Business context and reporting period
W. P. Carey Inc. (NYSE: WPC) is an internally managed REIT focused on long-term net leases of commercial properties, principally in the U.S. and Northern and Western Europe. This Form 10-K covers the fiscal year ended December 31, 2019; it was filed February 21, 2020. The company also manages existing non-traded investment programs but no longer raises capital for new or existing funds.
At year-end, the portfolio included 1,214 net-leased properties and 21 operating properties, leased to 345 tenants across 25 countries. Net-leased occupancy was 98.8%, with a 10.7-year weighted-average lease term; 36% of net-lease ABR came from outside the U.S.
Financial performance and condition
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $1,232.8 million | $885.7 million |
| Net income attributable to W. P. Carey | $305.2 million | $411.6 million |
| Diluted EPS | $1.78 | $3.49 |
| Operating cash flow | $812.1 million | $509.2 million |
| AFFO attributable to W. P. Carey | $856.5 million | $634.6 million |
| Cash dividends declared per share | $4.14 | $4.09 |
| Total assets | $14.06 billion | $14.18 billion |
| Total debt, net | $6.05 billion | $6.38 billion |
Real Estate revenue rose to $1,172.9 million from $779.1 million, while Investment Management revenue declined to $59.9 million from $106.6 million. Property-level contribution, a company-defined non-GAAP measure, was $561.4 million versus $415.4 million. AFFO covered declared dividends approximately 1.20 times; AFFO is supplemental and is not a GAAP measure or a substitute for operating cash flow.
At year-end, cash and cash equivalents were $196.0 million, and $1.3 billion of capacity remained on the then-existing revolving facility. Debt to gross assets was approximately 40.3%; 93% of debt was fixed-rate, with a 3.2% weighted-average year-end interest rate. In February 2020, the company amended its credit facility, raising total capacity to $2.1 billion and extending maturities to five years.
Material changes versus the prior comparable period
- Revenue increased about 39%, largely because 2019 included a full year of properties acquired in the October 2018 CPA:17 merger; 2018 included those properties for only two months.
- Net income attributable to W. P. Carey fell about 26%, and diluted EPS fell from $3.49 to $1.78. The comparison reflects, among other factors, lower property-sale gains, higher impairment and interest expense, and 2018 merger-related gains; the increase in weighted-average shares following the CPA:17 merger and ATM issuances also affected per-share results.
- AFFO increased about 35% and operating cash flow about 59%, supported by higher real estate income and the full-year contribution from acquired properties. Investment Management revenue and AFFO declined as CPA:17 fees ceased after the merger and advisory/structuring activity fell.
- Debt declined approximately $325 million. The company issued $523.3 million of net equity proceeds through its ATM program and issued senior notes, while prepaying or repaying $1.2 billion of non-recourse mortgages. Common shares outstanding increased to 172.3 million from 165.3 million.
Outlook, commentary, risks and unusual items
No specific earnings or AFFO guidance was provided in the filing. Management stated it expected operating cash flows and available funding sources to meet normal recurring liquidity needs. The company planned to fund acquisitions, construction commitments, dividends, debt service and operating needs through operating cash flow, asset sales, cash reserves, credit capacity and potential debt or equity issuance.
- Management reported $367.0 million of capital commitments and tenant expansion allowances at year-end, including build-to-suit projects and purchase commitments. The filing also identified roughly 24% of ABR as tied to leases expiring within five years.
- The CWI 1/CWI 2 merger was pending stockholder approval as of the filing. Following closing, the advisory agreements were expected to terminate; W. P. Carey expected approximately $97 million of consideration for its special partnership interests and anticipated a goodwill impairment on a significant portion of the Investment Management segment’s $63.6 million goodwill balance.
- Unusual 2019 items included $32.5 million of impairment charges, including $31.2 million on direct financing leases; $32.9 million of unrealized gains on an investment in a cold-storage operator; and $36.3 million of lease termination and other income, including bankruptcy-claim proceeds and amounts related to a Croatian lease restructuring.
- Principal disclosed risks include tenant credit and bankruptcy, lease renewals and expirations, real estate values, leverage and refinancing, interest rates and LIBOR transition, foreign currency and international exposure, Brexit-related uncertainty, competition, environmental liabilities, REIT qualification and dividend capacity, and the expected reduction in investment-management fees.
- The company reported it was in compliance with debt covenants at December 31, 2019. Routine claims and lawsuits were not expected to materially affect financial position or results; no material litigation was reported.
Important facts for investors to verify
- Separate underlying rental and AFFO growth from the CPA:17 merger’s full-year contribution, changes in share count, and non-recurring gains, impairments and restructuring items.
- Review AFFO and operating cash flow against declared dividends, debt service, capital commitments and future acquisition funding needs.
- Track lease expirations, tenant credit trends, occupancy and the ability to renew or re-lease properties on comparable terms.
- Assess leverage, mortgage maturities, refinancing access, fixed-versus-floating exposure and the terms and use of the February 2020 credit facility.
- Confirm the outcome and financial effects of the CWI merger, including advisory-fee losses and any goodwill impairment.