I watched real estate investment trust (REIT) W.P. Carey (WPC -0.85%) for several years before I pulled the trigger and bought the stock. But now that I own it, my plan is to never sell it. The reason boils down to one boring old investment approach that won't excite anyone. But the thing is, when it comes to this REIT, a single word can't fully describe how incredible a company W.P. Carey is.
Doing a lot all at once
The word that makes W.P. Carey a core holding for me is diversification. We all know how important diversification is for our portfolios, but this real estate investment trust shows just how valuable it is for a company, too. Before getting into the backstory here, let's start with an example of how important diversification has been for W.P. Carey lately.
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In early 2020 the world was hit by the coronavirus pandemic. W.P. Carey peer and net-lease REIT bellwether Realty Income (O 0.24%) saw its rent collection rates dip to 83% in April. Collection rates for National Retail Properties (NNN -0.27%), another industry leader, fell to a troubling 52%. W.P. Carey's worst rent collection month was May -- at 96%. Put simply, even at its worst, W.P. Carey was collecting virtually all of the rent it was owed. A big piece of that was due to diversification.
The numbers are pretty compelling here. W.P. Carey's portfolio is broken down between industrial (24% of rents), warehouse (23%), office (23%), retail (17%), self-storage (5%), and "other" (the rest). That's materially more diversification than either Realty Income or National Retail Properties. In fact, it's more diversification than almost any REIT out there. And, on top of that, W.P. Carey generates roughly 37% of its rents from outside the United States (largely Europe), adding yet another layer of diversification to the mix. It is, basically, a one-stop-shop for REIT investors looking to get access to multiple property types.
The additional benefits of diversification
It's great that W.P. Carey spreads its bets around, but there's more to this than meets the eye because diversification plays into the big-picture story here in multiple ways. This REIT tends to be opportunistic with its investment approach, often putting money to work when others are pulling back. Having its fingers in more than one sector gives W.P. Carey the opportunity to invest for growth through various market cycles.
For example, fairly early in the coronavirus downturn, management highlighted that it was looking to put money to work in the industrial and warehouse space. If it was only invested in retail assets like National Retail Properties, that wouldn't have been an option. That brings up another interesting issue: Most of W.P. Carey's retail exposure is in Europe, where retail isn't as overdeveloped. That wasn't an accident -- it was an intentional use of the company's global portfolio to invest in retail where it felt there were better investment opportunities than in the oversaturated U.S. retail property market.
WPC Dividend Per Share (Quarterly) data by YCharts
And even that's not the whole story. W.P. Carey also likes to originate its own leases via lease sale back transactions. The reason is that it gets to control the lease terms, and is granted a deeper understanding of the companies it is working with. That's vital since net leases are generally long-term in nature and involve the lessees paying for most of the operating costs of the properties they occupy.
However, diversification plays a role here, too, because W.P. Carey's in-depth research allows it to work with companies that others might avoid because they seem risky -- or at least they would without a firsthand look at their books, and the essential nature of the specific properties being sold. More than one tenant has started with junk-rated credit and moved up to investment-grade. This approach is enhanced by working across multiple property types.
A long and successful track record
So diversification is the umbrella concept here, but there's a lot that this simple word covers. However, what's most impressive is the performance history W.P. Carey's focus on diversification has helped create -- the REIT has increased its dividend every year since its 1998 IPO, including four times in 2020. You don't create a streak like that by accident. And the best part is that W.P. Carey is still offering a very generous 6% dividend yield, compared to 4.6% for Realty Income and 5.2% for National Retail Properties. So not only is it an easy name to hold for the long term, but dividend investors will also find it relatively attractive today as well.
