W. P. Carey Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. W. P. Carey is a REIT focused primarily on long-term, triple-net leases of single-tenant commercial properties in the U.S. and Northern and Western Europe. Figures below are in U.S. dollars; financial statement amounts are rounded to millions unless otherwise noted.
Business context and portfolio
At quarter-end, the portfolio included 1,282 net-leased properties across 335 tenants, with 168.4 million square feet, 99.1% occupancy and a 12.2-year weighted-average lease term. Net-leased annualized base rent was $1.279 billion, down from $1.339 billion at December 31, 2023. The company also held 96 operating properties. W. P. Carey reported one operating segment beginning in 2024.
The period reflects the ongoing exit from office assets: the 2023 spin-off of 59 office properties to NLOP and the Office Sale Program for 87 retained office properties. The company had disposed of 80 of those 87 properties through the filing date; 72 were sold during Q1.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $389.8 million | $427.8 million | Down 8.9% |
| Net income attributable to W. P. Carey | $159.2 million | $294.4 million | Down 45.9% |
| Diluted EPS | $0.72 | $1.39 | Down $0.67 |
| AFFO attributable to W. P. Carey | $251.9 million | $279.2 million | Down 9.8% |
| Net cash from operating activities | $1,035.5 million | $282.7 million | Up $752.8 million |
| Net cash used in investing activities | $237.0 million | $587.3 million | Less cash used |
| Net cash used in financing activities | $379.0 million | Net cash provided: $307.2 million |
Revenue and AFFO declined mainly because of the NLOP spin-off, office dispositions and lower other lease-related income, partly offset by acquisitions and rent escalations. Net income fell largely because the prior-year quarter included much larger real estate sale gains. Net income as a percentage of revenue was approximately 40.8% versus 68.8%; comparison is heavily affected by those gains, and the filing does not present a standardized operating-margin measure.
Operating cash flow included $807.5 million of proceeds from sales of net investments in sales-type leases. It should therefore not be read as recurring operating cash generation alone. The company declared a quarterly dividend of $0.865 per share, paid April 15, 2024.
Debt and liquidity
Total debt, net, was $7.873 billion at March 31, 2024, down from $8.144 billion at year-end. Fixed-rate debt represented 88% of total debt; the weighted-average rate was 3.2% overall, 2.9% on fixed-rate debt and 5.2% on variable-rate debt. The company reported compliance with debt covenants.
Cash and cash equivalents were $777.0 million, and revolving-credit availability was approximately $1.7 billion. A further $283.8 million of restricted cash was held by an intermediary for future 1031 exchanges and is not general-purpose cash. The company said $171.0 million of cash was held in foreign subsidiaries and repatriation could entail restrictions or significant costs.
Scheduled debt principal payments were $1.164 billion for the remainder of 2024, including $500 million of notes repaid at maturity on April 1, 2024; €500 million of notes were due in July 2024. The company cited operating cash flow, disposition proceeds, cash reserves, its credit facility and potential debt or equity issuance as sources to meet obligations and other needs. Future interest payments were estimated at $856.0 million in total, including $215.7 million due over the next 12 months.
Material changes, outlook and risks
- Q1 dispositions totaled 153 properties and $868.4 million of net proceeds, including the 78-property U-Haul portfolio for $464.1 million and 72 office properties for $390.0 million. The quarter’s net gain on property sales was $15.4 million.
- Q1 acquisitions totaled $264.7 million, including investments classified as real estate and loans receivable. The company also committed $44.1 million to a redevelopment project expected to be completed in 2025; unfunded construction commitments were approximately $107.5 million.
- A tenant lease restructuring with Hellweg included rent abatement for January through March 2024, a €4.0 million reduction in annual base rent, and a seven-year extension to February 2044.
- The company provided no specific earnings or AFFO guidance in the supplied filing text. Management said it expects sufficient operating cash flow for normal recurring short-term liquidity needs and expects to fund requirements through several sources, including dispositions and available borrowing capacity. The Office Sale Program was targeted to be substantially completed in the first half of 2024.
- Key exposures include interest-rate movements, tenant credit and industry/geographic concentration, foreign currency fluctuations, and access to capital markets. A 1% change in interest rates was estimated to change annual expense on unhedged variable-rate debt by $5.7 million for euro debt, $3.4 million for sterling debt and $0.2 million for yen debt. A stronger U.S. dollar reduced reported property and debt carrying values during Q1.
- There was no material litigation reported and no impairment charge in the quarter. Merger and other expenses of $4.5 million were primarily a write-off of a value-added-tax receivable. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether remaining Office Sale Program properties were sold on the expected timeline and at proceeds consistent with the company’s plans.
- How recurring operating cash flow and AFFO evolve after the large portfolio sales; Q1 operating cash flow included substantial sales-type lease proceeds.
- How the April repayment and July 2024 euro-note maturity, alongside other near-term obligations, affect liquidity, refinancing needs and interest expense.
- Whether rent collection, tenant credit quality and occupancy remain resilient, including the financial impact of the Hellweg restructuring.
- How the dividend compares with recurring AFFO and cash available after debt service, capital commitments and investment activity.