W. P. Carey Inc. (WPC) Earnings Call Transcript & Summary

Hello, everybody, and thanks for being with us today for the earnings call covering our third quarter of 2025. Prior to starting, I want to note that certain remarks shared during this session are not historical in nature and might be classified as forward-looking statements. Details regarding factors that could lead actual outcomes to vary materially from what W. P. Carey anticipates can be found in the filings we make with the SEC. A web-based replay of this call will be posted in the Investor Relations portion of our site, wpcarey.com, where it will remain archived for roughly 12 months, and where copies of our investor presentations along with other associated materials are also available; having said that, I'll hand things over to Jason Fox, our Chief Executive Officer.

Hello, everyone, and thanks for being with us today. The robust momentum built during the first six months of the year has carried over into the latter half, and we continue to exceed what we had previously anticipated. Consequently, we are once again lifting our AFFO outlook for the entire year, bringing it to mid-5% growth compared with last year, which we expect will rank among the strongest in the net lease industry for this year. Multiple favorable developments across our operations underpin this increased guidance. So far this year, we have closed $1.65 billion in investments at appealing going-in cap rates that averaged within the mid-7% band, mostly featuring contractual rent increases that averaged in the high 2% range. Thanks to how robust our investment pace has been thus far this year, we now sit slightly beyond the middle of the earlier guidance range, so I am happy to report that we are boosting our investment volume target for the whole year to somewhere between $1.8 billion and $2.1 billion. Our same-store rent growth, which leads the sector, remains in the mid-2% range and should stay at roughly that level or come in a bit higher during 2026. The headway we have achieved in financing our investments this year, largely via property dispositions, should carry on through the fourth quarter, delivering disposition cap rates better than we originally anticipated along with appealing spreads relative to where those proceeds are being redeployed. Our initial assumption regarding rent loss, which had incorporated some prudence in light of the broader economic uncertainty seen earlier in the year, turned out to be overly cautious, and how our portfolio has performed has let us bring that estimate down as the year went on. With more than $2 billion in liquidity, counting our recently completed forward equity sales, the resilience and adaptability of our balance sheet give us added room to finance upcoming investments; this morning, I will walk through that progress and our conviction about carrying this momentum forward into 2026. Toni Sanzone, our CFO, will cover our results and the guidance increase, and will address certain elements of our portfolio and balance sheet. As always, Brooks Gordon, who leads Asset Management for us, is here with us to take questions. Turning first to the deal landscape and investment volume, reduced interest rate volatility has contributed to keeping net lease cap rates fairly stable throughout this year, and that feeling of steadiness has benefited our transaction activity, both across the U.S; and in Europe, particularly sale lease-backs, which represent the vast bulk of what we have invested in so far. Our ongoing brisk investment pace, with nearly $660 million added during the third quarter and roughly $170 million thus far in the fourth quarter, lifts our investment volume for the year to date to $1.65 billion at a weighted average initial cap rate of 7.6%. We keep putting together leases that include appealing rent escalations, and fixed bumps made up the significant majority of those, averaging 2.7% across our investments so far this year. Once you account for rent escalations and a weighted average lease term of 18 years, our average initial cap rates in the mid-sevens equate to average yields in the mid-9% range. When we make deals at those prices, the spreads we earn over our cost of capital stay quite appealing. Year to date, warehouse and industrial accounts for more than three-quarters of what we've invested, even as we keep putting money into a variety of property categories. The bulk of that investment activity took place in the U.S., where opportunities at appealing spreads have kept coming in large numbers, but we've also been expanding what we invest in Europe compared with the prior couple of years. The 27 years we've spent steadily constructing and growing our European platform remain a major competitive edge for us there. As of now, more than 50 people work on our European team out of our London and Amsterdam offices, and that group has cultivated solid relationships with brokers and developers along with the local knowledge required to get deals done successfully throughout Europe. Now for our pipeline and capital projects: our near-term pipeline is still robust, with several hundred million dollars of deals in process right now at cap rates and weighted average lease terms in line with what we've been closing year to date; we anticipate that many of those transactions will wrap up in the fourth quarter, though depending on where each sits in the closing process, some could slip into next year, which would position us well for a strong first quarter. Close to $70 million of capital projects slated to finish in the fourth quarter sit within our near-term pipeline. On top of that, roughly $180 million in further capital projects are in progress, and the vast majority of those will be delivered in 2026. Capital projects are something we've done for many years, yet this is an area where we can put more money to work, frequently earning better returns than we would by buying assets that already exist. Over the years, we've assembled a committed in-house project management group possessing deep real estate knowledge and solid local ties to development resources; our record with build-to-suits, expansions, renovations, and development work stretches back a long way. In the past, capital projects have typically made up about 10%- 15% of what we invest each year, and we think that share can grow. Now on to where our capital comes from: since the previous earnings call, we've moved further along on our plan to finance investments through accretive dispositions of non-core assets this year, self-storage properties in operation among them. Right now, the second half of our self-storage portfolio is on the market, and more sales have closed since the quarter ended. We feel good about closing more sales in the fourth quarter, and at the same time we're keeping some flexibility regarding when and how we execute on particular storage sub-portfolios. Though we anticipate that asset sales will cover our fourth quarter investment activity, the roughly $230 million in forward equity we sold not long ago provides extra flexibility and lets us stay ahead of our funding requirements for 2026. I'll stop there and pass the call to Toni, who will go over our results and guidance.

