W. P. Carey Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request references 2021 Q4, this is an annual filing; it reports fourth-quarter rent collections but not a full fourth-quarter income statement.
Business context
W. P. Carey is an internally managed REIT focused primarily on long-term, triple-net leases of commercial properties. At year-end, its net-leased portfolio comprised 1,304 properties leased to 352 tenants in 24 countries, with 98.5% occupancy and a 10.8-year weighted-average lease term. The company also managed approximately $2.7 billion of assets for two remaining investment programs; it no longer sponsors new programs.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1.332 billion | $1.209 billion |
| Net income attributable to W. P. Carey | $410.0 million | $455.4 million |
| Diluted earnings per share | $2.24 | $2.60 |
| Operating cash flow | $926.5 million | $801.5 million |
| AFFO, a non-GAAP measure | $921.5 million | $829.1 million |
| Dividends declared per share | $4.205 | $4.172 |
- Real Estate revenue was $1.312 billion, up $134.1 million; Investment Management revenue was $19.4 million, down $11.9 million.
- Operating expenses were $726.7 million, compared with $691.6 million. The filing does not provide a single headline operating-margin measure.
- Year-end debt was $6.792 billion, versus $6.696 billion in 2020. The company reported debt equal to approximately 40.1% of gross assets; 87% of debt was fixed-rate. Average debt cost during 2021 was 2.6%.
- Cash and cash equivalents were $165.4 million; available revolving-credit capacity was approximately $1.4 billion, with $293.7 million of remaining Equity Forward proceeds. The company reported $12.4 billion of unleveraged property carrying value, but noted that financing availability is not assured.
- Net-leased portfolio ABR was $1.248 billion, compared with $1.183 billion in 2020.
Changes versus 2020
- Revenue increased 10.1%, and AFFO increased 11.1%, supported by acquisitions, scheduled rent increases, stronger rent collections as tenants recovered, and lower interest expense. Operating cash flow also rose.
- Net income attributable to the company fell about 10.0%, and diluted EPS declined, despite higher revenue. Drivers included a larger loss on debt extinguishment, lower property-sale gains, and the absence of the prior-year $37.2 million deferred tax benefit related to Lineage Logistics.
- Real Estate acquisitions totaled approximately $1.5 billion; the company also completed $88.2 million of construction projects and sold 24 properties for $163.6 million net of selling costs.
- Investment Management revenue declined following termination of the CWI advisory agreements in 2020 and the end of transition services to WLT in October 2021.
Outlook, commentary, risks and unusual items
- Management provided no specific earnings or AFFO guidance. It said it expected operating cash flow and available financing sources to meet normal recurring liquidity needs. It intends to continue its historical dividend practice, but future payments remain subject to board discretion and business conditions.
- The company collected more than 99.8% of contractual base rent due in Q4 2021, while cautioning that this is not a guarantee of future collections. Its remaining operating hotel continued to be affected by COVID-19, with average occupancy of 45.2% for the year.
- Key exposures include tenant credit and bankruptcy, COVID-19 effects, competition for acquisitions, interest-rate and foreign-exchange movements, and international operating and regulatory risks. Approximately 24% of ABR was scheduled to expire within five years; the top ten tenants represented 20.2% of ABR, and international properties represented 36.9%.
- 2021 included a $75.3 million loss on extinguishment of debt, primarily mortgage prepayment penalties and the make-whole payment on redeemed notes. It also included $24.2 million of property impairment charges and non-cash unrealized gains of $76.3 million on Lineage shares. The filing reports a $41.0 million lease termination payment within lease termination income and other.
- Year-end debt principal payments were scheduled at $45.8 million in 2022, $190.9 million in 2023, and $1.105 billion in 2024. The revolving credit facility and term loans mature in February 2025. The company was in compliance with debt covenants at year-end.
- CPA:18–Global’s independent directors began evaluating possible shareholder liquidity alternatives; the company cautioned that no transaction is assured. Two properties held for sale at year-end were sold in January and February 2022. WLT redeemed the company’s preferred shares for $65.0 million in January 2022.
- The financial statements received an unqualified audit opinion, and the auditor and management concluded internal control over financial reporting was effective. The auditor identified acquisition purchase-price allocation as a critical audit matter due to valuation assumptions and judgment.
Important facts for investors to verify
- Reconcile AFFO growth and dividend coverage with GAAP earnings, cash flow, and share-count dilution from equity issuance.
- Review lease expirations, tenant credit quality, and renewal or repurchase-option exposure, including U-Haul’s option covering 78 properties in 2024.
- Assess refinancing needs and the company’s capacity to fund debt service, dividends, and commitments under higher-rate or weaker-capital-market conditions.
- Evaluate the recurring versus non-recurring components of 2021 earnings, particularly debt-extinguishment costs, lease termination income, impairments, and Lineage valuation gains.
- Confirm outcomes of CPA:18–Global’s liquidity review and monitor remaining Investment Management fees as the managed programs wind down.