Q1 2025 W. P. Carey Inc Earnings Call
Diego: Hello and welcome to WP Carey's first quarter. 2025 Earnings Conference Call. My name is Diego and I will be your operator today.
Hello, and welcome to W. P Carey's first quarter.
2025 earnings conference call.
Diego: My name is Diego and I will be your operator today.
Diego: 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 will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time.
Diego: All lines have been placed on mute to prevent any background noise. Please.
Diego: Please note that today's event is being recorded.
Diego: After today's prepared remarks, we will be taking questions via the phone line <unk>.
Diego: Instructions on how to do so will be given at the appropriate time.
Peter Sands: I will now turn today's program over to Peter Sands, Head of Investor Relations. Please go ahead.
Diego: I will now turn today's program over to Peter Sands.
Speaker Change: <unk> of Investor Relations Mr. Sands. Please go ahead.
Peter Sands: Good morning, everyone, and thank you for joining us this morning for our 2025 First Quarter Earnings Call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements. Factors that could cause actual results to differ materially from WP Carey's expectations are provided in our SEC filing.
Peter Sands: Good morning, everyone and thank you for joining us this morning for our 2025 first quarter earnings call.
Peter Sands: Before we begin I would like to remind everyone that some of the statements made on this call 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.
Peter Sands: An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com where it will be archived for approximately one year and where you can also find copies of our investor presentations and other related material.
Peter Sands: Online replay of this conference call will be made available in the Investor Relations section of our website at WP Carey Dot com, where it will be archived for approximately one year and where you can also find copies of our investor presentations Ala related materials.
Jason Fox: And with that, I'll hand the call over to our Chief Executive Officer, Jason Fox. Thanks, Peter, and good morning, everyone. We entered the year anticipating uncertainty. And the uncertainty surrounding tariffs clearly proved to be the key theme of the first quarter. To date, however, that uncertainty has not translated into any direct impacts on our business. Continued executing on the plan we previously outlined for 2025. We started the year with solid investment volume and good visibility into additional deals closing over the near term. We also remain comfortable with our ability to accretively fund new investments this year, including through the high end of our guidance range, without needing to access the capital market.
Peter Sands: And with that I'll hand, the call over to our Chief Executive Officer, Jason Fox.
Jason Fox: Thanks, Peter and good morning, everyone.
Peter Sands: We entered the year anticipating uncertainty.
Peter Sands: The uncertainty surrounding tariffs clearly proved to be the key theme for the first quarter.
Peter Sands: To date, however that uncertainty has not translated into any direct impacts on our business.
Peter Sands: We have continued executing on the plan, we previously outlined for 2025.
Peter Sands: You started the year with solid investment volume you have good visibility into additional deals closing over the near term.
Peter Sands: We also remain comfortable with our ability to Accretively fund new investments this year, including through the high end of our guidance range without needing to access the capital markets.
Peter Sands: But the potential impacts of tariffs are causing substantial uncertainty in the broader economy and capital markets to date, we haven't seen any direct effects on the performance of our portfolio, but it through rent collections were releasing.
Jason Fox: Potential impacts of tariffs are causing substantial uncertainty in the broader economy and capital markets. To date, we haven't seen any direct effects on the performance of our portfolio, whether through rent collections or re-leasing. We continue to believe that our estimate of potential rent loss from tenant credit events, which is embedded in our guidance, will be sufficient, even if tariffs put pressure on tenant margins later this year. Despite the uncertainty over tariffs, we have now resolved the situations with two of our top tenants that were experiencing credit difficulties, as we outlined in our recent business update press release.
Peter Sands: We continue to believe that our estimate of potential rent loss from tenant credit events, which is embedded in our guidance will be sufficient.
Even if tariffs put pressure on tenant margins later this year despite.
Peter Sands: Despite the uncertainty over tariffs we have now resolved the situations with two of our top tenants that were experiencing credit difficulties as we outlined in our recent business update press release.
Jason Fox: Overall, we remain cautious on the environment, but are comfortable with the assumptions baked into our guidance, and also see a path to the high end of our AFFO and investment volume guidance ranges.
Peter Sands: Overall, we remain cautious on the environment, but are comfortable with the assumptions baked into our guidance and also see a path to the high end of our airflow and investment volume guidance ranges.
Jason Fox: This morning, I'll focus on several topics. Our recent investment activity and an update on our sources of capital to fund those deals. Additional perspective on tariffs and an update on tenant credit.
Peter Sands: This morning, I'll focus on several topics.
Peter Sands: Our recent investment activity and an update on our sources of capital to fund those deals.
Peter Sands: Additional perspective on tariffs and an update on tenant credit.
Jason Fox: Following that, Toni Sanzone, our CFO, will review our results and guidance, and Brooks Gordon, our Head of Asset Management, is joining us to take questions. Starting with our investment activity. Year-to-date, we've closed about $450 million of investment. with an initial weighted average cap rate of 7.4%, including the $275 million we closed in the first quarter. Importantly, with rent escalation structures averaging in the mid to high 2% range, the average yield over the life of the leases exceeds 9%. We also have several hundred million dollars of investments in our pipeline at advanced stages, the majority of which we expect to close in the next couple of months.
Speaker Change: Following that Tony Sand zone, our CFO, who will review our results and guidance and Brooks Gordon our head of asset management is joining us to take questions.
Speaker Change: Starting with our investment activity year to date, we've closed about $450 million of investments with an initial weighted average cap rate of seven 4%, including the $275 million, we closed in the first quarter.
Speaker Change: Importantly, with rent escalation structures, averaging in the mid to high 2% range. The average yield over the life of the leases exceeds 9%.
Speaker Change: We also have several hundred million dollars of investments in our pipeline at advanced stages. The majority of which we expect to close in the next couple of months.
Jason Fox: In addition, we currently have eight capital projects totaling $117 million scheduled for completion this year. So four months into the year, we have clear visibility into approximately $570 million of deals for 2025 in a solid near-term pipeline. Important to note that the market for net lease real estate, which generally has long lease terms, is not as influenced by near-term fluctuations in market rents and leasing velocity. compared to shorter term multi-tenant property. As a result, to date, we've seen very little disruption in net lease transaction activity. Furthermore, we foresee scenarios where sale-leaseback transactions continue to ramp up as they can be very attractive alternative sources of capital for corporates and sponsored-backed companies during times of market volatility.
Speaker Change: In addition, we currently have eight capital projects totaling $117 million scheduled for completion this year.
Speaker Change: So four months into the year, we have clear visibility into approximately $570 million of deals for 2025, and a solid near term pipeline.
Speaker Change: It's important to note that the market for net lease real estate, which generally has long lease terms is not as influenced by near term fluctuations in market rents and leasing velocity compared to shorter term multi tenant properties.
Speaker Change: As a result to date, we've seen very little disruption net lease transaction activity further.
Speaker Change: Furthermore, we foresee scenarios were sale leaseback transactions continue to ramp up as it can be very attractive alternative sources of capital for corporates and sponsored backed companies during times of market volatility.
Jason Fox: As the market leader in sale leasebacks, which typically comprise a large portion of our investment volume, we would be at a distinct advantage competing on new investors. Similarly, if mortgage lenders tighten their lending criteria, real estate private equity and other competitors that use asset-level debt will become less competitive.
Speaker Change: As the market leader in sale leasebacks, which typically comprise a large portion of our investment volume.
Speaker Change: Be it a distinct advantage competing on new investments Similarly, if mortgage lenders tighten their lending criteria real estate private equity and other competitors that use asset level debt will become less competitive.
Speaker Change: Summary, we believe we remain on track or ahead of expectations for the first half of the year and once we have greater visibility into how the transaction environment is likely to play out over the remainder of the year, we see a path to raising our expectations for full year investment volume.
Jason Fox: Summary, we believe we will remain on track or ahead of expectations for the first half of the year, and once we have greater visibility into how the transaction environment is likely to play out over the remainder of the year, we see a path to raising our expectations for full year investment volume, although we're mindful that the overall flow of new deal launches has some potential to slow amid the current climate of uncertainty.
Speaker Change: We're mindful that the overall flow of new deal launches has some potential to slow amid the current climate of uncertainty.
Jason Fox: That brings me to our sources of capital. Continue to believe we have one of the lowest costs of debt in the net lease sector, through our mix of U.S. dollar and Euro-denominated debt. Toni will discuss the details, but during the quarter, we refinanced our Euro term loan, fixing its interest rate below 3% through an interest rate swap. We don't have any meaningful additional debt maturities in 2025, and at quarter end, we were only minimally drawn on our $2 billion revolver. Our next bond maturity is the Euro bond maturing in April 2026, and our next U.S.
That brings me to our sources of capital.
Speaker Change: We continue to believe we have one of the lowest cost of debt in the net lease sector through our mix of U S dollar and euro denominated debt telling.
Speaker Change: Tony will discuss the details, but during the quarter, we refinanced our euro term loan fixing its interest rate below 3% through an interest rate swap.
Speaker Change: We don't have any meaningful additional debt maturities in 2025.
Speaker Change: And we were only minimally drawn on our $2 billion revolver.
Speaker Change: Our next bond maturity is the eurobond maturing in April 2026, and our next U S bond maturity isn't until October of 2026.
Jason Fox: bond maturity isn't until October of 2020.
