year earnings.
Disposition activity was also largely backend weighted driven by the New York times repurchase at the start of December.
During the fourth quarter, we disposed of 12 properties for 348 million, bringing full year dispositions to $384 million.
Since the end of the year, we've closed the sale of an operating hotel in Miami for $115 million, leaving us with just one remaining operating hotel, which we expect to sell over the next year.
Our 2019 occupied dispositions were executed a weighted average cap rate of 7.8%, excluding the New York time.
Which we view as an outlier given its fixed price purchase option.
Other dispositions during the fourth quarter included six retail properties, and one educational facility, which were vacant and transfer back to the lenders, thereby eliminating their associated carry costs.
Hbr increased 5% year over year, driven by our 2019 net investment activity the conversion of self storage assets net lease and solid year over year contractual rent escalations.
Same store rent growth as we define it was 2% which represents an average contractual rent increase written into our leases.
As many of you know there has been growing interest for net lease rates to disclose the same store growth metric that includes the impact of leasing activity vacancies and credit losses.
Incorporating the impact of those factors would reduce our same store rent growth about 100 basis points and it's something we'll look to add to our supplemental disclosure going forward.
From a re leasing perspective, we had an active fourth quarter executing 15 lease renewals and extensions representing 2% of baby are a portion of this related to the lease restructuring a for manufacturing facilities, which we discussed on our last earnings call.
As anticipated that restructuring included initial rent reduction from 5.4 million to $1 million, but will steadily grow to 2.4 million by year for a belief.
This roll down more than offset positive releasing spreads on several office and warehouse properties.
In aggregate, our re leasing activity recaptured 89% of the prior rent and added seven years of incremental weighted average lease term.
Given the variability in this metric from quarter to quarter internally, we look at it over the trailing eight quarter over which timeframe, we recaptured 97% or the prior rent and on a weighted average basis added 7.7 years of incremental lease term well only spending $1.16 per square foot on tenant improvements and leasing Commission.
Our new leasing activity, we entered into 11, new leases on existing properties with a weighted average lease term of 17 years.
This included leasing approximately 1 million square feet of roof space for the installation of solar panels on a recently expanded logistics facility, we own in support of Rotterdam in the Netherlands.
This will generate additional lease revenues without any additional investment on our part.
Given the opportunity set provided by the size of our warehouse and industrial portfolio. We're actively looking to replicate these leasing opportunities, which also serve to further our S.G. initiative.
Moving to our capital markets activity in balance sheet.
We continued to have access to a variety of capital markets in 2019 in total raising $1.4 billion, well priced long term and permanent capital.
We accessed the U.S. dollar and euro debt capital markets in June and September respectively, raising approximately $900 million through unsecured bond offering.
Net proceeds from these offerings are primarily used to reduce amounts outstanding on our unsecured credit facility and to repay higher yielding mortgage debt further advancing our unsecured debt strategy.
In the fourth quarter, we paid down $324 million of mortgage debt, bringing the total for 2000 $19 billion to $1.3 billion.
As a result secured debt as a percentage of growth assets was effectively cut in half during 2019, ending the year at 9.7%.
Unencumbering, an additional $180 million of FBR in the process.
As a result at the end of 2019, 73% of total Hbr was unencumbered up from 53% at the start of the year.
Our 2019 bond issuances had a weighted average interest rate of 2.3%, which is well below the 4.8% weighted average cost of the mortgage debt, we repaid creating significant interest savings in 2020 and beyond.
In addition through our ATM program, we raised $523 million of equity capital in 2019 at weighted average price of $79.70.
All of which completed earlier in the year as no ATM activity was issued in the fourth quarter.
We ended the year with net debt to adjusted EBITDA of 5.4 time and debt to gross assets, a 40.3%, reducing overall leverage from 5.8 times and 42.8% year ago.
Since year end, we've amended and restated our senior unsecured credit facility, increasing total capacity to $2.1 billion of which 1.8 billion isn't multicurrency revolving line of credit.
In addition to a 150 million pounds Sterling term loan and a 105 million dollar equivalent multicurrency delayed draw term loan all of which mature in five years.
The increase size and improvements in pricing duration and other terms reflect a significant progress we've made over the last several years executing our business strategy and the strong demand in the bank market for our credit.
As such we are starting the year with an extremely well positioned and strong balance sheet with ample liquidity, ensuring we have significant flexibility in funding our acquisition pipeline and allowing us to continue accessing the capital markets Opportunistically.
Turning now to guidance.
Our 2020, we expect to generate total AFA FFO of between $4, an 86 and $5.01 per share, including real estate as AFFO of between $4.74 and $4, an 89 cents per share.
