Net lease real estate investment trust (REIT) W.P. Carey (WPC 0.27%) is busy making moves today, despite the resurgent coronavirus. That it is finding opportunity in the face of such headwinds is nice to see and is one of the reasons why the best is still yet to come for this REIT. But there's a bigger picture here that you need to understand to see just how bright the future could be.
What's been going on
The overarching backdrop for the real estate investment trust sector today is not particularly good for some key industry segments. The spread of COVID-19 has led to social distancing and the shuttering of non-essential businesses by governments around the world. That's been terrible for things like retail and office landlords. However, these same trends have also been a boon for industrial and warehouse assets, as consumers stuck at home increasingly shop online.
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While some REITs have been dealing with declining rent collection rates, W.P. Carey's portfolio has held up impressively. Its rent collection rates never fell below 95%, and it is currently collecting around 99% of the rents it is owed. Unlike some peers, it is working from a position of strength, highlighted by dividend increases in each quarter so far this year.
W.P. Carey has also been busy inking deals in the industrial space, just like it said it would earlier in the year. In a pair of recent acquisitions, totaling $84 million, it bought three properties -- two from a food processor and one from grill maker Weber-Stephens. Both companies instantly signed long-term leases with the REIT that include regular rent hikes. As is typical with the net lease space, W.P. Carey's purchases allowed these companies to raise cash while still retaining access to vital physical assets. The additional rents the REIT will receive clearly improve its future even during a time of significant global turmoil.
Nothing unusual going on here
The thing is, W.P. Carey has a long history of being opportunistic. In fact, this is exactly the type of move you would expect the REIT to make. There are a couple of reasons for this, but the most important is probably the company's diversified portfolio. It currently breaks its properties down between industrial (24% of rents), office (23%), warehouse (22%), retail (17%), self-storage (5%), and other (the rest). Meanwhile, 37% of its rent roll is derived from outside of the United States.
WPC Dividend Per Share (Quarterly) data by YCharts
This diversification is vital because it means that W.P. Carey has the freedom to invest in the areas in which it sees the most opportunity. It isn't stuck in just one industry niche. But that's not all that's notable here, because W.P. Carey also prefers to originate its own deals. That means it is writing the lease terms, which gives it greater control of the contract and provides an inside look at the tenants it's taking on. That doesn't mean that every deal works out perfectly, but it certainly appears to have given W.P. Carey a head start during this downturn based on its impressive rent collection rates. And if history is any guide, this approach will set the company up nicely for an even better future.
A great model
There's nothing particularly magical about what W.P. Carey has done; it's just executing on a well-designed plan. The key is the mixture of a highly diversified portfolio with an opportunistic investment approach that allows the REIT to continue to invest in just about any market environment. As long as W.P. Carey keeps investing, it should keep growing, which means the future still looks incredibly attractive here -- and investors get to collect a generous 6.1% yield along the way.
