Q4 2024 WP Carey Inc Earnings Call
Hello, and welcome to W. P Carey's fourth quarter and full year 2024 earnings conference call.
Diego: My name is Diego and I will be your operator today.
All lines have been placed on mute to prevent any background noise.
Diego: Note that todays event is being recorded.
Diego: After today's prepared remarks, we will be taking questions via the phone line instructions on how to do so will be given at the appropriate time.
Speaker Change: I will now turn today's program over to Peter Sands.
Speaker Change: Head of Investor Relations Mr. Sands. Please go ahead.
Speaker Change: Good morning, everyone and thank you for joining us this morning for all of 2020 for fourth quarter earnings call.
Speaker Change: Before we begin I would like to remind everyone that some of the statements made on this cool are 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.
Speaker Change: An online replay of this conference call will be made available in the Investor Relations section of our website at W. P. Carey to outcome, but it will be archived for approximately one year and where you can also find copies of our investor presentation, although related materials.
Speaker Change: And with that I'll pass the call over to our Chief Executive Officer, Jason Fox.
Jason Fox: Thank you Peter and good morning, everyone.
Jason Fox: You'd have some 24 was a pivotal year for W. P. Carey during which we successfully exited the office sector, establishing a new baseline for <unk>.
Jason Fox: The foundation for future growth.
Jason Fox: We also ended the year with strong fourth quarter investment volume the full benefit of which will flow through to our earnings in 2025.
Jason Fox: As we look to the year ahead, we believe WP Carey presents a compelling investment opportunity.
Jason Fox: Even with conservative assumptions on investment volume and tenant credit, reflecting the uncertainties around inflation interest rates and the potential impacts of the new administration on markets, we expect to generate <unk> growth in the mid 3% range supporting a total return of around 10%, but combined with our dividend yield of over 6%.
Jason Fox: This morning, I'll briefly recap our recent investment activity and the continued strength of our balance sheet I will focus my remarks on the transaction environment and our ability to continue finding new investments without issuing equity.
Jason Fox: And also provide an update on tenant credit.
Speaker Change: Toni Sanzone, our CFO will review, our results and guidance and Brooks Gordon head of asset management is also here to take questions.
Speaker Change: Starting with investments during the fourth quarter, we closed a record quarterly investment volume totaling just over $840 million, which brought us into the top half of our investment volume guidance range for the year.
Speaker Change: Really $1.6 billion.
Speaker Change: Initial cash cap rates on our fourth quarter investments averaged in the mid to low sevens. Following the decline in 10 year treasury rates during the fall.
Speaker Change: And for the year averaged seven 5%.
Speaker Change: We continue to achieve very attractive rent bumps structures, averaging in the mid 2% range and up into the threes for certain deals.
Speaker Change: As a result, our average yields over the life of the leases on new investments remained above 9% for 2020 for providing attractive returns relative to our spot cost of capital.
Speaker Change: Even more attractive returns when considering that we were deploying cash accumulated earlier in the year rather than from raising new equity.
Speaker Change: Our 2024 investments added over $100 million to Edr unleashes with weighted average lease term of 17 years.
Speaker Change: Approximately three quarters of our investment volume was in North America, the vast majority being in the U S and one quarter was in Europe.
Speaker Change: Well about 60% went into warehouse and industrial a meaningful proportion was also directed towards U S retail.
Speaker Change: Retail remains the largest segment of the U S net lease market and we have done retail deals in the past primarily in Europe, but also in the U S. Importantly, we view additional investments in U S retail as complementary to our traditional focus on warehouse and industrial rather than an alternative to it.
Speaker Change: Our access to efficiently priced debt capital remains a competitive advantage and enhancing our ability to fund deals Accretively something we believe is currently underappreciated by the market.
Speaker Change: Our mix of U S dollar and euro denominated debt gives us one of the lowest average interest rates in the net lease sector and we expect to continue funding part of our capital structure with long term euro bonds currently pricing in the high 3% range.
Speaker Change: When combined with U S bonds pricing in the mid Fives. This provides an attractive source of financing for net lease deals cap rates in the sevens and average yields greater than 9%.
Speaker Change: On the equity side, we have a variety of very attractive potential sources of capital available to us primarily self storage operating properties, but also other attractively priced noncore assets, which we would expect to sell at cap rates meaningfully inside of where we can redeploy the proceeds into new investments.
These asset sales were also further simplify our portfolio significantly reducing the non core operating assets, we own and provide us with a high degree of confidence that we can continue closing accretive net leased investments at a time when we view our equity is undervalued.
Speaker Change: Turning now to the deal environment.
As I mentioned at the outset markets currently face a range of uncertainties, including the direction of interest rates inflation and potential impacts of the new administration and the early part of 2025 10 year Treasury rates spiked.
Speaker Change: Has the potential to widen bid ask spreads slow deal activity, although things could change quickly if 10 year treasury yields continued to come down and stabilize.
Speaker Change: The potential for larger scale M&A in 2025 May also create opportunities for sale leasebacks and over the medium or longer term onshoring or near shoring could provide a tailwind to both our investment activity and portfolio.
Speaker Change: While the first quarter is unlikely to be as active as the fourth quarter. We continued to find appealing opportunities to put capital to work.
Speaker Change: Our pipeline currently includes over $300 million of identified transactions most of which we expect to close this quarter and we have about $100 million of capital projects scheduled for completion this year.
Speaker Change: We've adopted a more cautious approach to our initial guidance on investment volume. However, given the limited visibility we have this early in the year and the uncertainty that exists over the transaction environment.
Speaker Change: As the year progresses, however, and we have greater clarity on deal activity, we hope to raise our expectations.
Speaker Change: And we're confident that we can fund deal volume, even if above the top end of our initial guidance range without having to issue equity even with this conservatism I want to reiterate we view estimated <unk> per share growth of around three 5% as an attractive starting point for the year.