Our guidance assumes investment volume of between 750 million and $1.25 billion, which includes capital investment projects, we expect to complete during the year.
Regarding the timing of 2020 investments as Jason mentioned, we've closed $206 million of investments already this year, reflecting continued momentum from an active fourth quarter.
And we have another an additional $176 million of capital investment projects scheduled to be completed in 2020 with expected completion dates for each provided in our supplemental.
Based on our experience our guidance also assumes investment activity not currently in our pipeline is likely to be more weighted towards the end of the year.
Disposition activity for the year is expected to fall between 300 $500 million.
This includes the $115 million sale of an operating hotel, which closed in January as I previously mentioned.
From a forecasting perspective, it's important to note. This hotel is running near breakeven. So it sale will not have a significant impact on 2020 at that though.
As expected our investment management earnings will continue to decline with the pending merger and internalization of the CW I lodging fun.
We currently expect the transaction will close at the end of the first quarter subject to shareholder approval at which time, we will receive an estimated $32 million of common stock and $65 million the preferred stock and the combined company, which we anticipate will carry a 5% dividend.
This is in addition to the approximate $100 million of common stock. We currently own in the CW I fun.
At the same time, we will cease earning asset management fees and profits interest in the funds and will no longer pay sub advisory fee.
On the expense side, we expect total DNA for 2020 to fall between 80 and $84 million.
This includes certain onetime expenses of about 4 million in 2020, as we transition to a new headquarters office later this year.
In addition, we expect to absorb the cost of previously shared platform costs.
The reimbursements, we received from the CW I funds for transition services wind down over the course of the year.
To give some additional context on our 2020 expectations in relation to this years results at the FFO for 2019 included significantly higher lease termination in other income than we expect in 2020, primarily as it relates to the two larger lease related recoveries the totaled 16 million in 2019.
Similarly in 2019, we recognize certain income tax benefits totaling over $5 million, which reduced our cash tax expense to about 20 million on an AFFO basis.
Based on our current visibility we would not expect similar benefits in 2020, thereby increasing our cash tax expense.
Lastly, we expect interest expense to declined significantly in 2020, resulting from the full year impact of last year's capital markets activity, which reduced our cost of debt to 3.2% at the end of year.
We don't provide specific guidance on capital markets activity, our guidance range assumes we run our balance sheet leverage neutral on a debt to gross assets basis.
In closing our balance sheet is stronger than ever with low leverage ample liquidity and well established access to various forms of capital.
We're pleased with the early momentum were seeing with the investments we've already closed to date and how our pipeline is building.
As Jason noted, we have good visibility into about $380 million of two 2020 deal volume through investments that have already closed and capital projects scheduled for completion by the end of the year.
And with the expected closing of the CW why merger at the end of the first quarter. We will further simplify our business moving incrementally closer to generating 100% of our earnings from real estate.
With that I'll pass the call back to the operator for questions.
Thank you at this time, we will take questions. If you would like to ask a question simply press Star then the number one on your telephone keypad. If he would like to withdraw your question press. The Star then then number two.
Our first question comes from Sheila Mcgrath with Evercore. Please proceed.
I guess I was wondering if you could give us a insights on the same store NOI for self storage, which was particularly strong are all those properties leased properties and you know just how what was driving that growth and participation in the leases.
This is brooks the vast majority our net leased in the extra space transaction, we have.
And that are currently operating properties and another nine that are scheduled to be added to the extra space lease.
And the same store performance is really just embedded in that portfolio. Those are in in markets that have seen good rent growth. So for example in the 10 that we retain as operating properties. For example doesn't seem very good growth north of 10% in why growth on a net lease you know those are subject to a long term rent growth.
Formula, where there's a fixed component and a variable component based on revenue growth.
Okay, Great and then.
You all.
As a bump in there as well and that's a that's a big piece of the puzzle.
Oh, that's right and then on the leasing spread on industrial being negative was there one deal that with skewing that just a little color on the leasing spreads in industrial.
Yes, that's very very much just driven by that one workout that Tony mentioned in her opening remarks.
So if you backed that out the the leasing spreads were were quite strong this quarter I'm kind of in the 112% range, but that one workout transaction on for industrial properties what drove that.
Okay and last question. If you could just comment on tenant watch list, how that's tracking and if there's anything notable tenants you want to call out for us to be mindful of.
Sure credit quality is quite good right now heightened watch list is under 2% of FBR.
In terms of any concentration there aren't really any industry trends in there it's just the mix.
You know again, we closely monitor all tenants in our quite cautious and and willing to downgrade onto our watch list quite proactively. So we think that's oh.
