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W P Carey inc (NYSE:WPC)
Q2 2021 Earnings Call
Jul 30, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to W.P. Carey's Second Quarter 2021 Earnings Conference Call. My name is Jessie and I will be your operator today. All lines have been placed on mute to prevent any background noise. [Operator Instructions] After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time.

And now I will turn the program over to Peter Sands, Head of Investor Relations, Mr. Sands, please go ahead.

Peter Sands -- Head of Investor Relations

Good morning, everyone. Thank you for joining us this morning for our 2021 second quarter earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements. Factors that could cause actual results to differ materially from W.P. Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials.

And with that, I'll pass the call over to our Chief Executive Officer, Jason Fox

Jason E. Fox -- Chief Executive Officer

Thank you, Peter, and good morning everyone. Having proved the resilience of our portfolio throughout the pandemic, the first half of 2021 has been characterized by an acceleration in growth, driven primarily by record deal volume, enabling us to further increase our investment expectations for the year and raise our AFFO guidance. We continue to see a high level of deal activity with several hundred million dollars of deals currently in our pipeline. And with inflation taking center stage with investors W.P. Carey is well-positioned to generate additional upside with 60% of our ABR coming from leases that rents bumps tied to CPI. I'll focus my remarks this morning on these 2 growth drivers, accretive investments, and the rent escalations embedded in our leases. After which I'll hand the call over to our CFO, Toni Sanzone, who will focus on our results, guidance, and balance sheet. And as usual, we're joined by our President John Park and our Head of Asset Management, Brooks Gordon.

Starting with our growth through acquisitions. For the second quarter investment volume was $780 million driven primarily by the completion of 11 acquisitions. Our net lease investments had a weighted average cap rate of 5.6% reflecting the mix and quality of the assets we acquired amid a competitive market environment. For example, about 40% of our second quarter investment volume was in Class-A warehouse, including a $195 million investment in a newly constructed logistics facility in the U.K., which is expected to receive a green, very good environmental rating and is net leased to Jaguar, Land Rover for a 30-year term. Also, about 40% of our second quarter investment volume came from Europe, where cap rates tend to be lower, although spreads remain attractive given our ability to issue euro-denominated debt, which is currently over 100 basis points cheaper than where we can issue U.S. bonds. The differentiating factor from other net lease REITs is our ability to achieve attractive rent increases over long lease terms.

In recent years, we believe we've been originating leases that are among the longest in the net lease sector. Our second quarter investments had a weighted average lease term of 21 years, with increases averaging 2.2% for those with either fixed rent increases or floors. The profile of our investments results in an average yield that's meaningfully more attractive than peers. We're originating shorter-term leases with lower or even no rent increases. Initial going-in cap rates, taking in isolation, do not tell the whole story of the prolonged accretion we achieve. For example, a lease with a 6% going in cap rate and 2.5% annual rent increases over a 20-year term, has an average annual yield of over 7.5%.

Turning now to our growth through rent escalations and how we're positioned for inflation. 99.5% of our ABR comes from leases with built-in rent growth, which includes 60% from leases tied to inflation. The majority of that, representing 37% of total ABR, comes from leases tied to uncapped CPI is split roughly 60-40 between Europe and the U.S. 23% of our ABR comes from leases tied to CPI that have floors and/or caps. The average floor is approximately 1.5% on an annualized basis, and the average cap is approximately 3%. And lastly, leases with fixed rent bumps represent 35% of ABR and have average annualized increases of around 2%. Because inflation generally flows through to rents with a lag, we expect our contractual same-store rent growth to increase about 100 basis points from 1.5% to about 2.5% over the next 12 months. Based on current economic forecasts, holding all other factors constant, this assumes inflation over the remainder of 2021 of about 3.5% in the U.S. and averaging 2.75% across Europe, which then stabilizes in 2022 to around 2% in both regions. Of course, if actual inflation runs higher than currently predicted, we would expect our contractual same-store growth to ultimately be above 2.5%. While this gives a sense of the impact of inflation on our rent growth about a year from now, the impact on ABR is, of course, cumulative, and the effect of compounding can be powerful over longer time frames.

