W. P. Carey Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. W. P. Carey is a REIT focused mainly on long-term, triple-net leases of commercial properties in the U.S. and Northern and Western Europe. Its Investment Management business is winding down as managed programs reach the ends of their life cycles.
Business and portfolio
At quarter-end, the net-leased portfolio included 1,264 properties, 358 tenants, approximately 151.9 million square feet, 98.4% occupancy and a 10.6-year weighted-average lease term. During the first nine months, the company acquired 18 investments for approximately $1.0 billion, completed four construction projects costing $88.2 million, and sold 17 properties for net proceeds of $126.7 million.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $325.8 million | $302.4 million | $956.6 million | $901.9 million |
| Net income attributable to W. P. Carey | $138.5 million | $149.4 million | $310.4 million | $320.8 million |
| Diluted EPS | $0.74 | $0.85 | $1.71 | $1.84 |
| AFFO, non-GAAP | $230.7 million | $202.0 million | $675.9 million | $616.4 million |
| Operating cash flow | Not separately provided for the quarter | $625.4 million | $556.6 million |
Revenue grew about 7.7% in Q3 and 6.1% year to date, mainly from acquisitions and higher lease revenue. GAAP net income fell about 7.3% in Q3 and 3.2% year to date. Management cited lower property-sale gains and a current-quarter property impairment in the quarterly comparison, and debt-extinguishment losses and prior-year tax benefits in the nine-month comparison. AFFO, a company-defined supplemental measure, rose about 14.2% in Q3 and 9.6% year to date; the company attributes growth primarily to net investment activity, recovering rent collections, dividends from investments and lower interest expense. AFFO is not a substitute for GAAP earnings or operating cash flow.
Debt, liquidity and capital allocation
Total debt, net, was $6.675 billion at September 30, 2021, versus $6.696 billion at year-end 2020. The weighted-average debt rate was 2.6%, and 89% of debt was fixed-rate. The company reported approximately $129.7 million of cash, $1.5 billion of available revolver capacity and $538.9 million of potential proceeds from outstanding equity forwards. It reported compliance with debt covenants.
Nine-month operating cash flow was $625.4 million; investing activities used $1.053 billion, principally reflecting real estate purchases and equity-method contributions. Financing activities provided $305.9 million. The company declared dividends of $3.150 per share for the nine-month period; the Q3 dividend was $1.052 per share. Equity issuance included $302.5 million of net ATM proceeds and $457.2 million from settled forward sales, with 7.19 million forward shares still outstanding at quarter-end.
Outlook, risks and unusual items
- Management said it received more than 99.5% of contractual base rent due in Q3 through the report date, but cautioned that this does not predict future collections. COVID-19 effects remain uncertain.
- Key exposures include tenant credit and industry/geographic concentration, interest rates, and foreign exchange. A stronger U.S. dollar reduced reported values of foreign real estate and debt; the company also uses currency and interest-rate hedges.
- Notable Q3 items included a $16.3 million impairment charge after a tenant declined to renew a lease expiring in 2022, and $52.9 million of non-cash unrealized gains on Lineage Logistics shares. Nine-month results included $60.2 million of debt-extinguishment losses and a $6.8 million impairment of an equity-method investment.
- Management expects ordinary liquidity needs to be funded through operations, dispositions, cash, the revolver and debt or equity markets; it did not provide earnings or AFFO guidance in the supplied filing text. Planned requirements include dividends, debt service and capital commitments.
- Subsequent events: a $350 million green bond offering at 2.450% due 2032; acquisition of two manufacturing facilities for $40.7 million; and repayment or prepayment of six mortgage loans totaling $297.6 million. The transition-services agreement with Watermark Lodging Trust ended October 13, 2021.
- The company reported no material litigation and no material quarterly changes in internal control; disclosure controls were deemed effective at a reasonable level of assurance.
Investor verification priorities
- Assess whether rent collection and tenant credit remain resilient as pandemic-related uncertainty evolves.
- Reconcile GAAP earnings with AFFO, particularly the effects of unrealized investment gains, property-sale gains, impairments, debt-refinancing costs and tax items.
- Track the use and dilution impact of outstanding equity forwards and remaining ATM capacity.
- Review refinancing and maturity exposure, variable-rate debt sensitivity, and the effect of foreign-currency movements.
- Monitor the Las Vegas construction-loan exposure and committed construction/acquisition funding, along with the performance of operating properties and managed-program investments.