W. P. Carey Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Figures are compared with fiscal 2021 unless otherwise noted.
Business context and reporting period
W. P. Carey is an internally managed REIT focused primarily on long-term net leases of commercial properties in the United States and Northern and Western Europe. At year-end, its net-leased portfolio comprised 1,449 properties, 392 tenants, 26 countries, 98.8% occupancy, and a 10.8-year weighted-average lease term.
The August 1, 2022 CPA:18 merger added approximately $2.2 billion of real estate assets, including self-storage and student-housing operations. It also marked the company’s effective exit from investment management: related advisory agreements ended, and fees are expected to be minimal going forward. W. P. Carey continues to advise the CESH fund through its expected remaining life cycle.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1.479 billion | $1.332 billion |
| Net income attributable to W. P. Carey | $599.1 million | $410.0 million |
| Diluted EPS | $2.99 | $2.24 |
| AFFO, non-GAAP | $1.061 billion | $921.5 million |
| Net cash from operating activities | $1.004 billion | $926.5 million |
| Net cash used in investing activities | $1.053 billion | $1.567 billion |
| Net cash from financing activities | $57.9 million | $557.0 million |
| Debt at year-end | $7.878 billion | $6.792 billion |
Revenue increased mainly on acquisitions, rent escalations, and the CPA:18 merger; foreign-currency weakness partly offset growth. AFFO rose on investment activity, escalators, and the merger, partly offset by higher interest expense and weaker currencies. Real Estate net income attributable to W. P. Carey was $591.6 million, up from $384.8 million; Investment Management net income was $7.5 million, down from $25.2 million.
Debt was approximately 39.8% of gross assets. At year-end, 86% of debt was fixed-rate and the weighted-average debt rate was 3.0%, versus 2.5% a year earlier. Cash and cash equivalents were $168.0 million; available revolving-credit capacity was approximately $1.5 billion, with approximately $530 million of available ATM forward proceeds. The company reported compliance with debt covenants.
Declared dividends totaled $4.242 per share for 2022, compared with $4.205 in 2021. The company states that it intends to continue its historical cash-dividend practice, but future amounts remain at the board’s discretion.
Material changes and unusual items
- The CPA:18 merger consideration included 13.8 million W. P. Carey shares and approximately $423.3 million cash; the company also assumed approximately $900.2 million of property-level mortgage debt at fair value.
- Investment Management revenue fell to $11.0 million from $19.4 million after the CPA:18 advisory relationship ended. The company recorded a $29.3 million impairment of Investment Management goodwill because future segment cash flows are expected to be minimal.
- Reported earnings included a $33.9 million gain on change in control of interests, $49.2 million of non-cash unrealized gains on WLT common shares, and $38.6 million of non-cash unrealized gains on Lineage Logistics shares. These items, among others, distinguish GAAP net income from recurring operating performance.
- Real estate impairment charges were $39.1 million, compared with $24.2 million in 2021. The company also recorded $43.5 million of net gains on property sales.
- Interest expense increased by $22.3 million to $219.2 million. The company issued €150 million of 3.41% notes due 2029 and €200 million of 3.70% notes due 2032.
- The U.S. dollar’s strengthening reduced the reported value of foreign assets and revenues. Approximately 37% of net-lease ABR came from outside the United States.
Outlook, risks, and contingencies
Management said it expects operating cash flow, cash resources, available credit, asset-sale proceeds, and potential debt or equity issuance to fund normal liquidity needs. No specific earnings or AFFO guidance is provided in the filing. The company expects Investment Management fees and other income to be minimal after the CPA:18 merger.
Key risks include higher interest rates and refinancing costs, inflation outpacing rent increases, tenant financial distress or bankruptcy, foreign-exchange exposure, competitive pressure on acquisition returns, and access to capital markets. Approximately 26% of ABR was associated with leases due to expire within five years. The top ten tenants accounted for 18.1% of ABR. Certain leases also give tenants property purchase options.
Scheduled debt principal payments were $456.7 million in 2023, $1.231 billion in 2024, and $1.664 billion in 2025. The senior unsecured credit facility was scheduled to mature in February 2025. In January 2023, the company amended the facility to transition U.S. dollar LIBOR borrowings to SOFR and increase potential facility capacity, subject to conditions, to $3.05 billion. Moody’s upgraded the company to Baa1 in September 2022; S&P upgraded it to BBB+ in January 2023.
Various claims and lawsuits are pending in the ordinary course; management does not expect them to materially adversely affect financial position or results. Environmental matters are being addressed, and management does not expect their resolution to materially affect financial condition, liquidity, or results. The auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- How much of 2022 net-income growth came from recurring leasing and acquisition performance versus merger-related and non-cash fair-value gains; review AFFO reconciliations and per-share results.
- The finalized CPA:18 purchase-price allocation, acquired asset values, assumed debt, and the ongoing operating performance of the added self-storage and student-housing assets.
- Debt refinancing plans and costs around the 2024–2025 maturities, including exposure to variable rates and the company’s post-amendment credit-facility availability.
- Tenant credit trends, lease renewals and expirations, and the U-Haul repurchase option covering 78 properties with approximately $38.8 million of ABR and an April 2024 exercise date.
- Dividend coverage and sustainability, considering declared distributions, operating cash flow, debt service, capital commitments, and the company’s expanded share count.