Turning now to the internal and external factors contributing to the sustainability of our increased investment activity. With $1 billion of investments completed in the first half of the year, $122 million of capital investment projects scheduled to complete in the second half of the year, and the several hundred million dollars of deals in our pipeline, we expect 2021 to be a record year for deal volume. We also expect to maintain a high volume of deals through a combination of factors. From an internal perspective, with the simplification of the company largely complete, we're now singularly focused on investing for our balance sheet and feel we're benefiting from deeper relationships and market expertise as well as from a more streamlined investment process.

From a macro perspective, sale-leasebacks continue to gain popularity with corporations as part of an overall trend of leasing rather than owning real estate, and M&A activity has picked up, driving net lease deal flow as companies seek to optimize their balance sheets and private equity firms monetize assets to drive returns. We also benefit from the scale of our portfolio with about 30% of our second quarter investment volume coming from follow-on deals, originated through our existing tenant and sponsor relationships. While our diversified approach ultimately provides a vast and deep addressable market over 2 continents, from a top-down perspective, our core focus remains on industrial and warehouse assets, which comprised about 70% of our second quarter deal volume.

Within these sectors, we've recently expanded into attractive subsectors with R&D and lab space and industries like food processing and production, which are all well suited for sale-leasebacks. We've also been investing in essential retail properties in Europe, especially stores with strong unit-level performance, completing investments in grocery portfolios in Spain and France over the last 9 months. In addition to our core focus, we create incremental deal volume and growth through more opportunistic investments. A very recent example of our ability to put additional money to work in this way is the construction loan we entered into during the second quarter related to a retail complex currently under development on the Las Vegas Strip. We funded an initial $85 million draw in June and expect to fund additional draws over the next 12 to 18 months, up to $225 million. The drawn amounts earned 6% interest and upon completion, with the option to convert part of the loan into ownership of net lease retail assets at an extremely desirable location at very attractive cap rates.

In closing, given all these factors, coupled with the cost of capital that allows us to consistently make accretive investments, we're confident that we can maintain a strong pace of investments in the second half of the year, and we've raised the investment volume in our 2021 guidance to reflect that.

Lastly, the worst of the COVID pandemic seems to be behind us, the recent surge in Delta variant case numbers serves as an important reminder that in addition to investment volume, underwriting and portfolio quality still matter that the proven performance of our portfolio continues to differentiate W. P. Carey from other net lease REITs.

And with that, I'll pass the call over to Toni.

Toni Sanzone -- Chief Financial Officer

Thank you, Jason, and good morning everyone. I'm pleased to say that we exceeded expectations with our second quarter results, completing a strong first half of the year and positioning us to again raise our full year guidance. For the quarter, we generated total AFFO of $1.27 per share and real estate AFFO of $1.23, which increased 12% year-over-year, reflecting the accelerated pace of our investment activity year-to-date and the continued strength of our rent collections, which were 99% for the quarter. We are raising our full year AFFO guidance increasing at $0.06 at the midpoint. We currently expect to generate total AFFO of between $4.94 and $5.02 per share for the full year, including real estate AFFO of between $4.82 and $4.90 per share, representing over 5% year-over-year growth at the midpoint. We've raised our full year expectations for investment volume to a range of $1.5 billion to $2 billion, including capital investments and commitment scheduled to complete this year. Also included in our investment volume is the construction funding of the Las Vegas retail complex Jason discussed. Earnings from this investment are expected to add about $3 million to AFFO this year, which will be reflected in earnings from equity method investments. Disposition activity during the second quarter totaled $86 million bringing dispositions for the first half of the year to $100 million. Based on our current visibility into the timing of certain sales we've lowered our expectations for total disposition activity for the year to between $150 million to $250 million. Comprehensive same-store rent growth, which is based on pro rata rental income included in AFFO was 2% year-over-year. On a full year basis, we expect our comprehensive same-store rent growth to exceed our recent pre-COVID growth rates, driven by sustained collections of 99% as well as certain COVID-related rent recoveries, we assume will occur in the back half of the year. During the second quarter, we resumed collecting substantially all quarterly rent due from a retail tenant in Europe that had made partial rent payments in prior quarters due to lockdowns. Our AFFO guidance range now assumes that during the second half of 2021, we recover most, if not all, of the $4.5 million of outstanding rent due from this tenant.