Jason Fox: On the Equi side, we're making progress on our plan to fund our investments this year, primarily through non-core asset sales. During the first quarter, we sold assets totaling approximately $130 million and are making headway on additional dispositions. In addition to that, we're currently in the market with a sizable portfolio of operating self-storage assets. representing about half of our total self-storage operating NOI. While it is too early to say what the exact outcome will be, we have seen substantial interest from self-storage buyers, and we're evaluating various options to maximize value, ranging from several smaller portfolio sales to a single buyer.
On the equity side, we're making progress on our plan to fund our investments this year, primarily through noncore asset sales.
Speaker Change: During the first quarter, we sold assets totaling approximately $130 million.
Speaker Change: Headway on additional dispositions.
Speaker Change: In addition to that we're currently in the market with a sizeable portfolio of operating self storage assets, representing about half of our total self storage operating NOI.
Speaker Change: While it is too early to say what the exact outcome will be we have seen substantial interest from self storage buyers.
Speaker Change: [noise] waiting various options to maximize value ranging from several smaller portfolio sales to a single buyer.
Jason Fox: We expect deal timing to be the second half of the year, and to the extent there are multiple buyers, deals may close at different times. We remain comfortable that we'll generate at least 100 basis points of spread this year between our asset sales and new investments. We will, of course, look to do better than that, but currently we're maintaining that assumption in our guidance model. More broadly, we believe our investment spreads are underappreciated by the market, as the narrative is often around going in cap rates, without any discussion of rent growth over the life of the lease.
Speaker Change: We expect deal timing to be the second half of the year and to the extent there are multiple buyers deals may close at different times.
Speaker Change: We remain comfortable that will generate at least 100 basis points of spread this year between our asset sales and new investments. We'll of course, what could you do better than that but currently we're maintaining that assumption in our guidance model.
Speaker Change: More broadly we believe our investment spreads are underappreciated by the market at the narrative, it's often around going in cap rates without any discussion of rent growth over the life of the lease.
Jason Fox: We combine our ability to partially finance deal activity through European debt with our sector-leading rent bumps. We continue to feel good about our ability to generate growth through new investments. And we remain focused on putting capital to work this year.
Speaker Change: When you combine our ability to partially finance deal activity through European debt with our sector, leading rent bumps. We continue to feel good about our ability to generate growth through new investments and we remain focused on putting capital to work this year.
Jason Fox: Turning now to our perspective on tariffs. While it's too soon to determine how tariffs can impact our business this year, we would highlight several points. Our portfolio is built to withstand downturns and periods of economic downturn. We focus on investing in large companies which have greater liquidity and access to capital and are far better equipped to weather economic downturns than smaller companies. Approximately three quarters of our ABR comes from tenants that generate annual revenues of over $500 million. We own critical real estate with strong lease. And in cases where a tenant's business is restructured, we frequently don't see any disruption in rent.
Speaker Change: Turning now to our perspective on tariffs.
Speaker Change: While it's too soon to determine how tariffs could impact our business. This year, we would highlight several points our portfolio is built to withstand downturns and periods of economic weakness we.
Speaker Change: We focus on investing in large companies, which have greater liquidity and access to capital and are far better equipped to weather economic downturns than smaller companies.
Speaker Change: Approximately three quarters of our ABR comes from tenants to generate annual revenues of over $500 million.
Speaker Change: Beyond critical real estate with strong leases and in cases, where tenants businesses restructured we frequently don't see any disruption in rents.
Speaker Change: What are the potential misperceptions about our international portfolio is that inherently faces greater risks from the direct effects of tariffs compared to a purely U S portfolio.
Jason Fox: One of the potential misperceptions about our international portfolio is that it inherently faces greater risks from the direct effects of tariffs compared to a purely U.S. portfolio. But in reality, the majority of our European tenants operate primarily domestic. selling into their local markets rather than exporting to the U.S., especially in industries like grocery, home improvement, and car dealerships, which comprise the bulk of the European tenants in our top 25. Industrial and warehouse properties have also been a focal point when considering the impacts of tariffs on the real estate sector. Particularly the potential impacts on releasing and demand for space.
Speaker Change: But in reality the majority of our European tenants operate primarily domestically selling into their local markets rather than exporting to the U S, especially in industries like grocery home improvement and car dealerships, which comprised the bulk of the European tenants in our top 25.
Speaker Change: Industrial and warehouse properties have also been a focal point when considering the impacts of tariffs on the real estate sector.
Speaker Change: Particularly the potential impacts on releasing and demand for space in general our warehouse tenants are not positioned in major ports or logistics hubs, where they might have obvious exposure to international supply chains.
Jason Fox: In general, our warehouse tenants are not positioned in major ports or logistics hubs where they might have obvious exposure to international supply chains. Because our leases are long, with leases representing just 1.3% of ABR expiring this year and 2.9% next year, the leasing and occupancy pressure that may be flowing through to traditional REITs will not be as impactful in our portfolio. Furthermore, to the extent the on-shoring trend continues, we think the value and importance of our industrial portfolio could be enhanced through greater demand for domestic manufacturing capacity. In fact, recent conversations with tenants have included inquiries and discussions on expansions indicating that this is becoming more of a focus.
Speaker Change: Because our leases are long with leases, representing just one 3% of ABR expiring this year and two 9% next year, the leasing and occupancy pressure that may be flowing through to traditional rights will not be as impactful on our portfolio.
Speaker Change: Furthermore to the extent the onshoring trend continues we think the value and importance of our industrial portfolio could be enhanced through greater demand for domestic manufacturing capacity in.
Speaker Change: In fact recent conversations with tenants that included inquiries and discussions on expansions, indicating that this is becoming more of a focus.
Jason Fox: The final and perhaps most important point I want to make regarding tariffs is that the current uncertainty over their magnitude and timing does not change the estimated rent loss we've accounted for in our 2025 guidance. which covers a variety of scenarios, including those in which we experience incremental unexpected credit events. We still feel good about the AFFO growth estimate we've guided to and continue to see the potential to increase it as we gain greater visibility into the remainder.
Speaker Change: The final and perhaps most important point I want to make regarding tariffs is that the current uncertainty over their magnitude and timing does not change the estimated rent loss. We've accounted for in our 2025 guidance, which covers a variety of scenarios, including those in which we experienced incremental unexpected credit events. This year.
Speaker Change: So we still feel good about the <unk> growth estimate we've guided to and continue to see the potential to increase it as we gain greater visibility into the remainder of the year.
Speaker Change: Before I hand, the call over to Tony I want to give a brief update on the significant tenants. We've been focused on from a credit perspective, mainly true value, which is now do it best hearthside in <unk>.
Jason Fox: Before I hand the call over to Toni, I want to give a brief update on the significant tenants we've been focused on from a credit perspective. namely True Value, which is now Do It Best, Hearthside, and Helditch. To date, the situations with Do It Best and Hearthside have played out as we anticipated, which were factored into our initial guidance and covered in our recent business update. Helvig's status is also largely unchanged since our recent press release. It remains current on rent, although it continues to face a challenging operating environment, including weak German consumer spending and a competitive do-it-yourself industry.
Speaker Change: To date, the situations would do it best in Hearthside have played out as we anticipated which were factored into our initial guidance and covered in a recent business update.
Speaker Change: Health status is also largely unchanged since our recent press release.
Speaker Change: <unk> current on rent, although it continues to face a challenging operating environment, including weak German consumer spending and a competitive do it yourself industry.
Jason Fox: Helbig continues to work with its key stakeholders, including landlords and lenders, to further improve its liquidity, and those conversations are ongoing. In the meantime, we're actively reducing our exposure, executing agreements at the end of March to take back 12 stores, representing about one-third of our total exposure, with seven stores terminated by September of this year, and another five stores by September of next year. We expect to re-tenant most of those stores, achieving rents in line with their existing rents, and to sell the rest, in both cases with limited downtime. Those steps should help improve Helvig's liquidity while also giving us clear line of sight to moving Helvig out of our top ten tenants.
Speaker Change: <unk> continues to work with its key stakeholders, including landlords and lenders to further improve its liquidity and those conversations are ongoing.
Speaker Change: In the meantime, we're actively reducing our exposure executing agreements at the end of March to take back 12 stores, representing about one third of our total exposure with seven stores terminated by September of this year.
Speaker Change: Another five stores by September of next year.
We expect to re tenant most of those stores achieving rents in line with their existing rents and to sell the rest in both cases with limited downtime.
Speaker Change: Those steps should help improve held ex liquidity, while also giving us clear line of sight to moving helbig out of our top 10 tenants lastly separate from the 12 stores. We're taking back we recently sold one of the occupied <unk> stores in our portfolio and have an additional three under binding contracts further reducing our exposure in the near term.
Jason Fox: Lastly, separate from the 12 stores we're taking back, we recently sold one of the occupied Helvig stores in our portfolio and have an additional three underbinding contracts, further reducing our Helvig exposure in the near term.
Toni Sanzone: I'll pause there and hand over to Toni to discuss our results and guidance. Thanks, Jason. Starting with earnings, we generated AFFO per share of $1.17 for the first quarter, an increase of 2.6% year-over-year. Our first quarter results and activity through April reflect a solid start to the year, keeping us on pace and even ahead of our expectations today. We have reaffirmed our AFFO guidance range of $4.82 to $4.92 per share. As we continue to monitor and navigate current market dynamics, we remain cautiously optimistic that we have a path to exceed the 3.6% growth implied in our guidance.
