In November, W.P. Carey (WPC) spun off the vast majority of its office properties as Net Lease Office Property (NLOP). Now for the first time, the Real Estate Investment Trust (REIT) is focused squarely on its fastest-growing, build-to-suit properties worldwide, the largest chunk of which are industrial and logistics facilities, counsels Roger Conrad, editor of Conrad’s Utility Investor.
It’s also shed of office properties, which are still going through a major retrenchment as tenants look for ways to cut down on rents and accommodate more at-home working.
Management has set a preliminary 2024 adjusted FFO guidance range of $4.60 to $4.80 per share. That reflects the NLOP spinoff, as well as the planned sale of its remaining office properties.
The REIT will start out paying approximately 86 cents a share per quarter. That’s a payout ratio of about 73% based on the 2024 guidance range mid-point, and compares to a long-term target ratio in the “low- to mid-70% range.”
The new payout ratio will enable Carey to fund a target of $1.5 billion in annual investment without heavy reliance on capital markets to raise funds. That, in turn, will allow the company to greatly increase dividend growth from the sub-1% rate of the past few years. Rather, the REIT will be able to offer “peer level” annual increases in the mid-single digit percentages, off a current yield of 5%-plus.
Carey’s current property portfolio is 1,413 net leased “operationally critical” properties covering 171 million square feet globally, in addition to 86 self-storage properties. Prospective targets will be single-tenant, industrial, warehouse, and retail properties. The balance sheet is strong, with Moody’s Baa1 (stable outlook) and S&P’s BBB+ (stable) ratings among the highest for any REIT.
Carey shares currently sell at a deep discount to their price at the beginning of 2023. That reflects across-the-board weakness in REITs, the low dividend growth rate, and this autumn’s uncertainty about the office property spinoff.
None of those should be meaningful headwinds in 2024. And I expect Carey to make new highs in the next couple years.