Lease termination and other revenues increased during the second quarter due primarily to the receipt of $4.4 million in lease-related settlements. We currently assume no significant additional payments of this nature in the back half of the year. For G&A expense, we've raised and narrowed our guidance outlook for the full year to fall within a range of $82 million to $84 million, up moderately from our prior expectations. On last quarter's call, I noted that in April, we received preferred stock dividends totaling $3.3 million from our investment in Watermark Lodging Trust, representing the amount due for the prior 4 quarters, which was the primary driver of our non-operating income line item for the 2021 second quarter. Going forward, we expect to receive preferred dividends of approximately $8,000 on a quarterly basis, which is embedded in our full year guidance.

Moving now to our capital markets activity and balance sheet. Following an active first quarter, during which we issued bonds at our tightest spreads and lowest coupons to date, we raised well-priced equity during the second quarter. In June, we completed an equity forward offering for just over 6 million shares, locking in our ability to match fund acquisitions with $455 million of equity raised at a gross price of $75.30 per share. We settled a portion of these latest forward agreements during the second quarter as well as the remaining forward agreements from those we put in place last year.

We also issued shares under our ATM program. In aggregate, we issued 6.7 million shares during the second quarter, raising $472 million in net proceeds. The majority of our share issuances occurred later in the quarter and will, therefore, be fully reflected in our third quarter weighted average share count. At quarter end, our weighted average interest rate was 2.6%, a significant decline from 3.2% a year ago, reflecting the continued improvement in our cost of debt. Interest expense for the second quarter totaled $49.3 million, which declined 6% year-over-year, primarily reflecting the full quarter impact of the interest cost savings generated by our first quarter debt prepayments and refinancings.

From a leverage perspective, debt-to-gross assets remains at the low end of our target range, ending the second quarter at 41.1%. Net debt to adjusted EBITDA was 6 times at the end of the quarter and 5.8 times when factoring in the remaining shares available under our latest equity forward. Our liquidity position remained very strong, ensuring we're well-positioned to fund new acquisitions and continue accessing capital markets opportunistically. We ended the second quarter with total liquidity of approximately $2 billion, including cash, the available capacity on our $1.8 billion credit facility, and our ability to settle 4 million shares remaining under forward agreements by the end of 2022 for anticipated net proceeds of approximately $300 million.

In closing, building on the recent momentum in our deal volume, which is expected to continue in the second half of the year, we anticipate a record year for acquisitions, supported by strong liquidity, capital market flexibility, and a favorable cost of capital. In addition to the proven downside protection, our portfolio provides with sustained higher inflation, we'd also expect it to generate additional upside to our growth over the longer term.

And with that, I'll hand the call back to the operator for questions.

Questions and Answers:

Operator

Thank you. At this time, we will take questions. [Operator Instructions] Thank you. Our first question is coming from Sheila McGrath with Evercore. Please proceed with your question.

Sheila McGrath -- Evercore ISI -- Analyst

Yes. Good morning. Jason....

Jason E. Fox -- Chief Executive Officer

Good morning, Sheila.

Sheila McGrath -- Evercore ISI -- Analyst

Good morning. A big investment quarter, pipeline is larger. Can you help us understand how the volume has picked up so much? Is it -- have you added new personnel, have you broadened the initial yield criteria because your cost of capital has improved? Or is there just more product for sale maybe as a result of increasing M&A?

Jason E. Fox -- Chief Executive Officer

Yes. I think it's a little bit of all of those things. I mean, certainly, with the simplification of our business largely complete after the CPA merger and the continued wind down of investment management business, there's more of a singular focus on growth for us. Our cost of capital continues to work really well and obviously, the diversified approach doesn't hurt either offers us a wide opportunity set that's both clearly in the U.S. and Europe. And we can compete at a broad range of cap rates, as you mentioned. We've expanded that target cap rate range some, and I think that allows us to buy higher quality probably mainly industrial assets, which is contributing to the increased deal volume. But to your point, M&A that's led to more sale-leasebacks in our mind, and it seems more -- and maybe more of a permanent shift in how corporates view owning versus leasing their real estate. And of course, as the market leader in sale-leaseback, this is clearly favorable to us as well. So lots of changes. I think there are some more incremental changes we made in our -- within our investment process and within the team as well. And I think all of that has led to what we view as more sustained deal activity. And where we sit today, the opportunities have been there. And there's really no reason for us to believe that level of transaction activity won't continue into the future. So we feel good about where we are.