Speaker Change: Pause, there and hand over to Tony to discuss our results and guidance.
Tony Sand: Thanks, Jason starting with earnings we generated <unk> per share of $1 17 for the first quarter, an increase of two 6% year over year.
Tony Sand: Our first quarter results and activity through April reflect a solid start to the year, keeping us on pace and even ahead of our expectations to date.
Tony Sand: We have reaffirmed our <unk> guidance range of $4 82 to $4 92 per share.
Tony Sand: As we continue to monitor and navigate current market dynamics, we remain cautiously optimistic that we have a path to exceed the 3.6% growth implied in our guidance.
Toni Sanzone: As Jason noted, we have good momentum on the deal front, and our guidance continues to assume investment volume of between $1 and $1.5 billion. During the quarter, we sold nine assets, generating total proceeds of $130 million. We continue to expect dispositions for the year to total between $500 million to $1 billion, with a large majority expected to be opportunistic, non-core asset sales, including operating self-storage properties. We remain confident in our ability to generate proceeds from these asset sales at cap rates that allow us to accretively fund investment activity, even above the high end of our guidance range.
Jason Fox: As Jason noted we have good momentum on the deal front and our guidance continues to assume investment volume of between one and $1 $5 billion.
During the quarter, we sold nine assets generating total proceeds of $130 million.
Jason Fox: We continue to expect dispositions for the year to total between $500 million to 1 billion with a large majority expected to be opportunistic noncore asset sales, including operating self storage properties.
Jason Fox: We remain confident in our ability to generate proceeds from these asset sales at cap rates that allow us to Accretively fund investment activity, even above the high end of our guidance range.
Toni Sanzone: Contractual same-store rent growth for the quarter was 2.4% year-over-year and is expected to remain around that level for the full year. As a reminder, about 50% of our contractual rent increases are tied to CPI, positioning us well if inflation starts to rise as a result of tariffs, although the tailwind to our lease revenues would be more impactful next year and beyond. Comprehensive same-store growth for the quarter was 4.5% year-over-year, partly benefiting from the rent abatement for Helwig during last year's first quarter, as well as the commencement of ongoing cash rent this year from our warehouse lease to Samsung.
Jason Fox: Contractual same store rent growth for the quarter with 2.4% year over year and is expected to remain around that level for the full year.
Jason Fox: As a reminder, about 50% of our contractual rent increases are tied to CPI positioning us well if inflation starts to rise as a result of tariffs, although the tailwind to our lease revenues would be more impactful next year and beyond.
Jason Fox: Comprehensive same store growth for the quarter was four 5% year over year.
Jason Fox: Partly benefiting from the rent abatement for helwig during last year's first quarter as well as the commencement of ongoing cash rent this year from our warehouse leased to Samsung.
Toni Sanzone: Historically, our comprehensive S.A.M.E. store has typically tracked around 100 basis points below contractual. Although based on our current estimates, we're on track to do better than that for the full year. Leasing activity for the quarter comprised 16 renewals or extensions, representing 1.8% of portfolio ABR, which continued to trend positively, recapturing 103% of prior rents, while adding 6.2 years of incremental weighted average lease terms. Our AFFO guidance continues to include an estimated $15 to $20 million for potential rent loss from tenant credit events. We currently have visibility into identified rent loss, which is expected to represent about one-third of our total estimate, including downtime on the Helwig stores we're taking back, with the balance of the reserve reflecting the uncertainty of the current macro environment.
Jason Fox: Historically, our comprehensive same store has typically tracked around 100 basis points below contractual although based on our current estimates we're on track to do better than that for the full year.
Jason Fox: Leasing activity for the quarter comprised 16 renewals or extensions, representing one 8% of portfolio ABR, which continued to trend positively recapturing 103% of prior rents, while adding 6.2 years of incremental weighted average lease term.
Jason Fox: Our guidance continues to include an estimated $15 million to $20 million of potential rent loss from tenant credit events.
Jason Fox: We currently have visibility into identified rent loss, which is expected to represent about one third of our total estimate including downtime on the helwig stores, we're taking back with the balance of the reserve, reflecting the uncertainty of the current macro environment.
Toni Sanzone: We continue to believe that our estimate of potential rent loss will be sufficient and possibly conservative, even if tariffs put pressure on tenants later this year. Other lease-related income totaled $3.1 million during the first quarter and is expected to increase as the year progresses. Based on current visibility, we continue to expect other lease-related income to total between $20 and $25 million for the full year, consistent with where it's been in recent years. On the expense side, both G&A and income tax expense tend to run higher in the first quarter due to timing and are expected to resume a steadier run rate beginning in the second quarter.
Jason Fox: We continue to believe that our estimate of potential rent loss will be sufficient and possibly conservative even if tariffs put pressure on tenants later this year.
Jason Fox: Other lease related income totaled $3 $1 million during the first quarter and is expected to increase as the year progresses.
Jason Fox: Based on current visibility we continue to expect other lease related income to total between 20 and $25 million for the full year consistent with where it's been in recent years.
Jason Fox: On the expense side, both G&A and income tax expense tend to run higher in the first quarter due to timing and are expected to resume a steadier run rate beginning in the second quarter.
Toni Sanzone: For the full year, we continue to expect these expenses to be in line with our initial guidance expectations as provided in our earnings report. During the first quarter, operating property NOI totaled $16.6 million, comprised of $13.6 million from our portfolio of 78 operating self-storage properties, and a total of $3 million from our four remaining hotels and student housing assets. Excluding the impact of expected dispositions, our operating property portfolio would be expected to generate between $70 and $75 million of operating NOI during 2025. However, as previously noted, a significant portion of our dispositions this year are expected to be sales of self-storage operating assets, which our guidance assumes occurs in the second half of the year.
Jason Fox: For the full year, we continue to expect these expenses to be in line with our initial guidance expectations as provided in our earnings release.
Jason Fox: During the first quarter operating property NOI totaled $16 $6 million comprised of $13 6 million from our portfolio of 78 operating self storage properties and a total of $3 million from our four remaining hotels in student housing assets.
Jason Fox: Excluding the impact of expected dispositions, our operating property portfolio would be expected to generate between 70 and $75 million of operating NOI during 2025.
Jason Fox: However, as previously noted a significant portion of our dispositions. This year are expected to be sales of self storage operating assets, which our guidance assumes occurs in the second half of the year.
Toni Sanzone: As we get more clarity regarding the timing of asset sales, we will update our operating NOI estimates accordingly. Non-operating income for the first quarter totaled $7.9 million, comprised of a $2.8 million dividend from our equity stake in Lineage. 2.6 million of interest income and 2.6 million of realized gains on currency hedging. Our guidance assumes the dividend from lineage is held at its current level for the remainder of the year. Beginning in the second quarter, interest income will decline to a nominal level, generally less than $1 million per quarter, as we've now fully deployed our excess cap.
Jason Fox: As we get more clarity regarding the timing of asset sales, we will update our operating NOI estimates accordingly.
Jason Fox: Non operating income for the first quarter totaled $7 $9 million comprised of a 2.8 million dollar dividend from our equity stake in lineage.
Jason Fox: $2 6 million of interest income and $2 6 million of realized gains on currency hedges.
Jason Fox: Our guidance assumes the dividend from linear just held at its current level for the remainder of the year.
Jason Fox: Beginning in the second quarter interest income will decline to a nominal level generally less than 1 million per quarter as we've now fully deployed our excess cash.
Toni Sanzone: While foreign currency gains from our hedging program are now expected to be lower given a weaker U.S. dollar, it's important to remember that our European cash flows, and therefore AFFO, are positively impacted by a stronger euro and pound, offsetting any decline from currency hedging. In total, we currently expect non-operating income in the low to mid $20 million range for the full year.
Jason Fox: While foreign currency gains from our hedging program are now expected to be lower given a weaker U S. Dollar it's important to remember that our European cash flows and therefore, a ASO are positively impacted by a stronger euro and pound offsetting any decline from currency hedging.
Jason Fox: In total we currently expect non operating income in the low to mid $20 million range for the full year.
Toni Sanzone: Moving now to our balance sheet and leverage. Our balance sheet remains extremely well-positioned with ample liquidity and very minimal near-term debt maturity. Following the repayment of the $450 million bond that came due in the first quarter, we fully deployed the excess cash we had on our balance sheet at year end. We ended the first quarter with liquidity totaling almost $2 billion, comprised largely of the availability on our credit facility. Our remaining 2025 debt maturities comprise less than $140 million of mortgage debt, and our next bond maturity is not until April 2026. As previously announced, at the end of the first quarter, we refinanced our 500 million euro term loan, extending its maturity an additional three years to 2029, with an option to extend up to an additional year.
Jason Fox: Moving now to our balance sheet and leverage our balance sheet remains extremely well positioned with ample liquidity and very minimal near term debt maturities.
Jason Fox: Following the repayment of the $450 million bond that came due in the first quarter, we fully deployed the excess cash we had on our balance sheet at year end.
Jason Fox: We ended the first quarter with liquidity totaling almost $2 billion comprised largely of the availability on our credit facility.
Jason Fox: Our remaining 2025 debt maturities comprised less than $140 million of mortgage debt and our next bond maturity is not until April 2026.
