W. P. Carey Inc. quarterly report, Q3 FY2022

W. P. Carey Inc. — Q3 2022 Form 10-Q

Reporting period: Three and nine months ended September 30, 2022. W. P. Carey is a REIT focused primarily on long-term, triple-net-leased commercial real estate in the U.S. and Northern and Western Europe. The filing is unaudited.

Financial performance and position

Metric	Q3 2022	Q3 2021	Nine months 2022	Nine months 2021
Total revenue	$383.6 million	$325.8 million	$1,076.5 million	$956.6 million
Net income attributable to W. P. Carey	$104.9 million	$138.5 million	$389.6 million	$310.4 million
Diluted EPS	$0.51	$0.74	$1.98	$1.71
AFFO attributable to W. P. Carey	$277.7 million	$230.7 million	$790.9 million	$675.9 million
Net cash from operating activities	Not presented by quarter	$702.5 million	$625.4 million

Margins: The filing does not provide a conventional operating margin measure; AFFO is a non-GAAP supplemental measure, not a margin or substitute for GAAP income or operating cash flow.

Balance sheet at September 30: Total assets were $17.8 billion; net real estate investments were $15.1 billion; cash and cash equivalents were $186.4 million.
Debt: Debt, net, was $7.78 billion, versus $6.79 billion at December 31, 2021. The weighted-average debt rate was 3.0%, compared with 2.5% year-end 2021; 84% of debt was fixed-rate. The company reported compliance with debt covenants.
Liquidity: Available revolving-credit capacity was approximately $1.3 billion. Additional stated funding sources included $455.7 million available under ATM forwards and $185.8 million under other equity forwards. The credit facility matures February 20, 2025.
Dividends: The company declared $3.177 per share for the first nine months, including a Q3 dividend of $1.061 per share.

Material changes versus the prior comparable period

Revenue increased in Q3 and year to date, primarily due to acquisitions, rent escalations, higher operating-property revenue, and increased lease termination and other income. Foreign-currency weakness, especially the euro and British pound, partly offset growth.
Q3 net income and diluted EPS declined year over year. The comparison was affected by a prior-year unrealized gain on the Lineage Logistics investment, currency weakness, and a $29.3 million Investment Management goodwill impairment in 2022. A $33.9 million gain on change in control related to the CPA:18 merger partly offset these factors.
Nine-month net income increased, with contributions from acquisitions, WLT investment gains, and a lower debt-extinguishment loss than in 2021. Results also include noncash and transaction-related items, so GAAP income and AFFO show different trends.
Nine-month AFFO increased, which management attributed mainly to higher lease and operating-property revenues, rent escalations, and lease termination income, partly offset by currency weakness and higher interest expense.
On August 1, 2022, W. P. Carey completed the CPA:18 Global merger for approximately $1.6 billion of cash and stock consideration. It issued 13.8 million shares and paid approximately $423.3 million cash, while assuming about $900.2 million of non-recourse mortgage debt. The acquired portfolio included net-leased properties, 65 self-storage properties, and student housing assets.
The U.S. dollar’s strengthening reduced the reported carrying value of net-lease real estate by $601.1 million and certain debt balances by a combined $579.1 million during the first nine months.

Outlook, commentary, risks and unusual items

Management said it expects cash from operations, dispositions, cash reserves, revolving-credit capacity, and potential debt or equity issuance to fund recurring needs and commitments. The filing provides no specific earnings or AFFO guidance.
Management expects significant cash needs for dividends, investments, capital commitments, debt principal and interest, and operating expenses. Future interest payments were estimated at $957.6 million in total, including $228.5 million due over the next 12 months from September 30, 2022.
The company received over 99.3% of contractual base rent due in Q3 through the report date. At quarter-end, its net-leased portfolio had 98.9% occupancy and a 10.9-year weighted-average lease term. These portfolio measures do not eliminate tenant credit or renewal risk.
Key risks include higher interest rates, refinancing and balloon-payment exposure, tenant credit and industry/geographic concentration, foreign-exchange volatility, and potential effects of COVID-19 and geopolitical or economic conditions. Management noted that stronger rates may reduce asset values and increase costs on unhedged variable-rate debt.
Unusual items included the $29.3 million Investment Management goodwill impairment, $33.9 million merger-related change-in-control gain, $17.3 million of merger and other expenses for the first nine months, real-estate impairments, and foreign-exchange-related losses. The CPA:18 purchase-price allocation remained preliminary.
After quarter-end, WLT was acquired by private real estate funds; W. P. Carey received $82.6 million in October 2022 for its WLT common shares and no longer held an interest. The filing reported no material litigation and no material change in internal control over financial reporting.

Important facts for investors to verify

How the final CPA:18 purchase-price allocation, acquired-property performance, and assumed mortgage obligations compare with preliminary estimates.
Whether AFFO growth translates into durable cash generation after interest, recurring capital needs, and dividends; review the company’s non-GAAP reconciliation alongside GAAP results.
Debt maturities, variable-rate exposure, refinancing availability, covenant headroom, and the terms and use of remaining ATM and equity-forward proceeds.
Tenant rent collections, credit quality, lease expirations—including the U-Haul repurchase option in 2024—and occupancy and performance of acquired operating properties.
Effects of currency movements, impairment assumptions, and the continuing loss of CPA:18 advisory fees on future results and liquidity.