Q2 2021 WP Carey Inc Earnings Call
[music].
Hello, and welcome to W. P. Carey second quarter 2021 earnings Conference call. My name is Jessie and I will be your operator.
And today all lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded after today's prepared remarks, we'll be taking questions via the phone line.
Yeah.
Instructions on how to do so will be given at the appropriate time and now I.
And I will turn the program over to Peter Sands head of Investor Relations. Mr. Sands. Please go ahead.
Good morning, everyone. Thank you for joining us this morning for our 2021 second quarter earnings call.
Before we begin I would like to remind everyone that some other statements made on this cool and not historic facts.
And may be deemed forward looking statements.
Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings.
And online replay of this conference call will be made available and the Investor Relations section of our website at WP Carey.
Dot com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials and with that I'll pass the call over to our Chief Executive Officer, Jason Fox.
Thank you Peter and good morning, everyone.
Having proved the resilience of our portfolio throughout the pandemic.
And dynamic the first half of 2021 has been characterized by an acceleration and growth driven primarily by record deal volume and enabling us to further increase our investment expectations for the year and raised our <unk> guidance.
We continue to see a high level of deal activity. The several hundred million dollars of deals currently and our pipeline.
And with inflation, taking center stage with investors WP Carey is well positioned to generate additional upside the 60% of our ABR coming from leases that have rent bumps tied to CPI.
I'll focus my remarks. This morning on these 2 growth drivers and accretive investments and they rent escalations embedded in our.
Leases after which I'll hand, the call over to our CFO, Tony Sands Zone will focus on our results guidance and balance sheet and as usual, we're joined by our President John Park, and our head of asset management Brooks Gordon.
Starting with our growth through acquisitions.
For the second quarter.
Investment volume of $780 million, driven primarily by the completion of 11 acquisitions.
Our net lease investments had a weighted average cap rate of 5.6%, reflecting the mix and quality of the assets, we acquired amid a competitive market environment.
For example, about 40% of our second quarter and.
And volume was and class a warehouse, including a $195 million investment and a newly constructed logistics facility and the U K, which is expected to receive the breme very good environmental rating and as net lease to Jaguar land Rover for 30 year term.
And also about 40% of our second quarter investment.
William came from Europe for cap rates tend to be lower although spreads remain attractive given our ability to issue euro denominated debt, which is currently over 100 basis points cheaper and where we can issue U S bonds.
And differentiating factor from other net lease Reits is our ability to achieve attractive rent increases over long lease terms.
In recent years, we believe we have been originating leases that are among the longest and and net lease sector.
Our second quarter investments had a weighted average lease term of 21 years with increases averaging 2.2% for those with either fixed rent increases or floors.
And the profile of our investments resulted in average yield.
It's meaningfully more attractive and peers, we're originating shorter term leases with lower or even no rent increases.
Initial going in cap rates taken in isolation do not tell the whole story of the prolonged accretion we achieved for example.
And with a 6% going in cap rate and 2.5% annual rent increases.
<unk> over a 20 year term has an average annual yield of over 7.5%.
Turning now to our growth through rent Escalations and how we're positioned for inflation.
99, 5% of our ABR comes from leases with built in rent growth.
<unk>, 60% from lease is tied to inflation.
The majority of that representing 37% of total ABR comes from lease is tied to uncapped CPI just split roughly 60.40 between Europe and the U S.
23% of our ABR comes from lease is tied to CPI and have floors and or caps for the average floor.
Ultimately 1.5% on an annualized basis and the average cap is approximately 3% and.
And lastly leases with fixed rent bumps represents 35% of ABR and other average annualized increases of around 2%.
Because inflation generally flows through to rents with a lag.
And as a prospect or contractual same store rent growth to increase about 100 basis points from 1.5% to about 2.5% over the next 12 months.
Based on current economic forecasts and holding all other factors constant this assumes inflation over the remainder of 2021 of about 3.5% and the.