Sheila McGrath -- Evercore ISI -- Analyst

Okay. That's great. One more question. I think it was helpful highlighting how much of your leases are tied to like uncapped CPI? Just wondering if you could explain how that works? Like is it an annual adjustment for -- as you look back over the past year? And I would guess that CPI is tracking across the different countries where you have assets pretty significantly. Just wondering if that's an annual adjustment every 5 years or how it works?

Jason E. Fox -- Chief Executive Officer

Yes. Each lease is going to be unique. I would say the majority of our leases have annual increases, but there certainly are leases that would bump every 2 years or every 5 years as well. Those will be in the portfolio. There is a lag effect, I think, as you pointed out, because the leases are more in this annual cadence, for some of them it may take months before that fully flows through to our ABR. And then you're right, I mean, the U.S. leases are predominantly based on CPI. And then in Europe, it depends. Some of them are Eurozone inflation base, some of them are more specific to a country, German CPI or Dutch CPI or U.K. RPI. So it's really deal-specific. But I think, generally speaking, we like this exposure to inflation, I think it's one of the differentiators in our portfolio.

Sheila McGrath -- Evercore ISI -- Analyst

Thank you.

Jason E. Fox -- Chief Executive Officer

Welcome.

Operator

Thank you. Our next question comes from Spenser Allaway with Green Street. Please proceed with your question.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you. Just on the construction loan. I was wondering if you guys could provide a little bit of color on the expected risk-adjusted yield that you guys expecting on these relative to more traditional acquisitions and capital investment projects?

Jason E. Fox -- Chief Executive Officer

Yes, sure. I mean look, our core focus is still on acquiring industrial and warehouse properties in the U.S. and Europe and also retail in Europe for that matter as well. And when we think about retail in the U.S., we typically are taking a more opportunistic approach. And I think this transaction falls into that category. For now, it's a construction loan, I think we talk about that it's going to earn during the construction period, 6% interest, which we think is a pretty healthy rate, especially relative to where cap rates have trended. It's a phenomenal location. I'd call it one of the best development parcels on the entire Las Vegas Strip. If you know the market at all at the intersection of Las Vegas Boulevard and Harman at the southern end of the pedestrian bridge that links The Cosmopolitan hotel to City Center and Crystals Mall. And from our analysis, it's a location with some of the highest foot traffic in the entire United States. So for us in terms of risk-adjusted returns, we actually completed a very similar project to this across the street, probably 6 or 7 years ago. It was very, very successful. It's with the same operating partner, so we have lots of confidence in our ability to execute here. And as I said, we think it's a good risk-adjusted return for the loan. And for now, it is a loan, but ultimately, we'll have the opportunity through some purchase options to buy some longer-term net leases, and we can talk about kind of specifics of that if it were to happen down the road construction is complete.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. Great. And then realizing you guys have been focusing on industrial, like you mentioned in your prepared remarks, and I understand you don't have a crystal ball for everything in '22 yet. But just looking forward, how optimistic or do you have a sense of the addressable market really in Europe remaining related to that property type?

Jason E. Fox -- Chief Executive Officer

Specifically industrial in Europe, was the question?

Spenser Allaway -- Green Street Advisors -- Analyst

Yeah.

Jason E. Fox -- Chief Executive Officer

Or just generally about how we see our ability to keep on ramping up transaction volume?

Spenser Allaway -- Green Street Advisors -- Analyst

Both would be great. But yes, more specifically as it relates to industrial is that's where you've been focused.

Jason E. Fox -- Chief Executive Officer

Yes. And it is both in U.S. and Europe. I mean, look, it's clear to everyone that industrial has been the focus of many investors, and it's had tremendous capital inflows. I mean, what we're not doing is competing on the shorter-term multi-let industrial assets that are hitting the headlines that we're seeing. It was in the 4s and now it's probably the 3s in terms of going in cap rates. Those are trading at these levels because there's a perception that they have and probably -- it's probably real that they have good mark-to-market opportunities. We're focused more on longer-term 15, 20-plus year leases with good industrial assets. This can be logistics, it could be high quality like the JLR deal that we purchased earlier this year.

