W. P. Carey Announces Fourth Quarter and Full Year 2023 Financial Results

W. P. Carey Inc. (NYSE: WPC) (W. P. Carey or the Company), a net lease real estate investment trust, today reported its financial results for the fourth quarter and full year ended December 31, 2023.

Financial Highlights

• 2024 AFFO guidance range narrowed to between $4.65 and $4.75 per diluted share, based on anticipated full year investment volume of between $1.5 billion and $2.0 billion
  
  
• Fourth quarter cash dividend of $0.860 per share, equivalent to an annualized dividend rate of $3.44 per share, reflecting both the Company’s strategic exit from the office assets within its portfolio and a lower payout ratio

Strategic Office Exit

• Spin-Off of Net Lease Office Properties (NLOP) completed on November 1, 2023
  
  
• Office Sale Program
  
  
  • 79 properties sold to date under the program for gross proceeds of $608.1 million, including eight properties totaling gross proceeds of $220.3 million sold during the 2023 third and fourth quarters and 71 properties totaling gross proceeds of $387.8 million sold in January 2024, including the Company’s largest office portfolio
    
    
  • Office assets sales to date under the program bring office exposure below 3% of total ABR
    
    
  • Remaining sales under the program targeted to be completed during the first half of 2024

Real Estate Portfolio

• Investment volume of $345.6 million completed during the fourth quarter, bringing total investment volume for 2023 to $1.3 billion
  
  
• Investment volume of $177.1 million completed in January 2024
  
  
• Active capital investments and commitments of $80.1 million and construction loan funding of $30.5 million scheduled to be completed in 2024
  
  
• Non-Office Sale Program gross disposition proceeds totaled $133.6 million for the fourth quarter and $242.0 million for 2023
  
  
• Contractual same-store rent growth of 4.1%

Balance Sheet and Capitalization

• Settled all outstanding forward sale agreements, issuing approximately 4.7 million shares of common stock for net proceeds of $384 million
  
  
• Received approximately $344 million, net of transaction expenses, from NLOP in connection with the Spin-Off
  
  
• Senior unsecured credit facility amended and restated, increasing the capacity of the unsecured revolving credit facility to $2.0 billion and extending its maturity to 2029, and refinancing £270 million and €215 million term loans, extending their maturities to 2028.

MANAGEMENT COMMENTARY

“Our 2023 fourth quarter and full year results largely reflected the near-term impacts of executing the office exit strategy we announced in September,” said Jason Fox, Chief Executive Officer of W. P. Carey. “We’ve made excellent progress in a short space of time thanks to the hard work and dedication of our employees, bringing our office exposure down to less than 3% of ABR.

“Looking ahead, we view 2024 as a transitional year, establishing a new baseline from which to grow AFFO. In addition to the rent growth embedded in our portfolio and a growing pipeline, I’m pleased to say we’ve already closed $177 million of investments and have over $100 million of capital projects and commitments scheduled for completion this year. We’ve raised our expectations for 2024 investment volume and we’re very well-positioned to execute — with exceptionally strong liquidity and a lower cost of capital — in an improving investment environment.”

QUARTERLY FINANCIAL RESULTS

Revenues

• Total Company: Revenues, including reimbursable costs, for the 2023 fourth quarter totaled $412.4 million, up 2.4% from $402.6 million for the 2022 fourth quarter.
  
  
• Real Estate: Real Estate revenues, including reimbursable costs, for the 2023 fourth quarter were $410.4 million, up 2.1% from $402.1 million for the 2022 fourth quarter.
  
  
  • Lease revenues decreased primarily as a result of the reclassifications of lease revenues related to the U-Haul and State of Andalusia portfolios described below and the Spin-Off, which more than offset the impact of net investment activity and rent escalations.
    
    
  • Operating property revenues increased primarily as a result of the conversion of 12 hotel properties from net lease to operating upon lease expiration during the 2023 first quarter (eight of which were sold during the 2023 third and fourth quarters).
    
    
  • Income from finance leases and loans receivable increased primarily as a result of the reclassification of lease revenues (i) after receiving notice during the 2023 first quarter of the purchase option exercise on the portfolio of 78 U-Haul properties (the properties are expected to be sold during the first quarter of 2024) and (ii) after signing a purchase and sale agreement during the 2023 fourth quarter for the Company’s largest office portfolio of 70 properties net leased to the State of Andalusia in a sale back to the tenant (which closed in January 2024). The reclassifications had no impact on total Real Estate revenues.

Net Income Attributable to W. P. Carey

• Net income attributable to W. P. Carey for the 2023 fourth quarter was $144.3 million, down 31.1% from $209.5 million for the 2022 fourth quarter. Net income from Real Estate attributable to W. P. Carey was $142.8 million, which decreased due primarily to higher impairment charges and allowances for credit losses, a non-cash mark-to-market gain recognized on the Company’s shares of Lineage Logistics of $38.6 million during the prior-year period and the impact of the Spin-Off, partly offset by a higher aggregate gain on sale of real estate and the impact of net investment activity and rent escalations.

