W. P. Carey Inc. REIT

WP Carey's third quarter 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 Third Quarter Earnings Call. Before we begin, I'd like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements, and factors that could cause actual results to differ materially from W.P. 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'll 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 Jason Fox, Chief Executive Officer.

Good morning, everyone, and thank you for joining us. Strong momentum we established over the first half of the year has continued in the second half. and we remain ahead of our prior expectations. As a result, we're further raising our full-year AFFO guidance, resulting in mid-5% year-over-year growth, which we believe will be among the highest in the net lease sector this year. Our raise guidance is supported by several positive trends within our business. Year-to-date, we've completed $1.65 billion of investments at attractive initial cap rates averaging in the mid-7s, primarily with fixed rent escalations. averaging in the high 2% range. The strength of our investment activity year to date has put us just over the midpoint of prior guidance range. I'm pleased to say we're raising our full year expectations for investment volume to between $1.8 and $2.1 billion. Our sector-leading same-store rent growth continues to be in the mid-2% range and is expected to remain around there or be slightly higher in 2026. The progress we've made funding our investments this year primarily through asset sales, is expected to continue in the fourth quarter, achieving better than initially expected disposition cap rates and attractive spreads to where we're reinvesting the proceeds. Our original rent loss assumption, which reflected a degree of caution given the backdrop of broader economic uncertainty earlier in the year, proved to be conservative, and the performance of our portfolio has enabled us to lower our estimate as the year has progressed. And the strength and flexibility of our balance sheet with over $2 billion of liquidity, including our recent forward equity sales, provides us with additional flexibility to fund future investments. This morning, I'll review this progress and our confidence in sustaining that momentum into 2026. Tony Sanzone, our CFO, will focus on our results and guidance raise and touch upon aspects of our portfolio and balance sheet. And as usual, we're joined by our head of asset management, Brooks Gordon, to answer questions. starting with the transaction environment and investment volume. Lower interest rate volatility has helped keep net lease cap rates relatively steady this year, and that sense of stability has positively impacted our transaction activity, both in the U.S. and Europe, especially sale leasebacks, which have comprised the large majority of our investments to date. Our continued strong pace of investment activity, adding close to $660 million of investments during the third quarter, and about $170 million so far in the fourth quarter, brings our year-to-date investment volume to $1.65 billion at a weighted average initial cap rate of 7.6%. We continue to structure leases with attractive rent escalations, the significant majority of which were fixed bumps, averaging 2.7% for our investments year-to-date. When factoring in rent escalations and a weighted average lease term of 18 years, our average initial cap rates in the mid sevens translate to average yields in the mid 9% range. By transacting at these levels, we continue to generate very attractive spreads to our cost of capital. Warehouse and industrial represents over three quarters of our investment volume year to date, although we continue to invest in a diverse range of property types. And while the large majority of our investment volume was in the US, where we've continued to see a significant number of opportunities at attractive spreads, We also continued to grow our investment volume in Europe relative to the last couple of years. The investment we've made over the last 27 years to steadily build and develop our European platform continues to serve as a key competitive advantage there. Today, our European team consists of over 50 people across our offices in London and Amsterdam, which has built strong broker and developer relationships and has the local expertise necessary to successfully execute across Europe. Moving to our pipeline and capital projects, our near-term pipeline remains strong with several hundred million dollars of transactions currently in process at cap rates and weighted average lease terms consistent with where we've been transacting year to date. We expect many of those deals to close in the fourth quarter, although some may spill over into next year, depending on where they are in the closing process, which would set us up for a strong first quarter. Our near-term pipeline includes close to $70 million of capital projects scheduled for completion in the fourth quarter, We also have approximately $180 million of additional capital projects underway, the large majority of which will deliver in 2026. While capital projects are something we've been doing for a long time, it's an area we can allocate more capital to, often with higher returns compared to acquiring existing assets. Over time, we've built up a dedicated in-house project management team with deep real estate expertise and strong local connections to development resources. We have a long track record of build-to-suits, expansions, renovations, and development projects. Historically, capital projects have averaged around 10% to 15% of our annual investment volume, and we believe we can expand that proportion. Turning now to our capital sources, since our last earnings call, we've made further progress with our strategy of funding investments with accretive sales of non-core assets this year, including operating self-storage properties. Currently, we're in the market with the second half of our self-storage portfolio and have closed further sales since quarter end. We're confident we'll close additional sales during the fourth quarter, but we're also maintaining a degree of optionality on the timing and execution of certain storage sub-portfolios. And while we expect asset sales to fund our fourth quarter investment activity, the approximately $230 million of forward equity we recently sold gives us additional flexibility as well as enabling us to get ahead of our funding needs for 2026. So let me pause there and hand the call over to Tony to discuss our results and guidance.