W. P. Carey Inc. REIT

2025 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 2025 first 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 hand the call over to our Chief Executive Officer, Jason Fox.

Thanks, Peter, and good morning, everyone. We entered the year anticipating uncertainty. and the uncertainty surrounding tariffs clearly proved to be the key theme of the first quarter. To date, however, that uncertainty has not translated into any direct impacts on our business, and we've continued executing on the plan we previously outlined for 2025. We've started the year with solid investment volume and have good visibility into additional deals closing over the near term. We also remain comfortable with our ability to accretively fund new investments this year, including through the high end of our guidance range, without needing to access the capital markets. While the potential impacts of tariffs are causing substantial uncertainty in the broader economy and capital markets, to date, we haven't seen any direct effects on the performance of our portfolio, whether through rent collections or releasing. We continue to believe that our estimate of potential rent loss from tenant credit events, which is embedded in our guidance, will be sufficient, even if tariffs put pressure on tenant margins later this year. Despite the uncertainty over tariffs, we have now resolved the situations with two of our top tenants that were experiencing credit difficulties, as we outlined in our recent business update press release. Overall, we remain cautious on the environment, but are comfortable with the assumptions baked into our guidance, and also see a path to the high end of our AFFO and investment volume guidance ranges. This morning, I'll focus on several topics. Our recent investment activity and an update on our sources of capital to fund those deals, additional perspective on tariffs, and an update on tenant credit. Following that, Tony Sanzone, our CFO, will review our results and guidance, and Brooks Gordon, our head of asset management, is joining us to take questions. Starting with our investment activity, year-to-date, we've closed about $450 million of investments with an initial weighted average cap rate of 7.4%, including the $275 million we closed in the first quarter. Importantly, with rent escalation structures averaging in the mid to high 2% range, the average yield over the life of the leases exceeds 9%. We also have several hundred million dollars of investments in our pipeline at advanced stages, the majority of which we expect to close in the next couple of months. In addition, we currently have eight capital projects totaling $117 million scheduled for completion this year. So four months into the year, we have clear visibility into approximately $570 million of deals for 2025 in a solid near-term pipeline. It's important to note that the market for net lease real estate, which generally has long lease terms, is not as influenced by near-term fluctuations in market rents and leasing velocity compared to shorter-term multi-tenant properties. As a result, to date, we've seen very little disruption in net lease transaction activity. Furthermore, we foresee scenarios where sale-leaseback transactions continue to ramp up, as they can be very attractive alternative sources of capital for corporates and sponsored-backed companies during times of market volatility. As the market leader in sale-leasebacks, which typically comprise a large portion of our investment volume, we would be at a distinct advantage competing on new investments. Similarly, if mortgage lenders tighten their lending criteria, real estate private equity and other competitors that use asset-level debt will become less competitive. Summary, we believe we will remain on track or ahead of expectations for the first half of the year. And once we have greater visibility into how the transaction environment is likely to play out over the remainder of the year, we see a path to raising our expectations for full year investment volume. Although we're mindful that the overall flow of new deal launches has some potential to slow amid the current climate of uncertainty. That brings me to our sources of capital. We continue to believe we have one of the lowest costs of debt in the net lease sector. through our mix of US dollar and Euro denominated debt. Tony will discuss the details, but during the quarter, we refinanced our Euro term loan, fixing its interest rate below 3% through an interest rate swap. We don't have any meaningful additional debt maturities in 2025, and at quarter end, we were only minimally drawn on our $2 billion revolver. Our next bond maturity is the Euro bond maturing in April, 2026, and our next US bond maturity isn't until October of 2026. On the equity side, we're making progress on our plan to fund our investments this year, primarily through non-core asset sales. During the first quarter, we sold assets totaling approximately $130 million and are making headway on additional dispositions. In addition to that, we're currently in the market with a sizable portfolio of operating self-storage assets, representing about half of our total self-storage operating NOI. While it is too early to say what the exact outcome will be, we have seen