Thanks, Jason. For the third quarter, AFFO per share came in at $1.25, which is up 5.9% versus the same period a year ago. The strength we're seeing keeps coming from how quickly and how much we're investing, along with the organic rent growth our portfolio is producing; we've lifted and tightened our 2025 full-year AFFO guidance, mostly because of greater investment volume and less anticipated rent loss inside the portfolio. At this point, we anticipate full-year AFFO landing somewhere between $4.93 and $4.99 per share, which works out to 5.5% growth year-over-year at the midpoint. Like Jason said, with the investments already closed and what we see for the rest of the year, our expected 2025 investment volume has been raised to a range of $1.8 billion- $2.1 billion. Since we're still funding this year's investment activity through proceeds from selling operating and non-core assets, we're also updating our anticipated disposition volume to somewhere between $1.3 billion and $1.5 billion, bumped up to reflect added sales of operating self-storage assets. Given how well execution has gone so far, we anticipate achieving overall spreads of roughly 150 basis points between investments and dispositions this year. When it comes to expenses, G&A is still on track with what we projected, landing between $99 million and $102 million for the full year. Property expenses should come to $51 million- $54 million, with a slight bump at the low end of that range. Tax expense should land between $41 million and $44 million, a modest decrease at the midpoint. Now shifting to the portfolio, which keeps delivering solid organic growth. Contractual same-store rent growth for the quarter reached 2.4% year-over-year, made up of CPI-linked rent escalations that averaged 2.5% for the quarter, while fixed rent increases came in at an average of 2.1%; for the full year, we anticipate contractual same-store rent growth averaging roughly 2.5%. With inflation where it stands today and added support from the larger fixed increases we're getting on new investments, our contractual same-store growth should stay strong in 2026, probably exceeding the 2.5% growth we're expecting this year. Comprehensive same-store rent growth for the quarter was 2% year-over-year and should track in line with our contractual rent growth for 2025 at roughly 2.5%, even with the rise in vacancy working through the back half of the year. Portfolio occupancy fell to 97% as of the end of the third quarter, which we see as temporary and had already baked into our prior guidance. Out of the 3% total vacancy at the close of the third quarter, about a quarter has already been resolved or is in the final stages of closing, and another half is in process and well on its way to being resolved. Hellweg contributed only minimally to our third quarter vacancy after planned store takebacks in September, and our Asset Management team keeps working to further cut our exposure through releasing and dispositions. At this point, Hellweg ranks as our 14th biggest tenant, whereas it was number six just a quarter back, and we anticipate it will fall outside our top 25 during the coming year. Rent disruption has been limited this year, which let us lower once more the rent loss assumption built into our guidance, taking it to $10 million from the earlier projection of $10 million to $15 million. Right now, we can see roughly $7 million of total rent loss for the year, equal to about 45 basis points of ABR, and that figure takes in the