Real estate investment trust giant W.P. Carey (WPC 1.01%)reported mixed earnings for the third quarter on Tuesday, Oct. 29. Diluted EPS of $0.51 missed analyst consensus expectations of $0.54, and adjusted funds from operations (AFFO) of $1.18 per share were down 10.6% year over year. Revenue of $397.4 million did top analyst expectations, but it was down 11.4% compared to Q3 2023, primarily due to declines in lease revenue following the sale of assets like office and hotel properties as well as lower income from finance leases.
| Metric | Q3 2024 | Analysts Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| AFFO per share | $1.18 | N/A | $1.32 | (10.6%) |
| FFO per share | $0.83 | N/A | $1.32 | (37%) |
| Revenue | $397.4 million | $377.4 million | $448.6 million | (11.4%) |
| Diluted EPS | $0.51 | $0.54 | $0.58 | (12%) |
| Net income attributable to W.P. Carey shareholders | $111.7 million | N/A | $125 million | (10.6%) |
Source: W.P. Carey. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. AFFO = Adjusted funds from operations. FFO = Funds from operations.
Understanding W.P. Carey's Business
W.P. Carey is a renowned real estate investment trust (REIT) known for its diversified portfolio of net-leased properties. These are long-term leases, often requiring tenants to pay most property expenses. This strategy allows the company to secure predictable income while reducing operational costs. The firm operates across various sectors like industrial, warehouse, retail, and self-storage facilities, fostering geographic and tenant diversification.
Recently, W.P. Carey refined its focus by exiting the office property sector. By selling off less profitable segments, the company aims to concentrate on more stable and revenue-positive properties, enhancing its strategic pursuits and expanding globally to manage risk and stabilize revenue streams.
Quarter Review: Strategic Moves and Challenges
In Q3 2024, W.P. Carey completed significant asset sales, including spinning off 59 office properties, aligning with its strategy to focus on more resilient asset classes. Total dispositions year-to-date reached $1.2 billion, underscoring the company's commitment to optimizing its portfolio.
Investment activities were robust, with $971.4 million invested year-to-date (including $167 million in Q3), indicating a notable pivot towards stable property types like warehouses and industrial spaces. Rent growth stood at 2.8% year over year, demonstrating effective lease management strategies.
This quarter highlighted strategic financial repositioning, including the repayment of 500 million euros in senior unsecured notes and the integration of sustainability-linked credit features. By maintaining a liquidity reserve of $2.6 billion, W.P. Carey ensures potential acquisitions without issuing additional equity.
Amidst positive strides, challenges occurred with the Chapter 11 bankruptcy protection filing of tenant True Value, which significantly contributed to annual base rent (ABR). Despite its financial difficulties, True Value remains up-to-date on rent commitments. Additionally, the company faced headwinds in its self-storage sector, indicated by NOI forecasts.
Future Outlook and Guidance
Looking forward, W.P. Carey continues to foresee AFFO between $4.65 and $4.71 per diluted share for the year, backed by strategic asset management and investments. The company's focus remains on navigating tenant challenges and market fluctuations with strategic cash reserves. It plans to leverage its liquidity for potential acquisitions in the upcoming quarters, maintaining its conservative financial strategy.
With a substantial emphasis on proactive asset repositioning and tenant engagement, investors should watch for developments in W.P. Carey's high-occupancy properties and financing actions. Notable strategies around refinancing and potential new investments are anticipated to further stabilize the portfolio and drive future growth.
