W. P. Carey Offers Double-Digit Annualized Return Potential

Core Viewpoint - The Federal Reserve's interest rate hikes have led to a reset in REIT valuations, creating investment opportunities in companies like W. P. Carey (WPC) despite recent challenges such as an office asset divestiture and dividend cut [1] Company Overview - WPC is a diversified REIT with an annual base rent (ABR) of $1.29 billion, with 64% from North America, 35% from Europe, and 1% from other regions [1] - The portfolio consists of 64% industrial/warehouse properties, 21% retail, and 15% in other areas, with 23.1% of tenants being investment-grade [1] Recent Financial Performance - For Q2, WPC reported an AFFO per share of $1.17, with a contractual same-store rent growth of 2.9% year-over-year [1] - Comprehensive same-store rent growth was negative 40 basis points year-over-year, primarily due to lease restructuring [1] - Rent collections were over 99% for Q2 and the first half of the year, with a re-leasing activity generating a rent recapture of 116% [1] Investment Strategy - WPC is investing in properties with cash cap rates in the 7% to 8% range, targeting unlevered IRRs above 9% [1] - The company has invested $641 million year-to-date at a weighted average cash cap rate of 7.7% [2] - WPC's current acquisition pipeline is around $200 million, with expectations for increased activity as interest rates stabilize [1] Debt and Liquidity Position - WPC completed a $650 million Eurobond issuance and a $400 million U.S. dollar bond issuance, maintaining a strong liquidity position of $3.2 billion [2] - The company has repaid $1 billion in maturing bonds and has no further debt maturities in 2024, with only $61 million in mortgage debt due in H2 [2] Market Outlook - The stock has been under pressure due to management decisions, but the potential for rate cuts could create a favorable environment for real estate stocks like WPC [2] - WPC lowered its full-year investment volume expectation to $1.25 billion to $1.75 billion and adjusted its AFFO guidance to between $4.63 and $4.73 per share [2] - At a recent price of $56.88, WPC trades at 12.15 times the midpoint of 2024 AFFO, with a dividend yield of 6.4% [2]