W.P. Carey (WPC 0.02%) is a unique real estate investment trust (REIT), offering both a generous yield and an incredible amount of diversification in a single package. It just released record-breaking news that helps show why it is such an attractive option for those seeking a one-stop shop for real estate investment. Here's a quick look at why people are talking about this REIT right now.
Growing the portfolio
In 2020, when a lot of REITs were simply trying to muddle through the pandemic, W.P. Carey announced that it was looking to acquire industrial and warehouse assets. The big goal was to capitalize on the ongoing, and sped-up, shift toward digital shopping at a time when companies were looking to raise cash by selling assets.
That push has continued in 2021, with the REIT just announcing that it acquired a record $1.73 billion worth of property last year.
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Roughly 60% of the acquisitions came from the U.S. market, with 40% in Europe. And 70% of the properties it bought were in the industrial and warehouse spaces. That's a huge amount of diversification (more on this in a second) and should go a long way toward helping the company grow its funds from operations (FFO).
Notably, the average lease length was 20 years, with either built-in rent hikes (averaging 2.3%) or increases tied to inflation. Moreover, management sees the acquisition deal flow continuing into 2022.
As a net lease REIT, W.P. Carey generally buys properties directly from companies and instantly leases them back under a long-term lease (which requires the lessee to cover most of the property's operating expenses). The seller gets to raise cash, while W.P. Carey gets a reliable tenant. It's as close to a win/win as you can get in the real estate space, and W.P. Carey has a unique model that will let it succeed in almost any market.
Lots of options
The current focus is on industrial and warehouse assets, thanks to shifts taking place in consumer behavior. These two property types make up almost 50% of W.P. Carey's rents. Meanwhile, Europe accounts for around 35% of the REIT's rents.
So the acquisition breakdown noted above fits pretty well with the company's portfolio makeup. But what about the rest of the assets it owns?
To that end, the other half of the property portfolio by asset class is broken among office (21% of rent), retail (17%), self-storage (5%), and a fairly broad "other" category. The interesting thing is that W.P. Carey tends to be opportunistic when it buys assets, looking to put money to work wherever it will get the best deals. So its exposure to both domestic and European markets means it can shift between these geographic regions as opportunities arise. But having a material number of property sectors in the portfolio means that it can get even more granular in its efforts.
For example, W.P. Carey has long favored European retail assets over U.S. ones because there is so much more retail in the domestic arena. It simply sees more value in European retail. So the shift toward industrial makes a lot of sense when you place it within the bigger picture.
It's really just one more example of how W.P. Carey uses its broadly diversified portfolio to execute in varied markets, including those that might cause peers to circle the wagons (like they did in 2020).
Long, successful track record
The REIT's sharpshooter story sounds good in theory, but how has it performed in practice?
W.P. Carey has increased its dividend every single year since its 1998 initial public offering (IPO). If it were in the S&P 500, it would be on the verge of becoming a Dividend Aristocrat, an achievement that proves both its commitment to investors and the success of its business model. If you want to get on board with a REIT that's putting up record-breaking acquisition numbers (and impressive dividend numbers, too), W.P. Carey is worth a deep dive today.