downtime on the Hellweg assets we reclaimed. The remaining portion of our reserve reflects continued prudence regarding Hellweg, which is still paying rent on time yet continues working through a difficult turnaround, and with just two months left in the year we would rather stay conservative. Lease-related income from other sources came to $3.7 million in the third quarter, lower than the $9.6 million recorded in the second quarter, and for the entire year it should land somewhere in the mid-$20 million range. Shifting to our operating properties, thus far this year we have closed on the sale of 37 operating self-storage properties plus one student housing property, and we converted four operating self-storage properties into long-term net leases. Once we account for the extra sales anticipated to close prior to year end, we project fourth quarter operating property NOI of $7 million to $9 million, with a further decline in 2026. Let me turn next to our balance sheet and activity in the capital markets. Our balance sheet is still solid and very well set up to finance our ongoing growth, and it has been strengthened even more by the equity and debt capital markets work we did this year. From the beginning of the third quarter onward, we sold about 3.4 million shares tied to forward sale agreements via our ATM program, at a gross weighted average price of $68.05 per share, and none of that has settled yet, generating gross proceeds of roughly $230 million that can be used for future investment activity. Regarding debt, as we said earlier, during the early part of the third quarter we strengthened our liquidity through an opportunistic issue of $400 million U.S. dollar bonds carrying a coupon rate of 4.65%, the proceeds of which paid down balances on our credit facility. Our weighted average interest rate for the quarter came in at 3.2%, and we still believe our blend of U.S. dollar and euro-denominated debt gives us one of the lowest costs of debt across the net lease sector. Our debt maturities stay quite manageable. A EUR 500 million bond comes due in April of 2026, and the next U.S. dollar bond maturity is not until October of next year. At present, we expect to refinance those bonds by issuing in the same currencies at or close to their maturity dates. We closed the third quarter with liquidity of approximately $2.1 billion, made up of credit facility availability, cash on hand and held for 1031 exchanges, and unsettled forward equity. Since dispositions are anticipated to finance investment activity through the rest of this year, we enjoy considerable flexibility when it comes to tapping the capital markets. Considering annual free cash flow exceeding $250 million, along with our unsettled forward equity, we anticipate being comfortably beyond what we need to fund new investments as we head into 2026. At the close of the quarter, our primary leverage metrics stayed inside our target ranges. Net debt to adjusted EBITDA, including unsettled equity forwards, came in at 5.8x. When the impact of unsettled equity forwards is excluded, net debt to adjusted EBITDA stood at 5.9x. During September, we raised our quarterly dividend by 4% compared with a year earlier, bringing it to $0.91 per share, which works out to an appealing annualized dividend yield of 5.4%. Our earnings growth keeps providing solid support for that dividend, since we're maintaining a healthy year-to-date payout ratio of roughly 73% of AFFO per share. With that, I'll turn the call back over to Jason.