We're also focused on light manufacturing, food production, R&D, all which also fall under our industrial category. And we have a very good track record of sourcing predominantly through sale-leasebacks, and I think that's a big reason why we're able to acquire these with those structures in place. And what we feel are higher than market cap rates as well. So look, it's hard to predict what's going to happen in 2022. But we think we're set up very well, as I've mentioned earlier on Sheila's question to continue to show the momentum that we've had on the acquisition front.

Spenser Allaway -- Green Street Advisors -- Analyst

Great. Thanks for the color.

Jason E. Fox -- Chief Executive Officer

Yes. You're welcome.

Operator

Thank you. Our next question is coming from the line of Anthony Paolone with JPMorgan. Please proceed with your question.

Anthony Paolone -- JPMorgan -- Analyst

Great, thank you. I don't know if I missed this, but can you comment on just your current pipeline and the skew between Europe in the U.S.? And also just how yields might look compared to 5.6% that you mentioned in the second quarter?

Jason E. Fox -- Chief Executive Officer

Yes, sure. So yes. So the pipeline is strong, as we've talked about. Year-to-date at this point, just to recap, we've closed about $1 billion of deals including the $780 million in the second quarter. We also have $122 million of capital projects, expansions, and build-to-suits that are expected to complete in 2021. At that point, they get added to our volume and rent roll. So we have kind of $1.1 billion locked in at this point in time. And our pipeline remains strong. There's over $300 million of deals in advanced stages right now, which we believe much of that will close during the third quarter and then beyond that, we still have a couple of hundred million dollars more of identified deals that are earlier stages but advancing through the diligence and closing process.

And of course, our fourth quarter, as we've talked about in the past, tends to be our most active quarter of the year. We don't have visibility into that now, but it does tend to be the most active year. And I think a lot of that has rate -- has led to our guidance raise. We feel good about that midpoint and maybe with the potential to get into the top half of that range as well. So there's really no reason to think that anything is going to slow down here, assuming market conditions don't change substantially. You asked about U.S. versus Europe. Year-to-date, it's been about 60-40 U.S. to Europe. Europe has slowed a little bit, but that's typical this time of year. The current pipeline is probably more, call it, three quarters U.S., a quarter Europe, but we would expect that to pick up as we get a little further into the year.

I think the last part of your question was about cap rates. We look at a pretty wide range of cap rates, part of the benefits of a diversified approach. I would say we target deals into this 5% to 7% cap rate range. You pointed out that the quarter was a 5.6% weighted average cap rate. Year-to-date, it's around 5.8% weighted average cap rate. And this is a going in cap rate. I think that's important to note. A lot of that, I think you can attribute to market compression. But I think also, we talked about the mix of assets that we're acquiring and higher-quality warehouse is just going to trade a little bit lower, but we think we're getting good risk-adjusted returns from where we'll acquire them. And then you also mentioned Europe, and Europe does have lower cap rates that's driving that sum also. And as you know, our cost of borrow in Europe is meaningfully lower. So while we might be doing some tighter going in cap rates in Europe, they still generate even the same or maybe even better spreads.

I think the last thing to note here is that from an accretion standpoint, we're not overly focused on going in cap rates. If you think about, especially how we structure our transactions, virtually all of our leases have built-in bumps, many of them, as we talk about are based on inflation. The ones that are fixed are probably in the 2% range. And these are long leases. So over a 20-year period, with interesting bumps, the average yield is significantly higher. And I think that will be the case for all the deals that we're purchasing this year.

Anthony Paolone -- JPMorgan -- Analyst

Got it. And just I appreciate the context on the duration side of your deals. Is it something that when a deal comes to you, the duration is there and either take it or leave it? Or is it something that you want longer duration and so you make other concessions to get it or how does that work?