We and averaging $2, 7 and 5% across Europe, which then stabilizes in 2022 to around 2% and both regions of course, if actual inflation runs higher than currently predicted we would expect our contractual same store growth to ultimately be above 2.5%.
Well this gives a sense of the impact.
Pact of inflation on our rent growth about a year from now the impact on ABR is of course cumulative and the effective compound and it can be powerful over longer time frames.
Turning now to the internal and external factors contributing to the sustainability of our increased investment activity.
With $1 billion of investments completed in the first half.
The other $122 million of capital investment projects scheduled to complete and the second half of the year and the several hundred million dollars of deals and our pipeline. We expect 2021 to be a record year for deal volume. We also expect and maintain a high volume of deals through a combination of factors.
From an internal perspective.
For the year and simplification of the company largely complete and we're now singularly focused on investing for our balance sheet and feel we're benefiting from deeper relationships and market expertise as well as from a more streamline investment process.
From a macro perspective sale lease backs continued to gain popularity with corporations as part of an overall.
With leasing rather than owning real estate and M&A activity has picked up driving net lease deal flow as companies seek to optimize their balance sheets and private equity firms monetize assets to drive returns.
We also benefit from the scale of our portfolio with about 30% of our second quarter investment volume coming from follow.
<unk> originated through our existing tenant and sponsor relationships.
While our diversified approach ultimately provides a vast and deep addressable market over 2 continents from a top down perspective, our core focus remains on industrial and warehouse assets, which comprised about 70% of our second quarter deal volume.
On deals and these sectors, we've recently expanded into attractive subsectors like R&D and lab space and industries like food processing and production, which are all well suited for sale leasebacks.
We've also been investing and essential retail properties, and Europe, especially stores with strong unit level performance completing investments and grocery.
And folios, and Spain, and France over the last 9 months.
In addition to our core focus b create incremental deal volume and growth to more opportunistic investments a very recent example of our ability to put additional money to work and this way is the construction loan and we entered into during the second quarter related to a retail complex currently.
Reported their development and the Las Vegas strip.
We funded it and an initial $85 million draw in June and expect to find additional draws over the next 12 to 18 months up to $225 million and drawn amounts earned and 6% interest and if I and completion with the option to convert part of alone into ownership of net.
Currently sell assets and extremely desirable location at very attractive cap rates and.
In closing given all these factors coupled with a cost of capital that allows us to consistently make accretive investments. We're confident that we can maintain a strong pace of investments and the second half of the year and we've raised the investment volume and our 2021 guide.
Lease rates reflect that lastly are the worst of the COVID-19 pandemic seems to be behind us. The recent surge and Delta variant case numbers serves as an important reminder, that and ambition to investment volume underwriting and portfolio quality is still matter and at the proven performance of our portfolio continues to differentiate WP Carey from other net.
And states and with that I'll pass the call over to Toni.
Thank you, Jason and good morning, everyone.
I'm pleased to say that we exceeded expectations with our second quarter results completing a strong first half of the year and positioning us to again raise our full year guidance.
For the quarter, we generated total E F F O.
And a $1.27 per share and real estate <unk> of $1, 23, which increased 12% year over year, reflecting the accelerated pace of our investment activity year to date and the continued strength of our rent collections, which were 99% for the quarter.
We are raising our full year <unk> guidance.
Increasing its 6 cents at the midpoint.
We currently expect to generate total <unk> of between $4.94 and $5.02 per share for the full year, including real estate <unk> of between $4.82 and $4.90 per share representing over 5% year over year.
Growth at the midpoint.
We've raised our full year expectations for investment volume to a range of $1.5 billion to $2 billion.
Food and capital investments and commitments scheduled to complete this year.
Also included in our investment volume is the construction funding of the Las Vegas retail complex Jason discussed.
Earnings from this investment are expected to add about $3 million to a F. O. This year, which will be reflected in earnings from equity method investments.