substantial interest from self-storage buyers, and we're evaluating various options to maximize value, ranging from several smaller portfolio sales to a single buyer. We expect deal timing to be the second half of the year, and to the extent there are multiple buyers, deals may close at different times. We remain comfortable that we'll generate at least 100 basis points of spread this year between our asset sales and new investments. We will, of course, look to do better than that but currently we're maintaining that assumption in our guidance model. More broadly, we believe our investment spreads are underappreciated by the market as the narrative is often around going in cap rates without any discussion of rent growth over the life of a lease. When you combine our ability to partially finance deal activity through European debt with our sector-leading rent bumps, we continue to feel good about our ability to generate growth through new investments, and we remain focused on putting capital to work this year. Turning now to our perspective on tariffs. While it's too soon to determine how tariffs can impact our business this year, we would highlight several points. Our portfolio is built to withstand downturns and periods of economic weakness. We focus on investing in large companies which have greater liquidity and access to capital and are far better equipped to weather economic downturns than smaller companies. Approximately three-quarters of our ABR comes from tenants that generate annual revenues of over $500 million. We own critical real estate with strong leases, and in cases where a tenant's business is restructured, we frequently don't see any disruption in rents. One of the potential misperceptions about our international portfolio is that it inherently faces greater risks from the direct effects of tariffs compared to a purely U.S. portfolio. But in reality, the majority of our European tenants operate primarily domestically, selling into their local markets rather than exporting to the U.S., especially in industries like grocery, home improvement, and car dealerships, which comprise the bulk of the European tenants in our top 25. Industrial and warehouse properties have also been a focal point when considering the impacts of tariffs on the real estate sector, particularly the potential impacts on releasing and demand for space. In general, our warehouse tenants are not positioned in major ports or logistics hubs where they might have obvious exposure to international supply chains. Because our leases are long, With leases representing just 1.3% of ABR expiring this year and 2.9% next year, the leasing and occupancy pressure that may be flowing through to traditional REITs will not be as impactful in our portfolio. Furthermore, to the extent the on-shoring trend continues, we think the value and importance of our industrial portfolio could be enhanced through greater demand for domestic manufacturing capacity. In fact, Recent conversations with tenants have included inquiries and discussions on expansions, indicating that this is becoming more of a focus. The final and perhaps most important point I want to make regarding tariffs is that the current uncertainty over their magnitude and timing does not change the estimated rent loss we've accounted for in our 2025 guidance, which covers a variety of scenarios, including those in which we experienced incremental unexpected credit events this year. So we still feel good about the AFFO growth estimate we've guided to, and continue to see the potential to increase it as we gain greater visibility into the remainder of the year. Before I hand the call over to Tony, I want to give a brief update on the significant tenants we've been focused on from a credit perspective, namely True Value, which is now Do It Best, Hearthside, and Heldig. To date, the situations with Do It Best and Hearthside have played out as we anticipated, which were factored into our initial guidance and covered in our recent business updates. Helvick's status is also largely unchanged since our recent press release. It remains current on rent, although it continues to face a challenging operating environment, including weak German consumer spending and a competitive do-it-yourself industry. Helvick continues to work with its key stakeholders, including landlords and lenders, to further improve its liquidity, and those conversations are ongoing. In the meantime, we're actively reducing our exposure, executing agreements at the end of March to take back 12 stores and representing about one-third of our total exposure, with seven stores terminated by September of this year and another five stores by September of next year. We expect to re-tenant most of those stores, achieving rents in line with their existing rents, and to sell the rest, in both cases with limited downtime. Those steps should help improve Helvig's liquidity while also giving us clear line of sight to moving Helvig out of our top 10 tenants. Lastly, separate from the 12 stores we're taking back, We recently sold one of the occupied Helvick stores in our portfolio and have an additional three underbinding contracts, further reducing our Helvick exposure in the near term. I'll pause there and hand over to Toni to discuss our results and guidance.