W. P. Carey Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021. W. P. Carey is a REIT focused primarily on long-term, triple-net leases of commercial properties in the U.S. and Northern and Western Europe. Its remaining Investment Management activities serve CPA:18 – Global and CESH; the company no longer raises capital for managed funds.
At quarter-end, the owned net-lease portfolio included 1,261 properties, 351 tenants, approximately 145.9 million square feet, 98.3% occupancy, and a 10.6-year weighted-average lease term. Portfolio ABR was $1.185 billion.
Financial results and liquidity
- Revenue: $311.2 million, up 0.7% from $309.0 million. Real Estate revenue rose to $306.2 million from $294.6 million, while Investment Management revenue fell to $5.0 million from $14.4 million.
- Profit and EPS: Net income attributable to W. P. Carey was $51.6 million, down from $66.1 million; diluted EPS was $0.29 versus $0.38. The filing does not present a conventional operating-margin measure.
- AFFO: Adjusted funds from operations, a company-defined non-GAAP measure, was $216.5 million, essentially flat with $216.5 million in Q1 2020. Real Estate AFFO increased to $210.3 million from $210.0 million; Investment Management AFFO declined to $6.2 million from $6.5 million.
- Cash flow: Operating cash flow was $188.4 million versus $179.7 million. Investing activities used $76.5 million and financing activities used $132.8 million. Cash and cash equivalents were $229.2 million; cash, cash equivalents and restricted cash totaled $284.5 million.
- Debt and liquidity: Debt, net, was $6.52 billion, down from $6.70 billion at year-end. The weighted-average debt rate was 2.7%; 92% of debt was classified as fixed-rate. Available revolver capacity was approximately $1.8 billion, and remaining forward equity-sale proceeds were estimated at $160.3 million. The company reported compliance with debt covenants.
- Dividend: The quarter’s declared dividend was $1.048 per share, payable April 15, 2021.
Material changes versus Q1 2020
- Lease revenue increased by $19.7 million, mainly from acquisitions and rent increases, partly offset by dispositions and COVID-related collection, vacancy, and lease-amendment impacts. Investment Management revenue declined largely because advisory agreements with CWI 1 and CWI 2 ended in April 2020.
- Net income decreased despite higher revenue and operating cash flow. Q1 2021 included a $59.9 million debt-extinguishment loss, partly offset by a $23.4 million non-cash gain on Lineage Logistics shares and a $6.4 million Lineage cash dividend. Q1 2020 included a $37.2 million deferred tax benefit related to Lineage and $47.1 million of impairments on CWI investments.
- COVID-19 continued to affect the portfolio: the remaining hotel’s revenue fell by $2.0 million year over year, and its occupancy averaged 21.8%. Management said it had collected approximately 98% of Q1 contractual base rent due through the report date, but cautioned that this is not an indication of future collections.
- Financing activity included issuing $425 million of 2.250% notes due 2033 and €525 million of 0.950% notes due 2030, alongside repayment of mortgage debt and redemption of €500 million of 2.0% notes due 2023. The transactions incurred material make-whole and prepayment costs.
Outlook, risks and unusual items
- No numerical earnings or AFFO guidance is provided. Management expected operating cash flow, dispositions, cash reserves, revolver capacity and potential debt or equity issuance to fund recurring needs, dividends, debt service and capital commitments.
- Management stated that COVID-19’s duration and severity—and its effect on tenant rent-paying ability, liquidity and debt covenants—could not be predicted. Retail represented 17.7% of net-lease ABR, hotels 1.7%, and fitness, theaters and restaurants 1.6%.
- Other key exposures include foreign-exchange and interest-rate movements, tenant credit and concentration, refinancing of property-level mortgage balloon payments, and potential restrictions or costs associated with repatriating foreign cash. The stronger U.S. dollar reduced the reported carrying value of foreign real estate and debt during the quarter.
- Quarter-end commitments included approximately $79.8 million of unfunded construction commitments, a $27.3 million planned Kansas acquisition upon completion, and a $29.5 million Netherlands build-to-suit project. Subsequent to quarter-end, the company reported $186.1 million of acquisitions, sales including a seven-property portfolio for $74.6 million gross proceeds, and approximately $31 million of ATM share proceeds.
- The company recorded a $6.8 million impairment on an equity-method real estate investment. It reported no material litigation and said disclosure controls were effective as of March 31, 2021.
Important facts for investors to verify
- Whether rent collections and tenant credit quality remain resilient after the reported 98% Q1 collection rate, particularly as pandemic effects evolve.
- The sustainability of AFFO and the dividend, including the company’s non-GAAP adjustments and the difference between AFFO and cash available for distributions.
- The full cost and expected benefits of the debt refinancing, including extinguishment charges, future maturities, interest obligations and covenant headroom.
- Portfolio concentration and leasing risks, including tenant/industry exposure, occupancy changes, and upcoming lease expirations.
- Execution and funding of announced acquisitions, dispositions and construction commitments, and the effect of ATM and forward-equity issuance on share count.