Disposition activity during the second quarter totaled $86 million, bringing dispositions for the first half of the year to $100 million.
Based on.
And visibility into the timing of certain sales, we've lowered our expectations for total disposition activity for the year to between $150 million to $250 million.
Comprehensive same store rent growth, which is based on pro rata rental income included and a S F O with 2% year over year.
And are on a full year basis, we expect our comprehensive same store rent growth to exceed our recent pre COVID-19 growth rates driven by sustained collections of 99%.
As well as certain COVID-19 related rent and recoveries, we assume will occur in the back half of the year.
During the second quarter, we resumed collecting substantially.
All quarterly rent due from a retail tenant in Europe that had made partial rent payments and prior quarters due to lockdowns.
Our <unk> guidance range now assumes that during the second half of 2021, we recover most if not all of the $4.5 million of outstanding rent due from this tenant.
Lease termination and other revenues increased during the second quarter due primarily to the receipt of $4.4 million and lease related settlements.
We currently assume no significant additional payments of this nature and the back half of the year.
And for G&A expense, we raised and narrowed our guidance outlook for the full year.
Year to fall within a range of $82 million to $84 million up moderately from our prior expectations.
On last quarters call I noted that in April we received preferred stock dividends totaling $3.3 million from our investment and watermark lodging trust, representing the amount due for the prior 4.
Which was the primary driver of our non operating income line item for the 2021 second quarter.
Going forward, we expect to receive preferred dividends of approximately $800000 on a quarterly basis, which is embedded in our full year guidance.
Moving now to our capital markets.
Activity and balance sheet.
Following and active first quarter during which we issued bonds at our tightest spreads and lowest coupons to date, we raised well priced equity during the second quarter.
In June we completed an equity forward offering for just over 6 million shares locking.
Blocking and our ability to match fund acquisitions.
Quarter with $455 million of equity raised at a gross price of $75.30 per share.
We settled a portion of these latest forward agreements during the second quarter as well as the remaining forward agreements from those we put in place last year.
We also issued shares under our ATM program.
In aggregate, we issued 6.7 million shares during the second quarter, raising $472 million and net proceeds from.
Majority of our share issuances occurred later in the quarter and will therefore be fully reflected and our third quarter weighted average share count.
At quarter, and our weighted average interest rate was 2.
2.6% a significant decline from 3.2% a year ago.
Selecting the continued improvement in our cost of debt.
Interest expense for the second quarter totaled $49.3 million, which declined 6% year over year, primarily reflecting the full quarter impact of the interest cost.
Savings generated by our first quarter debt prepayments and refinancings.
From a leverage perspective debt to gross assets remains at the low end of our target range ending the second quarter at 41, 1%.
Net debt to adjusted EBITDA was 6 times at the end of the quarter and 5.8 times when factoring.
During in the remaining shares available under our latest equity forward.
Our liquidity position remains very strong ensuring we're well positioned to fund new acquisitions and continue accessing capital markets Opportunistically.
We ended the second quarter with total liquidity of approximately $2 billion, including cash.
Cost city available capacity on our $1.8 billion credit facility and our ability to settle 4 million shares remaining under forward agreements by the end of 2020.2 for anticipated net proceeds of approximately $300 million.
And closing building on our recent momentum and our deal volume which is expected.
Cash and continue in the second half of the year, we anticipate a record year for acquisitions and supported by strong liquidity and capital markets flexibility and a favorable cost of capital.
In addition to the proven downside protection our portfolio provides with sustained higher inflation and we'd also expect it to generate additional upside.
It to growth over the longer term.
And with that I'll hand, 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 1 on your telephone keypad. If he would like to withdraw your question press. The Star then and number 2 please hold.
Our questions.
Okay.
Yeah.
Okay.
Thank you. Our first question is coming from Sheila Mcgrath with Evercore. Please proceed with your question.
Yes, good morning, Jason.
Hey, good morning, Big investment quarter and pipelines are.