Jason E. Fox -- Chief Executive Officer

Well, most of the deals that we source are through sale-leasebacks and build-to-suits. So the entire structure is a negotiation. And there's give and takes throughout that process. But certainly, lease term is important to us, the types of bumps that we have that's important to us, especially inflation. So I think it's all on the table, and there are trade-offs, especially in a competitive market. But as you can see, we've been successful and transacting with very long lease terms, very interesting bump profiles, and still maintaining an attractive initial cap rate and spread our cost of capital.

Anthony Paolone -- JPMorgan -- Analyst

All right. And just one last maybe detailed question. It seemed like lease termination income in the quarter was a bit elevated. Any color around that and whether that does anything to the NOI run rate we should think about going forward?

Jason E. Fox -- Chief Executive Officer

Toni, do you want to take that one?

Toni Sanzone -- Chief Financial Officer

Yes, I will take that one. Thanks, thanks, Jason. No, I think that we did mention that the -- this quarter specifically included a couple of larger payments from tenants. It totaled about $4 million, $4.5 million in the small bankruptcy settlement in that amount as well. I think there are -- there's a recurring portion of this line item that runs through every quarter and then sort of these one-off amounts that do tend to recur from time to time during the year. I'd say, on average, we're looking at about $12 million for the full year, which is in line with where it was last year. So I don't think we're really expecting anything or we don't have anything in our line of sight right now for the remainder of this year. I said this quarter was certainly an uptick.

Anthony Paolone -- JPMorgan -- Analyst

Okay. But the payments didn't tie to us having to take like a piece of your run rate revenue out because something that was terminated or anything?

Toni Sanzone -- Chief Financial Officer

No, these were end-of-lease payments typically to restore the premises, we'll settle with a tenant on their way out. So nothing in terms of recurring NOI there. But certainly an economic part of the lease that we enforce.

Anthony Paolone -- JPMorgan -- Analyst

Got it. Understand. Thank you.

Operator

Thank you. Our next question comes from the line of Elvis Rodriguez with Bank of America. Please proceed with your question.

Elvis Rodriguez -- Bank of America -- Analyst

Hi. Thanks to you all. Thanks for taking the call. Just a couple of questions. So one, you mentioned the increased interest on sale-leasebacks. In particular, what sectors or property types are you seeing this more in today versus perhaps 2 years ago? And then on that question, if you could just update us on the lab office or interest in lab, lab R&D space? Like what are you seeing there? What markets are they -- Is it the mega clusters that some of the other public REITs own and/or these are secondary markets? Thanks.

Jason E. Fox -- Chief Executive Officer

Yes. Sure. So sale-leasebacks, I would say it's more broadly increasing as corporates perhaps a result of some of the liquidity crunches that they had during COVID. Corporates, I think, are moving more toward leasing rather than owning their real estate. And that includes critical operating real estate that are good candidates for sale-leasebacks and long-term leases, and that's where we've been targeting. And it's -- we talk about industrial being a broad asset class for us. There's certainly a lot of warehouse deals that we're doing. But within that, we're also doing, as you mentioned, R&D, cold storage, food processing, and production. So I think all of those lend themselves well to sale-leasebacks, again, because of the criticality of the assets, which lends themselves well to corporates being willing to sign very long-term leases.

And your specific question on lab, I mean we're not primarily focused on lab. I think it's going to be more incremental deal volume when there are opportunities to do sale-leasebacks. It's not going to be competing with the Alexandrias of the world in Cambridge and San Diego. So it's just a little different approach for us.

Elvis Rodriguez -- Bank of America -- Analyst

Great. And then just a question. So at the end of 4Q '20, you got about 9.5% of your leases of ABR rolling in 2024 and now you only have about 8%. Is that a function of bringing leases up, selling assets? How should we think about the role that's occurring in the portfolio over the next few years? And what retention can look like? Thanks.

Jason E. Fox -- Chief Executive Officer

Brooks, do you want to take that one?

Brooks Gordon -- Managing Director & Head of Asset Management

Sure. So with respect to 2024, it's really just ongoing leasing activity that has occurred. So that's not really disposition activity. So we are very focused always on reducing that next 5-year lease roll percentage, and we're making good progress on that. In the next 3 years, we have a very manageable lease expiration outlook, less than, say, 8% through 2023. 2024 and 2025, certainly larger years, but that's pretty typical at this point in time. And so we're focused on all of those years right now, and that's really our approach is kind of 5 years out, really taking a proactive approach to those. On note, in 2024, the biggest piece of that is the U-Haul lease expiration, and that's one where they have a purchase option in 2024. So when you back that out, it's really only about 5% of ABR expiring in 2024.

