W. P. Carey Inc. REIT

Hello and welcome to WP Carey's fourth quarter and full year 2024 earnings conference call. My name is Diego and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded. After today's prepared remarks, 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 fourth 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 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 pass the call over to our Chief Executive Officer, Jason Fox.

Thank you, Peter, and good morning, everyone. 2024 was a pivotal year for WP Cary. during which we successfully exited the office sector, establishing a new baseline for AFFO, set the foundation for future growth. We also ended the year with strong fourth quarter investment volume, the full benefit of which will flow through to our earnings in 2025. As we look to the year ahead, we believe WP Carey presents a compelling investment opportunity. Even with conservative assumptions on investment volume and tenant credit, reflecting the uncertainties around inflation, interest rates, and the potential impacts of the new administration on markets. We expect to generate AFFO growth in the mid-3% range, supporting a total return of around 10% when combined with our dividend yield of over 6%. This morning, I'll briefly recap our recent investment activity and the continued strength of our balance sheet, but will focus my remarks on transaction environment and our ability to continue funding new investments without issuing equity. I'll also provide an update on tenant credit. Tony Sanzone, our CFO, will review our results and guidance, and Brooks Gordon, our head of asset management, is also here to take questions. Starting with investments, during the fourth quarter, we closed record quarterly investment volume, totaling just over $840 million, which brought us into the top half of our investment volume guidance range for the year at approximately $1.6 billion. Initial cash cap rates on our fourth quarter investments averaged in the mid to low sevens, following the decline in 10-year treasury rates during the fall. And for the year, averaged 7.5%. We continue to achieve very attractive rent bump structures, averaging in the mid 2% range and up into the threes for certain deals. As a result, our average yields over the life of the leases on new investments remained above 9% for 2024. providing attractive returns relative to our spot cost of capital, and even more attractive returns when considering that we were deploying cash accumulated earlier in the year rather than from raising new equity. Our 2024 investments added over $100 million to ABR on leases with weighted average lease term of 17 years. Approximately three quarters of our investment volume was in North America, the vast majority being in the US, and one quarter was in Europe. While about 60% went into warehouse and industrial, a meaningful proportion was also directed towards U.S. retail. Retail remains the largest segment of the U.S. net lease market, and we have done retail deals in the past, primarily in Europe, but also in the U.S. Importantly, we view additional investments in U.S. retail as complementary to our traditional focus on warehouse and industrial, rather than an alternative to it. Our access to efficiently priced debt capital remains a competitive advantage, enhancing our ability to fund deals accretively, something we believe is currently underappreciated by the market. Our mix of U.S. dollar and Euro-denominated debt gives us one of the lowest average interest rates in the net lease sector, and we expect to continue funding part of our capital structure with long-term Euro bonds, currently pricing in the high 3% range. When combined with U.S. bonds pricing in the mid-5s, This provides an attractive source of financing for net lease deals, cap rates in the sevens, and average yields greater than 9%. On the equity side, we have a variety of very attractive potential sources of capital available to us, primarily self-storage operating properties, but also other attractively priced non-core assets, which we would expect to sell at cap rates meaningfully inside of where we can redeploy the proceeds into new investments. These asset sales will also further simplify our portfolio, significantly reducing the non-core operating assets we own, and provide us with a high degree of confidence that we can continue closing accretive net lease investments at a time when we view our equity as undervalued. Turning now to the deal environment. As I mentioned at the outset, markets currently face a range of uncertainties, including the direction of interest rates, inflation, and potential impacts of the new administration. In the early part of 2025, 10-year Treasury rates spiked. This has the potential to widen bid-ask spreads and slow deal activity, although things could change quickly if 10-year Treasury yields continue to come down and stabilize. The potential for larger-scale M&A in 2025 may also create opportunities for sale leasebacks, and over the medium or longer term, on-shoring or near-shoring could provide a tailwind to both our investment activity and portfolio. While the first quarter is unlikely to be as active as the fourth quarter, we continue to find appealing opportunities to put capital to work. Our pipeline currently includes over $300 million of identified transactions, most of which we expect to close this quarter, and we have about $100 million of capital projects scheduled for completion this year. We've adopted a more cautious approach to our initial guidance on investment volume, however, given the limited visibility we have this early in the year. and the uncertainty that exists over the transaction environment. As the year progresses, however, and we have greater clarity on deal activity, we hope to raise our expectations. And we're confident that we can fund deal volume, even if above the top end of our initial guidance range, without having to issue equity. Even with this conservatism, I want to reiterate, we view estimated AFFO per share growth of around 3.5% as an attractive starting point for the year. Before I hand the call over to Tony to discuss our guidance assumptions in more detail, I want to provide an update on the significant tenants we're focused on from a credit perspective. Currently, that comprises the three tenants we've identified on prior calls, True Value, Helvig, and Hearthside, which in aggregate represent 4.5% of ABR. I'll review the details, but in summary, we've agreed to a resolution on True Value that should remove a prominent point of uncertainty for investors. while Helvig and Hearthside are essentially unchanged from a credit perspective versus last quarter. Since our last earnings call, Do It Best has completed its acquisition of True Value and remains current on rent for all our properties, comprising eight warehouses and one paint manufacturing facility. We've negotiated an agreement with Do It Best subject to final documentation that includes several important points. Do It Best will retain six facilities at their existing rents on leases with a weighted average lease term of seven years and an ABR of $14.1 million. The remaining three assets will pay rent through June of 2025, at which point they will be vacated. We're proactively marketing them for sale and expect to sell them during the second half of the year. Assuming their timely sale, we would expect minimal impact on 2025 AFFO, which is factored into our guidance. Lastly, Given the strength of do-it-best credit, we no longer view it as a credit risk concern. Helvick's situation is little changed from last quarter. It remains current on rent and continues to execute its turnaround plan to reduce costs and manage liquidity, and has successfully pushed out its debt maturities to 2027. It continues to face meaningful operational headwinds driven by the slowdown in German consumer spending, which we're monitoring closely, including an active dialogue with Helvick's management team and reviewing its financials as they become available. We also continue to take steps to proactively mitigate the risk of a potential rent disruption. Based on the specific interest we've received, we have confidence there's demand for our stores from other operators at rents generally in line with current rents, though that would incur some downtime in CapEx. We're also evaluating several dispositions, which could incrementally reduce Helvick's contribution to our ABR this year. Finally, on Hearthside, There's no change to our view that we don't expect any rent disruption. Our side is targeting to emerge from bankruptcy early this year at which point we will evaluate taking it off our credit watch list. I'll pause there and hand it over to Tony to discuss our results and guidance.