One of the more diversified real estate investment trusts (REITs) on the scene, W.P. Carey (WPC +0.92%), is at first blush a reliable dividend payer. The company has been making regular shareholder payouts since way back in 1998; as such, it's on the cusp of Dividend Aristocrat status.
However, a glance at its annual payout reveals something that might be disquieting -- the company's dividend growth has been slowing notably of late. Also, the company is in front of a $2.7 billion acquisition. Perhaps these factors mean that the all-important distribution is at some kind of risk.
Diversify and buy
Before we take a microscope to the dividend, let's take a moment to explore how W.P. Carey earns its money and what makes the REIT stand apart from many peers.
Most equity REITs, you see, tend to concentrate mostly or exclusively on one type of physical real estate. There are retail REITs, like shopping mall specialist Simon Property Group; storage facility REITs, like Public Storage; warehouse REITs; etc.
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W.P. Carey is a combination of several of these. The meat of its portfolio breaks down into 25% industrial properties, 24% warehouses, 21% offices, 17% retail stores, 5% self-storage facilities, and "other" properties that round out the portfolio.
The REIT is clearly adept at getting results from these various properties, through both regular rent increases and constant acquisition activity. Despite a few hiccups over its long history, it has managed to dramatically increase both revenue and funds from operations (FFO, the top profitability metric for REITs) over time. The former ballooned to over $1.3 billion in 2021, an all-time record and a robust 11% higher year over year.
So on a basic fundamental level, this constant and consistent growth easily feeds the company's dividend increases. But let's take a look at said acquisition.
On Feb. 28, W.P. Carey announced that it has struck a deal to acquire privately-held peer and business partner Corporate Property Associates 18 (CPA 18) in a deal worth around $2.7 billion (including debt assumption). An acquisition of $2.7 billion is a big load, and that's on top of the more than $1.7 billion the company invested into growing its business last year.
Since CPA 18 is not publicly traded and therefore not obligated to make its finances public, we don't have a solid grip on how it's going to impact W.P. Carey's business (and, consequently, the dividend).
The acquirer did write in a press release that owning CPA 18 will be "Immediately accretive to Real Estate [adjusted FFO] per share, helping to offset the loss of over half of the earnings contribution from income earned for managing CPA 18."
Plus the deal, in W.P. Carey's words, "Adds a well-diversified and high-quality net lease portfolio that enhances certain portfolio metrics," in addition to "a portfolio of operating self-storage assets with strong growth potential and attractive options."
NYSE: WPC
Key Data Points
A would-be Aristocrat
Somewhat frustratingly, W.P. Carey did not provide any financial details to back up these assertions. From the sound of it, CPA 18 is rather complimentary to its existing business (note how it operates in more than one REIT category like its owner-to-be). I'd imagine that the cost of purchasing it will at least come close to being offset by the extra income it provides over time.
More encouragingly for the future of its shareholder payout, W.P. Carey has spent over 20 years burnishing a reputation as not only a regular dividend payer but also an annual raiser.
As mentioned, it's on the brink of reaching hallowed Dividend Aristocrat status. Graduation to this rather exclusive club brings renewed attention from investors who might not have previously heard of the company. It should also encourage its existing stockholders to hold on to reap those growing riches.
So to sum, we still need to learn more about the company's potential future after it swallows CPA 18. But from what I've seen so far, judging by the character of W.P. Carey, I think it'll not only keep that dividend intact but continue adding to it. I doubt this payout is at any serious risk.