Elvis Rodriguez -- Bank of America -- Analyst

At this point, to your best of your knowledge, do you expect them to exercise that option?

Jason E. Fox -- Chief Executive Officer

We do.

Elvis Rodriguez -- Bank of America -- Analyst

Right. Thank you very much.

Operator

Thank you. Our next question is coming from Manny Korchman with Citigroup. Please proceed with your quesiton.

Manny Korchman -- Citigroup -- Analyst

Hi. Good morning, eveyone.

Jason E. Fox -- Chief Executive Officer

Good morning.

Manny Korchman -- Citigroup -- Analyst

So as I went through your presentation, I noticed that the percentage of income from investment-grade tenants ticked down this quarter. Was that anything specific, just mix of new acquisitions and dispositions, something you've done on purpose? Or is it just a stat that's maybe less relevant for what's actually happening in the portfolio?

Jason E. Fox -- Chief Executive Officer

Yes. I think it's probably more of a function of the latter is that what we have been buying have not been investment grade. And maybe it's important to kind of touch on that a little bit. We've talked about it in the past that we feel the sweet spot in net lease is just below investment grade. There's much less capital to chase some deals. And not only does that help us generate higher yields, but we also get better lease structures, whether that's a rent bumps, the duration of the leases, or really even specific lease provisions.

And maybe more importantly, are the results. While our portfolio may have a lower percentage of investment-grade ABR, we've outperformed all of our peers during the stress test that was the pandemic. And that includes these peers with higher investment-grade rated tenants or ABR based. So I think it's about underwriting. It's about portfolio construction, and I think track record matters.

Manny Korchman -- Citigroup -- Analyst

Great. Thank you. And then just going to dispositions for a second. You sold the portfolio of Hellweg stores. Was that just a tenant concentration issue? Was it just opportunity to sell? Or can you give us some color on why you sold this?

Jason E. Fox -- Chief Executive Officer

Sure, yes. We exited 7 Hellweg stores in the quarter. It's really an opportunistic sale. There's an aspect of managing diversification as well there. but we created a lot of value when we extended that portfolio a few years ago. It's going to the lease there. So this is a pretty targeted opportunity to reduce some of the weakest stores in the portfolio with good execution, but we wouldn't expect to see more of those in the Hellweg assets.

Manny Korchman -- Citigroup -- Analyst

And then, Jason, just on the construction loan for another second. Was that something you guys were actively in the market looking forward to lend on a project like that? And are you looking at other deals like that? Or maybe just give us a little bit of back story as how you ended up investing in there to begin with?

Jason E. Fox -- Chief Executive Officer

Yes. We're doing this transaction with a really trusted partner of ours. So we've probably done, I don't know, 4, 5 construction projects with a lot of downside protection structured in, which is consistent with how we look at the world and perhaps some upside with especially in this case, with the potential to exercise purchase options to own it. Yes, I would actually say it's a new, a new vertical, but we like the risk-return profile of this investment. And again, we have a proven track record in partnership with our operating partners. So we'll see if there's more to come, but it's a meaningful size of capital put to work, and we like finding ways to do that.

Manny Korchman -- Citigroup -- Analyst

Thanks very much.

Jason E. Fox -- Chief Executive Officer

Welcome.

Operator

Thank you. Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.

Chris Lucas -- Capital One Securities. -- Analyst

Hi. Good morning, everybody. Just kind of following up on the last question. Jason, just maybe give some risk parameters. What's the expected loan to cost on that construction loan?

Jason E. Fox -- Chief Executive Officer

Well, the way this is structured is we're funding the vast majority of the capital going in with some downside protections put in place. I don't want to go into all the specifics of what that is, but there's really strong collateral package behind that, which gives us a lot of comfort, especially given the location. As I mentioned earlier, we think it's one of the best development parcels on the entire strip and probably one of the better ones across the country of that matter for retail. It's got some of the highest foot traffic counts in the entire country at this point. So we like the risk-return profile, especially with the structure that we have in place. But for several reasons, I can't get into the specifics.