Speaker Change: Before I hand, the call over to Tony to discuss our guidance assumptions in more detail I want to provide an update on the significant tenants were focused on from a credit perspective. Currently that comprises the three tenants. We've identified on prior calls true value helbig, and hearth side, which in aggregate represent four 5% of ABR.
Speaker Change: I'll review the details but in summary, we've agreed to a resolution on true value that should remove a prominent point of uncertainty for investors, while helbig and hearth side are essentially unchanged from a credit perspective versus last quarter.
Speaker Change: Since our last earnings call do it best has completed its acquisition of true value and remains current on rent for all our properties comprising eight warehouses and one paint manufacturing facility.
Speaker Change: We've negotiated an agreement with do it best subject to final documentation that includes several important points.
Speaker Change: Do it basketball retained six facilities at their existing rents on leases with a weighted average lease term of seven years and E. D. R a $14 $1 million.
Speaker Change: The remaining three assets will pay rent through June of 2025 at which point they will be vacated.
Speaker Change: So actively marketing them for sale and expect to sell them during the second half of the year, assuming their timely sale, we would expect minimal impact on 2025 days or so which is factored into our guidance.
Speaker Change: Lastly, given the strength of do it best credit we no longer view it as a credit risk concern.
Speaker Change: Helbig situation is little changed from last quarter.
Speaker Change: Remains current on rent and continues to execute its turnaround plan to reduce costs and manage liquidity and has successfully pushed out its debt maturities to 2027.
Speaker Change: It continues to face meaningful operational headwinds driven by the slowdown in chairman consumer spending, which we're monitoring closely including an active dialogue with <unk> management team and reviewing its financials as they become available.
Speaker Change: We also continue to take steps to proactively mitigate the risk of the potential rent disruption.
Speaker Change: Just on the specific interest we've received we have confidence there is demand for our stores from other operators and rents generally in line with current rents, although that would incur some downtime in capex.
Speaker Change: We're also evaluating several dispositions, which could incrementally reduced <unk> contribution to our ADR this year.
Speaker Change: Finally, hearth side, there's no change to our view that we don't expect any rent disruption hearthside is targeting to emerge from bankruptcy early this year at which point, we will evaluate taking it off our credit watch list I'll pause, there and hand, it over to Tony to discuss our results and guidance.
Tony: Thanks, Jason and good morning, everyone.
Tony: We finished the year reporting strong fourth quarter results generating Eva per share of $1 21, which brought our full year. Eva So $4 70 per share marked by a quarter of record investment volume and internally generated growth from our portfolio.
Tony: Dispositions during the fourth quarter comprises the sale of five properties for gross proceeds totaling $119 million.
Tony: This brought full year disposition volume to 1.2 billion driven by sales of office properties under our office sale program as well as the exercise of the U haul purchase option.
Tony: Contractual same store rent growth for the fourth quarter with two 6% year over year, and we anticipate that it will remain in the mid 2% range for the first quarter of 2025 moderating to an average in the low to mid twos for the full year.
Tony: Comprehensive same store rent growth for the fourth quarter was 2.5% year over year, which reflects the impact of vacancies leasing restructurings and rent recoveries.
Tony: During the fourth quarter, we collected rents from cash basis tenants, putting us in a net recovery position for the quarter most of which was anticipated in our 2020 for guidance.
Tony: Currently our 2025 <unk> guidance includes an estimated $15 million to $20 million for potential rent loss from tenant credit events, which is cautiously higher than where we typically start the year given the current backdrop of broader economic uncertainty.
Tony: We will continue to provide updates on tenant credit as the year progresses and refine our estimates accordingly.
Tony: Fourth quarter leasing activity comprised 11 renewals or extensions and continued to trend positively recapturing 107% over the prior rents overall, including positive re leasing spreads on warehouse and retail.
Tony: Leasing activity impacted just under 2% of portfolio ABR and added close to five and a half years of incremental weighted average lease term.
Tony: Other lease related income for the fourth quarter was just $1.3 million.
Tony: The total for the year to $20 3 million in line with our expectations.
Tony: Based on the visibility. We currently have we expect other lease related income to total between 20 and 25 million for 2025, consistent with where it's been in recent years.
As a result of our investment in asset management activities. During 2024, we ended the year with a net lease portfolio comprising 1555 properties generating a b R of over $1 $3 billion with a weighted average lease term of 12, three years and an occupancy rate of 98, 6%.
Tony: At year end, our operating property portfolio comprised 78 self storage properties for hotels and two student housing assets.
Tony: During the fourth quarter operating property NOI declined to $17 $6 million, reflecting the conversion of 12 self storage operating properties to net leases under the transaction, we completed with extra space in September and discussed in our last earnings call.
Tony: Our operating asset portfolio is expected to generate between 70 and $75 million of operating NOI, which is an annual number and excludes the impact of expected dispositions.
Tony: A significant proportion of our dispositions. This year are expected to be sales of self storage operating assets, which our guidance assumes occur primarily in the second half of the year.
Tony: As we get more clarity on the timing of asset sales, we will update our operating NOI estimate as needed.
Tony: Driven by our role as the external advisor to N. L. O P. We received $6 $6 million in asset management fees and $4 2 million of other advisory income and reimbursements for the 2020 for full year.
For 2025, we expect these line items to total approximately $8 million with the management fees are expected to decline over the year with additional N O P asset sales, while the reimbursement remains fixed at $4 million.
Tony: Nonoperating income for the fourth quarter comprised $6 $6 million of interest income on cash deposits.
Tony: $4 5 million from realized gains on currency hedges and $2 8 million in dividends from our equity stake in lineage.
Tony: This totaled $13 8 million, which was essentially flat to the third quarter as lower interest income was offset by higher realized gains on currency hedges.