Jason Fox: As previously announced at the end of the first quarter, we refinanced our 500 million Euro term loan extending its maturity and an additional three years to 2029 with an option to extend up to an additional year.
Toni Sanzone: In connection with this refinancing, we executed an interest rate swap, locking in an attractive all-in rate of 2.8% through the end of 2027, which further demonstrates the advantages of having access to euro-denominated debt and multiple pools of capital. Our overall weighted average cost of debt for the first quarter remained low at 3.2% and is currently expected to stay around that level for the remainder of the year, supported by the excellent execution we achieved on our term limit. We ended the quarter with our key leverage metrics well within our target ranges with debt-to-gross assets at 41% and net debt-to-adjusted EBITDA at 5.8 times.
Jason Fox: In connection with this refinancing we executed an interest rate swap locking in an attractive all in rate of two 8% through the end of 2027, which further demonstrates the advantages of having access to euro denominated debt and multiple pools of capital.
Jason Fox: Our overall weighted average cost of debt for the first quarter remained low at three 2% and is currently expected to stay around that level for the remainder of the year supported by the excellent execution, we achieved on our term loan.
Jason Fox: We ended the quarter with our key leverage metrics well within our target ranges with debt to gross assets at 41% and net debt to adjusted EBITDA at five eight times.
Jason Fox: The strength of our balance sheet combined with our ability to generate proceeds from noncore asset sales leaves us very well positioned to Accretively fund our acquisition volume this year without the need to raise equity capital.
Toni Sanzone: The strength of our balance sheet, combined with our ability to generate proceeds from non-core asset sales, leaves us very well positioned to accretively fund our acquisition volume this year, without the need to raise equity capital.
Toni Sanzone: On an administrative note, we expect to file a registration statement this week, updating our existing shelf registration upon its expiration in May. which will include the renewal of our existing ATM program.
Jason Fox: On an administrative note we expect to file a registration statement. This week updating our existing shelf registration upon its expiration in may.
Jason Fox: Which will include the renewal of our existing ATM program.
Toni Sanzone: Lastly, during the first quarter, we declared a dividend of $0.89 per share, or $3.56 annualized, representing a 2.9% increase over the prior year. Our dividend is very well covered by our AFFO per share, with an expected annual payout ratio of 73%.
Jason Fox: Lastly, during the first quarter, we declared a dividend of 89 cents per share or $3.56 annualized representing a two 9% increase over the prior year.
Jason Fox: Our dividend is very well covered by our F O per share with an expected annual payout ratio of 73%.
Jason Fox: And with that, I'll hand the call back to Jason. Thanks, Toni. In conclusion, we feel very good about how we've started the year and the progress we're making towards executing plans outlined in our previous call. We're tracking slightly ahead of the initial expectations we provided on investments, and we're actively working on the non-core dispositions we highlighted. So we continue to have confidence in accretively funding investments through the high end of our guidance without needing to access the equity markets. Although there are still a range of potential scenarios that could play out with tariffs, in most scenarios we believe we have already accounted for this uncertainty in our initial guidance.
Jason Fox: And with that I'll hand, the call back to Jason.
Speaker Change: Thanks, Tony and.
Speaker Change: In conclusion, we feel very good about how we've started the year and the progress we're making towards executing plans outlined on our previous call.
Speaker Change: We're tracking slightly ahead of the initial expectations, we provided on investments and we're actively working on the noncore dispositions. We highlighted so we continue to have confidence and Accretively funding investments through the high end of our guidance without needing to access the equity markets. Although there are still a range of potential scenarios that could play out with tariffs in most scenarios. We believe we have.
Speaker Change: Already accounted for this uncertainty in our initial guidance, we're very comfortable affirming our growth expectations and we see the potential to raise guidance from here as we gained greater visibility into how tariffs tenant credit and the transaction environment are playing out for the year.
Jason Fox: We are very comfortable affirming our growth expectations and we see the potential to raise guidance from here as we gain greater visibility into how tariffs, tenant credit, and the transaction environment are playing out.
Diego: That concludes our prepared remarks, so I'll hand the call back to the operator to take questions. And 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 you would like to withdraw your question, press the star, then the number 2.
Speaker Change: That concludes our prepared remarks, so I'll hand, the call back to the operator to take questions.
Speaker Change: Thank you.
Speaker Change: And at this time, we will take questions. If you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The Star then the number two.
Greg Mcginniss: Our first question comes from Greg McGinniss with Scotiabank. Please state your question. Hey, good morning. Jason, you know that there's several hundred million dollars of deals in the pipeline. Could you just provide some details on... Cap rates, retail-industrial split, and US-Europe split on that. Yeah, sure. So, you know, like, like always, our cap rates, you know, spread across a range, and sometimes that's a relatively wide range, depending on a number of factors. We're still currently targeting deals in the sevens on average, you know, we'll probably, you know, guide towards mid sevens, which is where we ended last year.
Speaker Change: Our first question comes from Greg Mcginniss with Scotiabank. Please state your question.
Greg Mcginniss: Hey, good morning.
Speaker Change: Jason you know, there's there's several hundred million dollars of deals in the pipeline could you just provide some details on <unk>.
Speaker Change: Cap rates are retail industrial split in U S Europe split on that.
Speaker Change: Yeah sure. So you know like like always our cap rates.
Speaker Change: Spread across a range and sometimes that's a relatively wide range, depending on a number of factors.
Speaker Change: We're still currently targeting deals in the Sevens on average we'll probably.
Speaker Change: You know guide towards mid Sevens, which is where we ended last year. So it's where we were in the first quarter and it's you know roughly where our price our pipes.
Jason Fox: So that's where we were in the first quarter. And it's roughly where our price, our current pipeline is priced as well. So, you know, that's, and I would say that's generally the same across the US and Europe, obviously, Europe, you can have even a wider range of cap rates, depending on countries. But generally speaking, I think that they're relatively consistent within that range. When you think about Europe, you know, obviously we have a much lower cost of debt in Europe, we're probably 150 to 175 basis points inside of where we could borrow in U.S. dollars.
Speaker Change: Pipeline is price as well.
Speaker Change: So that's it and I would say that's generally the same across the U S and Europe, obviously, you're at you can have even a wider range of cap rates, depending on countries, but generally speaking I think that they're relatively consistent within that range and when you think about Europe and you know obviously, we have a much lower cost of debt in Europe, we're probably 150 to 175 basis points.
Speaker Change: Inside of where we could borrow in U S dollars.
Jason Fox: So you know, we're seeing some pretty interesting spreads in Europe. In terms of pipeline, you know, I think deals to date were largely weighted towards North America, but the pipeline I would say is, you know, maybe 50-50, maybe a little bit more weighted towards Europe, so we're starting to see activity levels pick up a little bit more there. And I think in terms of property type, you know, it's maybe consistent with how we've allocated historically, it's going to be mostly industrial and warehouse, especially year-to-date.
Speaker Change: So we're seeing some pretty interesting spreads in Europe in terms of pipeline.
Speaker Change: You know I think deals to date were largely weighted towards North America, but the pipeline I would say is you know maybe 50 50, maybe a little bit more.
Speaker Change: Weighted towards Europe, So, we're starting to see activity levels pick up a little bit more there and I think in terms of property type.
Speaker Change: It's it's maybe consistent with how we've allocated.
Speaker Change: Historically, it's going to be mostly industrial and warehouse.
Speaker Change: Specialty year to date, the retail size, a little bit like right now, but I would expect that to pick up some as the year goes so it's a pretty typical year much of the deals are sale leasebacks, which is typically a theme for us so no surprises there.
Jason Fox: Page PAGE of NUMPAGES www.verbalink.com Okay, and on the dispositions, which are helping to fund the acquisitions... If I understand you correctly, you said it's 100 basis points under the acquisition cap rate? Is that right? Yeah, that's roughly where we're estimating right now. Our Guidance Model. We hope to do better than that. That's probably a good number to use right now based on current visibility. Thank you.
Okay and on the dispositions, helping to fund the acquisitions <unk> made.
Speaker Change: Make sure I understood correctly, you said, it's 100 basis points under the acquisition cap rate is that right.
Speaker Change: Yeah, that's that's roughly where we're estimating right now and kind of built into our guidance model would be hope to do better than that that's probably a good number to use right now based on current visibility.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and our next question comes from Smedes Rose with Citi. Please state your question.
Smedes Rose: And our next question comes from Smedes Rose with Citi. Please state your question. Hi, thank you. I just want to ask you, you sort of indicated that it seems like a reasonable chance that you'll be able to get on a path of acquisitions above the high end of your current outlook.
Speaker Change: Hi, Thank you.
Speaker Change: Wanted to ask you you sort of indicated that it seems like a reasonable chance that you'd be able to get on a path of acquisitions above the high end of your current outlook.
Jason Fox: In order, if that happens, in order to fund that, would you look to potentially sell more of the self-storage operating assets? Or I guess maybe just sort of thoughts in general about about funding anything above what's currently in guidance? Yeah, sure. I mean, you know, we've talked about this before. I think that our kind of range of disposition possibilities can include funding that would take us, you know, at to or maybe even through the top end of our investment guidance. So, you know, I think we have, you know, lots of flexibility there on, on how we think about that.
Speaker Change: And ordered if that happens or in order to fund that would you look to potentially sell more of the self storage.