Larger can you help us understand how the volume has picked up so much is it have you added new personnel have you broadened the initial yields criteria because your cost of capital has improved or is there just more product for sale, maybe as a result of the increasing M&A.
Yeah, and I think.
It's a little bit of all of those things and certainly with the simplification of our business largely complete offering and C. P. A merger you know and.
Continued wind down of investment management business, there's no more of a singular focus on growth for us and your cost of capital continues to work really well and and obviously it and a diversified approach doesn't hurt either.
Slight opportunity set that's both.
Clearly in the U S and Europe, and and we can compete at a broad range of cap rates as you mentioned.
We've expanded that target cap rate range, some and I think that allows us to buy higher quality, you know probably mainly industrial assets, which is contributing to the increased deal volume.
But to your point M&A.
And that's what that's led to more sale leasebacks, and our mine and it seems more and maybe more of a permanent shift and how corporates view owning versus leasing and real estate and of course as the market leader and sale lease backs as you know Cleveland and favorable to us as well so lots of changes I think there are some more incremental changes we made and there are within our investment process.
And within the team as well and I think all of that has led to what we view as more sustained no deal activity and where we sit today you know the opportunities and they're in.
No reason for us to leave that.
Level of transaction activity won't continue into the future. So we feel good about where we are.
Okay, that's great and 1 more question.
It was helpful. Highlighting how much of your leases are tied to like uncapped CPI. Just wondering if you could explain how that works I guess, it and annual adjustment for them.
As you look back over the past year and.
I would I would guess that CPI is tracking across the different countries, where you have assets you know pretty significantly just wondering if that's an annual adjustment every 5 years or how it works.
Each and each lease is going to be unique I would say the majority of our leases have annual.
You know what it is but there certainly are leases that would bump every 2 years or every 5 years as well.
Those will be and the portfolio.
And so there is a lag effect I think as you pointed out you know because of the leases.
Or are more and this annual cadence for some of them and May take 12.
12 months before that fully.
And flows through to our a b R and and then you're right I mean, the U S leases are predominantly based on CPI.
And then and Europe. It depends some of them are eurozone inflation base. Some of them are more specific to a country German CPI or Dutch CPI or U K RPI. So it's it's really deal specific but.
But I think generally speaking.
We like this exposure to inflation I think it's 1 of the Differentiators and our portfolio.
Thank you.
Welcome.
Thank you. Our next question comes from its fence or all the way with Green Street. Please proceed with your question.
Thank you.
So and the construction loan and I was wondering if you guys could provide a little bit of color on the expected risk adjusted yields and that you guys expect to get on these relative to more traditional acquisitions and capital investment projects.
Yes, sure I mean look from our core focus is still on acquiring industrial and warehouse proper.
And just from the U S and Europe, and also retail and Europe for that matter as well and.
And when we think about retail and the U S. We typically are taking a more opportunistic approach and I think this transaction falls into that category.
You know from now with the construction loan I think we talk about that it's going to earn during the construction period.
A 6% interest, which we think is a pretty healthy rate, especially relative to where where cap rates have trended.
It's a phenomenal location and cheaper.
And I'd call. It 1 of the best development parcels on the entire Las Vegas strip. If you know the market at all at the intersection of Las Vegas Boulevard and Harman.
Even though the southern and of the pedestrian bridge that links the Cosmopolitan hotel to city center and crystals mall.
And from our analysis dislocation with some of the highest foot traffic and our United States. So you know from for US in terms of risk adjusted returns and that's just completed a very similar project and this across the street.
6.
And some years ago. It was very very successful its with the same operating partners, who have lots of confidence and our ability to execute here.
And as I said, we think it's a good risk adjusted return for the loan and and for nowadays alone, but that ultimately will have the opportunity through some purchase options to buy some longer term net leases and and we can talk.
About kind of the specifics of that if it were to happen and go down.
On the road and construction is complete.