Tony: For the full year non operating income totaled $52.2 million.
Tony: For 2025, our guidance currently assumes nonoperating income totals in the mid $30 million range, assuming a flat quarterly dividend from lineage of $2 8 million per quarter.
Tony: Lower interest income on cash totaling around $5 million for the year and higher gains on currency hedges given the current strength of the U S dollar.
Tony: Turning now to key drivers of our 2025 guidance.
Tony: For 2025, we expect to generate a S. S O of between $4 82, and $4 92 per share implying about 3.6% growth at the midpoint based on investment volume of between one and $1.5 billion.
Tony: Monday, primarily through accretive sales of noncore assets.
Tony: Currently we are assuming dispositions total between $500 million and $1 billion with a large majority expected to be opportunistic noncore asset sales executed at cap rates, averaging around the low to mid sixes with proceeds reinvested in net lease assets at initial cap rates in the sevens.
Tony: If deal volume is more robust than where initially assuming we have ample flexibility to sell additional assets accretively.
Tony: Ordinary course net lease dispositions are expected to comprise the smallest portion of our disposition guidance at around $250 million.
Tony: G&A is expected to total between 100 to 103 million for 2025.
Tony: Our non reimbursed property expenses are expected to total between 49 and $53 million.
Tony: Tax expense on an E. S. S O basis, which primarily reflects current foreign taxes on European assets is anticipated to range between 39 and $43 million.
Tony: Moving now to our balance sheet and leverage.
Tony: Our investment activity continued to be supported by successful execution in the debt capital markets.
During 'twenty 'twenty four we raised approximately $1 $7 billion of debt capital at a weighted average coupon of four 3% ish.
Tony: Issuing bonds at attractive pricing relative to the yields we achieved on new investments and benefiting from our ability to access the eurobond market.
Tony: Overall, the weighted average interest rate on our debt averaged 3.2% for 2024 and is expected to remain at or slightly below this rate in 2025, as we continue to benefit from weighting of euro denominated debt in our capital structure.
Tony: We ended 2024 with total liquidity of approximately $2 $6 billion as we were virtually undrawn on our $2 billion revolver and holding $640 million in cash.
Tony: So since then 450 million has been applied to repaying the senior unsecured notes that matured at the start of February.
Tony: With our 2025 bond addressed our debt maturity profile remains very manageable comprising only about $200 million of mortgage debt due in 2025.
Tony: Our next bond maturity is the Europe is the eurobond maturing in April of 2026.
Tony: Given our liquidity, we continue to have significant flexibility to access the bond market when we view the market conditions as most favorable.
Tony: Although our guidance currently does not assume any debt issuance this year.
Tony: We also expect to recast our 2026 Euro term loan this year ahead of its maturity.
Tony: Our key leverage metrics ended the fourth quarter at levels, consistent with where they've been throughout 2024.
Tony: Debt to gross assets was 41, 6%, which is at the low end of our target range of mid to low forties and net debt to EBITDA ended 2024, 5.5 times relative to our target range of mid to high five times.
Tony: We expect both of these key leverage metrics to remain well within our target ranges in 2025, particularly given our plans to fund new investments with asset sales.
Jason Fox: And with that I'll hand, the call back to Jason.
Jason Fox: Thanks, Tony.
Speaker Change: Given some of the uncertainty we see heading into 2025, we've incorporated a degree of conservatism in our initial guidance both on investments and tenant credit.
Speaker Change: Right. The uncertainty, we believe we're well positioned to navigate the markets and have confidence in our ability to execute this year.
Speaker Change: We had a very strong fourth quarter on deal volume and we have visibility on continuing to put capital to work in the first quarter.
Speaker Change: Investment spreads were somewhat tight compared to going in cap rates across most of the net lease sector. The spreads the average yields were generating and the associated GAAP cap rates remain very attractive.
Speaker Change: The dilutive headwinds from office dispositions and the U haul purchase option that we faced in 2024 are now fully behind us.
Speaker Change: From a balance sheet perspective, we remained at the low side of all of our leverage targets are.
Speaker Change: Only bond maturity in 2025 has been addressed and our liquidity remains very high. Most importantly, we will not need to raise equity to fund deals in 2025, instead, we will access alternative sources of capital through accretive asset sales, primarily through selling non core operating assets meaningfully inside of where we can reinvest the proceeds.
Speaker Change: It's a net lease assets, giving us confidence in our ability to continue doing deals and driving <unk> growth this year.
Speaker Change: That concludes our prepared remarks, I'll hand, the call back to the operator to take questions.
Speaker Change: Thank you and at this time, we will take questions.
Speaker Change: If you would like to ask a question simply press Star then the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question press. The Star then the number two.
Speaker Change: Our first question comes from Brad Heffern with RBC capital markets. Please state your question.
Brad Heffern: Yeah, Hey, good morning, everyone. Thanks for taking the questions.
Speaker Change: [noise] tariffs, obviously, a you know a lot of news around there was a lot of uncertainty of course I'm curious if you can give your thoughts on how your portfolio might be affected by those and if it's changing at all how you think about new investments.
Speaker Change: Yes, sure Brad good morning.
Speaker Change: Yeah look I mean tariffs certainly add a degree of uncertainty to the market environment, and we talked about that a little bit and clearly they could have.
Speaker Change: Broader economic impacts, especially on.
Speaker Change: Or potentially on inflation in there for rates I mean, we're diversified I think that's an important layer of protection within our portfolio.
Speaker Change: And maybe on the plus side in the medium to long term, if if tariffs are substantial and they stay in place.
Speaker Change: We could see some tail winds from onshoring in manufacturing.
Speaker Change: Maybe that'll benefit our warehouse and industrial portfolio I think on new investments. We will continue to maintain the same approach of underwriting which is rigorous you know we think about the downside exposure and protections in how we structure deals like we always do we'll continue that but you.
