W. P. Carey Inc. — Q3 2023 Form 10-Q
Business context and period. W. P. Carey is a REIT focused primarily on long-term, single-tenant net-leased commercial properties in the U.S. and Northern and Western Europe. This unaudited filing covers the quarter and nine months ended September 30, 2023; amounts below are U.S. dollars unless noted. At quarter-end, the portfolio included 1,472 net-leased properties, 98.9% occupied, with an 11.0-year weighted-average lease term, plus 98 operating properties.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $448.6 million | $383.6 million | $1,328.9 million | $1,076.5 million |
| Net income attributable to W. P. Carey | $125.0 million | $104.9 million | $564.0 million | $389.6 million |
| Diluted EPS | $0.58 | $0.51 | $2.63 | $1.98 |
| AFFO attributable to W. P. Carey | $284.4 million | $277.7 million | $856.9 million | $790.9 million |
| Cash from operating activities | Not presented for the quarter | Not presented for the quarter | $812.7 million | $702.5 million |
Balance sheet and liquidity: At September 30, 2023, cash and cash equivalents were $136.4 million, net debt was $8.29 billion, and available revolving-credit capacity was approximately $1.3 billion. Total assets were $18.63 billion. Debt was 85% fixed-rate and 15% variable-rate; the weighted-average rate on total debt was 3.3%. The company reported compliance with debt covenants. The 10-Q does not present a conventional operating margin measure; AFFO is a non-GAAP supplemental measure, not a substitute for GAAP earnings or operating cash flow.
The board declared dividends totaling $3.207 per share during the first nine months; the Q3 dividend was $1.071 per share, paid October 16, 2023.
Material changes versus the prior comparable period
- Revenue increased 17% in Q3 and 23% for the first nine months. Management attributed growth principally to acquisitions, rent escalations, properties acquired in the 2022 CPA:18 merger, and more operating-property revenue, including hotels converted from net leases.
- GAAP net income and diluted EPS rose in both comparisons. Results included a $176.2 million gain related to a tenant’s exercise of a purchase option on 78 self-storage properties; this is a significant factor in nine-month GAAP earnings and is excluded from AFFO under the company’s reconciliation.
- AFFO increased 2% in Q3 and 8% for the first nine months. Management cited investment activity and rent escalations, partly offset by higher interest expense. Nine-month AFFO also reflected certain non-recurring property-tax and tax items.
- Interest expense rose to $77.0 million in Q3 from $59.0 million, and to $219.7 million for nine months from $151.5 million. Management cited higher debt balances and rates, the new 2026 term loan, and debt assumed in the CPA:18 merger.
- Operating cash flow increased by $110.2 million year over year for nine months. Investing cash use was $792.5 million, chiefly reflecting real-estate purchases; financing cash use was $29.4 million, including dividends and debt activity.
Outlook, notable events and risks
- Office portfolio exit: The company announced a plan to separate 59 office properties into Net Lease Office Properties (NLOP) and sell 87 retained office properties. The NLOP spin-off closed November 1, 2023, after quarter-end. The retained-property sale program was targeted for substantial completion in early 2024. Four of the 87 properties had been sold by the report date for approximately $143 million in gross proceeds.
- NLOP’s spin-off debt facility totaled $455 million; approximately $350 million, net of transaction expenses, was retained by W. P. Carey. W. P. Carey also became NLOP’s external manager, with stated annual fees of approximately $7.5 million plus approximately $4.0 million of administrative reimbursements, subject to reductions as properties are sold.
- In October 2023, W. P. Carey settled its remaining equity forwards, issuing about 4.745 million shares for approximately $384 million net proceeds. This subsequent financing and the spin-off are not reflected in the September 30 balance sheet.
- Debt maturities include approximately $1.22 billion scheduled in 2024, including $500 million of notes due in April and €500 million due in July. Management expects to use operating cash flow, dispositions, cash, credit facilities and potential debt or equity financing to meet cash needs. No specific earnings or AFFO guidance is provided in the filing.
- Key risks include higher interest rates and refinancing needs, foreign-exchange movements, tenant credit and concentration exposure, and whether the office sale program achieves expected prices and timing. The company cautioned that the spin-off and sale program may not deliver expected benefits and could involve unexpected costs or indemnification obligations. It reported no material litigation and said ordinary-course claims were not expected to have a material adverse effect.
- Unusual items include a $15.2 million Q3 real-estate impairment on a property held for sale and a revised estimated sale price that resulted in an $11.7 million loss on sale. These are separate reported items; the filing also records a $176.2 million gain associated with the self-storage purchase-option exercise.
Important facts for investors to verify
- How the NLOP spin-off, retained office-property sales, related costs and tax or indemnification obligations affect subsequent-period results and leverage.
- Whether the approximately $1.22 billion of 2024 debt maturities can be refinanced or repaid on acceptable terms, especially if interest rates remain elevated.
- How the U-Haul-related purchase-option transaction settles, including final proceeds and any CPI-based purchase-price effects.
- Whether AFFO growth is sustained after considering higher interest expense, non-recurring adjustments, acquisitions and the reduction in office assets.
- Tenant credit quality and collections, portfolio occupancy and lease renewals; the filing reports high occupancy, but does not eliminate tenant-default or asset-value risk.