Okay, Great and then and realizing you guys and and focusing on industrial like you mentioned in your prepared remarks, and I understand you don't have a crystal ball for everything and 22, yet, but you know and it.
And just looking forward how.
How optimistic or and you know.
And do you have a sense of the addressable market really and in Europe, and you know remaining related to that property type.
Specifically industrial in Europe, what's the question.
Yeah, or just generally about you know how we see our ability to keep on you are ramping up.
She volume.
And both would be great, but yeah, and more specifically as it relates to industrial and that's where you've been focused.
Yeah, and it is supposed to be both in the U S and and Europe I mean look.
It's clear to everyone that industrial has been the focus of Oh.
Trans ambassadors and it's had tremendous capital inflows I mean, what we're not doing is competing on the shorter term multi let industrial assets that are hitting the headlines that we're seeing.
It wasn't a force and now it's probably the threes in terms of going in cap rates.
<unk> are trading at this.
Many because there's a a perception that they have and and probably you know, it's probably real that they have good mark to market opportunities. We're focused more on longer term 15, 20, plus year leases for good industrial assets. This can be logistics could be high quality like the <unk> deal that we purchase.
Levels earlier. This year you know we're also focused on light manufacturing food production R&D, all which also fall under our industrial category and and we have a very good track record of sourcing that predominantly through sale leasebacks and I think that's a big reason why we're able to acquire these you know with those structures in place and.
What we feel.
<unk> are higher than market cap rates as well so look it's hard to predict what's going to happen in 2022, but we think we're set up very well as I mentioned.
Earlier on Sheila's question to continue to show the momentum and.
And that we've had on the acquisition front.
Great. Thanks for the color.
Yeah.
You're welcome.
Thank you. Our next question is coming from the line of Anthony Pallone with J P. Morgan. Please proceed with your question.
Oh, great. Thank you.
Don't know if I missed this but can you comment on just your current pipeline and the skew between Europe and the U S and also.
All our I'd, just how yields might look.
<unk> 5.6 that you mentioned and the second quarter.
Yeah sure so.
Yeah. So so the pipeline is strong and as we've talked about.
Year to date at this point just to recap we've closed about a $1 billion of deals.
So food and the $780 million and second quarter. We also have $122 million of capital projects that you know expansions and build to suits that are expected to complete in 2021 at that point, they get added to our volume and our rent roll.
So we have kind of $1.1 billion and locked in at this point and time and there are pipeline.
And remains strong.
And theres over $300 million of deals and advanced stages, right now, which we believe.
Ah you're much of that will close during the third quarter and then beyond that we still have a couple of hundred million dollars more of identified deals that are earlier stages, but advancing through the diligence and closing process and <unk>.
Of course, our fourth quarter, you know as we've.
We've talked about in the past tends to be our most active quarter of the year we know.
Visibility into that now, but it does tend to be the most active here and.
And I think a lot of that is rate has led to our our guidance raise.
Feel good about that midpoint, and maybe with the potential to get into the top half of that range as well. So there's really no reason to think that you know anything.
That's going to slow down here, assuming market conditions don't change substantially.
You asked about U S versus Europe.
Year to date, it's been about 60.40.
Yes to Europe.
Europe has slowed a little bit, but that's typical this time of year and Curt current pipeline, it's probably more.
You know call it 3 quarters U S a quarter Europe, and we would expect that to pick up as we get a little further into the year and.
I think the last.
Part of your question was about cap rates.
And.
We look at a pretty wide range of cap rates part of the benefits of a diversified approach.
Say, we target deals and that is 5.7% cap rate range.
And you pointed out the quarter. It was 5.6 weighted average cap rate year to date, it's around $5.8 a weighted average cap rate and and this is a going in cap rate I think that's important to note.
A lot of that I think you can attribute to market compression and but I think also.
Also and we talked about the mix of assets that we're acquiring and higher quality warehouse, you're just going to trade a little bit lower but we think we're getting you know.
