W. P. Carey's Q3 2025 Earnings Call: Contradictions Emerge on Disposition Strategy, Capital Sources, and 2026 Investment Plans

Guidance:

• AFFO guidance raised to $4.93–$4.99 per share for 2025 (midpoint implies ~5.5% YOY).
• 2025 investment volume raised to $1.8B–$2.1B; dispositions expected $1.3B–$1.5B; expected spread ~150 bps.
• Contractual same-store rent growth ~2.5% for 2025; expected to be north of 2.5% in 2026.
• Rent‑loss estimate reduced to $10M (visibility into ~$7M, ~45 bps of ABR).
• Expense ranges: G&A $99–$102M; property expenses $51–$54M; tax $41–$44M.
• Liquidity ~ $2.1B (incl. $230M unsettled forward equity); free cash flow >$250M; dividend raised to $0.91.

Business Commentary:

• Investment Volume and Cap Rates:
• W. P. Carey reported $1.65 billion in investments for Q3 2025, with a weighted average initial cap rate of 7.6%.

• The company raised its full-year investment guidance to between $1.8 billion and $2.1 billion, driven by attractive initial cap rates and fixed rent escalations averaging in the high 2% range.

• Same-Store Rent Growth:

• Contractual same-store rent growth for Q3 was 2.4% year-over-year, with fixed rent increases averaging 2.1% and CPI-linked rent escalations at 2.5%.

• The strong rent growth is expected to remain around 2.5% in 2026, supported by higher fixed rent increases on new investments.

• Capital Project Activity:

• W. P. Carey has $70 million of capital projects scheduled for completion in Q4, with additional capital projects underway totaling $180 million.

• The increase in capital projects is part of the company's strategy to allocate more capital to development projects, which can often provide higher returns compared to acquiring existing assets.

• Funding and Liquidity:

• The company plans to fund its investments primarily through asset sales, including operating and noncore assets, with a target disposal volume between $1.3 billion and $1.5 billion.
• This strategy aims to generate overall spreads of approximately 150 basis points between investments and dispositions for the year, utilizing the company's significant liquidity, including $2 billion in available credit and $250 million in free cash flow.

Sentiment Analysis:

Overall Tone: Positive

• Management raised full‑year AFFO and investment guidance, citing $1.65B YTD investments at a 7.6% initial cap rate, strengthened liquidity of ~$2.1B (including $230M forward equity), Q3 AFFO $1.25, and a dividend increase to $0.91 — all supporting an upbeat outlook and continued momentum.

Q&A:

• Question from Anthony Paolone (JPMorgan Chase & Co): Now that you guys are rounding the corner on the operating self-storage asset sales, can you maybe give us a sense as to what the menu of noncore and other internally generated capital sources, maybe as we start to think about deal activity next year and maybe perhaps how to help fund it?
  Response: Expect funding next year to come largely from equity and debt with dispositions reverting to normalized levels; company has significant liquidity (undrawn revolver, ~$230M forward equity, >$250M free cash flow) to fund 2026 activity.

• Question from Anthony Paolone (JPMorgan Chase & Co): Are you seeing any competition or greater competition on deals from some of the private net lease platforms that are out there in any part of your buy box?
  Response: Private equity competition has increased but is manageable; W. P. Carey’s execution, track record and cost of capital allow it to compete selectively.

• Question from Bennett Rose (Citigroup Inc.): I wanted to ask you first just a little bit, if you could just give us an update or a reminder, I guess, on where you are on the Hellweg process in terms of leases that I think you had expected 7 to be terminated by this time of the year and then maybe I think 5 more to go. Is that still kind of the case and maybe where you are on stores that are expected to be sold versus released?
  Response: Making good progress: 7 of 12 stores taken back (leases signed on 2, 1 under contract to sell), a few more sales expected Q4/Q1; additional 5 to be taken back in 2026 with leases/sales underway — targeting removal from top‑25 by mid‑2026.

