W. P. Carey Inc. REIT

Hello, and welcome to the WP Cary third quarter 2022 financial results conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Peter Sands, Director of Institutional Investor Relations. Peter, please go ahead.

Good morning, everyone. Thank you for joining us this morning for our 2022 third quarter earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements. Factors that could cause actual results different materially from WP Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the investor relations section of our website. at wpcary.com, where it will be archived for approximately one year, and where you can also find copies of our investor presentations and other related materials. And with that, I'll hand the call over to our Chief Executive Officer, Jason Fox.

Thank you, Peter, and good morning, everyone. I'm pleased to say we generated strong third quarter results across several areas of our business, raising our expectations for full-year AFFO per share with real estate AFFO per share on track for year-over-year growth of just over 6%. Despite the unsettled market backdrop, we're in a position of strength, armed with significant liquidity and the ability to invest across property types over two continents, ready to capitalize on attractive opportunities as they arise. The critical question is, when is the right time to utilize our dry powder? Accordingly, I focused my remarks this morning on our recent investment activity and how we're approaching new opportunities in the current climate. which is evolving quickly. But before I do that, I want to outline three key reasons why WP Carey remains uniquely positioned with the net lease. First, in a more challenging investment environment, we have the ability to drive higher AFFO growth through our best-in-class contractual same-store rent growth, which reached 3.4% for the third quarter. As current inflation flows through to rents, we expect our contractual same-store rent growth to move even higher in 2023. to between 4% and 4.5%, and to continue seeing the benefits into 2024. Second, we've raised well-priced capital and have an exceptionally strong liquidity position. So far in 2022, we've raised approximately $1 billion of permanent and long-term capital at attractive prices. We currently have approximately $650 million of untapped equity forwards raised at a stock price averaging in the 80s. and we raised debt capital priced in the mid threes through our recent private placement Euro bond issuance. Furthermore, our recent upgrade by Moody's to BAA1 should enhance pricing on our bonds. And with over $2 billion of total liquidity, we're confident in our ability to continue investing in appropriately priced opportunities. Third, we're benefiting from our recently completed merger with CPA18, which resulted in better accretion than we initially anticipated, with gains from high-quality real estate AFO more than offsetting the loss of investment management earnings. CPA 18 net lease assets are well aligned with our existing portfolio, and we expect to realize additional benefits from its sizable operating self-storage portfolio. Given strong self-storage fundamentals, these assets incrementally provide a tailwind to our growth. And as we look to maximize value, we have several options for them, including converting to net lease, selling at attractive cap rates as a source of capital, or continuing to hold some portion of them. Moving now to our recent investment activity and the market backdrop. During the third quarter, we completed investments totaling $475 million, bringing our deal volume to $1.3 billion year-to-date, which of course excludes the more than $2 billion of assets we added through our merger. Within our diversified approach, we've remained primarily focused on warehouse and industrial, which comprised about 80% of our third quarter acquisitions. And while we continue to explore a good number of opportunities in both reasons during the quarter, the large majority of our investment volume was in the U.S., driven by a sizable industrial sale leaseback. Overall, our third quarter investments had a weighted average cap rate of 6.3%, including completed capital projects, And for external acquisitions, it was 6.4%, about 50 basis points wider than the average cap rate on our 2021 investments. Keep in mind, we were able to fund our third quarter acquisitions with debt capital raised at interest rates in the mid-threes through our recent private placement Euro bond and equity raised at a stock price in the mid-80s. The significant majority of our third quarter investment volume closed earlier in the period amid a generally lower cap rate environment. Over the full period, we transacted at a range of cap rates, including up into the sevens. Since then, bond yields have moved higher and equities have come under further pressure, although some sellers have been stubbornly slow to react to current market conditions. Sellers holding on to lower cap rate expectations, however, are not getting traction on new deals. Buyers have also stepped back. reducing competition for deals, with lenders in risk-off mode and leveraged buyers largely sidelined, given the dramatic increase in their cost of capital, or inability to secure asset-level debt. Recently, however, deal pricing has become incrementally more interesting, and we believe market conditions are turning in our favor. We're actively exerting our pricing power on new deals, demanding higher yields, which we're beginning to achieve. With a strong balance sheet and significant dry powder from equity that's already been raised, we're able to provide certainty of close to sellers amid a smaller pool of active buyers. Deal timing remains uncertain, however, with sellers acclimating to higher cap rates at different speeds, although we believe sale leaseback sellers, which have a use of proceeds, are likely to do so more quickly. We also expect the types of investments we focus on, namely larger deals, sale leasebacks, and warehouse and industrial properties to see greater cap rate movement than commodity retail. We've tempered our expectations for investment volume for the remainder of this year, but I would note that the current market conditions make it particularly challenging to predict investment activity over the near term. With the deals in our pipeline today, we feel comfortable with the bottom half of the range. Our ability to move into the top half will largely be governed by sellers' willingness to transact at reasonable pricing. which has the potential to push deals into 2023, setting us up for higher investment activity next year at wider spreads. In summary, WP Carey is ideally positioned for the current environment. Having raised well-priced capital and sitting on over $2 billion of liquidity, we're poised to capitalize on appropriately priced opportunities as they arise. We're able to exert pricing power amid a smaller pool of buyers, and sellers are beginning to acclimate to higher cap rates. Until cap rates more broadly align with funding costs, however, the capital we've raised at attractive prices will allow us to continue investing in the best opportunities and will continue benefiting from our sector-leading inflation-driven rent growth. And to the extent we enter a recession in 2023, we have one of the safest REIT portfolios with proven stability in our cash flows across economic cycles. And with that, I'll hand the call over to Tony Sanzone, our CFO, to review our results, guidance, and balance sheet. after which we'll take questions, along with our Head of Asset Management, Brooks Gordon.