Good risk adjusted returns from World acquire them and then you also mentioned Europe and Europe does have lower cap rates, that's driving that some also.
And as you know our cost of borrower and Europe is meaningfully lower so.
While we might be doing some tighter going in cap rates and Europe is still generate even.
You know the same or maybe even better spreads.
I think the last thing and note here is that from an accretion standpoint, you know we're not overly focused on going in cap rates and if you think about especially how we structure our transactions.
Virtually all of our leases have built in bumps.
Many of them as we talk about our are based on inflation and the ones that are fixed or probably in the 2% range and these are long lease. It. So over a 20 year period, you know with with interesting bumps. The the average yield is is significantly higher.
I think that'll be the case for you know for all the deals that we did frictions here.
Got it and just and I appreciate the context on on the duration side of your deals is it something that you didnt win it and when a deal comes to you are the durations there.
There and you either take it or leave it or is it something that.
Hugh you want longer duration, and so you can make other concessions to get it or how does that work.
Well most of the deals that we source or through sale leasebacks and build to suits. So you know the entire structure is and negotiation and.
And there's.
Give and takes throughout that process, but certainly lease terms important to us.
And the types of bumps that we have that's important to us, especially.
And inflation.
So I think it's all on the table and there are trade offs.
Especially and competitive market, but you know as you can see we've been successful and.
And.
Transacting with very long lease terms very interesting bump profiles and still maintaining an attractive <unk>.
Cap rate and spread your cost of capital.
Alright, Great and then just 1 last maybe detailed question and it seemed like lease termination income and the quarter was it was a bit elevated any color around that and whether.
It doesn't mean anything to the NOI run rate, we should think about going forward.
Tony you want and take that 1 Toni I got that 1.
Thanks, Thanks, Jason No I think that I did mention that the this quarter, specifically and included a couple of larger payments from tenants and.
Totaled about.
4.4 and a half million dollars and a small bankruptcy settlement and that amount as well and I think there are and theres a recurring portion of this line item that runs through every quarter and then you know sort of these 1 off amounts that do tend to recur from time to time during the year I'd say on average we're looking at about $12 million for the full year.
You know and which is in line with where it was last year and so I don't think we're really expecting anything or we don't have anything and our line of sight right now for the remainder of this year I'd say this quarter was certainly an uptick.
Okay, but the payments student tar to other starting to take like a piece of your run rate revenue out because something big and was terminated or anything.
And so these were end of lease payments.
To restore the premises and we'll settle with our tenants on their way out and so nothing in terms of recurring NOI, there, but you know certainly and economic part of the lease that we enforced.
Got it understood. Thank you.
[noise].
Thank you. Our next question comes from the line of Elvis Rodriguez with Bank of America. Please proceed with your question.
Hi, Thanks, Yigal, thanks for taking the call.
Just a couple of questions..1 you mentioned the increased interest on sale leasebacks and particular, what sectors or property types are you seeing.
This more and today versus perhaps 2 years ago and then on that question. If you could just update us on the lab office or interest and lab lab R&D space like what are you seeing there and what markets are they is it the mega clusters that some of the other public Reits own and or as these are secondary markets.
Yeah sure so sale lease backs I would say, it's more broadly increasing as corporates, perhaps you know a result of some of the liquidity crunch and that they had during COVID-19.
Corporates I think are are moving more towards leasing rather than owning their real estate and.
And that includes critical.
Thanks.
Critical operating real estate that that are good candidates for sale lease backs and long term leases and that's where we've been targeting.
We talked about industrial being a broad asset class for US are certainly you know a lot of warehouse deals that we're doing but within that we're also doing as you mentioned R&D.
<unk>.
You know cold storage food.
Food processing and production so you know.
I think all of those lend themselves well to sale lease backs again, because of the criticality of the assets, which lend themselves well to corporates being willing to sign very long term leases.
And in Europe.
