W. P. Carey Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; selected Q4 figures are noted below. Dollar amounts are U.S. dollars.
Business context
W. P. Carey is an internally managed REIT focused on long-term net leases of commercial properties, primarily in the U.S. and Northern and Western Europe, alongside a shrinking investment-management business. At year-end, its portfolio included 1,243 net-leased properties, 350 tenants, 98.5% occupancy and a 10.6-year weighted-average lease term. Approximately 61% of net-lease ABR was U.S.-based and 39% international.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $1,209.3 million | $1,232.8 million | Down 1.9% |
| Net income attributable to W. P. Carey | $455.4 million | $305.2 million | Up 49.2% |
| Diluted EPS | $2.60 | $1.78 | Up 46.1% |
| AFFO, a non-GAAP measure | $829.1 million | $856.5 million | Down 3.2% |
| Operating cash flow | $801.5 million | $812.1 million | Down $10.5 million |
| Cash dividends declared per share | $4.172 | $4.140 | Up 0.8% |
| Total assets | $14,707.6 million | $14,060.9 million | Up 4.6% |
| Total debt | $6,696.0 million | $6,053.9 million | Up $642.1 million |
Net income growth substantially exceeded AFFO performance and included significant gains and tax effects; it should not be read as equivalent to recurring operating growth. Real Estate segment revenue was $1,178.0 million, while Investment Management revenue fell to $31.3 million from $59.9 million. The filing does not provide a single comparable operating-margin measure.
For Q4 2020, revenue was $307.4 million, net income attributable to W. P. Carey was $134.6 million, and diluted EPS was $0.76.
Material changes versus the prior comparable period
- Real Estate revenue increased modestly to $1,178.0 million from $1,172.9 million, with acquisition activity and rent increases offset by COVID-19 effects, dispositions and lower lease-termination income.
- Investment Management revenue and earnings contracted following the April 2020 merger of CWI 1 and CWI 2 and termination of the related advisory agreements. The company no longer sponsors new investment programs and expects future investment-management earnings mainly from remaining programs’ fees and ownership interests.
- Net income benefited from $109.4 million of net property-sale gains, $46.1 million of other gains (including a $48.3 million unrealized Lineage Logistics gain), and an $18.5 million income-tax benefit. Interest expense declined by $23.2 million. These benefits were partly offset by $35.8 million of real-estate impairment charges, a $22.3 million non-cash net credit-loss allowance, and $47.1 million of impairment charges on CWI investments.
- AFFO fell despite acquisition contributions, scheduled rent escalators and lower interest expense, primarily reflecting COVID-19 effects, reduced investment-management income and lower lease-termination income.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $248.7 million; available revolving-credit capacity was approximately $1.7 billion, net of letters of credit. The company also reported approximately $163.2 million of expected proceeds from unsettled equity forwards and $616.5 million of remaining ATM issuance capacity.
- Debt totaled approximately $6.7 billion, including $5.1 billion of senior unsecured notes, $404.3 million under the senior unsecured credit facility and $1.1 billion of non-recourse mortgages. Debt to gross assets was approximately 42.0%; 91% of debt was fixed-rate, and the year-end weighted-average debt rate was 2.9%.
- Operating cash flow of $801.5 million exceeded $732.0 million of dividends declared. Cash flow used in investing was $539.9 million and cash flow used in financing was $210.7 million.
- The company issued $500 million of 2.40% senior notes due 2031, drew $299.0 million under term loans, raised $199.7 million through settled equity forwards, and repaid or prepaid $294.4 million of mortgage principal during 2020. It reported compliance with debt covenants at year-end.
Outlook, commentary and risks
- Management said it expects cash from operations, cash reserves, credit-facility capacity, dispositions and potential debt or equity issuance to meet normal liquidity needs. No earnings, AFFO or acquisition-volume guidance is provided in the supplied filing text.
- Management reported collecting approximately 99% of contractual base rent due in Q4 2020 and 98% due in January 2021, but cautioned that recent collections should not be treated as an indication of future collections. COVID-19 reduced 2020 rent by approximately $15.7 million, including $8.4 million contractually deferred.
- Material risks include further tenant distress or rent concessions, a concentrated single-tenant lease model, property vacancies and re-leasing costs, foreign-currency and international-market exposure, debt refinancing and interest-rate risk, and the ability to maintain dividends and REIT qualification. Approximately 24% of ABR was associated with leases expiring over the five years following year-end 2020; the top ten tenants represented 21.8% of ABR.
- Unusual and judgment-sensitive items include fair-value gains on Lineage Logistics, CWI-related impairments and merger accounting, credit-loss estimates, and a $37.2 million deferred-tax benefit following Lineage’s conversion to REIT status. The auditor identified acquisition purchase-price allocation and valuation of WLT preferred shares as critical audit matters, while issuing an unqualified opinion and concluding internal control over financial reporting was effective.
Important facts for investors to verify
- Reconcile GAAP net income growth with AFFO decline, including property-sale gains, Lineage fair-value gains, tax benefits, impairments and credit-loss provisions.
- Track rent collection, deferred rent recovery, tenant credit deterioration and the effects of the pandemic on hotels and other exposed tenants.
- Assess dividend coverage using recurring cash generation and AFFO, and distinguish dividends declared from cash dividends paid.
- Review debt maturities, refinancing requirements, covenant headroom, floating-rate exposure and the expected settlement proceeds and dilution associated with equity forwards and the ATM program.
- Monitor the lease-expiration schedule, major tenant exposures, occupancy and international currency exposure; evaluate the assumptions behind material fair-value estimates and impairments.