By Nate Parsh
Investors often turn to real estate agencies or REIT & # 39; when they search for income. This makes sense as REITs are required to pay at least 90% of their income in the form of dividends. This often leads to extended dividend yields.
One of our preferred REITs is W.P. Carey (WPC), currently giving more than 5%. This is more than twice the average yield of S & P 500. You can see all the 5% + return shares here.
Shares of W.P. Carey is up 27% year-to-date, which easily beats 12.6% return on S & P 500. This article will analyze W.P. Carey's business results, dividend history and valuation to see if the stock is worth buying at the current price.
Overview and latest events
W.P. Carey is one of the largest real estate investments in the world. Trusted properties are net leased, which means tenants are responsible for paying property taxes other than tenants. Ca. 64% of rent comes from the US, while 34% comes from Europe. Canada, Mexico and Japan combine to compose the rest.
In addition to being internationally diverse, W.P. Carey also rents properties to a wide range of tenants.
W.P. Carey's first quarter investor presentation
W.P. Carey's first quarter investor presentationslide 11.
Office, industry and warehouse are the three largest property types in W.P. Carey's portfolio. Trust is also diversified with regard to the tenant industry. Retail stores (21% of properties) and others (16%) are the two largest tenant groups. Apart from that, there is no other industry that holds more than 8% of the property portfolio.
Latest Financial Results
W.P. Carey reported financial results for Q3 on May 3, rd 2019. The company's adjusted operating funds or AFFO amounted to $ 1.21 in the quarter, topping estimates by $ 0.08, but fell 5.5% year-round.
The real estate segment contributed with over 93% of AFFO with the investment management that provided the rest. Revenue increased 59% to DKK 282.2m. $, Although it was $ 22.2 million. Below analysts' expectations.
The primary reason for the earnings gain was related to W.P. Carey's acquisition of Corporate Property Associated 17 or CPA: 17 for $ 5.9 billion. USD in stock. This agreement was closed in the third quarter of 2018.
Trading rents rose 1.5% in fixed currency due to annual lease stairs. At the end of the first quarter, W.P. Carey had 1,168 properties covering 134 million square meters. Trust has more than 300 different tenants with a weighted average lease contract was 10.2 years. 98.2% of the properties were let.
Just over 18% of leases expire over the next five years. More than half of the current leases only expire in at least 2028.
Source: W.P. Carey's First Quarter Investor Presentation, slide 12.
W.P. Carey has a rather low concentration of top 10 tenants. Properties rented out to these tenants account for less than a quarter of the total trust's total portfolio. This helps protect W.P. Carey, if one of these tenants unexpectedly goes out of business. The average weighted lease of 12.2 years for these tenants is actually higher total trust.
Confidence was also very active on the buying front. W. P. Carey invested $ 240 million in five properties in the first quarter, all of which were in the United States. The average cap rate for these properties was 7.1%. These acquisitions were made to acquire properties with current tenants and long-term leases to instantly add to the top and bottom lines of trust.
For example, W.P. Carey purchased a $ 48 million acquisition of a 220,000 square foot office facility near Raleigh, North Carolina, which was hired to a leading global pharmaceutical contract research organization. This lease is a triple net lease, which means that the tenants also pay for the maintenance of the facility and have left the lease for almost 15 years.
REITs often have to issue debt to fund investments and W.P. Carey is no different. Not counting the CPA: 17 acquisition, the trust has invested $ 9.7 billion since 2012. Much of this investment has been through the issue of shares that grew from 69 million shares in 2012 to 146 million shares in 2018 and the use of debt . 19659022] Still, WP Carey's debt position is pretty secure. Only 20% of debt is expected to mature over the next three years, with only 0.4% of total debt maturing in 2019. More than half of the confidence debt is not expected to grow to at least 2024. Debt to gross assets stands at only 41%, and the company expects to reduce its secured debt as a percentage of gross assets to 14% from 16.8% by the end of 2019.
WP Carey confirmed his AFFO guide of $ 4.70 to $ 4.90 a. Share. The center of guidance will be a fall of 11.3% from 2018. This decrease is due to the CPA purchase costs: 17. We expect 3.3% AFFO growth over the next five years due to accretive acquisitions and annual rental increases.
W.P. Carey has increased the yield over the last 22 years, giving confidence one of the longer dividend lines among REITs. Trust is also three years away from becoming a dividend Aristokrat, a group of shares in S & P 500 with 25+ consecutive years of dividend increases. You can see all 57 Yield Aristocrats here.
W. P. Carey has increased the yield:
- At a CAGR of 1.6% per. Years in the past three years.
- At a CAGR of 2.1% per. Years in the past five years.
- At a CAGR of 7.4% per. years over the last 10 years.
The growth rate of dividends has fallen dramatically in recent years, but this is mainly due to the sharp increase in the share of stocks in recent years. W. P. Carey has managed to increase the yield, although the share census has more than doubled since 2012. Shares currently offer 5.2%, which is 2.6x the average S&P 500 yield of 2.0%.
W. P. Carey plans to pay 86% AFFO in the form of dividends in 2019, which is above the average payout rate of 70% over the last ten years. We believe that this payout ratio is not very worrying as the increase is due to a reduction in AFFO for the year in connection with the acquisition of CPA: 17. We expect the payout ratio to return to more normal levels as AFFO is growing in the future.
Shares of W.P. Carey closed on May 23 rd 2019 trading session of $ 83. Using the midpoint of AFFO guidance for the year, the share has a price-adjusted fund from operating conditions, or P / AFFO, of 17.3. We have a target of 2024 P / AFFO of 12.5, which is slightly above the share's historical valuation. If the shares were to return to this target by 2024, the valuation would be a 6.3% headline for the total annual return over that period. This can significantly reduce the overall return in the coming years. All in all, we expect that shares in W.P. Carey will offer a total annual return of only 2.2% through 2024, making W.P. Carey a bad choice for investors interested in total returns.
W.P. Carey's diversified business, both in terms of geography and tenant types, is attractive to us, because it means trust is not dependent on just one region or industry to maintain its business. While the costs associated with the acquisition of CPA: 17 weigh the AFFO expectations for the current year, we believe that the dividend is very safe and the yield above 5% is very attractive for income investors.
It is said that W.P. Carey's stock has had a huge 2019. As such, this has removed much of our overall expected return. Due to the low expected total annual return, we encourage investors to seek a high total return to wait for a buy-back before purchase.
Note: I / We have no posts in the said stores and no plans to start any positions within the next 72 hours. I wrote this article myself and express my own opinions. I do not receive compensation for it (except from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.