Andy Your specific question on lab.
I mean, we're not primarily focused on lab I think it's going to be more incremental deal volume. When there are opportunities do sale lease backs, it's not going to be competing with you know the the Alexandria is of the world and in Cambridge, and San Diego and so this is a little different approach for us.
Great and then just a question so at the end of <unk> 'twenty, you've got about 9.5% of your leases.
We are rolling in 2024, and now you only have about 8% is that a function of.
Bringing leases up selling assets, how should we think about the role.
And the portfolio over the next few years and what retention can look like thanks.
Perhaps you and take that 1.
Sure so with respect to 2020.4 and its really just ongoing.
Leasing activity that had occurred.
No not really disposition activity.
And so we are very focused always.
Always on reducing that next 5 year lease role percentage and we're making good progress on that and then.
Next 3 years.
We have a very manageable.
Lease expiration outlook.
Less than say, 8% through 2023.
2024 and 2020.
5 certainly larger years, but that's that's pretty typical at this point and time.
And so we're focused on all of those years right now and that's really our approach is kind of 5 years out.
And really taking a proactive approach to those.
In 2024.
Biggest piece of that is the U haul lease exploration.
And that's 1 where they have a purchase option in 2024. So when you back that out it's really only about 5% of.
Of ABR expiring in 2024.
At this point to your best of your knowledge do you expect them to exercise that option.
We do.
Yeah.
Great. Thank you very much.
Thank you. Our next question is coming from Manny Korchman with Citigroup. Please proceed with your question.
Good morning, everyone.
Good morning, So as I went through your presentation I noticed that the percentage of income from investment grade tenants are ticked down.
This quarter was that anything.
Specific just mix of of new acquisitions, and dispositions something you've done on purpose or is it just a stat, that's maybe less and less relevant for whats actually happening and the portfolio.
Yeah, Yeah, I think it's probably more of a function of the ladder and stuck with it.
And what we have and buying.
And have not been investment grade and it.
And maybe it's important to.
You kind of touched on that a little bit.
Talks about it and the path and we feel the sweet spot and in net lease is just below investment grade and theirs.
And much less capital chasing deals and not only has that helped us generate higher yields, but we also get better lease structures.
<unk> had or rent bumps the duration of the leases or really even specific lease provisions.
And maybe more importantly are the results you know while our portfolio may have a lower percentage of investment grade a b R. We've outperformed all of our peers during the stress test that it was the pandemic.
And whether that's and include these peers with higher investment grade rated.
Tenants or ABR base so.
And I think it's about underwriting it's about portfolio construction.
And I think track record matters.
Okay.
Great. Thank you and then I'm just going to dispositions for a second you sold a portfolio and how it works.
What is that just the tenant concentration issue was it just opportunity to sell or give some color on and why you saw those.
Oh sure Yeah, we exited 7 outlet stores in the quarter. It was really an opportunistic sales you know, there's an aspect of managing diversification as well there.
And but we created a lot of value when we extended that portfolio a few years ago central lease there.
So this was a pretty targeted opportunity to reduce some of the weakest stores and the portfolio.
And with good execution.
And we wouldn't wouldn't expect to see more of those and.
And how do I gotcha.
And then and Jason just on the construction loan for another second was that something you guys were actively in the market looking forward it to lend on a project like that.
And are you looking at other deals like that or maybe just give us a little bit of back story as to how you ended up investing and there to begin with.
Yeah.
We're doing this transaction.
And with a really trusted partner of ours that we've probably done I don't know 4 or 5.
And the construction projects with a lot of downside protection structured and which is consistent with how we look at the world and perhaps some upside.
And especially in this case with the potential to exercise the purchase options.
And to own it I wouldn't say states and new.
New vertical, but we like the risk return profile of this investment and again.
We have a proven track record and partnership with our operating partner so.
You know what we'll see if there's more to come but it's a meaningful size and you know.
Our capital and put to work and and we'd like finding ways to do that.