Appreciate it, Toni. So to wrap up, the amount we've invested so far this year, along with our reduced assumption for rent loss, has let us lift once more both the full-year range we're targeting for investment volume and our AFFO guidance. We've increased guidance multiple times over the course of this year, and we've kept up a strong pace of investment volume going back to the middle of 2024, finishing more than $2 billion in fresh investments across the last 12 months. The infrastructure, the expertise, and the team are all here for us to keep delivering at that level. Looking forward, our deal pipeline is active and stretches into the first quarter of 2026, and nothing we're seeing in the transaction environment suggests we'd step away from the pace we're currently running at. Based on how our debt and equity are priced, we see every piece as being in position for us to keep producing double-digit total shareholder returns in 2026, driven by a mix of AFFO growth that would place us among the top tier of net lease REITs and our dividend yield. That wraps up our prepared remarks, so I'll turn the call back over to the operator for questions. John, you may be on mute.

Thanks. Morning, everyone. Now that you're almost finished with those operating self-storage asset sales, could you perhaps help us understand what options might exist among non-core and other capital sources generated internally as we begin considering deal activity for next year and maybe how to help finance it?

Yes, absolutely. So as we look ahead to next year, equity will play a far more prominent role and will be a larger piece of the overall narrative compared with this year. At this point, we aren't preparing any disposition program remotely similar in scale to what we executed this year. We'd expect dispositions to return to a more ordinary pace. There are a small number of operating properties still remaining, though aside from the chance that a few self-storage sales carry over into next year, we ought to be operating at more standard levels. Disposals will remain a means of generating additional capital for us, yet they won't carry the same weight they did this year. What we anticipate is essentially a return to routine core spread investing, the way a net lease company typically operates — issuing equity and debt, staying mindful of leverage targets, and deploying that capital into transactions that produce spreads. That's roughly the approach moving forward. Another point worth mentioning, and Toni brought this up, is that we currently enjoy considerable funding flexibility as we look toward 2026. Our revolver sits at just above $2 billion and is largely untapped. She mentioned roughly $250 million in free cash flow. As we discussed previously, we've already gotten a jump on our equity requirements. We have $230 million of forwards that we issued recently through the ATM. We're in a solid position, and we believe we're ahead of the curve when it comes to funding for next year.

All right, thank you. I just want to ask a follow-up. In any portion of the areas you target, are you noticing any rivals, or more intense rivalry for transactions, coming from a few of those private net lease platforms in the market?

Sure. In the U.S. especially, the net lease sector has never lacked competition, and we've noticed a slight increase in new players. As you said, it's largely private equity firms, and they find that lease appealing. We honestly don't believe we face that much of it. We don't always know fully who we might be up against, at least up to this point. My guess is we'll encounter additional competition emerging, and that probably creates some pressure on pricing, but at the moment it seems manageable. We definitely have a cost of capital that lets us compete on price if necessary, so I think that's fine. I think it's also worth remembering that, particularly with things like lease-backs, experience and a proven record on execution really matter. Newer participants might face a somewhat bigger obstacle there, and our reputation and our history ought to be a genuine edge as well.

Okay. Thank you.

Hello there, and thank you very much. First off, I was hoping you might be able to provide us with a brief update or perhaps a refresher on the status of the Hellweg process, specifically regarding the leases. My understanding was that you had anticipated 7 of them being terminated by now, at this point in the year, with perhaps 5 additional ones remaining. Does that still hold true, and could you also tell us where things stand with the stores that are slated to be sold as opposed to those being re-leased?

Yeah. Sure. Brooks, you want to cover that?

Right. So to start, perhaps a wider update on where things stand. As Toni said, they're still up to date with their rent payments. We've brought them down to being our 14th-largest tenant, and we're moving along well with the plan to shrink that. To address what you asked specifically, we're pursuing a range of steps aimed at cutting our exposure there. During Q3 we disposed of three stores that were occupied, and we anticipate a few additional ones in the coming months. Like you said, we took back seven — the initial seven out of the 12 altogether that we're taking back. Out of those seven, leases have been executed with new operators at two, with one more currently being worked through, so it ought to get signed shortly. Four have contracts in place for sale. Those should close during Q4 and on into Q1. As I said earlier, we're taking back an additional five during 2026. We've signed leases at three of those sites, with another one being worked through, and one will be earmarked for sale. We're making really solid headway with that approach, and beyond that we'd aim to bring the exposure down pretty fast. Our goal is to have them out of our top 25 around the middle of 2026, and we believe there's a route to get them outside the top 50 roughly by the close of 2026; we anticipate that exposure will drop substantially as we move forward.

Okay, thank you. During Q4, you said you might have been somewhat overly cautious regarding assumptions about rent loss. When you look ahead to the coming year, do you have any ideas about how you might evaluate that? In other words, does the broader economy worry you enough that it could push you toward being more conservative than has typically been the case, or do you have any other perspective on how you're approaching this right now?

Yeah. Brooks, you want to take that one as well?

Okay, without offering any particular forward-looking guidance, the key thing to point out is that our wider watch list and overall credit quality have gotten significantly better across the last few quarters. That improvement comes from resolutions involving True Value and Hearthside, plus the headway we're making at Hellweg; we keep watching that turnaround at Hellweg very closely, and we'll stay cautious about it; even so, our larger credit watch universe has declined substantially; we'll keep taking a conservative, careful stance on credit in general and on Hellweg in particular, yet we still expect to deliver strong earnings growth even after accounting for that.

Thank you. Appreciate it.

