W.P. Carey: Buy, Sell, or Hold?
W.P. Carey (NYSE: WPC) is one of the largest real estate investment trusts (REITs) focused on owning net lease properties. That lease structure requires that tenants cover all of a building's operating costs, including routine maintenance, real estate taxes, and building insurance. The company has a well-diversified portfolio of operationally critical warehouse, industrial, retail, and other properties across the U.S. and Europe.
The REIT's portfolio produces a lot of stable rental income. That enables it to pay a lucrative dividend yielding 6.3%. Here's a look at whether investors should buy, sell, or hold shares of this high-yielding REIT.
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The strategy shift
W.P. Carey has been going through a bit of a transitional period. In late 2023, the REIT made the strategic decision to exit the troubled office sector. It spun off a portion of its office properties to shareholders in late 2023 by forming office REIT Net Lease Office Properties. It subsequently sold the rest of its office portfolio.
This strategy has acted as a near-term headwind for the REIT. Its adjusted funds from operations (FFO) declined last year because of the lost income from its office portfolio and other property sales. It also sold a portfolio of self-storage properties back to the operator and some other non-core properties. As a result, its adjusted FFO per share was down 10.6% during the third quarter.
Because of the lost income from its property sales and a desire for a more conservative dividend payout ratio, W.P. Carey reset its dividend at the end of 2023. That ended a streak of 25 straight years of dividend growth.
These changes have weighed heavily on the REIT's stock price. Shares of W.P. Carey currently sit more than 35% below their peak from a few years ago.
The rebuild
W.P. Carey has been recycling the capital from its property sales into new investments. It invested $1.6 billion last year, including a company record $845 million in the fourth quarter. Among the new additions were a portfolio of discount retail stores, a battery manufacturing facility, a five-building manufacturing and industrial campus in Mexico, and a data center property. These properties all feature long-term net leases with built-in rent escalations.
The REIT expects to continue rebuilding its portfolio in 2025. It has a lot of financial flexibility thanks to its higher post-dividend free cash flow following the payout reset, lower leverage ratio after completing several asset sales, and additional non-core properties it can sell. That should allow it to continue acquiring properties with strong rental growth potential. Add that to the embedded rent growth of its portfolio thanks to lease escalation clauses, and W.P. Carey expects to grow its adjusted FFO in 2025 and beyond.
A look at the value proposition
W.P. Carey's stock price slump has weighed on its valuation compared with its net-lease peers. Here's a look at how it stacks up against some of the largest players in the net-lease sector:
|
Net Lease REIT |
Recent Price |
Dividend Yield |
2025 FFO per share estimate (mid-point) |
Price to FFO |
FFO Growth Rate |
Property Focus |
|---|---|---|---|---|---|---|
|
W.P. Carey |
$56.07 |
6.3% |
$4.85 |
11.6 |
8.3% |
Diversified (industrial/warehouse) |
|
Vici Properties |
$30.11 |
5.8% |
$2.32 |
13.0 |
2.5% |
Gaming |
|
Realty Income |
$54.12 |
5.9% |
$4.39 |
12.3 |
5.3% |
Diversified (retail) |
|
Agree Realty |
$72.89 |
4.2% |
$4.33 |
16.8 |
4.8% |
Retail |
|
NNN REIT |
$38.62 |
6% |
$3.38 |
11.4 |
1.7% |
Retail |
|
Stag Industrial |
$34.66 |
4.3% |
$2.51 |
13.8 |
4.2% |
Industrial/warehouse |
|
Broadstone Net Lease |
$15.52 |
7.5% |
$1.48 |
10.5 |
2.7% |
Diversified (industrial) |
Data sources: NAREIT and Google Finance.
W.P. Carey trades at about 11.6 times its anticipated FFO per share for 2025. That's toward the lower end of its peer group. And that makes it a relatively more attractive investment, especially considering it expects to deliver the fastest FFO-per-share growth rate in its peer group. It could produce higher total returns than other net lease REITs when adding its high-yielding dividend payment.
Buy, sell, or hold?
W.P. Carey looks like a buy. Having completed its portfolio shift away from the office sector toward faster-growing property types, such as industrial real estate, it expects to start growing again in 2025 and will probably deliver peer-leading earnings growth. That should enable W.P. Carey to continue rebuilding its high-yielding dividend. It raised its payout every quarter last year. And it could produce peer-leading total returns in 2025, making it an attractive investment, especially for those seeking a lucrative passive income stream.
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Matt DiLallo has positions in Net Lease Office Properties, Realty Income, Stag Industrial, Vici Properties, and W.P. Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Stag Industrial and Vici Properties. The Motley Fool has a disclosure policy.
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