Speaker Change: By and large I think we're gonna have to react to what tariffs looks like given that there.
Speaker Change: It's been a bit uncertain.
Speaker Change: Okay got it thanks, and then two other tenant updates I was interested in that weren't in the prepared comments can you give your thoughts on the Joanna distribution Center and then advance auto parts, obviously closing stores I know you own distribution centers not stores, but any update you can give on how those are positioned would be great. Yeah sure Brooks.
Brooks Gordon: I would take that.
Speaker Change: Sure.
Speaker Change: Joanne as.
Speaker Change: As you know they filed for the second time in as many years and we have one warehouse.
Speaker Change: It's about 20 basis points with a B R.
Speaker Change:
Speaker Change: Rents below market, we think we'll be able to re tenant that pretty effectively I think that said, we're not including any.
Speaker Change: The assumption to re tenant them in our guidance, but we are assuming that the company goes until liquidation around mid year. So we think thats a conservative approach to that one.
Speaker Change: From a modeling perspective on advance auto we own 28 facilities at the finger single Master lease.
Speaker Change: About one 4% of ABR.
Speaker Change: Eight years of term. So there is really no near term impact to us.
Speaker Change: They will close a few warehouses I think there are three that we own that will give us a lot of flexibility to work those well the lease remains in place. So those will be good opportunities for us to potentially push rents a bit higher on those but we don't expect we're not modeling any actual impacts in the near term.
Okay. Thank you.
Speaker Change: Our next question comes from Rich Hightower with Barclays. Please state your question.
Rich Hightower: Hey, good morning, everybody.
Speaker Change: Hi, I think I missed the comment on sort of the cadence of same store growth, but did did did you say that.
Rich Hightower: Portfolio same store growth.
Rich Hightower: At least within the net lease part of the portfolio is going to decelerate to the low twos by year end I just want to make sure I've got that right.
Rich Hightower: Yeah, I'll take that richness, that's about right I think we expect the fourth and the first quarter of 2025 to be probably our highest print and are you now in the low to mid 2% range and see a decline from there to the low twos now again today, we're factoring in kind of higher prints on inflation on the U S side, so well adjust that accordingly, but I don't think that'll.
Rich Hightower: Material movement.
Rich Hightower: Alright, Thanks, Tony very helpful. And then just on the I guess on the capital allocation side, obviously, a big part of that.
Rich Hightower: The positive spreads that you can generate on your European investments has to do with the cost of debt relative to the U S and I'm just maybe as a general matter you know the next incremental dollar of capital allocated to Europe, you know how do you how do you feel about that kind.
Rich Hightower: Kind of given everything going on in the world as we sit here today.
Rich Hightower: Yeah look I think that Europe is something that we've been there for a long time since 1998, and I think we have a good feel for the markets you know boots on the ground.
Rich Hightower: <unk> Bye bye European So you know like you know everything we do we're certainly you know very diligent in our underwriting and how do we look at markets and and and obviously tenant credits et cetera. So.
Rich Hightower: And look there's a reason why we've always wanted to generate wider spreads in Europe, maybe we can do that I mean right now we.
Rich Hightower: Can borrow in Euro was about 150 basis points inside of where we can borrow in the U S. And you know I'd say cap rates are in similar ZIP codes in Europe compared to the U S. I mean, obviously, there's can be some variation by country.
Rich Hightower: And and and deal specific variations, but overall, we can generate wider spreads there and we think we account for it.
Rich Hightower: You know any incremental risk that you know real or perceived maybe over there.
Jason Fox: Alright, Thanks, Jason.
Rich Hightower: Welcome.
Rich Hightower: Okay.
Speaker Change: Your next question comes from Mitch Germain with citizens JMP. Please state your question.
Mitch Germain: Congrats on the quarter guys I'm just curious Jason.
Mitch Germain: With those sort of cap rates that you're assuming on the dispositions. Obviously it seems like there's a bunch of self storage in that number 20, and said that but I'm curious is there anything else that's sitting in your what you would characterize it would be non core bucket.
Mitch Germain: Yeah, I mean big picture I mean, we talk about our our disposition plan and how we're going to fund deals.
Mitch Germain: You know, we I think most of what's in there as noncore. The bulk of it are as you mentioned is operating assets and the bulk of that portion of his storage, but theres also some student housing and you know I would say an operating hotel that we would likely sell this.
Mitch Germain: This year as well, but the bulk of it is self storage.
Mitch Germain: You know, we're targeting to sell I would say a subset of that portfolio likely in the second half of the year, but the expectation generally is that you know across the portfolio that we sell that will generate maybe 100 basis points of positive spread between disposition cap rates and and reinvestment cap rates.
Mitch Germain: That's kind of our our big round number right now and obviously as the year goes on and we complete some of the dispositions, we can provide updates, but but that's the kind of general math for you.
Speaker Change: And you mentioned $400 million give or take of of identified pipeline.
Speaker Change: In terms of deals versus your guidance.
Speaker Change: From a cadence perspective should we still think things will be back weighted to match it up with the timing of those sales.
Speaker Change: Yeah look at it it's a good it's a good question I think our dispose guide right now is 750 at the midpoint and you know probably a little bit more back half weighted but the actual amount and timing of dispositions is probably going to be more driven by investment volume and investment pacing well want to match that the best we can.
Speaker Change: So.
Speaker Change: Again that there'll still be some ins and outs throughout the year, but I think the the numbers that Tony went through our probably our best direction, we can give right now.
Speaker Change: Just a quick one for Tony and Mike If I can sneak one more in is there any noise in interest expense, Tony and I noticed you know obviously quarter over quarter down you are sitting on a little bit more debt, obviously in anticipation of selling I'm sorry of redeeming. The bond in February is there any new without the K being filed here.