Alright, thanks very much.
You're welcome.
Thank you. Our next question comes from the line of Chris Lucas with capital 1 Securities. Please proceed with your question.
Good morning, everybody just kind of following up on the last.
Last question.
Jason and just maybe give some risks parameters, what's so what's the expected loan to cost on that our construction loan.
But the way this is structured is.
You know, where we're funding the majority the vast majority.
D of the capital going in.
And with some downside protections put in place and I don't want to go into all the specifics of what that is but there's no really strong collateral package.
And that.
Which gives us a lot of comfort, especially given you know the location.
And as I mentioned earlier, we think it's 1 of the best developing.
Parcels on the entire strip and probably 1 of the better ones and across the country with that matter for retail.
And you know, it's got some of the highest foot traffic counts and and the entire country at this point, so and we'd like the risk return profile, especially with the structure that we have in place, but you know for for several reasons I can't get into the specifics.
Okay.
And then as it relates to just sort of the participation or equity conversion or purchase and what is the structure of your potential owner.
Ownership and is it a.
Portion by converting your alone and to an equity fees or is it.
First off.
Offer or something along those lines.
And if it's an option to purchase into 2.2 really 2 components.
Some of the net lease units as well as into the.
And the full project.
A minority interest if that's what we prefer as well so I.
I would say that we'll have more color and disclosure.
And that if that happens it is just an option.
But we can go into some more details down the road.
And what's the general timeframe for when you.
And you started funding so once the project and is expected to be completed and stabilized.
Yeah, it's probably a 12 to 18 months period.
So.
Closure ops and you know this.
This time next year Q3, Q4 of 2022 is my expectation.
And then Tony just on the guidance.
G&A was that net cash and non cash comp is primarily driving that oh.
And what we're giving guidance on the cash.
Cash G&A expense, so that's really and you know on the cash side.
And what is what is driving that increase.
You know, we narrowed the range and based on where we are and the year and the increase was driven predominantly by the portion of compensation that's tied to our results for the year and given we're tracking above target.
Okay.
Terrific. Thank you that's all I have this morning.
Thank you as a reminder, if you would like to ask a question at this time. Please press star 1 on your telephone keypad.
Our next question is coming from Frank Lee with BMO. Please proceed with your question.
Yeah.
Hi, good morning, everyone.
And you mentioned the potential benefits from higher rent bumps tied to inflation.
Just curious if any of the benefits are factored into your current guidance or just.
And in fact pushed its entirely to 'twenty 2.
Tony and see what do you want to talk about the components of that.
Yeah, I think if you look at kind of the same.
Door results for this quarter, there's certainly no impact from the current inflation flowing through I think Jason gave the example of how that would flow through them and I think we would expect it to be seen more fully a full year from now so call. It the 12 months from now or second quarter of next year potentially 100.
Third basis point increase and our same store growth at the current level, but we do expect kind of a gradual increase there and you know the curve that Jason mentioned in his example, and what we have baked into our guidance. So you'll see you know a small piece of that in the back half of this year, but more fully by the middle of next year.
Okay.
Okay. Thanks.
And then just want to ask about CPA 18, we're coming up on the 7 year anniversary and are you starting to have any conversations I just wanted to get a sense on how we should think about timing.
Yeah, there's really nothing new to update their CPA team hasn't reached its liquidity timetable yet based on the guidelines.
And the prospectus and there's flexibility and that would be talking about that and the past and it's really you know.
Up to the independent directors and and their discretion on on when to consider options. So.
Other than that there's really nothing new to update.
Okay. Thank you.
Youre welcome.
Thank you at this time.
Tom I am not showing any further questions and I'll hand, the call back to Mr Sands.
Great. Thank you for your interest and W. P. Carey if anyone has additional questions. Please call investor relations directly on to 1 to 4.9 to 1110 and that concludes today's call you may now disconnect.
Okay.
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Okay.
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