Safe was to look at.
And when we feel pretty good about so so no real concentrations or are particularly notable ones.
Okay. Thank you.
Thank you. Our next question comes from Greg Mcginnis with Scotia Bank. Please proceed.
Hey, good morning.
Right.
Tony I was just hoping you could help us think about acquisition guidance kind of what the underwriting assumptions on there, whether it's cap rates or investment spreads.
Oh, Hey, Greg This is Jason I'll I'll take that I'm sure. So in our guidance we talked about.
Acquisition range of 752 billion in a quarter.
Of new investments I think embedded in that.
We have seen some cap rate compression over the year, both in the U.S. and Europe.
Look at our Q1.
Deals today, the $200 million referenced earlier across a five investments both new investments as well as capital projects those blended to around a 6.5% cap rate hard to predict the full year of where the markets will go and where the opportunities will rise, but I think thats.
Probably a good run rate for you to think about on the year its come down a little bit from the mid to high Sixs that we were for a blended cap rate in 2019, and I think thats reflection of two things. One is we have seen continued yield compression.
But I think equally important we are in a broadening the types of deals that we look at we're still focused on you know to what we traditionally done which is sale leasebacks critical operating properties, where we generated above market yields, but we're also adding higher quality real estate that may try.
Due to lower cap rates, you'll be have higher embedded growth or you know better releasing outcomes at the end of the terms I'm going to black is the Stanley Black <unk> Decker would be a good example of that so I think those two components really are are kind of driving neo the dislike cap rate compression at least.
How we're seeing the year unfolding.
Thanks, and then I know you talked about this a bit previously so I apologize this was covered but on the capital investment side, where you're looking to deliver almost a quarter billing to projects in 2020 or do you see this is a reasonable expectation for deliveries going forward and just kind of curious what you see as to how deep is this pipeline within.
In the current portfolio of potential investment projects and then what's the process for for sourcing more yeah. We did oh, sorry, I'll see if Brooks wants to add some color. Yes, a 2018 2019, we about 10% to 15% of our deal volume was these capital investment in development projects that also include build to suits by the way.
This year.
You heard the numbers that we just talked about we expect out to two double in.
In the 2019 numbers, we're expecting about $240 million of investments that are scheduled to complete this year again, both build to suits and expansions.
Some of those have already completed year to date.
We also have another $130 million in our supplemental that are expected to complete in 2021, so hard to predict it has always but I think a good run rate is probably in that 20% to 30% range. It's become a big focus of our investment management team, we have a the skill set to identify the tenant relationships.
We also have a sizable pool of assets in particularly.
The industrial assets that tend to lend themselves quite welded expansions.
And as we've talked in the past.
We're putting more money to work, but we're also putting money to work at higher yields were extending lease terms, one merging expansions, it's higher quality real estate and we're also adding criticality of the portfolio given that we're building or expanding to tenants current specs and need so a lot of positives to come out of that type of investment and I think you'll continue to see.
Yes, and and hopefully a a growing portion of our annual deal volume.
Great. Thank you.
Thank you. Our next question comes from Jeremy Metz with BMO. Please proceed.
Hey, guys good morning.
Question for Jason maybe broke share, but I was hoping we can get any sort of update on the pen dragon situation, if you're having any discussions there about.
Potentially restructuring those leases and that's something we need to keep an eye out for possibly here in 2020, and just as a follow on the Pendragon property count down an asset.
Don the 69, now, but I didn't see as shale listed on disposition page. So any color on that would be great as well.
Sure I'll. This is Brooks I'll take that went on on that specific question. We just went direct with a tenant that was formerly the sub tenant so we still on the property.
But I was a good outcome for going direct with a sometimes that was already in place.
And then with respect to Pendragon more broadly and we think the company has made a lot of progress, especially into second half a lot of their actions or are bearing fruit.
Those include hiring a very well regarded see new CEO substantially reducing cost, but really the biggest driver of their turnaround in the biggest cause for some of their challenges was just way too much inventory.
They drastically reduce that by close to 30% I'm in a much better place.
I think that's in the context of very conservative balance sheet.
Certainly industry headwinds and their competitors share those headwinds, but we don't view this as a default risk we have over 10 years, a weighted average lease term.
Theres no intention to restructure that deal nor do we foresee a need to.
So we think the companies in a good place now.
Certainly industry headwinds, but there are well positioned on recovery.
That's helpful and then Tony I appreciate the added color you gave.
Same store, you mentioned that including vacancies and credit loss, you would've had about a 100 basis.
100 basis points impact.
Not sure if you had a bad interested in what that would have been.