Speaker Change: Was there anything in that number that is rocky.
Speaker Change: No I think that's the right way to look at it is to look at interest expense and interest income on a net basis. So you know kind of on a year over year again, we've addressed a lot of our maturities and we are seeing benchmark rates decline from from 'twenty 'twenty four level. So on a year over year. If you look on a net basis net interest income.
Speaker Change: Based on the cash we were holding onto deposits, we really should be relatively flat year over year. So no headwinds there that we're experiencing looking into 'twenty five and there was no disruption or nothing material in the fourth quarter, if that's what you're referring to.
Speaker Change: You are.
Speaker Change: Our next question comes from Smedes Rose with Citibank. Please state your question.
Smedes Rose: Hi, Thank you.
Speaker Change: I just wanted to ask sort of a bigger picture you talked about cap rates in the fourth quarter and it sounds like kind of expectations for a relatively similar pace in 2025.
Speaker Change: Well, if it's a 10 year continuing to rise I mean, do you think seller expectations will lead to change potentially more in your favor or is it more likely that potentially just a transaction volumes slow in the current environment just kind of interested in your thoughts around that.
Speaker Change: Yeah look at it it's hard to predict I think in the fourth quarter transaction cap rates. They came in a little bit they were slightly below our average for the year and I think that's reflective of a lower you know both the lower 10 year at the time I think in the.
Speaker Change: Our fourth quarter, maybe early on we saw you know in the mid to high threes at that point in time.
And I think there was also an expectation that rates were going to come down with with fed rate cuts. Even further I think that has changed some in and obviously you know the new news today is the hot print with inflation. So we'll see.
Speaker Change: That does over the coming weeks or months, but but yeah. I mean long term cap rates will certainly track you know long term interest rates in the short term. It creates some volatility probably widens bid ask spreads to some extent that you may impact deal volume and I think that's you know part of the reason why you know we initiated deal volume guidance set.
Speaker Change: What I would view as a conservative range because there is uncertainty out there and how that flows through to you know seller's needs and expectations and what that means for being in the market, but you know hard to predict obviously, but you know long term I think certainly cap rates will track interest rates and want to see where they go.
Speaker Change: Yeah, Okay. Okay.
Speaker Change: And then you know in 24 of them and I know you did some investing in Mexico and in Canada. Just wondering are you or you're pausing or are we thinking maybe how you underwrite investing in those countries are given a fair amount of uncertainty around potential tariffs.
Speaker Change: Yeah, I mean, the deals we did in both those countries in Mexico I think it was one transaction it was a U S based company.
Speaker Change: A big company I think one of the larger private industrial conglomerate. Some so it's a good credit are the least importantly as U S. Dollar denominated you know this is a very high quality.
Speaker Change: D pieces of real estate as well long term lease so yes, there might be some short term fluctuations and you know maybe how people view, a mexico, depending on what happens with tariffs and you know I would say that could apply to Canada as well, but we have long leases with good credit so theres not a long term concerns there we'll keep on monitoring those markets sometimes.
Speaker Change: A little bit of dislocation or uncertainty creates opportunity as well I think we would want to make sure we structure them right to it to make sure Theres no kind of short term exposure that we'd be concerned with.
Speaker Change: But overall I don't think it changes materially how we look at you know Mexico or Canada, certainly in the long term.
Speaker Change: Alright, thank you for that.
Speaker Change: Our next question comes from Anthony Powell loan with J P. Morgan. Please state your question.
Yes. Thanks.
Speaker Change: Thank you.
Speaker Change: Doing the rough math right on on kind of what you talked about disposition wise against this $70 million to $75 million of operating property NOI. It seems like youre going to get rid of maybe 40% to 50% of that over the course of this year and so just wondering kind of how you're thinking about the rest of it and whether this is something you're going to continue to wind down in <unk>.
Speaker Change: 26, and then we don't have any of it in 'twenty seven or just thoughts there.
Speaker Change: Yeah, I mean, I think I think base case, maybe midpoint of the disparate range. You know your math is probably right, but we'll keep on evaluating our.
Speaker Change: Funding needs, depending on where deal volume goes and you know certainly we can lean into storage more and we also want to see what the transaction environment looks like for storage.
Speaker Change: I think maybe you know.
Speaker Change: If not this year, probably next year were mostly out of the operating storage business, if not entirely I think that there'll be opportunities to self but there could also be opportunities to convert some of it to net lease as well.
Speaker Change: But for now I think there's a bit of your range on how we view what we'll do with the storage properties, we own are now.
Speaker Change: Got it Okay, and then just second one back to the sort of credit items, you guys covered a lot of the ground with the specific names, but I may have missed this what's just the broader sort of bad debt. If you will that that's in guidance for.
Speaker Change: 2025, and just trying to ascertain whether there's some.
Speaker Change: Some cushion beyond just the the items, you mentioned with breakthrough value and Joanne and stuff.
Speaker Change: Yeah, Tony do you want to tackle that chance number yeah, I think embedded in the initial guidance is a range for credit loss at around $15 million to $20 million. So yeah, that's probably about 50 basis points wider than where we typically start the year and really just again based on broader economic conditions. Our approach really was to take kind of.
Speaker Change: The bottoms up assessment of risk on a tenant by tenant basis and estimate a range of possible outcomes. So you know we did take a top down view as well and and we've built in some conservatism there to cover a degree of uncertainty so.
Speaker Change: You know broadly I think we talked about the larger tenants and we don't expect any imminent disruption there, but we do have again, a broad range of outcomes that could that would will be covered by the $15 million to $20 million range over the course of the year.
Speaker Change: Okay, sorry, just to make sure that that 15 to 20 does it includes true value and Joanne or that's on top of it.
Speaker Change: It does it's all inclusive that's every tenant in the portfolio and I know, Jason referenced kind of the outcome with true value. There, we really expect minimal downside there.