Speaker Change: Operating assets or.
Speaker Change: I guess, maybe just sort of thoughts in general about about funding anything above what's currently in guidance.
Speaker Change: Yeah sure I mean, we've talked about this before I think that are kind of a range of disposition possibilities could include funding that would take US you know at two or maybe even through the top end of our investment guidance. So I think we have lots of flexibility there on on how we think.
Speaker Change: [noise] about to that you know I think that.
Jason Fox: You know, I think that You know, even if we go beyond that, I think that we have, you know, the ability to lean into storage even more. We talk about the amount of storage we're selling right now that's kind of baked at the midpoint. It's about half of our portfolio, so we certainly can look at more storage. We also have other longer-term sources of capital, such as the lineage equity stake, although we wouldn't expect that to be available to us anytime soon. Maybe more near-term would be the construction loan in Las Vegas. That's about $250,000, $260,000,000.
Speaker Change: Even if we go beyond that I think that we have the ability to lean into storage, even more we talk about the amount of stores, we're selling right now that's kind of baked in at the midpoint, it's about half of our portfolio. So we certainly can look at more storage. We also have other longer term sources of capital such as the lineage.
Speaker Change: Equity stake, although we wouldn't expect that to be available to us anytime soon maybe more near term would be the construction loan in Las Vegas, that's about 250 $260 million enough.
Smedes Rose: And obviously, we have a fair amount of free cash flow as well. So I think we're comfortable to continue to fund deals without the need to be in the equity markets, you know, through this year, even if, you know, we continue to outperform on Thanks.
Speaker Change: A fair amount of free cash flow as well. So I think we're comfortable to continue to fund deals without the need to be in the equity markets through this year, even if we continue to outperform on the investment side.
Speaker Change: Thanks, and I just wanted to ask you you provided a comprehensive outlook on reducing overall exposure to how it works.
Smedes Rose: And I just wanted to ask you, you know, you provided a comprehensive outlook on reducing overall exposure to HELWG, you know, it's about 18 months, I guess, in terms of to completion.
Speaker Change: You know, it's about 18 months I guess in terms of to completion.
Brooks Gordon: If you need to, is that something that where you can accelerate if things go south more quickly for HELWG relative to maybe your expectations? Or just kind of what's the flexibility there, I guess? Yeah, sure, Brooks.
Speaker Change: You need to or is that something that where you can accelerate if things go south more quickly for whole leg relative to maybe your expectations or just kind of what's the flexibility there I guess.
Brooks Gordon: You want to take that? Sure, yeah, so as you described, you know, we've got a clear path to reduce that exposure, you know, over this year and into next year. You know, I'd expect that to be cut roughly in half over that time frame, so we will evaluate a few other dispositions.
Speaker Change: Yeah sure Brooks you want to take that.
Brooks Gordon: Sure Yes. So as you describe you know we've got a clear path to reduce that exposure.
Brooks Gordon: Over this year and into next year, I would expect that to be cut roughly in half.
Brooks Gordon: Over that timeframe. So we will evaluate a few other dispositions bigger picture as we've said on previous calls.
Brooks Gordon: You know, bigger picture, as we've said on previous calls, you know, we're well advanced in any potential contingencies as well. So, to the extent we have a path to take back more stores, you know, we have demand for those stores at rents in line with the existing. There would be some downtime, as we discussed and Toni mentioned, but that's, you know, that's fully contemplated in our guidance and our credit laws reserved. So, you know, there are other levers we can pull and we'll continue to evaluate those, but as is, you know, we have a good path and we're executing on that path to reduce that exposure proactively.
Brooks Gordon: We're well advanced in any potential contingencies as well so to the extent we.
Brooks Gordon: I have a path to take back more stores, we have demand.
Brooks Gordon: Demand for those stores.
Brooks Gordon: Rents in line with the existing there would be some downtime as we discussed and Tony mentioned.
Brooks Gordon: But that's you know that's fully contemplated our guidance and our credit loss reserve. So there are other levers we can pull and we will continue to evaluate those.
Brooks Gordon: But as it is we have a good path and we're executing on that path that exposure proactively.
Speaker Change: Okay. Thank you I appreciate it.
Smedes Rose: Thank you, I appreciate it.
Michael Goldsmith: Your next question comes from Michael Goldsmith with UBS.
Speaker Change: Your next question comes from Michael Goldsmith with UBS. Please state your question.
Michael Goldsmith: Please state your... Good morning. Thanks a lot for taking my questions. You know, you have exposure in both the U.S. and Canada, and I know you've talked a lot about the tariffs, or U.S. and Europe, sorry, and you talked a lot about tariffs on the call today. So maybe, can you just talk about maybe the difference in some of your exposure in the U.S. and in Europe and how tariffs could maybe, you know, just tariffs You know, is that a bigger tailwind for your Europe exposure? Or is that a greater headwind if you're trying to understand, you know, the portfolio and how it will, you know, how your tenants are functioning in this kind of post tariff world?
Michael Goldsmith: Good morning, Thanks, a lot for taking my questions.
Michael Goldsmith: You have exposure in both the U S and Canada and I know you've talked a lot about the tariffs are U S and Europe, sorry, and you've talked a lot about tariffs on the call. Today. So maybe can you just talk about maybe the difference in some of your exposure in the U S.
Michael Goldsmith: In Europe, and how tariffs could maybe at this time.
Michael Goldsmith: Is that a.
Michael Goldsmith: Bigger tailwind for Europe exposure or is that a greater headwind than just trying to understand the portfolio and how it will.
Michael Goldsmith: How your tenants are functioning in this kind of post tariff world.
Jason Fox: Yeah, sure. Europe's not a headwind. I think that's for sure. I mean, we've, we've, you know, heard some of the commentary around that, that may create more risk within our portfolio. But you know, I mentioned this earlier, the majority, maybe even the vast majority of our European tenants primarily operate domestically. So they're selling into their local markets. You know, they're not exporting to the US. And they're really not, you know, dependent on on imports from the US as well. So, you know, these are industries like grocery and DIY and car dealerships, so they comprise the bulk of, of our Europe tenants, it could be a tailwind.
Michael Goldsmith: Yeah sure Europe's not a headwind I think that's for sure I mean, we've we've heard some of the commentary around that that may create more risk within our portfolio, but I mentioned this earlier the majority maybe even the vast majority of our European tenants, primarily operate domestically so they're selling into their local markets you know theyre not.
Michael Goldsmith: Exporting to the U S and they're really not.
Michael Goldsmith: Dependent on on imports from the U S as well so you know.
Michael Goldsmith: These are industries like grocery and DIY and car dealerships. So they can trap comprised the bulk of of our Europe tenants. It could it be a tailwind, but hard to say I think generally speaking.
Jason Fox: Hard to say, I think, generally speaking, you know, we like our European portfolio, but it's somewhat, you know, insulated, or maybe an isolated from what's happening here in the US.
Michael Goldsmith: You know, we like our European portfolio, but it's somewhat.
Michael Goldsmith: You know insulator it may be an isolated from what's happening here in the U S.
Michael Goldsmith: Got it.
Michael Goldsmith: Got it and then just.
Jason Fox: And then just, you know, I know you've talked about the three items, the three big names on the watch list, but has there been any notable additions or removals from the list? I know these, you know, the three that have come up, kind of came up pretty quickly. So just kind of, have you seen any impact from tariffs or, you know, credit issues from the tax, anything that you're monitoring in particular? Thanks. Yeah, I mean, broadly speaking, on the portfolio side, you know, while tariffs, of course, are creating a lot of uncertainty, and, you know, we're hearing companies talking about tightening expenses, and maybe, you know, pushing decision making back on new capital spending, but we haven't seen any direct impacts based on tariffs and the performance of our portfolio.
Michael Goldsmith: I know you've talked about the three item.
Michael Goldsmith: The three big names under the watch list, but.
Has there been any notable.
Michael Goldsmith: <unk> or removals from the left.
Michael Goldsmith: Yes.
Michael Goldsmith: Three that have come up with kind of kind of came up pretty quickly. So I was just kind of have you seen any impact from the tariffs are.
Speaker Change: Tenant credit issues from the accounts or anything that you're monitoring in particular thanks.
Michael Goldsmith: Yeah, I mean broadly speaking on the portfolio side.
Michael Goldsmith: While tariffs of course are creating a lot of uncertainty and we're hearing companies talking about tightening expenses maybe.
Michael Goldsmith: Pushing decision, making back on new capital spending, but we haven't seen any direct impacts based on tariffs and the performance of our portfolio in terms of maybe.
Brooks Gordon: In terms of, you know, maybe, Broader look at Watchlist, Brooks. I don't know if you have a comment on that. Just that, you know, I think, you know, to reiterate, it's really best to think about it in the context of our guided credit loss reserve, you know, we think that's the best tool to really model credit risk. You know, that said, the watch list has come down substantially because two of the big tenants came off. So in do it best and hard side. But again, we want to really focus on that credit loss reserve guide.
Michael Goldsmith: A broader look at watchlist, Brooklyn, or if you have a comment on on that.
Michael Goldsmith: Just I think to reiterate it's really best to think about it in the context of our guided credit loss reserve, we think that's the best tool.
To really model credit risk.
Michael Goldsmith: The watch list has come down.
