W. P. Carey Navigates Cap Rate Compression with Strategic Retail Push

Date of Call: Feb 11, 2026

Guidance:

• Investment volume guidance for 2026 is $1.25B to $1.75B, with a conservative initial outlook.
• AFFO per share expected between $5.13 and $5.23, representing 4.2% year-over-year growth at the midpoint.
• Disposition volume expected between $250M and $750M, including non-core and vacant assets.
• Cap rates anticipated in the mid-to-low 7% range, compared to 7.6% in 2025.
• Portfolio occupancy expected to remain over 98% throughout the year.
• Contractual same-store rent growth expected in the mid-2% range, slightly higher than 2025.

Business Commentary:

Record Investment Volume and Strong AFFO Growth:

• W. P. Carey reported record investment volume of $2.1 billion for 2025, exceeding initial guidance and marking substantial growth.
• The company achieved a 5.7% increase in AFFO per share for the year, reflecting strong performance.
• Growth was driven by high-volume transaction execution, sector-leading rent growth, and strategic capital recycling from asset sales.

Strategic Capital Allocation and Debt Management:

• The company successfully refinanced its euro-denominated term loan, securing an attractive rate below 3%.
• W. P. Carey utilized its ATM program to sell forward equity, securing $423 million in gross proceeds to fund future investments.
• The strong funding position and access to diverse capital sources, including euro-denominated debt, enabled disciplined capital raising and investment in high-yield opportunities.

Retail and Industrial Focus with Competitive Advantages:

• Retail investments accounted for 22% of W. P. Carey's 2025 deal volume, with a significant portion attributed to the Life Time Fitness portfolio acquisition.
• The company's industrial segment remained core, representing 68% of investment volume, benefiting from long-term leases and high yields.
• The strategic focus on retail and industrial sectors was supported by competitive advantages such as the Carey Tenant Solutions platform, driving proprietary deal flow and enhancing tenant relationships.

Conservative Guidance and Future Outlook:

• For 2026, W. P. Carey provided initial investment volume guidance of $1.25 billion to $1.75 billion and expects AFFO growth of between $5.13 and $5.23 per share.
• The guidance reflects a conservative stance on investment volume and credit-related rent loss, with expectations of refining and potentially raising the range as the year progresses.
• The company anticipates stable credit quality and continued strong momentum in investment activity, supported by a robust pipeline and funding flexibility.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed strong confidence, citing '2025 was a standout year' and 'successful execution across our business producing strong performance.' They highlighted 'record investment activity,' 'sector-leading rent growth,' and being 'exceptionally well positioned to drive industry-leading AFFO growth in 2026 and beyond.' The outlook is supported by strong deal flow, accretive capital sources, and a conservative yet growth-oriented guidance.

Q&A:

• Question from Jana Galan (BofA Securities): Jason, I wanted to follow-up on the strategy of the expansion in U.S. retail. It looks like Life Time Fitness was part of this goal. I'm kind of curious what other categories within retail you're targeting and whether these will be kind of in the form of more larger sale-leaseback opportunities?
  Response: Retail is a significant focus, accounting for about 22% of 2025 deal volume. The company aims to increase its share to 25-30% annually, targeting sectors like family entertainment, grocery, and C-stores, with a focus on tenant credit, lease term, and structure.

• Question from Jana Galan (BofA Securities): And then maybe also on the Carey Tenant Solutions platform. Maybe just near term, how much above $200 million, should we think about that growing?
  Response: The pipeline for capital projects is actively growing, with about $50M completed year-to-date and $280M in construction expected to deliver over the next 12-18 months. The platform is a formalized effort to increase these projects, which can become a larger component of annual deal volume.

• Question from Greg McGinniss (Scotiabank Global Banking and Markets): Jason, I appreciate the commentary on the retail side. also hoping you can kind of dig in a bit more on the industrial types of assets that you're finding or looking for cap rates and then kind of U.S. versus Europe.
  Response: Industrial remains the core part of the business, making up 2/3 to 3/4 of deal volume. Cap rates are expected in the low-to-mid 7% range for 2026, down from 7.6% in 2025. Competition from Realty Income is noted more in Europe, particularly in the U.K., but not significantly impactful.