Adjusted Funds from Operations (AFFO)

• AFFO for the 2023 fourth quarter was $1.19 per diluted share, down 7.8% from $1.29 per diluted share for the 2022 fourth quarter, primarily reflecting the impact of the Spin-Off. Higher revenue from net investment activity and rent escalations was mostly offset by higher interest expense and lower other lease-related income during the 2023 fourth quarter.

Note: Further information concerning AFFO and Real Estate AFFO, which are both non-GAAP supplemental performance metrics, is presented in the accompanying tables and related notes.

Dividend

• As previously announced, on December 7, 2023, the Company reported that its Board of Directors declared a quarterly cash dividend of $0.860 per share, equivalent to an annualized dividend rate of $3.44 per share, reflecting both the Company’s strategic exit from the office assets within its portfolio (announced on September 21, 2023) and a lower payout ratio. The dividend was paid on January 16, 2024 to shareholders of record as of December 29, 2023.

FULL YEAR FINANCIAL RESULTS

Revenues

• Total Company: Revenues, including reimbursable costs, for the 2023 full year totaled $1.74 billion, up 17.6% from $1.48 billion for the 2022 full year.
  
  
• Real Estate: Real Estate revenues, including reimbursable costs, for the 2023 full year totaled $1.74 billion, up 18.4% from $1.47 billion for the 2022 full year.
  
  
  • Lease revenues increased primarily as a result of net investment activity, rent escalations and net lease properties acquired in the CPA:18 Merger, which more than offset the reclassifications of lease revenues related to the U-Haul and State of Andalusia portfolios described below and the impact of the Spin-Off.
    
    
  • Operating property revenues increased primarily as a result of the self-storage and other operating properties acquired in the CPA:18 Merger, as well as the conversion of 12 hotel properties from net lease to operating upon lease expiration during the 2023 first quarter (eight of which were sold during the 2023 third and fourth quarters).
    
    
  • Income from finance leases and loans receivable increased primarily as a result of the reclassification of lease revenues (i) after receiving notice during the 2023 first quarter of the purchase option exercise on the portfolio of 78 U-Haul properties (the properties are expected to be sold during the first quarter of 2024) and (ii) after signing a purchase and sale agreement during the 2023 fourth quarter for the Company’s largest office portfolio of 70 properties net leased to the State of Andalusia in a sale back to the tenant (which closed in January 2024). The reclassifications had no impact on total Real Estate revenues.

Net Income Attributable to W. P. Carey

• Net income attributable to W. P. Carey for the 2023 full year totaled $708.3 million, up 18.2% from $599.1 million for the 2022 full year. Net income from Real Estate attributable to W. P. Carey was $704.8 million, which increased due primarily to a higher aggregate gain on sale of real estate, the impact of net investment activity (including properties acquired in the CPA:18 Merger) and rent escalations, partly offset by higher interest expense, a non-cash mark-to-market gain of $49.2 million recognized on the Company’s investment in common stock of Watermark Lodging Trust, higher impairment charges and allowances for credit losses, a non-cash mark-to-market gain recognized on the Company’s shares of Lineage Logistics of $38.6 million during the prior year and the impact of the Spin-Off. Net income from Investment Management attributable to W. P. Carey was $3.5 million, which decreased due primarily to a $29.3 million impairment charge recognized on goodwill within that segment. The Company also recognized a $33.9 million gain on change in control of interests in connection with the CPA:18 Merger during the prior year.

AFFO

• AFFO for the 2023 full year was $5.18 per diluted share, down 2.1% from $5.29 per diluted share for the 2022 full year, primarily reflecting higher interest expense (due primarily to higher interest rates) and the impact of the Spin-Off, which more than offset higher revenue from net investment activity and rent escalations.

Note: Further information concerning AFFO and Real Estate AFFO, which are both non-GAAP supplemental performance metrics, is presented in the accompanying tables and related notes.

Dividend

• Dividends declared during 2023 totaled $4.067 per share, a decrease of 4.1% compared to total dividends declared during 2022 of $4.242 per share, reflecting the impact on the dividend declared during the 2023 fourth quarter of both the Company’s strategic exit from the office assets within its portfolio and a lower payout ratio.

AFFO GUIDANCE

2024 AFFO Guidance

• For the 2024 full year, the Company expects to report total AFFO of between $4.65 and $4.75 per diluted share, based on the following key assumptions:
  
  (i)   investment volume of between $1.5 billion and $2.0 billion;
  
  (ii)   disposition volume of between $1.2 billion and $1.4 billion, including:

(a)  completion of the Company’s strategic plan to exit office, including anticipated asset sales under the Office Sale Program totaling between $550 million and $600 million during the first half of 2024;

(b)  exercise of the U-Haul purchase option during the 2024 first quarter, generating approximately $465 million in gross proceeds; and

(c)  other dispositions totaling between $150 million and $350 million; and

(iii) total general and administrative expenses of between $100 million and $103 million.