• Question from Bennett Rose (Citigroup Inc.): You mentioned in the fourth quarter, maybe having gone in a little too conservative around rent loss assumptions. As you think about next year, any thoughts on being more conservative given the economy?
  Response: Broader credit watchlist has improved materially (resolutions on True Value and Hearthside); management remains cautious on credit (esp. Hellweg) but expects to drive strong earnings growth even with conservative assumptions.

• Question from Kathryn Graves (UBS Investment Bank) on behalf of Michael Goldsmith: You've completed $1.6B of investments YTD and raised guidance — can you provide color on the pipeline (incremental volume, geographic split, property-type mix, and cap rates in pipeline)?
  Response: Pipeline includes several hundred million in advanced deals (many expected to close in Q4, some may slip to 2026), $70M of cap projects completing this year and ~$180M delivering in 2026; YTD ~75% North America but Q3 ~50/50 Europe; bulk industrial; targeting mid‑7% initial cap rates.

• Question from Kathryn Graves (UBS Investment Bank) on behalf of Michael Goldsmith: With ~50% of rent tied to CPI, how sustainable is mid‑2% same‑store growth if inflation moderates, and will you see more fixed rent bumps on future acquisitions?
  Response: About 25% of deals are CPI‑linked (mostly Europe) and those leases have a look‑back smoothing; fixed escalators averaged ~2.7% YTD; management expects contractual same‑store growth to be >2.5% in 2026 despite CPI moderation.

• Question from Greg McGinniss (Scotiabank Global Banking and Markets): Did you provide the disposition cap rate achieved on the self‑storage assets? And do you expect to fully sell out next year, early next year at similar cap rates?
  Response: Self‑storage dispositions have transacted around a ~6% cap rate on average; company expects to exit the operating storage platform over the near‑term with timing flexibility.

• Question from Greg McGinniss (Scotiabank Global Banking and Markets): Do you expect to generally maintain this level of investment pace in 2026?
  Response: Intention is to maintain the current pace into 2026 (trailing 12‑month >$2B), supported by liquidity and infrastructure, though visibility is limited and macro factors could influence execution.

• Question from Mitch Germain (Citizens JMP Securities, LLC): With operating storage dwindling, how should we think about remaining operating properties (hotels, student housing)? Are they sale candidates?
  Response: Remaining operating assets (4 hotels including 3 former Marriotts, 1 Hilton, and 1 UK student housing) are being actively evaluated for sale or redevelopment; some dispositions or redevelopments could occur in 2026.

• Question from Mitch Germain (Citizens JMP Securities, LLC): The rent recapture on retail leases is lower — is that Hellweg and is that indicative of releases going forward?
  Response: The lower rent recapture example cited was due to two AMC theaters (unrelated to Hellweg); these are a very small ABR piece and management plans to exit them.

• Question from Jason Wayne (Barclays Bank PLC): On the move‑outs that led to the sequential drop in occupancy—what is the strategy for managing occupancy when known vacates are anticipated?
  Response: Known vacates (e.g., former Tesco warehouses, True Value, Hellweg) are being resolved: ~30% of vacant square footage closed/closing, ~50% in active negotiations; expect vacancy to normalize within ~1–1.5 quarters.

• Question from Jason Wayne (Barclays Bank PLC): On the debt raises expected next year, what kind of pricing are you seeing in the U.S. and Europe right now?
  Response: Current market pricing: U.S. debt in the low‑5% range; Europe roughly 100–125 bps lower (high‑3s to ~4%).

• Question from Eric Borden (BMO Capital Markets): Any difference or bifurcation between cap rates in the U.S. versus Europe?
  Response: Cap rates are roughly in line between U.S. and Europe with Europe modestly tighter (~25 bps); borrowing costs in Europe are lower, yielding better spreads there.

• Question from Eric Borden (BMO Capital Markets): Can you remind us of your hedging strategy and how FX movements impact AFFO per share and 2026 expectations?
  Response: European cash flows are largely hedged (gross euro exposure <20% of AFFO pre‑hedge) with additional cash‑flow hedges; FX movements had ~+$0.02 AFFO benefit this year; hedging should prevent material AFFO volatility.