Michael Goldsmith: Actually because two of the big tenant came off so we didn't do.
Michael Goldsmith: Do it best and heart side, but again, we want to really focus on that credit loss reserve got it.
Michael Goldsmith: Okay.
Michael Goldsmith: Thank you very much.
Michael Goldsmith: Thank you very much good luck in the second quarter, Yeah. Thanks, Michael.
Michael Goldsmith: Good luck in the second quarter. Yeah, thanks.
Jenna Gannon: Your next question comes from Jenna Gannon with Bank of America, please state your question. Thank you. Good morning.
Speaker Change: Your next question comes from Jana Galan with Bank of America. Please state your question.
Jana Galan: Thank you good morning.
Toni Sanzone: Maybe going back to that question for Toni and Brooks, appreciate the detailed guidance assumption, but that $15 to $20 million of potential rent loss in the guidance, does that also account for the expenses on vacant assets, and what do you assume for repositioning capital, or will most of these assets potentially be sold? Tony, do you want to start? Maybe Brooks can talk about the second half. Yeah, I think in terms of the credit loss, the number that we're providing really on top line revenue, but I would say there is a factor built into our property expense assumption that takes into account some downtime there as well.
Maybe going back to that question for Tony and.
Jana Galan: I appreciate the detailed guidance assumption, but that 15% to $20 million of potential Austin. The guidance does that also account for expenses on vacant assets and what have you assumed for repositioning capital or will most of these assets potentially be sold.
Jana Galan: Tony do you want to start maybe Brooks can talk about the second half.
Speaker Change: I think in terms of the credit loss. The number that we are providing a really on topline revenue, but I would say there is a factor built into our property expense assumption that takes into account some downtime there as well. So that's been factored in it's just separate from the range that we provided on the $15 million to $20 million.
Brooks Gordon: So that's been factored in. It's just separate from the range that we provided on the 15 to 20 And just to add, you know, the downtime, again, as Tony mentioned, is baked into our analysis, it will be pretty moderate.
Jana Galan: And just to add.
Tony Sand: Downtime again as Tony mentioned.
Jana Galan: Baked into our analysis it will be pretty moderate.
Jana Galan: And capital.
Brooks Gordon: And, you know, capital expenditures, kind of TBD per store, they're not very capital intensive, these will be, you know, paving work and some facade cosmetics, so not huge capital expenditure amounts associated with the repositioning, the tenants will perform their own fit out. Great, thank you.
Jana Galan: Expenditures kind of TBD per store, they're not very capital intensive and these will be.
Jana Galan: Paving work and some facade.
Jana Galan: Cosmetics, so not huge capital expenditure amounts associated with the repositioning that tenants will perform their own fit out.
Jana Galan: Great. Thank you.
Anthony Paolone: Your next question comes from Anthony Paolone with J.P. Morgan. Please state your question. Great, thanks. Just wondering, I think there was a little bit of occupancy slippage from 4Q to 1Q, and it seemed like you kind of addressed a lot of the credit items, and it didn't seem to be related to that. Just wondering what drove that. Yeah, the occupancy slipped a little. There was some removals from the vacancy list and a couple ads really driven by two European warehouses where we did partial renewals with a tenant, where they stayed in about 70% of the two buildings.
Speaker Change: Your next question comes from Anthony Powell with J P. Morgan. Please state your question.
Anthony Powell: Great. Thanks.
Anthony Powell: Just wondering I think there was a little bit of occupancy slippage from <unk> to <unk> and it seemed like you you kind of addressed a lot of the credit items and it didn't seem to be related to that is just wondering what drove that.
Anthony Powell: Yeah, the occupancy slipped a little.
Anthony Powell: There was some removals from the vacancy lists and a couple of ads really driven by two European warehouses, where we did partial renewals with a tenant whether they stayed at about 70%.
Anthony Paolone: And so, you know, we're seeking to backfill those. So that was really the net ad.
Anthony Powell: The two buildings and so we're seeking to backfill them.
Those.
Anthony Powell: So that was really the net add I'll.
Anthony Paolone: You know, I'll add that we have active transactions on, you know, the large majority of the existing vacancies that we, you know, we expect to chip away at that pretty efficiently over the course of the year.
Anthony Powell: I'll add that we have active transactions on the large majority of the existing vacancy.
Anthony Powell: We expect to chip away at that.
Anthony Powell: Do you efficiently over the course of the year.
Anthony Paolone: Okay, and just on on that note, if we look out, you know, I guess maybe next 18 months or through 26, like, is there much in the way of like known vacates to think about just outside of like, you know, sort of watch list credit matters, just known vacates? Yeah, so I think, you know, first of all, it's important to note that the overall scale of lease expirations over the next several years is quite small. So that's kind of the big picture. You know, we have one warehouse, a pair of warehouse properties in Europe in July, that we expect a non-renewal on, you know, that's about 50 bps of ABR, so in the back half of the year, that's fully embedded in our guidance.
Anthony Powell: Okay and just on on that note. If we look out I guess, maybe next 18 months or through 'twenty six like is there much in the way of like known Vacates to think about just outside of sort of watch list credit matters, just don't take it.
Speaker Change: Yes, So I think first of all important to note that the overall scale of lease expirations over the next several years is quite small so thats kind of a big picture.
Anthony Powell: We have one warehouse.
Speaker Change: Per warehouse properties in Europe in July.
Speaker Change: That we expect the non renewal on that's about 50 bps of ABR sort of in the back half of the year, that's fully embedded in our guidance.
Anthony Paolone: And we don't, the guidance does not contemplate any lease up this on those buildings, but we're actively marketing them and expect to lease them up down the road. But to be clear, that's not, lease up is not included in the guidance.
Speaker Change: And we don't.
Speaker Change: The guidance does not contemplate any lease up this year on those buildings, but were actively marketing them.
Speaker Change: Got to lease them up down the road, but to be clear that's not at least not put it in guidance got it.
Anthony Paolone: Okay, if I could just sneak one more in on the self storage operating assets. Is there much appetite to do more net leases there? Or is it just more creative to do sales and reinvest at this point? Yeah, I mean, I think we still have the flexibility. I mean, you know, last year, we leaned into some of the conversions there, you know, this year, Sales are the best way to fund new. Specially given the spread we can generate.
Speaker Change: Okay, and if I could just sneak one more in on the self storage operating assets.
Speaker Change: Is there much appetite to do more net leases there or is it just more accretive to do.
Speaker Change: Sales and reinvest at this point.
Speaker Change: Yeah, I mean, I think we still have the flexibility I mean, you know last year, we leaned into some of the conversions. There you know this year, we think that sales are the best way to fund new investments, especially given the spread we can generate between.
Speaker Change: What we're selling and what we're buying but yeah I think that for the you know the other half of the portfolio that's not being marketed right now I think there's flexibility there and we'll have to continue to evaluate what we want to do and it doesn't have to be all of the one or the other and we could sell some more and we can convert some short some some more as well so I think it'll it'll depend on the situation at.
Anthony Paolone: will be your first officer. Time is of the essence. Converts and some more as well. So I think it'll depend on the situation.
Speaker Change: Time.
Anthony Paolone: and thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Spenser Glimcher: Your next question comes from Spenser Glimcher with Greenstreet Advisors. Please state your question. Thank you. Just as it relates to the capital projects and progress, is there any concern on input costs or do you guys have pricing agreements in place?
Speaker Change: Your next question comes from Spencer Glimcher with Green Street Advisors. Please state your question.
Spencer Glimcher: Thank you I'm just as it relates to the capital projects in progress and is there any concern on input cost or do you guys have pricing agreements in place.
Brooks Gordon: Brooks you would take that.
Brooks Gordon: Brooks, you want to take that? Yeah, so the vast majority of our capital investments are really subject to guaranteed contracts. And, you know, where we do take any cost exposure, we build in very large buffers to that. So it's something we're certainly cognizant of, but the vast majority of our capital deployment is subject to guaranteed max price contracts. Okay, great.
Brooks Gordon: Yes, so the vast majority of our capital investments are really subject to guaranteed contracts and where we do take any cost exposure. We built in very large buffers to that so it's something we're certainly cognizant of but the vast majority of our capital deployment is subject to.
Brooks Gordon: Anted backspace contracts.
Speaker Change: Okay, Great and then on the labor side has there been any disruption to date or.
Brooks Gordon: And then on the labor side, has there been any disruption to date or, you know, any concern there at all? Not that we've seen. Okay, great.
Brooks Gordon: Any concern there at all.
Speaker Change: Not that we've seen.
Speaker Change: Okay.
Jason Fox: And then just maybe one broader one, I was just hoping maybe you guys provide some additional color just on the makeup and breadth of competition in both the US and Europe. I know you mentioned, obviously, the lending environment tightens, you know, that's going to help keep PE and debt capital on the sidelines. But just curious how active you've seen debt capital players essentially been year to date. Yeah, I think the net lease market has always been competitive, and that's especially in the U.S., I think, over the past year or so. We've seen a bit of a pickup with some new private equity entrants, including some that are on non-traded platforms. And as you mentioned, it's hard to predict how impactful they'll be, especially right now, given that many of them will be focused on using higher leverage, and that's gotten more expensive and maybe a little less reliable in the current environment.