Speaker Change: But you know it does encompass everything that we've discussed.
Speaker Change: Okay, great. Thank you.
Speaker Change: Your next question comes from John Kim with BMO capital markets. Please state your question.
John Kim: Good morning, I realize you only have one 8% of leases expiring this year, but I was wondering if you could break that out.
Speaker Change: Especially.
Speaker Change: Among warehouse in retail where you had the stronger recapture rates this year.
Speaker Change: Last quarter.
Speaker Change: Yeah.
Speaker Change: Sure Yeah. So we have 1.8% expiring in 2025 as you said, it's a very small amount.
Speaker Change: I'd say the majority of that have transactions in progress.
Speaker Change: So we're making good progress on that.
We'll have I think one non renewal in the back half of the year on a couple of warehouses in Europe, which we're currently marketing.
Speaker Change: Reasonable rents there so so we'll work on that.
Speaker Change: In terms of property split.
Speaker Change: The large majority is warehouse and industrial.
Speaker Change: About 20% retail.
Speaker Change: And the balance is really warehousing industrial there so really manageable lease exploration outlook for 2025.
Speaker Change: Okay and then.
Speaker Change: You talked about euro denominated debt as being an attractive source of capital right. Now you have 5 billion roughly of euro debt.
Speaker Change: Assets, maybe give or take 6 billion I'm wondering on year end, where do you see loan to value of your exposure and how much capacity do you have to borrow more.
Speaker Change: Yeah, I think the loan to value, where we're certainly in range or maybe even even below the range that we've seen other.
Speaker Change: You know large Reits that that have a euro debt and have a presence in Europe.
Speaker Change: Probably you know in the 70% to 80% range and that's it that's an estimate and it's been a bit of a guess there in terms of limits. You know I think we can go higher and some of that will depend on.
Speaker Change: You know the deal activity, we're doing and what our currency needs are but you know, we certainly like the flexibility of having the option of issuing.
Speaker Change: Bonds in different currencies and the Euro certainly does that for us.
Speaker Change: Does that change how you look at acquisitions in Europe by another question on the other hand about the risks.
Speaker Change: Foreign exposure, but does.
Speaker Change: Does that make you more inclined to acquire assets in Europe.
Speaker Change: Yeah as I said earlier I think we are generating wider spreads there given that we can borrow right now about 150 basis points inside of where we can borrow in the U S. So we do like generating wider spreads there I think that's been the case historically whenever we've been buying assets.
Speaker Change: But I think there is an ability to lean into pricing, maybe a little bit more if we think we see the right the right deals and and yeah I think that's our expectation.
Speaker Change: Alright. Thanks.
Speaker Change: Thank you and our next question comes from Greg Mcginniss with Scotiabank. Please state your question.
Speaker Change: Hey, good afternoon Jay.
Speaker Change: And could you just expand on your comment regarding retail is complementary to.
Speaker Change: The industrial and warehouse holdings.
Speaker Change: Yeah sure I mean, we're always.
Speaker Change: Looking for ways to expand our opportunity set and certainly our diversified approach supports that.
Speaker Change: You've been active in European retail for quite some time.
Speaker Change: And in the U S. We've been active there, but I would say it's been more opportunistic.
Speaker Change: And so now I think we've mentioned maybe on a call or two ago, there were ramping it up with a dedicated team.
Speaker Change: But I think that we importantly, we want to make sure that it is complementary and we're not shifting our focus away from warehouse and industrial. This is gonna be in addition to doing warehouse industrial and you know the hope is that we're expanding our opportunity set which can help us do more deal volume and ultimately lead to more growth, but it's not in lieu of of.
Speaker Change: Of industrial warehouse.
Speaker Change: Okay, and I guess with regards to the current investment pipeline you guys talked about earlier could you disclose what percent of that is U S. Retail and then how you expect that to trend for the full year. If you could also add in cap rates and escalators on retail versus industrial transactions that'd be I. Appreciate it. Thank you yeah sure sure.
Speaker Change: Should we talk about our pipeline being over.
Speaker Change: Over $300 million at this point in time with identified transactions and we also have another $100 million of capital projects that are scheduled to close them throughout the year. So that's kind of the visibility we have right now I think the capital projects are largely non retail and he is going to be more warehouse and manufacturing expansions.
Speaker Change:
Speaker Change: Some some retail perhaps associated with that with the Las Vegas alone that would fall into that bucket.
Speaker Change: Last year about a third of our deal was was retail this year, it's a little lighter to start off the year. It's probably you know depending on how you kind of.
Speaker Change: Cut through the pipeline, maybe it's in the 10% to 20% range I think cap rates on average are probably similar to our targets across the portfolio I'd say in the sevens.
Speaker Change: Yeah, the bump structures are a little bit lower in the retail. So if you think about average yields are or GAAP cap rates you know the retail that we're targeting is probably going to be a little bit inside of what we can generate certainly and in manufacturing and in many cases in warehouse as well.
Speaker Change: But that's kind of the you know how we view the world.
Speaker Change: Okay. Thank you Susan.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Jim camera with Evercore ISI. Please state your question.
Jim Camera: Thank you good morning could you remind me what percentage of your ABR do you receive tenant financials are reporting in periodicity of that.
Brooks Gordon: Brooks you would take that.
Brooks Gordon: Sure it's materially all of the tenants I mean, there's one exception here or there, but it's really materially all of the tenants we get finished.
Brooks Gordon: Financial reporting from and each lease is different but we got on balance quarterly unaudited typically on a delay of call. It 45 days and then annual audited on a delay of say 60 days on average maybe a little longer for the audits.
Brooks Gordon: And then on certain deals, we get especially around retail.
Brooks Gordon: Store level financials, as well, but also from some manufacturing.
Brooks Gordon: Oh, Great and then is it true that second part of your question.