• Question from John Kim (BMO Capital Markets): I wanted to ask about Carey Tenant Solutions, which I think is just your branding for build-to-suit. I just want to make sure that was the case. But how do you protect yourself from development risks associated with these type of projects. And I think in the past, you talked about a 25 to 50 basis point premium on build-to-suit versus acquisitions. Is that still the right range to think about?
  Response: Carey Tenant Solutions formalizes the company's long-standing capability in build-to-suits and expansions. Risks are mitigated through fixed-price contracts, guaranteed rent start dates, and in-house project management. The yield premium is 25-50 bps for market deals and can be higher (100-300 bps) for proprietary expansions, which also deepen tenant relationships.

• Question from John Kim (BMO Capital Markets): Great. And then my second question is on your leverage. You talked about operating at mid- to high 5x leverage. Is that where you think you get the premium multiple for your stock. I'm just wondering how you balance AFFO growth versus having a cleaner balance sheet with more fire power?
  Response: The company is comfortable operating in the mid-to-high 5x leverage range and may drift to the lower end over time, which could help the equity multiple, but there is no specific timeline for that shift.

• Question from Jason Wayne (Barclays Bank PLC): Just on the $60 million in dispositions year-to-date. I'm just wondering the cap rate there. And can you give some color on the cap rates that you're assuming on dispositions for the full year?
  Response: The $60M in dispositions year-to-date includes a mix of assets, with one notable sale (a warehouse formerly leased to JOANN) at an accretive price, though specific cap rates are not disclosed. Full-year disposition cap rates will vary widely depending on the mix of core versus non-core assets sold.

• Question from Bennett Rose (Citigroup Inc.): I wanted to ask about -- a little bit more about your acquisitions outlook for the year. I understand you said that you were coming into the year from a conservative standpoint. But just going back and looking at some of your commentary on your third quarter call, you talked about having the infrastructure in place to support a similar pace of activity you're seeing in the back half of '25 and not seeing anything that would disrupt the pace of activity that you were seeing from a broader kind of macro perspective.
  Response: The initial guidance is conservative, with expectations to refine and potentially raise the range as the year progresses. The company is confident in its ability to sustain high deal volumes, is ahead of pace year-to-date, and sees no disruptive macro factors.

• Question from Anthony Paolone (JPMorgan Chase & Co): Yes. Just first 1 on credit loss, the $10 million to $15 million. If I go back to last year at this time, I think the number you gave incorporated a couple of situations that maybe you wanted some room for like True Value perhaps and maybe another one. So just wondering if any of the $10 million to $15 million spoken for at this point or if that's just kind of the number you're giving yourself cushion on?
  Response: The $10M-$15M rent loss range is set conservatively to capture a wide variety of scenarios and provides a cushion; there is nothing specific in the portfolio at this time, and the goal is to manage the portfolio to limit disruption and potentially reduce the estimate for upside to guidance.

• Question from James Kammert (Evercore ISI Institutional Equities): Perhaps just an extension of that last topic. You're obviously have done a very nice job. It's been benefit of the company having a lot of euro debt exposure. But could you remind me, where do you stand in terms of capacity in terms of it's about 2/3 of the overall debt? Can you do a lot more there? Or how do you think about that going forward in terms of the overall debt composition?
  Response: The company still has room to issue incremental euro-denominated debt, which provides a lower-cost hedge. The capital structure includes plans to replace the maturing eurobond, and there is flexibility to access European markets as needed.

• Question from Michael Goldsmith (UBS Investment Bank): You talked about cap rates compressing this year to the mid- to low-7% range versus 7.6% in 2025. So are there specific areas, where you're not seeing that compression and is that -- does that help drive your acquisition strategy? Just trying to understand what the implications of this -- of the cap rate compression is for your acquisition strategy.
  Response: Cap rate compression is more pronounced in commodity-driven retail, while sale-leaseback transactions (a company focus) can maintain historical cap rates with more pricing power. This dynamic supports the company's strategy to emphasize sale-leasebacks.

• Question from Michael Goldsmith (UBS Investment Bank): And then just as a follow-up, you guys cited roughly 150 basis point spread between dispositions and acquisitions. Is that expected to be -- is that sustainable this year? And just given what you're disposing, is that the right range to think about this? And then does that still make sense in a more competitive net lease environment?
  Response: The spread is expected to be similar to last year, around 100 bps or more, depending on the mix of dispositions. The company can fund incremental investments through equity or accretive asset sales, providing flexibility to sustain attractive spreads.

• Question from Ryan Caviola (Green Street Advisors): There were 4 baking warehouse sales in the fourth quarter, and it sounds like there's a fit after the quarter end. Could you just walk us through the decision on re-tenanting versus disposing of those properties were retenanting opportunities not there? Or is the choice to sell just opportunistic?
  Response: The decision to sell versus re-tenant is based on risk-adjusted returns. If disposition opportunities offer more attractive returns than the underwritten forward returns for leasing, the company will sell quickly, as seen with the JOANN asset.