Speaker Change: Great and then just maybe one broader one I was just hoping maybe you guys could provide some additional color just on the makeup and breadth of competition in both the U S and Europe I know you mentioned, obviously, if the lending environment.
Speaker Change: That's gonna help keep P E and debt capital on the sidelines, but just curious how often have you seen.
Speaker Change: Capital players essentially been year to date.
Speaker Change: Yeah, I think the net lease market and has always been competitive and that's especially in the U S. I think over the past year or so we've seen a bit of a pick up with some new private equity entrance.
Speaker Change: Including some that are on non traded platforms in and as you mentioned, it's hard to predict how impactful there'll be especially right now given that many of them will be focused on using higher leverage and that's gotten more expensive and maybe a little less reliable in the current environment and you know as an all cash buyer that puts us at a pretty good advantage. So I think it's incremental to competition we've seen that.
Jason Fox: And as an all-cash buyer, that puts us at a pretty good advantage. So I think it's incremental, the competition. We've seen that historically. People come and go, especially the big asset managers, when they may see an opportunity to add to AUM.
Speaker Change: You know people come and go so should the big asset managers when they may.
Speaker Change: See an opportunity to add to.
Speaker Change: Hum.
Jason Fox: Europe has always been less competitive, and I think that's still the case. There's really no one new popping up there that's making it.
Speaker Change: Europe has always been less competitive and I think that's still the case there's really.
Speaker Change: No one.
Speaker Change: New popping up there, that's making any impact.
Spenser Glimcher: Okay, thank you so much. You're welcome. Thank you.
Speaker Change: Okay. Thank you so much youre welcome.
Speaker Change: Thank you and your next question comes from Jim Cameron with Evercore ISI. Please state your question.
Jim Kammert: And your next question comes from Jim Kammert with Evercore ISI. Please state your question. Good morning. Thank you.
Speaker Change: Hi, Good morning. Thank you given that you do so many sale leasebacks create your own lease et cetera in your discussions.
Jim Kammert: Given that you do so many sale-leasebacks, you know, create your own lease, etc., in your discussions of late, have you been able to detect any ability to shift through the annual escalator in your negotiations upward or downward? Curious what the sellers and PE owners today are thinking about inflation and how that might impact the organic growth you can extract on these sale-leasebacks. Thank you. Yeah, sure. I mean, you know, since the spike in inflation a couple years back in, you know, really in both markets, but it's been more impactful to the U.S., I would say it's gotten a little more difficult to get those escalators into our U.S.
Speaker Change: Of late have you been able to detect any ability to shift.
Annual escalator in your negotiations upward or downward curious with the sellers and the owners today are thinking about inflation and how that might impact the organic growth you can extract in these sale leasebacks. Thank you.
Speaker Change: Yeah sure I mean.
Speaker Change: Since the spike in inflation in a couple of years back in.
Speaker Change: It really in both markets, but it's been more impactful to the U S. I would say, it's gotten a little more difficult to get those escalators into our U S leases, we still get them in Europe, it's more.
Jim Kammert: We still get them in Europe. It's more... Customary in Europe to have rent increases indexed to inflation. Right now, it's probably half of our pipeline, which mainly correlates to, you know, the European assets in our in our pipeline. But to your question, when we're not getting CPI linked increases, let's say in the US, we have been able to push through higher fixed increases. I think historically, we've probably been, you know, in and around the 2% range, if you look back over the, you know, the prior, you know, 10, you know, even 20 years. But more recently, it's been Unknown Attendee mid to high twos on average, which many of our deals, you know, even north of 3%.
Speaker Change: Customary in Europe to have rent increases index to inflation.
Speaker Change: Right now, it's probably half of our pipeline, which mainly correlates to the European assets in our pipeline, but to your question. When we're not getting CPI linked increases, let's say in the U S. We have been able to push through higher fixed increases I think historically, we've probably been in and around the 2% range. If you look back over the.
Speaker Change: The prior 10, even 20 years.
Speaker Change: But more recently it's been.
Speaker Change: Kind of in the.
Speaker Change: Mid to high twos on average, which many of our deals you've been north of 3%. So I think our average year to date right now the fixed bumps are 2.8%. So so yes I think to answer. Your question is we we have been able to continue to push through on the fixed bumps within the leasing a lot of that is market specific maybe we want who you.
Jason Fox: I think our average year-to-date right now, the fixed bumps are 2.0. So, yeah, I think the answer to your question is we have been able to continue to push through on the fixed bumps within the lease, and a lot of that is market specific. We want to do our best to have our bumps tracked. Market Expectations Are Long-Term. Thank you. It's helpful. Thanks. Thank you.
Speaker Change: Do our best to have our bumps track, what we think market expectations, our long term and we're seeing some of that.
Speaker Change: That's helpful. Thank you that's helpful. Thanks welcome.
Speaker Change: Welcome.
Speaker Change: Thank you.
Eric Borden: And your next question comes from Eric Borden with BMO Capital Markets.
Speaker Change: And your next question comes from Eric Borden with BMO capital markets. Please state your question.
Eric Borden: Please state your question. Hey, good morning. I appreciate your comments around no direct impacts as it relates to tariffs, but, you know, there may or may not be some tangential impact. So I was just curious if there's any tenants or any sectors or geographies that you're watching more closely, you know, as it relates to additional pressure.
Eric Borden: Hey, good morning.
Eric Borden: I appreciate your comments around no direct impacts as it relates to tariffs, but there may or may not be some tangential impacts. So I was just curious if theres any tenants or any sectors or geographies that you're watching more closely as it relates to.
Eric Borden: Additional pressures.
Jason Fox: Yeah, maybe I'll have, you know, Brooks kind of weighing that a little bit, but it's probably worth noting that we did add to our disclosure in our IR deck, some new disclosure that breaks out our property types and tenant industries by region. So you can see a little bit more, more detail. And again, we've added it by property type and region.
Eric Borden: Yeah, maybe I'll have.
Eric Borden: Brooks kind of waned, a little bit, but it's probably worth noting that we did add to our disclosure in our IR deck. Some some new disclosure that breaks out our property types and tenant industries by region. So you can see a little bit more more detail.
Eric Borden: And again, we've added it by property type and region. So I don't know Brooks, if there's anything broad you want to touch upon there.
Brooks Gordon: So I don't know, Brooks, if there's anything broad you want to touch upon You know, not anything incredibly subtle. I mean, we've taken the time to look at all the industries. And as Jason mentioned, we've added some disclosure around that so you can do the same. And we've evaluated all the tenants within those and kind of characterized each of those industries in terms of our view of whether it's a direct impact, an indirect impact, or really more of just a broader economic sensitivity if, you know, if there's a slowdown more broadly. You know, the ones that are intuitive are the ones that we're certainly focused and paying close attention to, ones with big global supply chains.
Jason Fox: Not anything incredibly subtle I mean, we've taken the time to look at all of the industries that Jason mentioned, we've added some disclosure around that so you can do the same.
Jason Fox: Evaluated all the tenants within those and kind of characterize each of those.
Jason Fox: Industries in terms of our view of whether it's a direct impact and indirect impact or really more of just the broader economic.
Jason Fox: Sensitivity, if there is a slowdown more broadly.
Jason Fox: The ones that are intuitive are the ones that were certainly focused and paying close attention to one with a global supply chains.
Brooks Gordon: But, you know, I think we feel quite good that our specific investments are with big tenants where our facilities serve the regional market with tenants that are very, very important to their industries. And so, you know, we're focused on them, but I think we're comfortable with them. You know, certainly on the other end of the spectrum, we've got ample exposure to industries that we think will fare quite well, whether that's food retail or services like self-storage or gyms or education.
Jason Fox: But I think we feel quite good that are specific investments are with big tenants, where our facilities serve the regional market.
Jason Fox: With tenants that are very very important to their industries.
Jason Fox: And so you know we're focused on them, but I think we're comfortable with them certainly on the other end of the spectrum. We've got ample exposure to industries that we think will fare quite well, whether that's food retail or or services like self storage or or James or education.
Brooks Gordon: So, look, it's a big, diverse portfolio. There will certainly be impacts if tariffs are high and persistent. That's not clear right now. So, we're paying close attention, and, you know, I think we feel comfortable with our exposure and looking to mine for opportunities as well, especially in conversations with management teams over time. We're going to be able to help them adapt, and that's what we're good at.
Jason Fox: So look it's a big diverse portfolio they'll certainly be impact if tariffs are high and persistent.
Jason Fox: Not clear right now.
Jason Fox: So we're paying close attention.
Jason Fox: And I think we feel comfortable with our our exposure and looking to mind for opportunities as well, especially in conversations with management teams over time, we're gonna be able to help them adapt and that's what we're good at.
Jason Fox: I appreciate that and then more of a bigger picture question.
Eric Borden: I appreciate that.
Eric Borden: And then more of a bigger picture question, you know, we understand that you have a dearth of capital, you know, without having to issue equity. And, you know, that may even lead to, you know, hitting your above investment target for the year. But on the other side, your equity shares have performed well year to date, and you know, your implied cap rate is below your investment spread target. So just curious, you know, how are you thinking about, you know, issuing equity maybe in later 25 or 26, if acquisitions do continue to ramp and the market continues to hold?
Jason Fox: We understand that you have a dearth of capital without having to issue equity.
Jason Fox: And that may even lead to.
Jason Fox: Hitting your above investment target for the year, but on the other side. Your your equity shares have performed well year to date.