Speaker Change: Has your sort of tenant slash credit monitoring process and have sort of evolved over the last couple of years I mean, you've done a great job addressing the couple that have come to date in terms of credit problems, but have you made any modifications in the team and the staffing in the sort of the.
Brooks Gordon: The rigor applied thank you.
Brooks Gordon: Well, we've always had a really rigorous credit.
The review process, both on new investments and on an ongoing basis, and it's really driven by tenant relationships as well as financial statement monitoring I would say, where we've made some incremental changes.
Brooks Gordon: What we've chosen to disclose publicly so for example, we've expanded our top 10 list substantially the top 25.
Brooks Gordon: We've made a point of identifying specific larger tenant situations.
Brooks Gordon: On a recurring basis and providing updates directly on those and then lastly, as Tony went through providing what we view as a conservative and really all inclusive credit reserve bucket, that's kind of the most direct way to to model credit risks. So we're quite confident in our process. We've made some improvements around disclosure and communication.
Brooks Gordon: And what we'll continue to do so.
Brooks Gordon: Thank you.
And your next question comes from Michael Goldsmith with UBS. Please state your question.
Michael Goldsmith: Good morning, Thanks, a lot for taking my question.
Michael Goldsmith: Why does it continue to dive into just the expansion into retail you did a portfolio deal with some dollar generals.
Speaker Change: You're under exposed to that category, maybe relative to some of the peers that are focused more on retail every time, but can you talk a little bit about.
Michael Goldsmith: Yeah.
What you see in dollar stores now like that puts you makes you feel comfortable that stepping in at this time and are you considering kind of more exposure to the category going forward. Thanks.
Michael Goldsmith: Yeah sure Michael Yeah, we completed it was about a 200 million dollar deal on dollar general assets in Q4, there's a couple of more from one of the sellers that is going to spill over into into Q1, and maybe about $20 million more so.
Michael Goldsmith: But it's a pretty typical dollar general investment obviously individual assets they are quite granular.
Michael Goldsmith: It's about maybe a little over 100 properties in total and they're spread out across 21 States. I mean look I would I would say it's consistent what we've been talking about are about expanding more into the U S retail.
Michael Goldsmith: And where we can generate some incremental increased deal flow.
Michael Goldsmith: We'd like to hold general because we think it's the strongest at a discount retailers and in terms of timing. This sector was somewhat out of favor.
Michael Goldsmith: At points during 2024, which created you know maybe a little bit more interesting opening for us and as you mentioned many of our competitors are pretty full on their exposure to dollar stores. So we.
Michael Goldsmith: We were able to make up what I would say it.
Michael Goldsmith: Reasonably substantial investment without taking on any outsize exposure relative to our top 25. In fact, you know that investment barely cracks into our top 20. So you know.
Michael Goldsmith: I think that's the idea here, we do like the credit despite some of the the the bumps that it went through in 2024, you know we don't think that is a risk from a cash flow standpoint, we certainly viewed as a safe investment.
Michael Goldsmith: Reliable cash flow for the length of the lease and I think these assets tend to have strong renewal characteristics as well so what do we do more.
Michael Goldsmith: I mentioned, our pipeline has a couple of more in it I think theres nine more stores to close some likely in Q1.
Michael Goldsmith: Beyond that I'll say it'll depend on the economics, but I suspect, we'll look at more at some point.
Speaker Change: Really helpful. And then just as a follow up alright. Thank you jessa.
Speaker Change: In the fourth quarter, what would make you more constructive on data centers and to do additional deals in that group.
Speaker Change: Yeah sure Yeah. We did we did do one data center deal in the first quarter. It was around 100 million dollar acquisition, a little over 200000 square foot data center.
Speaker Change: Lease to a company called Centre square, it's out in Weehawken, New Jersey, you're familiar with the New York market. That's just a few miles outside of New York City, and we view the rents well below market.
Speaker Change: Good credit they have 72 locations, it's really a co locator.
Speaker Change: Yeah, that's that's kind of where they focus.
Speaker Change: I think they provide around 400.
Speaker Change: Megawatts of power capacity and we like the basis is about $8 million per megawatt. So a good deal for us to do.
Speaker Change: You know what do we do more of these yeah. We've been spending time on data centers, you've been working with advisors and bankers on the space I think this deal was a bit unique but yeah, let's see if it's something we can build on it.
Speaker Change: Thank you very much.
Speaker Change: Welcome.
Speaker Change: Okay.
Speaker Change: Our next question comes from John Kotowski with Wells Fargo. Please state your question.
John Kotowski: Good morning, Oh, we've heard on some competitor recalls that competition is picking up from the private side. This year I'm curious how much of that is influencing the lower acquisition guide outside of just maybe traditional conservatism.
Speaker Change: Yeah I mean.
Speaker Change: Yeah, I would agree with that I think that competition has picked up some I mean look the market in the U S, especially the U S has always been competitive I think we've observed some some.
Speaker Change: Private equity entrants coming into the market and they've been at.
Speaker Change: One of them has been fairly aggressive on some portfolio deals that we may view as as weaker portfolios feels like the lending markets. We're starting to come back we'll see if kind of the rate volatility impacts that at all but yeah. I mean look they did the U S has been competitive and I think that's all factored in when we set guidance and and you know.
Speaker Change: It plays a role in the conservatism from the start here I think Europe, you know less competitive and that's one of the things we've always liked about it there's no real established net lease.
Speaker Change: Market over there from a from a public company standpoint, certainly not a pan European competitor, So I'm, a little less over there, but yeah I would kind of echo that that competition is is picking up a little bit.
Speaker Change: Got it and then maybe just to clarify an earlier comment that I think you've made the opening remarks I just want to make sure I heard it right.
Speaker Change: Earth side, I know that there was a potential for us.