In terms of impact for the full year, how much of that credit loss versus vacancy and just as you think about credit losses in 2020.
Any sort of color on what's your forecasting year, even if just relative.
20 versus 19.
This is brooks and in terms of credit losses, we make assumptions that are baked into our our guidance I don't have the specific percentage right in front of me, but in any given year, we're always assuming some portion of credit loss.
Our expectations are historically that we would.
Actually performed better than that ill say with respect to the the drag on same store no thats, a 100 basis points is a good.
Place holder and we intend to disclose more of that going forward.
I think our our real world experience in recent years has been somewhat better than that and so we do think that's a good place holder for the moment and you don't you'll see more disclosure from us on that in future.
And now 100 basis points that is both a mix of credit loss and vacancy impact right. So should we think about that half and half for certainly showed a.
Rough ballpark.
I think that rough ballpark I think have not it's probably a good assumption for example, dot work out that I, just mentioned and Tony mentioned certainly plays into that number.
Great. Thanks.
Thank you. Our next question comes from Emmanuel Korchman with Citi. Please proceed.
Hey, good morning, everyone.
Maybe one for Tony does dispositions can we talk about the timing and the expected yields on those throughout the year.
For the upcoming year or what we've experienced.
Coming here.
Sure I think I mean, I think the timing is pretty well spread at this point in time, you know I don't really see any significant waiting I mean, I think the pipeline is something we actively work on Brooks can you give some color on the just the breakdown of how we're looking at that.
Yes, so the obviously, we've announced one transaction, which was already close which was the operating hotel the disposition pipeline is pretty evenly spread over the year, but historically that has tended to slip closer towards the end of the year, but we do expect it to be pretty well spread out from a deal makeup perspective, you know did 40%.
That expected disposition volume is what we call noncore again, the the vast majority that being the operating hotel.
And minimal Bacon asset sales kind of about 5% to 7% of that with the balance kind of roughly split between residual risk management and opportunistic sales.
It's about 60% international 40% us.
And pretty evenly split across property types.
Great. Thanks, Jason goes back to comment you made you said that you're sort of maybe broadening the types of properties you looked at you pointed out the Stanley Black <unk> Decker deal.
Does that put you in a situation where you're competing with a different.
You know competitive set of other investors and how do you think about your cost of cap on your sort of operating advantages versus there is when you are operating in different.
The asset category.
Yeah, I mean, yet on the margin there probably are some some different competitors that we will compete against especially as you get into higher quality, you know more infill war or tier one markets I think where we differentiate ourselves on a lot of those deals is our ability to execute.
Focus is still going to be on sale lease backs, we can drive some some some yield relative to what the market typically bears a me too you extent there is complexity on a friend structuring that'll play well into us, but our cost of capital has gotten stronger.
No we can do deals like the Stanley Black <unk> Decker.
Deal that's a you know kind of.
Well below 6% cap rate and still January sufficient spread so our cost of capital we're not going to win all those deals of course, but we do have very good relationships within the not least community. We think we'll get first look in last look at a lot of these and that's an advantage to us as well.
So.
When we look at that is more incremental to our deal volume, we're going to continue to focus and do lots of deals in the traditional space, where we can generate cap rates.
North of 6% and even north of 7% in some circumstances.
Great. Thank you welcome.
Thank you as a reminder, ladies and gentlemen, if he would like to ask a question at this time. Please press star one on your telephone keypad. Please let me pull for any additional questions.
Yeah.
Thank you we do have an additional question from Sheila Mcgrath with Evercore. Please proceed.
Hi, Yes, Jason ISI and an article in cranes that you guys were thinking about doing something new and Chicago or it may be redevelop or expand a building. It Clinton Street I was wondering if you could you give us some information on that opportunity.
Yes, sure I mean, it's a great acid that we've owned for a while that Brooks give some color on on what our possibilities are for that asset sure. So it's a or an office asset in the west loop in Chicago.
As a.
The way below market rent and the tenant doesn't have any renewal options. We have an excellent opportunity to push economics. There. We also own a parking lot directly adjacent and so the article I believe you're you're mentioning references.
The planned expansion that we're working on for that site. It's early days, but it's a very very good opportunity with an extremely attractive site and so hopefully hear more about that soon.
Okay, Great and that's currently not in the investment in the supplemental no. It is not okay. Thank you.
Thank you at this time I'm not showing any further questions I'll now hand, the call back to Mr. Sands.
Alright. Thank you. Thank you for your interest in W.P. Carey. If you have additional questions. Please call investor relations onto one to four nine to one 110 that concludes today's call may now disconnect.
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