Jason Fox: Your implied cap rate is below your invest.
Jason Fox: Investment spread targets. So just curious you know.
Jason Fox: How are you thinking about.
Jason Fox: Issuers issuing equity maybe in later 'twenty five 'twenty six of African acquisitions do continue to ramp and the market is continues to hold.
Jason Fox: Yeah look I mean, that's a good question for us to get.
Jason Fox: Especially since we have had.
Jason Fox: A good start to the year in terms of equity, but but I think generally speaking.
Jason Fox: We can consider getting back into the equity markets. If we see some more momentum, but the reality is we don't need to we have a plan to fund our deals through this year, even if our investments are at the top end or even above the top end of our range. So we feel comfortable there. So I think it's it's purely opportunistic we'll keep on monitoring what the best sources of capital are in that.
Jason Fox: sources of capital are, and you know, at some point in time, certainly equity will be one of those. But right now, I think we're more focused on...
Jason Fox: Some point in time, certainly equity will will be one of those but you know right now I think we're more focused on.
Eric Borden: Let's go to the non-correct. Thank you. Appreciate the time. Yep. You're welcome.
Jason Fox: On the noncore asset sales.
Jason Fox: Thank you I appreciate the time you are welcome.
Diego: Thank you and a reminder to participants, to ask a question, press star 1 on your telephone keypad. To remove yourself from the question queue, press star 2 on your telephone keypad.
Jason Fox: Thank you and a reminder to the participants to ask a question press star one on your telephone keypad to remove yourself from the question queue Press Star two on your telephone keypad.
John Kilichowski: Your next question comes from John Kilichowski with Wells Fargo Police. Good morning. Thank you. Jason, earlier, you referred to that property type diversification page where you broke out industrial warehouse. Thank you for that. And earlier, you touched on how Europe, you felt like your exposure in those categories was very levered towards the domestic side. I'm curious, for your United States exposure, do you feel like you have a good idea of what portion of those are domestic versus international weighted in terms of their supply chains?
Jason Fox: Your next question comes from John Keller Celski with Wells Fargo. Please state your question.
Speaker Change: Good morning, Thank you.
Speaker Change: Jason earlier, you referred to that property type diversification page, where you broke out industrial warehouse. Thank you for that and earlier you touched on how Europe you felt like your exposure in those categories was very levered towards the domestic side I'm curious for your United States exposure do you feel like you.
Speaker Change: Have a good idea of what portion of those are domestic versus international way does it terms of their supply chains.
Brooks Gordon: Yeah, Brooks, do you have any comments on that? Unmute. You might be on mute, Brooks. Oh, I'm sorry about that. You know, not specific changes in some of the observations we've made so far on the call today. You know, I think important to note that across all our property types, the vast majority of what our tenants do, even if they're global companies, is regionally focused. There's much less, you know, for example, port dependent trade type investments that we make, you know, so that's really not, you know, our bread and butter. So, you know, while I don't have a specific percentage for you, you know, I think where we've got some comfort is, number one, in the criticality of the buildings, and that these buildings are serving businesses that are regionally focused.
Brooks Gordon: Yes, Brooks do you have any comments on that.
Brooks Gordon: He might be on mute you might be on mute.
Speaker Change: Sorry about that.
Speaker Change: You know not specific changes in some of the observations we've made so far on the call. Today, you know I think important to note that.
Speaker Change: Across all of our property types, the vast majority of what.
Speaker Change: Our tenants do even if they're global companies is regionally focused.
Speaker Change: There is much less.
Speaker Change:
Speaker Change: For example.
Speaker Change: Sure.
Speaker Change: Pending trade type of investments that we make.
Speaker Change: So that's really not.
Speaker Change: Our bread and butter, so while I don't have a specific percentage for you I think we're we've got some comfort is number one and the criticality of the buildings.
Speaker Change: And that these buildings are serving businesses that are regionally focused but not generally speaking.
Brooks Gordon: They're not, generally speaking, completely tied to kind of international trade dynamics. So, there certainly will be some of that, but, you know, I think that the vast majority are very much focused on our local markets.
Speaker Change: Completely tied to kind of international trade dynamics, so that certainly will be some of that.
Speaker Change: But I think that the vast majority are very much focused on our local markets.
Brooks Gordon: Okay, thank you. And then on your credit loss assumption, and apologies, if you said this earlier, have you given what percentage is Helwig versus your kind of unknown buffer piece? Well, I think I can reiterate here, as we sit here today, I think we had line of sight to about a third of the total reserve that's identified rent loss, and included in that is the downtime on the Helvig assets we expect to take back this year that Jason referenced in his comments. So, that's part of the kind of the six to seven million or so of identified rent loss.
Speaker Change: Okay. Thank you and then.
Speaker Change: On your credit loss assumption and I apologize. If you said this earlier have you given what percentage is <unk> versus your kind of odd that buffer piece.
Speaker Change: Well I think that if I can reiterate here as we sit here today I said, we had line of sight to about a third of the total reserve that's identified rent loss and included in that is the downtime on the hill the gas that's we expect to take back this year.
Speaker Change: Jason referenced in his comments, so that's part of the kind of $6 million to $7 million or so of identified rent loss and then theres. Another two thirds of the reserve that's out there for anything.
Brooks Gordon: And then there's another two-thirds of the reserve that's out there for anything generally broadly across the portfolio. So, you know, nothing specific for Helvig in there, but I think we presume that that two-thirds of unidentified would be sufficient to cover a number of scenarios and different outcomes around Helvig over the balance of time.
Speaker Change: And really broadly across the portfolio.
Speaker Change: So nothing specific for how we get there, but I think we presume that that two thirds of unidentified would be sufficient to cover a number of scenarios and different outcomes around helping them over the balance of the year.
Brooks Gordon: Okay, thank you. And then last one for me, just it looks like there may have been a straight line right down in the quarter. Anything to note there? No, nothing notable there. I think we had a couple of accelerations of intangibles. Probably the Joanne's tenant that vacated through the first quarter. So we did see a little bit of acceleration there, but nothing really. Okay, thank you. Thank you.
Speaker Change: Okay. Thank you and then last one for me just the it looks like there may have been a straight line write down in the quarter anything that out there.
Speaker Change: No nothing notable there I think we had a couple of.
Speaker Change: Accelerations of intangibles.
Speaker Change: Probably the the Joanna a tenant that vacated driven.
Speaker Change: Through the first quarter. So we did see a little bit of acceleration there, but nothing really notable.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and our next question comes from Jason Wangler with Barclays. Please state your question.
Jason Wayne: And our next question comes from Jason Wayne with Barclays.
Toni Sanzone: Please state your name and where you're from. Hi, yeah, the same store growth in Europe came down sequentially last quarter. I noticed there was a change in the same store pool there. Just wondering what those changes were, you know, and if same store growth was lowered due to a change in property type or lease escalator makes it all, or what's driving that?
Speaker Change: Hi, yes.
Speaker Change: Same store growth in Europe came down sequentially last quarter I noticed there was a change in the same store pool there.
Speaker Change: Just wondering what those changes were.
Speaker Change: On a same store growth.
Speaker Change: It was lower due to a change in property type of lease escalator mix at all.
Speaker Change: Matt.
Speaker Change: Okay.
Toni Sanzone: Tony, do you have a view on that? And looking at the totals here, I mean, I don't think there's anything specific that stands out. I think on a year-over-year same story highlighted here on the European side, we're seeing the impact of HELWG, you know, that's benefiting kind of on the quarter. On the contractual side, you know, I think it's really just CPI coming down. So we're seeing our leases bump in the first quarter. The majority of our leases have rent bumps that are weighted towards the first quarter. And so that's really just, you know, based on where current inflation or even inflation over kind of the last, you know, two to three months before year-end was tracking.
Speaker Change: Tony do you have a view on that.
Speaker Change: I'm looking at the the totals here I mean, I don't think there's anything specific that stands out I think on a year over year same store I highlighted here on the European side, we're seeing the impact of Helwig, you know that's benefiting kind of on the quarter on the contractual side I you know I think it's really just CPI coming down.
Speaker Change: So we're seeing our leases bump in the first quarter. The majority of our leases have rent bumps that are weighted towards the first quarter and so that's really just based on where current inflation or even inflation over kind of the last two.
Speaker Change: Two to three months before year end was tracking so I think it's really more CPI driven than as opposed to a specific tenant driven.
Toni Sanzone: So I think it's really more CPI-driven than as opposed to specific tenant.
Toni Sanzone: Got it.
Speaker Change: Got it thank you so much.
Toni Sanzone: Thank you so much.
Speaker Change: Youre welcome.
Toni Sanzone: Thank you.
Peter Sands: Thank you and at this time I'm not showing any further questions I'll now hand, the call back to Mr Sands.
Diego: And at this time, I am not showing any further questions.
Diego: I'll now hand the call back to Mr. Great.
Jason Fox: Thank you everyone for your interest in WP Carey.
Peter Sands: Great. Thank you everyone for your interest in W. P. Carey if anyone has additional questions. Please call investor relations directly to one to four nine to 1110 and that concludes today's call you may now disconnect.
Diego: If anyone has additional questions, please call Investor Relations directly at 212-492-1110.
Diego: And that concludes today's call.
Peter Sands: All parties may disconnect.