W. P. Carey Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. W. P. Carey is a REIT focused primarily on long-term, single-tenant commercial real estate leases, with a smaller investment management business. Financial statements are unaudited.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $319.7 million | $290.5 million | $630.9 million | $599.5 million |
| Net income attributable to W. P. Carey | $120.2 million | $105.3 million | $171.9 million | $171.4 million |
| Diluted EPS | $0.67 | $0.61 | $0.96 | $0.99 |
| AFFO, a non-GAAP measure | $228.7 million | $197.9 million | $445.2 million | $414.5 million |
| Cash from operating activities | Not presented quarterly | $398.7 million | $340.1 million |
Q2 revenue rose about 10.0% year over year; six-month revenue rose about 5.2%. Q2 net income increased about 14.2%, while six-month net income was nearly flat. AFFO increased about 15.5% for Q2 and 7.4% for the six-month period. The filing presents no operating-margin measure; results include depreciation, gains, financing and other items.
Lease revenue was $305.3 million in Q2 and $607.1 million for six months, up 8.9% and 7.9%, respectively. Management attributed growth mainly to acquisitions, scheduled rent increases, improved rent collections and currency effects. Investment Management revenue declined, largely because advisory agreements with two funds ended after their 2020 merger.
Balance sheet, debt and liquidity
- At June 30, 2021, total assets were $15.23 billion, net real estate investments were $12.86 billion, and total equity was $7.30 billion.
- Debt, net, was $6.82 billion, versus $6.70 billion at December 31, 2020. Cash and cash equivalents were $164.5 million; an additional $53.7 million was restricted cash.
- Management reported approximately $1.5 billion of available revolving-credit capacity and approximately $295.6 million of available proceeds under forward equity sales. The revolver matures in February 2025; the company reported compliance with debt covenants.
- Fixed-rate debt was 89% of total debt; the reported weighted-average rate on total debt was 2.6%. Scheduled principal payments were $36.7 million for the remainder of 2021 and $312.5 million in 2022.
- Six-month investing cash outflow was $885.9 million, primarily reflecting real estate purchases and equity-method investment contributions. Financing cash inflow was $398.9 million.
Material changes and operating activity
- The company acquired 14 investments for approximately $837.1 million in capitalized costs, completed three construction projects costing $62.4 million, and sold 12 properties for net proceeds of $98.4 million.
- Net-leased portfolio size increased to 1,266 properties and 150.2 million square feet. Occupancy was 98.0%, down from 98.5% at year-end 2020; weighted-average lease term was 10.8 years, up from 10.6 years.
- Q2 net income benefited from $19.8 million of property-sale gains. Six-month results included $60.1 million of net debt-extinguishment losses, including mortgage prepayment penalties and a make-whole payment on redeemed notes.
- The company issued $425 million of 2.250% notes due 2033 and €525 million of 0.950% notes due 2030, using proceeds to repay mortgages and redeem €500 million of 2.0% notes due 2023. It also raised $302.5 million through its ATM program and settled portions of equity forward offerings.
Outlook, risks and contingencies
- No specific earnings or operating guidance was provided. Management expects to meet normal liquidity needs through operating cash flow, dispositions, cash, credit-facility capacity and potential debt or equity issuance.
- The company collected approximately 99% of contractual base rent due in Q2 through the report date. Management cautioned that this recent collection rate should not be taken as an indication of future collections, given continuing uncertainty from COVID-19.
- COVID-19 exposure remains relevant, including hotel operations and tenant credit. The remaining hotel averaged 35.2% occupancy for the first half. Retail represented 17.5% of net-lease annualized base rent; hotel net leases represented 1.6%.
- Other risks include interest-rate and foreign-exchange movements, tenant and industry concentration, refinancing or balloon-payment requirements, and access to capital. A stronger U.S. dollar reduced the translated carrying value of foreign assets and debt during the period.
- The company recorded a $6.8 million impairment on an equity-method real estate investment in the first half. It reported no material litigation and stated disclosure controls were effective as of June 30, 2021.
Investor verification priorities
- Review AFFO’s non-GAAP definition and reconciliation, and distinguish it from GAAP net income and operating cash flow.
- Assess rent collections and tenant credit after the reported Q2 collection period, particularly for COVID-sensitive sectors and the hotel exposure.
- Verify the impact of property acquisitions, dispositions and equity issuance on recurring per-share performance, occupancy and portfolio quality.
- Review debt maturities, variable-rate exposure, covenant headroom and the costs and effects of refinancing and mortgage prepayments.
- Separate recurring performance from property-sale gains, debt-extinguishment losses, investment valuation changes and prior-year tax or merger-related items.