Morning. Kathryn Graves here, filling in for Michael. I appreciate you taking my questions. First one: thus far this year, you've wrapped up $1.6 billion in investments. You lifted your investment guidance. Could you give us a bit of color on what's sitting in your pipeline right now regarding the additional volume? Any detail on how it breaks down geographically between Europe and the U.S., the mix of property types — industrial versus retail — and anything about cap rates you're seeing in that pipeline as you look ahead to 4Q?

Yeah, sure. In the near term, there's what I'd describe as several hundred million dollars of identified transactions, the majority at advanced stages; our expectation is that many will close during the fourth quarter, though at this point in the year it's always tough to call, and a few could push into next year, which would position us well for a strong beginning to 2026. Beyond that — something you can factor in, and which we've built into our SUP — is roughly $70 million of capital projects on track to finish this year. Those are the build-to-suits and expansions we do on a regular basis. You might also observe that apart from that $70 million, we have an additional $180 million currently under construction. A large portion of that — likely most of it — would close in 2026. On the geographic side, one point worth flagging is that there's more activity in Europe. Although so far this year North America still accounts for roughly 75% of the deals we've completed, in the third quarter the split came closer to 50/50 between North America and Europe. What we're seeing thematically in Europe is likely comparable to the U.S., where stability in rates has caused bid-ask spreads to tighten. Sellers who might have stayed on the sidelines for some time are now prepared to transact, and that has translated into greater activity. It's true both in the U.S. and Europe; perhaps most notable is that we've observed more deal flow in Europe across the last quarter or quarter and a half relative to earlier years. On property type, the strongest opportunities remain in industrial, which covers both manufacturing and warehouse. I think that shows up in the deals we've closed so far, and it also represents the majority of our pipeline. You also asked about pricing. Our target continues to be deals in the sevens, we've been transacting on average in the sevens, and that's held pretty consistently all through 2025. It's also largely where the pipeline stands at present. Cap rates have for the most part stayed flat so far this year. As I said before, I'd anticipate some tightening as we move toward 2026, particularly if rates remain around current levels in that 4% zone. Sure, more rivals in the mix might play a part in that too, though we'll have to wait and see how it plays out. On the whole, I'd say our pricing is still serving us quite nicely. We like to keep reminding everyone that when we hit initial cap rates around the mid-7% mark, that works out to an average yield somewhere in the 9% range, and we continue to think that ranks among the best in the net lease sector, and it definitely gives us some really compelling spreads compared with how we're financing these transactions.

Understood. Thanks for such a thorough response. That really helps a lot. Now my follow-up.

Happy to help.

It appears same-store rent growth is up roughly 10 basis points for this quarter. You've already discussed what to expect for the rest of the year, but considering that around 50% of rents are presently linked to CPI, how should we view whether that mid-2% growth can be sustained if inflation cools? And going forward, should we anticipate seeing a greater number of fixed rent increases in upcoming acquisitions?

Yeah. I'll address the second question, and perhaps Toni can weigh in on how we view the CPI effects on our same store looking ahead. On the question of whether we should still count on inflation, I'd say that since that big jump in inflation happened a few years back, things have gotten a bit tougher when we sit down to work out rent structures and sale lease-backs. Securing inflation protection has become somewhat more of a challenge, at least here in the U.S. Through this year so far, it looks like about a quarter of the deals we've done carry increases tied to CPI. A lot of that activity is in Europe, where those kinds of increases are still the norm, and we expect that to keep being the case. I'd also say that CPI increases, or shifts in inflation, have had an effect on our fixed increases and on the levels we're able to negotiate for them. Looking back, our average was likely nearer to 3%. These days, newly signed agreements featuring fixed escalations generally land somewhere around 50 to 100 basis points higher than that. Through this year so far, completed transactions have shown fixed increases averaging 2.7%, and what's in the pipeline looks pretty much in line with that figure. Even though fresh deals aren't delivering the same level of inflation, our same store performance remains solid and ought to stay that way. Toni, I'm curious whether you have thoughts on how inflation might ease, when our bumps land, and what that means downstream.