Speaker Change:
Speaker Change: So there was room to maybe restructure rents, but it sounds like you think that your kind of recoup everything.
Speaker Change: Just want to make sure I heard that right are you not considering rent restructuring at this point.
Speaker Change: Now we have a.
Speaker Change: It's a big company. They are in bankruptcy I think our expectation is that they'll come out of bankruptcy, you know likely first quarter, but we'll see what the exact timing is.
Speaker Change: And we have highly critical assets that produce a big portion of the products that they generate their customers are the big consumer packaged goods companies that rely on them for a lot of their outsourced production. So.
Speaker Change: So yeah, we think our facilities are needed and therefore won't have any rent disruption and we'll we'll go in and out of bankruptcy.
Speaker Change: Without any disruption and you know that that's the expectation.
Speaker Change: Dictation right now.
Speaker Change: Great. Thank you Youre.
You're welcome.
Speaker Change: And your next question comes from Spenser Glimcher with Green Street Advisors. Please state your question.
Spenser Glimcher: Thank you I'm a storage assets you guys have earmarked for sale have you guys begun marketing knees and indoor or do you have a sense of how deep the buyer pool is.
Spenser Glimcher: Just curious because obviously that the sector has been out of favor. So that's you know it doesn't seem like that's going to get better just because of where the housing market is and then they've also been re operated so there tends to be less operational upside for potential buyers. So if you could just expand on the buyer pool as you see it today.
Brooks Gordon: Yeah, Let me take this and Brooks you can add some color if you if you'd like yeah, but we have not taken it to market yet we're kind of in the pre marketing process right now going through the portfolio and identifying the sub portfolio, we expect to sell it it could be sold as one big portfolio. It could be sold as a number of <unk>.
Brooks Gordon: Or a medium size portfolios I think we can be flexible here I think we're going to size it and and you know the marketing approach will be based on what we think the buyer pool looks like the depth and the size that are being targeted so.
Speaker Change: No real details right now Spencer on on how we look at that but you know I think that we'll update you.
Brooks Gordon: You know as we get as we get deeper into that process.
Speaker Change: In terms of kind of the storage fundamentals.
Speaker Change:
Speaker Change: Yeah, I mean look at it it's not as robust as maybe we would like it to be I think same store comps are getting easier compared to last year. Maybe there is some potential for increased housing mobility, if mortgage rates come down or as we get into the second half of the year I mean, there's certainly a lot of pent up demand for housing change. So I'm, so that could start flowing through it.
Speaker Change: Some point and that's obviously, a big driver in and in storage, but but I think by and large we're still comfortable in and expect you know across our disposition.
Speaker Change: Plan that you know, we can probably generate a 100 basis points of spread between what we sell on about you know what we buy and I think that's going to generate some good growth for us.
Speaker Change: Okay, Great. That's all for me. Thanks, so much okay Youre welcome.
Speaker Change: Thank you and before we take the next question just a final reminder to ask a question at this time press Star one on your telephone keypad to remove yourself from the queue Press star two.
Sorel Grannis: Our next question comes from Sorel Grannis with Bank of America. Please state your question.
Speaker Change: Hi, This is <unk>. Thanks, so much for the question I was curious given your portfolio acquisitions tendon traditionally tilt more sale leaseback can you give a comment on how you're seeing sale leasebacks in the market today, and how you're thinking about that going forward in your acquisition guidance compared to.
Sorel Grannis: Affiliate acquisitions.
Speaker Change: Yeah sure Yeah, we have historically done I would say the majority and maybe in some years. The vast majority of our new new deals in our sale leasebacks were build to suits, which is they have very similar characteristics. I think last year was a bit of an exception over half of our deals last year were.
Speaker Change: You know for our existing leases either from you know say developers or portfolio of sellers.
Speaker Change: We hope to do a little bit more of that this year again, but right now I think that our pipeline is back you know more heavily weighted towards sale leasebacks.
Speaker Change: Look sale leasebacks, Theres, certainly correlation to M&A and in some regards and I think there is expectation that as we get into 2025, maybe M&A will pick up but.
Speaker Change: But it's not just you know you know.
Speaker Change: Tied to M&A. It's certainly you know when we're in a down cycle or the there's dislocation in the financing market sale leasebacks provide you know a nice alternative to debt or equity capital and I think we've seen a lot of that over the last couple of years and you know maybe there is opportunities to do more of that going forward and and of course, we've done a lot of sale leasebacks.
Speaker Change: Alongside private equity sponsors and we have a.
Speaker Change: A great bench of relationships there that we can lean on and provide.
Speaker Change: Capital when it's needed so yeah. It it's still a market that that will rely on quite a bit but maybe a little less so than we have historically because I think we can lean into some existing lease and maybe that'll be the case, especially with U S retail.
Speaker Change: Hey, Thank you and one other one on your acquisition of the tidal wave auto Spa, just curious of your thoughts in the car wash industry <unk> been hearing more pressure just kind of anecdotally about hairy itself and your thoughts about continued expansion in that area yeah.
Brooks Gordon: Sure Brooks you want to take that.
Brooks Gordon: Sure we've done a handful of car washes its quite a small exposure for us, but I think the news item was around the bankruptcy of zips.
Brooks Gordon: We've done ours with a.
Brooks Gordon: A company called tidal wave, which we view as really a best in class operator, great sponsorship really a different story than zips.
Brooks Gordon: That said, it's quite a small <unk>.
Brooks Gordon: Investment exposure for us, but we do really like the location and tidal wave is a great operator.
Brooks Gordon: Okay. Thank you.
Speaker Change: Thank you at this time I'm not showing any further questions I'll now hand, the call back to Mr Sands.
Speaker Change: Thanks, everyone for your interest in W. P. Carey if anyone has additional questions. Please call investor relations directly on to one to four nine to 1110 that concludes today's call and you may now disconnect.