• Question from Ryan Caviola (Green Street Advisors): Appreciate that. And then it was outshined by the lifetime purchase, but there was the health care acquisition with NewEra for $140 million during the quarter. And I also noticed there is an expansion on the capital commitments with the same tenant. Just wanted to see if you could share color on the relationship there? And is health care is a venue you view as attractive going into 2026.
  Response: Health care is viewed as an attractive, growing sector. The company targets specific areas like inpatient rehab facilities (IRFs), focusing on long-term, single-tenant absolute net leases with strong site-level coverage and reputable operators, as seen with NewEra and Ernest Health deals.

Contradiction Point 1

Disposition Cap Rate Expectations

Contradiction on expected cap rates for asset sales between quarters.

What are the cap rates for the $60 million in year-to-date dispositions and the full-year disposition assumptions? - Jason Wayne (Barclays Bank PLC)

2025Q4: Full-year disposition cap rate depends on mix... The largest Q1 sale (JOANN warehouse) was at a highly accretive, sub-6% cap rate. - Jason Fox(CEO)

What was the disposition cap rate for self-storage assets, and do you anticipate selling the remaining assets next year at similar rates? - Greg McGinniss (Scotiabank Global Banking and Markets)

2025Q3: Disposition cap rates for self-storage assets transacted to date are just inside of 6%. The total exit for the operating self-storage portfolio is expected to average around 6%. - Brooks Gordon(Head of Asset Management)

Contradiction Point 2

Noncore Asset Sales Strategy

Contradiction on the strategic approach and availability of noncore assets for sale.

What noncore deals exceeding high-end guidance remain available? - Jason Wayne (Barclays Bank PLC)

2025Q4: Mixture of assets (e.g., final property in Japan, operating student housing, net lease hotel). Many assets have tenants approaching to repurchase at aggressive pricing. Have flexibility to lean into accretive asset sales or equity if deal volumes exceed guidance. - Jason Fox(CEO)

Can you outline the noncore and internally generated capital sources available as we consider deal activity next year and how they might fund it? - Anthony Paolone (JPMorgan Chase & Co)

2025Q3: For 2026, equity will be a bigger part of the funding story, while dispositions will revert to more normalized levels. - Jason Fox(CEO)

Contradiction Point 3

Target for Retail Deal Volume

Retail deal volume target increased from 22% to 25-30%.

What other retail categories are targeted in the U.S. expansion strategy, and will they involve larger sale-leaseback opportunities? - Jana Galan (BofA Securities)

2025Q4: The goal is to increase retail to 25-30% of annual deal volume. - Jason Fox(CEO)

How has the company's focus between industrial and retail evolved, and is the current industrial-heavy performance due to timing, opportunities, or a strategic shift? - Michael Goldsmith (UBS Investment Bank)

2025Q2: There is no change in strategy; the company still wants to build its retail vertical. - Jason Fox(CEO)

Contradiction Point 4

Strategy for Funding Investment Volume

Plan for 2025 shifted from relying solely on dispositions to including potential equity issuance.

Is the ~150 bps spread between disposition and acquisition sustainable in a more competitive market? - Michael Goldsmith (UBS Investment Bank)

2025Q4: Flexibility to fund incremental deals via equity or asset sales if needed. - Jason Fox(CEO)

Is equity becoming an attractive funding option for 2025 given improved equity cost of capital, or will dispositions remain the primary source? - Bradley Barrett Heffern (RBC Capital Markets)

2025Q2: The company does not need to access equity markets this year, as disposition proceeds will fund the investment volume guidance. - Jason Fox(CEO)

Contradiction Point 5

Cap Rate Expectations and Outlook

Contradiction on direction and drivers of future cap rate movements.

Could you discuss industrial assets, including their types, cap rates, the U.S. versus Europe comparison, and competition from Realty Income in Europe? - Greg McGinniss (Scotiabank Global Banking and Markets)

2025Q4: Expecting low-to-mid 7% range for 2026, possibly tightening by 25 bps. - Jason Fox(CEO)

Cap rates, retail/industrial split, and U.S./Europe split for the several hundred million in pipeline deals? - Greg McGinniss (Scotiabank)

2025Q1: Targeting deals in the mid-7% cap rate range, consistent with Q1 and similar across U.S. and Europe. - Jason Fox(CEO)