Note: The Company does not provide guidance on net income. The Company only provides guidance on total AFFO and does not provide a reconciliation of this forward-looking non-GAAP guidance to net income due to the inherent difficulty in quantifying certain items necessary to provide such reconciliation as a result of their unknown effect, timing and potential significance. Examples of such items include impairments of assets, gains and losses from sales of assets, and depreciation and amortization from new acquisitions.

STRATEGIC OFFICE EXIT

• On September 21, 2023, the Company announced a strategic plan to exit the office assets within its portfolio by:
  
  (i)   spinning-off 59 office properties with ABR totaling $145 million into NLOP, a separate publicly-traded REIT (the “Spin-Off”), which was completed on November 1, 2023; and
  
  (ii)   implementing an asset sale program to dispose of 87 office properties retained by W. P. Carey (the “Office Sale Program”), with all sales under the program targeted to be completed in first half of 2024.
  
  
• To date through February 9, 2024, the Company has sold 79 properties under the Office Sale Program for gross proceeds of approximately $608.1 million, comprising:
  
  
  • Eight properties sold during the 2023 third and fourth quarters for gross proceeds of approximately $220.3 million; and
    
    
  • 71 properties sold subsequent to year end, for gross proceeds of approximately $387.8 million, including a portfolio of 70 office properties net leased to State of Andalusia.
    
    
• As a result of the progress made to date executing on the Company’s strategic plan to exit the office assets within its portfolio, office assets currently represent approximately 2.7% of total ABR (as of December 31, 2023).
  
  
• Remaining sales under the program are targeted for completion during the first half of 2024, for office assets that generate $21 million of ABR.

REAL ESTATE 

Investments

• During the 2023 fourth quarter, the Company completed investments totaling $345.6 million, bringing total investment volume for the year ended December 31, 2023 to $1.3 billion.
  
  
• Year to date through February 9, 2024, the Company completed investment volume of $177.1 million.
  
  
• The Company currently has seven capital investments and commitments totaling $80.1 million and construction loan funding of $30.5 million scheduled to be completed during 2024, for an aggregate total of $110.6 million.

Dispositions

• In addition to dispositions under the Office Sale Program, during the 2023 fourth quarter, the Company disposed of ten properties for gross proceeds of $133.6 million (including the sales of five hotel operating properties for gross proceeds of $83.9 million), bringing total non-Office Sale Program dispositions for the year ended December 31, 2023 to $242.0 million (including the sales of eight hotel operating properties for gross proceeds of $132.6 million).

Contractual Same-Store Rent Growth

• The Company’s net lease portfolio generated contractual same-store rent growth of 4.1% on a constant currency basis.

Composition

• As of December 31, 2023, the Company’s net lease portfolio consisted of 1,424 properties, comprising 173 million square feet leased to 336 tenants, with a weighted-average lease term of 11.7 years and an occupancy rate of 98.1%. In addition, the Company owned 89 self-storage operating properties, five hotel operating properties and two student housing operating properties, totaling approximately 7.3 million square feet.

BALANCE SHEET AND CAPITALIZATION

Forward Equity

• The Company settled all of its outstanding forward sale agreements, issuing 4,744,973 shares of common stock for net proceeds of $384 million.

Spin-Off Distribution

• The Company received a distribution of approximately $344 million, net of transaction expenses, from NLOP in connection with the Spin-Off on November 1, 2023.

The Company intends to use proceeds from these transactions primarily to fund future acquisitions and repay debt, including amounts outstanding under its unsecured revolving credit facility. The Company may hold net proceeds in cash and/or marketable securities earning interest until deployed.

Senior Unsecured Credit Facility

• As previously announced, on December 14, 2023, the Company amended and restated its senior unsecured credit facility, (i) increasing the capacity of its unsecured revolving credit facility from $1.8 billion to $2.0 billion and extending its maturity by four years to 2029, and (ii) refinancing its £270 million and €215 million term loans and extending their maturities by three years to 2028. Each of the term loans include an option to extend up to an additional year at the Company’s discretion, subject to the satisfaction of certain customary conditions.

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Supplemental Information

The Company has provided supplemental unaudited financial and operating information regarding the 2023 fourth quarter and certain prior quarters, including a description of non-GAAP financial measures and reconciliations to GAAP measures, in a Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on February 9, 2024, and made available on the Company’s website at ir.wpcarey.com/investor-relations.

W. P. Carey Inc.

W. P. Carey ranks among the largest net lease REITs with a well-diversified portfolio of high-quality, operationally critical commercial real estate, which includes 1,424 net lease properties covering approximately 173 million square feet and a portfolio of 89 self-storage operating properties as of December 31, 2023. With offices in New York, London, Amsterdam and Dallas, the company remains focused on investing primarily in single-tenant, industrial, warehouse and retail properties located in the U.S. and Northern and Western Europe, under long-term net leases with built-in rent escalations. www.wpcarey.com