Chris Lucas -- Capital One Securities. -- Analyst

Okay. And then is it relates to just sort of the participation or equity conversion or purchase rate? What is the structure of your potential ownership at the end? Is it a portion by converting your loan into an equity piece? Or is this a first right offer or something along those lines?

Jason E. Fox -- Chief Executive Officer

No. It's an option to purchase into, to really 2 components. Some of the net lease units as well as into the full project, a minority interest if that's what we prefer as well. So I would say that we'll have more color and disclosure on that. If that happens, it is just an option, but we can go into some more details down the road.

Chris Lucas -- Capital One Securities. -- Analyst

And what's the general time frame for when sort of you started funding? So when is the project expected to be completed and stabilized?

Jason E. Fox -- Chief Executive Officer

It's probably a 12 to 18-month period. So perhaps this time next year, Q3, Q4 of 2022 is my expectation.

Chris Lucas -- Capital One Securities. -- Analyst

Okay. And then Toni, just on the guidance bump to G&A, was that -- that cash or non-cash comp that's primarily driving that bolt?

Toni Sanzone -- Chief Financial Officer

We're giving guidance on the cash G&A expense. So that's really on the cash side.

Chris Lucas -- Capital One Securities. -- Analyst

And what is driving that increase?

Toni Sanzone -- Chief Financial Officer

We narrowed the range based on where we are in the year and the increase is driven predominantly by the portion of compensation that's tied to our results for the year, given we're tracking above target.

Chris Lucas -- Capital One Securities. -- Analyst

Okay. Perfect. Thank you. That's all I have this morning.

Operator

Thank you. [Operator Instructions] Our next question is coming from Frank Lee with BMO. Please proceed with your question.

Frank Lee -- BMO -- Analyst

Hi. Good morning, everyone. Jason, you mentioned the potential benefits from higher rent bumps tied to inflation. Just curious if any of the benefits are factored into your current guidance? Or does the lag effect push us entirely to '22?

Jason E. Fox -- Chief Executive Officer

Toni, do you want to talk about the components of that?

Toni Sanzone -- Chief Financial Officer

Yes, I think if you look at kind of the same-store results for this quarter, there's certainly no impact from the current inflation flowing through, I think, Jason gave the example of how that would flow through, and I think we'd expect it to be seen more fully a full year from now. So call it the 12 months from now, second quarter of next year, potentially 100 basis point increase in our same-store growth at the current level but we do expect kind of a gradual increase there. And the curves that Jason mentioned in his example of what we have baked into our guidance. So you'll see a small piece of that in the back half of this year but more fully by the middle of next year.

Frank Lee -- BMO -- Analyst

Okay, thanks. And then I just want to ask about CPA 18. We're coming up on the 7-year anniversary. Are you starting to have any conversations? I just want to get a sense on how we should think about timing?

Jason E. Fox -- Chief Executive Officer

Yeah. There's really nothing new to update there. CPA 18 hasn't reached its liquidity timetable yet based on the guidelines in the prospectus. And there's flexibility in that. We've talked about that in the past, but it's really up to the independent directors and their discretion on when to consider options. So other than that, there's really nothing new to update.

Frank Lee -- BMO -- Analyst

Okay. Thank you.

Jason E. Fox -- Chief Executive Officer

You're welcome.

Operator

Thank you. At this time I'm not showing any further questions, I'll now hand the call back to Mr. Sands.

Peter Sands -- Head of Investor Relations

Great. Thank you for your interest in W.P. Carey. If anyone has additional questions, please call Investor Relations directly on 212-492-1110. And that concludes today's call. You may now disconnect.

Duration: 42 minutes

Call participants:

Peter Sands -- Head of Investor Relations

Jason E. Fox -- Chief Executive Officer

Toni Sanzone -- Chief Financial Officer

Brooks Gordon -- Managing Director & Head of Asset Management

Sheila McGrath -- Evercore ISI -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Anthony Paolone -- JPMorgan -- Analyst

Elvis Rodriguez -- Bank of America -- Analyst

Manny Korchman -- Citigroup -- Analyst

Chris Lucas -- Capital One Securities. -- Analyst

Frank Lee -- BMO -- Analyst

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