It would be easy to point to W.P. Carey's (WPC +0.28%) recent dividend increase as the reason why investors would never want to sell the company. That hike is a sign of strength at a time when many other real estate investment trusts (REITs) are being forced to cut their disbursements. And it adds to an annual streak that's over two decades long.
But that's really just a byproduct of a much more important feature here.
Making a statement
Roughly 60 or so real estate investment trusts have cut their dividends so far in 2020, largely because of COVID-19. The impact of this global pandemic has exposed the inherent weakness in many REIT business models. But at the same time, it is also highlighting the companies that have created better models, ones that are robust to adversity.
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W.P. Carey's recent 0.2% dividend increase isn't something an investor would normally crow about. But these aren't normal times -- economies around the world have been effectively shut down to slow the spread of the coronavirus. Landlords of all types have tenants that couldn't or wouldn't pay their rent. And yet W.P. Carey has been able to collect roughly 95% of what it was owed in April and May, and 98% in June. Not even net-lease bellwethers National Retail Properties and Realty Income were able to achieve that. The last update from National Retail was that it collected roughly 50% of April rents. Realty Income had a roughly 85% collection rate across the first three months of the year.
W.P. Carey uses the same basic net-lease model as this pair, in which lessees are responsible for most of the operating costs of the properties they occupy. So what is this REIT doing differently?
A differentiated model
The first unique trait is subtle, but still very important. W.P. Carey tends to take an opportunistic approach to investing, so it is specifically looking to put money to work when others are less inclined to do so. In fact, CEO Jason Fox recently explained that his team is seeing opportunities to invest, suggesting that the second half of the year will see an uptick in portfolio activity. This is par for the course here, with W.P. Carey taking a very active approach with its portfolio, buying and selling assets when it thinks there is value to be created for shareholders.
That brings up the key factor explaining why investors will never want to sell W.P. Carey: It is likely the most diversified REIT you can buy. Just like you get huge benefits from diversifying your portfolio, W.P. Carey also gets huge benefits -- that eventually pass through to investors -- from diversifying its property portfolio. For example, while Realty Income and National Retail Properties have long relied on heavy exposure to retail stores (roughly 85% and 100% of their portfolios, respectively), that single sector has been hard hit by COVID-19. Being laser-focused like that is a negative at the moment. W.P. Carey gets just 17% of its rents from retail, and most of that wasn't located in the United States, where there is dramatically more retail per capita than in most other countries.
The rest of the REIT's portfolio is spread across industrial (24% of rents), office (23%), warehouse (22%), self storage (5%), and other (the rest). In addition to that, W.P. Carey generates around a third of its rental revenue from Europe. Put it all together and W.P. Carey is one of the most diversified public REITs you can buy. The benefit of that diversification is on clear display today.
Get to know this REIT
There are two important takeaways here. First, by spreading its eggs across more than one basket, W.P. Carey softens the blow from a downturn in any one sector or industry. Further, because the company takes an opportunistic approach to investing, the diversification in its portfolio allows management to put money to work where it believes the best opportunities exist at any given time. That creates a business model that is not only robust to adversity, but actually capable of taking advantage of it. W.P. Carey is proving its strength, built on its diversified portfolio, during today's very difficult real estate market. And with its yield topping a generous 6% as of Tuesday's close, conservative dividend investors should consider digging into the W.P. Carey story today.
