WP Carey: A Favorite REIT

05/07/2015 8:00 am EST

Focus: REITS

Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Where can investors find value in the US REIT universe? Here's a look at our favorite play, a holding in our Lifelong Income Portfolio, asserts Roger Conrad, editor of Capitalist Times.

WP Carey (WPC) is a trust that specializes in sale-leaseback financing arrangements where the firm acquires property and leases it back to the original owner.

WP Carey’s recent deals include the $142.5 million purchase of the Westin Pasadena Hotel in California and the US$350 million acquisition of 73 sites leased to the UK’s largest automobile retailer.

The latter lease has a remaining term of 15 years and includes built-in rent increases that reflect UK inflation.

The trust’s overall portfolio boasts an occupancy rate of 98.6%, a testament to management’s due diligence and focus on high-quality counterparties.

WP Carey generates about 35% of its rent outside the US; Uncle Buck’s recent strength relative to the euro has weighed on the trust’s bottom line over the past year.

However, the company has also taken advantage of the strong dollar and the availability of less expensive financing in Europe to fund low-cost acquisitions in international markets. Competition for these assets is also less intense than for US targets.

We also like WP Carey’s move to launch a non-traded business development company, a move that provides another platform for growth and fundraising. The company currently manages a series of non-traded REITs with approximately $9.2 billion worth of assets.

WP Carey rates a buy up to $70 per share for a resilient business model that enabled the firm to grow its dividend throughout the financial crisis and Great Recession.

WP Carey recently hiked its dividend for the 56th consecutive quarter. Although this increase of $0.0025 per share represented a step down from boost of $0.01 per share that investors received in the previous two quarters, the company has a history of aligning its dividend growth with underlying cash flow.

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