Sure. I believe it would be useful to walk through how our leases are structured, and we've talked about this before. As you know, the leases tied to CPI have somewhat of a backward-looking element; they're really examining inflation during, say, the final quarter of the year; we have a fairly clear view into what same-store performance might be next year, particularly since so many of our leases escalate in January or during the first quarter. Even if CPI levels off around where it is now or comes down a little, we still anticipate our contractual same-store to land above this year's figure. Part of that, as I noted, comes from fixed increases running higher than they have in the past, but also from the assumption that CPI holds steady. Once again, our projection for next year is above 2.5%.

Understood. That's really helpful, thank you. I appreciate the detail.

Happy to help.

Morning, everyone. Sorry if this was already covered, but did you give the cap rate on the disposition of the self-storage properties? Should we expect the whole portfolio to be sold next year, in early next year, at cap rates around the same level?

Brooks, do you want to take that one?

Yeah, absolutely. We won't comment on deals that are currently in progress, but like we said during the Q2 call, up to now we've closed on the storage assets at a cap rate just under 6%. All told, I'd anticipate it landing right about 6%. A few could come in slightly above that, a few slightly below. It genuinely comes down to what the mix looks like this year. As for the entire platform, per what Jason said, we've got the remainder of it out in the market. We keep some room to maneuver regarding precisely when things close and which sub-portfolios get sold. Within the medium near term, we will be exiting the whole operating storage platform.

When it comes to how those properties are run or how full they are, does anything stand out that suggests cap rates could vary — location, that kind of thing?

No two sub-portfolios look alike. Like I said, certain ones will go for somewhat more, others somewhat less. Taken as a whole, our expectation for the entire self-storage disposition is roughly a 6% cap rate.

Alright, thank you. We're grateful for the detail you both gave regarding your views on acquisitions. You've definitely had a lot on your plate across the past two quarters. The Q4 guidance might indicate a slight slowdown, but what I'm hoping to pin down is whether you anticipate broadly sustaining this same tempo of investment into 2026.

Yes, absolutely. See, forecasting is difficult because the macro definitely plays a role. Right now, our visibility typically extends only about 60 days to 90 days out. Our aim is definitely to sustain that tempo. I think the evidence is in what we've already executed. I mentioned before that looking back over a trailing 12-month period, we've exceeded $2 billion by a comfortable margin. Nothing we're currently observing acts as a trigger to alter that pattern. The infrastructure and the team are already established here. We possess ample liquidity, which includes substantial free cash flow; we brought up the equity forwards we've already raised along with a better cost of capital. That's effective. We ought to keep witnessing solid activity. We're able to push on pricing and sort of fuel that net lease growth algorithm. We genuinely feel confident, though predicting precisely how things unfold is tough.

Thanks, Jason.

You're welcome.

Thanks. Nice work on the quarter. It looks as though the operating storage assets will be reduced. What's the right way to view the operating properties that are left? I believe you've still got 2 hotels, and perhaps 1 more student housing asset. Might those be up for sale as well?

Yeah. Brooks, you want to take that?

Yes, that's correct. There are 4 hotels we operate. Among them are 3 of the Marriotts from the old net lease portfolio that remain in our hands. In Minneapolis, we have a Hilton. At the appropriate moment, we'll sell it; 2026 is a possibility, and we're looking at that. As for the 3 Marriotts, each is designated for disposition or redevelopment, and we're assessing both options. In the interim, all of them continue to run as usual. The first one, I'd say, is located in Newark, and our final evaluation stage is still underway there. Around mid-2026, we'd look to set off a redevelopment there into warehouse space. The remaining ones sit in excellent spots in Irvine and San Diego, though our approach there is patient. You brought up that we hold 1 student housing asset left in the U.K., which we're reviewing with an eye toward a sale. That might be a candidate for a sale in the near term, and that review is happening right now.

Good. That helps. Brooks, since I've got you here, the rent recapture you're seeing on retail leases comes in somewhat below what the rest of the portfolio shows. Is that Hellweg, and should we think of that as roughly what to expect for the leases you plan to release from here on?

No, actually, that's a completely separate matter. Those are simply 2 AMC theaters. Altogether, we hold just 4 movie theaters. We'll get that count to 0 as fast as possible. If you examine the real contribution there, it's an extremely tiny portion of ABR. We reduced those rents in order to keep those theaters running and open.