W. P. Carey Inc. REIT

we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Good morning, everyone, and thank you for joining us this morning for our 2024 Second 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 to differ 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 wpcarey.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 pass the call over to our chief executive officer, Jason Fox.

Thank you, Peter, and good morning, everyone. This morning, I'll provide a brief update on some recent events, but we'll focus my remarks on our investment activity and where we stand relative to our revised guidance. I'm joined this morning by our CFO, Tony Sanzone, who will cover the details of our second quarter results, guidance, and balance sheet. John Park, our president, and Brooks Gordon, our head of asset management, are also on the call to take questions. Before we jump into the call, I wanted to take this opportunity to acknowledge the departure of our president, colleague, and friend, John Park, who is leaving WP Carey after 37 years. John has been an integral member of our management team, and his insights and creativity have played a pivotal role in shaping WP Carey into the leading net lease REIT it is today. Yesterday, we reported AFO per share of $1.17 for the second quarter, which increased over the first quarter and is expected to further increase over the second half of the year as we continue to deploy cash into new investments. Currently, all of the properties within our office sale program have now been sold, except for one final asset, which is under a binding contract and scheduled to close in December. With the conclusion of this program, I'm pleased to say we achieved pricing consistent with the blended average cap rate in the high single digits. and generated total gross proceeds just under $800 million, both of which are in line with the expectation that we set when we announced our office exit strategy. During the second quarter, we addressed both of our 2024 bond maturities, raising over $1 million of new unsecured debt through bond issuances in both Europe and the U.S., achieving tight spreads over their benchmark rates and attractive yields relative to where bond pricing has been over the last few years. Pricing for both bond deals was also attractive relative to the yields we've been seeing on new investment opportunities. Our liquidity position is at an all-time high, with an almost entirely undrawn $2 billion revolver, plus the cash generated from the NLOP spinoff, unbalanced sheet office sales, and the U-Haul disposition. Deploying the substantial capital we've built up into new investments remains our top priority, although we will continue to earn a relatively high return on our cash in the meantime. Starting in the third quarter, the accretive impacts on AFFO of redeploying that cash into new investments will be much cleaner without the impact of office asset sales and having reset our interest expense following our recent bond refinancings. A longer-term source of liquidity is our equity stake in Lineage, which, as many of you know, recently priced its IPO. We're one of its larger investors, which came about through several sale leasebacks that we did with Lineage when it was just getting started. At its current stock price, our equity stake is currently valued at just under $400 million, net of promote. The successful pricing of their IPO highlights that we will have a very unique and highly accretive source of capital that we would expect to redeploy over the next few years, subject to Lineage's decision on timing for settling pre-IPO investors. In the meantime, we expect Lineage to start paying more regular cash dividends, which will flow through to our AFFO. Moving to investment activity. While the deal environment presented some compelling opportunities during the first half of the year, transaction activity has recently felt somewhat muted, with sellers increasingly focused on potential rate cuts as a catalyst to bring new sale leasebacks to market, or looking to alternatives in the financing markets in anticipation that rates will come down. Some deals have moved to the sidelines of current pricing, with sellers that don't have an immediate need for the capital often electing to wait. We continue to see new investment opportunities across a range of cap rates, focusing on transactions with going in cash cap rates in the 7s and in some cases into the 8s. With the attractive bumps we're able to achieve over long lease terms, that translates to average yields and unlevered IRRs well into the 9s, which is sufficiently above our spot cost of capital to transact, even though we don't need to raise any new debt or equity to fund deals this year. Year-to-date, we've completed investments totaling $641 million at an initial weighted average cash cap rate of 7.7% and an average yield of just over 9%. Our first half investment volume included $293 million of deals closed during the second quarter at similar weighted average cap rates and average yields. The vast majority of investments over both periods were warehouse and industrial properties. Investments closed during the second quarter were almost entirely located in North America, resulting in a relatively even split between North America and Europe for deals closed over the first half of the year. We continued to achieve favorable rent escalations. About 60% of the investment following we closed over the first six months had rent bumps tied to inflation, the vast majority of which comprised CPI capped rent escalations, with the average CPI cap set at around 4.5%. About 40% of our first half investment volume had fixed rent bumps, averaging approximately 3% annually. The slight majority of the deal volume we closed during the first half comprised acquisitions of existing leases, driven by the closed portion of the portfolio deal with Angela Gordon. Typically, sale leasebacks comprise the vast majority of our deals. However, we will acquire portfolios of existing leases when their structures and terms align with our standards. This portfolio was a good example of that and is a source of investment volume we're looking to do more of. Our pipeline currently totals over $200 million of investments, half of which we expect to close within the next 30 to 60 days, including the remaining portion of the portfolio acquisition I just mentioned. Two of the larger transactions we were pursuing this year, totaling over $300 million, recently fell out of our near-term pipeline. This is unusual, and we're disappointed by it, especially given the timing. However, we uncovered critical issues during diligence that couldn't be resolved. While new deals continue to be added, it creates a drag in our investment pace as we enter the late summer period, which is typically slower for transaction activity. As I noted earlier, on margin, some sellers are looking for greater visibility on rate cuts before moving forward with sale leasebacks. If the Fed lowers rates during the third quarter, it will likely spur them to act, adding to what is traditionally a strong fourth quarter. And there is also some evidence that there has been a recent increase in brokers conducting BOVs, or broker opinions of value, which we find is typically a leading indicator for deals coming to market. So while we're cautiously optimistic the deal activity will pick up, it's very hard to predict the specific timing, which clearly affects the volume of deals that will be completed over the remainder of the year. We're therefore lowering our expectations for investment volume, which flows through to our full year guidance, as Tony will discuss in more detail. And with that, I'll pass the call over to Tony.