• Question from Keunho Byun (BofA Securities): How does the updated rent loss forecast compare historically and is it weighted to Europe or the U.S.?
  Response: Historically the spread between contractual and comprehensive same‑store averages ~100 bps, with ~30–50 bps from credit on average; current rent‑loss assumptions align to that historical framework and geography broadly tracks portfolio (~2/3 U.S.).

• Question from Keunho Byun (BofA Securities): You mentioned escalators trending in the high 2s — which sectors delivered the strongest rent escalations in Q3 and where is there pressure?
  Response: Industrial (warehouse/manufacturing) drives stronger negotiated rent bumps; retail tends to have flat or low single‑digit bumps; new deals averaged fixed escalators of ~2.7% YTD.

• Question from Ryan Caviola (Green Street Advisors, LLC): With acquisitions across Europe, Canada and Mexico, what's the international competition like — are private players competing internationally or mainly U.S.?
  Response: Europe has been less crowded but competition from U.S. funds is rising; W. P. Carey believes its 25+ years of local presence, team (50+ people), and tax/lease structuring expertise provide a durable competitive advantage.

• Question from Ryan Caviola (Green Street Advisors, LLC): Dollar General has been a recurring addition — update on the relationship and appetite to grow that exposure?
  Response: Dollar General acquisitions have been opportunistic (primarily via developer pipelines); management sees it as attractive credit and will continue opportunistically but not necessarily as a targeted growth bucket.

• Question from James Kammert (Evercore ISI): Can you provide visibility on 2026 and 2027 lease expirations and what percentage is actively being discussed versus last‑minute renewals?
  Response: Nearly all 2026 and 2027 expirations are actively being worked; 2026 is manageable (~2.7% of ABR expiring) and the company engages tenants 3–5 years out as standard practice.

• Question from James Kammert (Evercore ISI): Is there any tilting towards industrial or retail across 2026 vs 2027 expirations given ABR per sq ft differences?
  Response: Both years are similar (~60% warehouse/industrial); 2026 includes a few warehouses in tight markets (Lehigh Valley) with rents 40–50% below market, presenting mark‑to‑market opportunities.

Contradiction Point 1

Disposition Strategy and Capital Sources

It involves a shift in the company's approach to capital raising and investment, which directly impacts their financial strategy and investor expectations.

As you approach the completion of the operating self-storage asset sales, what noncore and internally generated capital sources are available for potential deal activity next year? - Anthony Paolone (JPMorgan Chase & Co, Research Division)

2025Q3: Disposals will still be a source of incremental capital for us but won't be significant like it was this year. - Jason Fox(President, CEO & Director)

Is equity an attractive funding option, or will dispositions remain the primary source? - Bradley Barrett Heffern (RBC Capital Markets)

2025Q2: We don't anticipate any equity issuance this year. - Jason E. Fox(President, CEO)

Contradiction Point 2

Investment Pace in 2026

It relates to the company's future investment plans, which are crucial for investors to understand the growth trajectory.

Will you maintain the current investment pace in 2026? - Greg McGinniss (Scotiabank Global Banking and Markets, Research Division)

2025Q3: We're certainly aiming to keep the pace. We've been over $2 billion annually, and we don't see anything to change that. There's confidence in our infrastructure, liquidity, and access to capital. - Jason Fox(President, CEO & Director)

If you exceed acquisition guidance, would you consider selling self-storage assets to fund further investments? - Smedes Rose (Citi)

2025Q1: We're comfortable funding investments through this year without needing to access the equity markets, even if we outperform the investment guidance. - Jason Fox(President, CEO & Director)

Contradiction Point 3

Investment Strategy and Market Competition

It involves shifts in the company's investment strategy and market competition, which are critical for understanding its growth and competitive positioning.

Is there increased competition from private net lease platforms within your buy box? - Anthony Paolone (JPMorgan Chase & Co, Research Division)

2025Q3: The net lease market has always been competitive, especially in the U.S., and we have seen a bit of a pickup in new competition, mainly the private equity players. We don't always have full visibility on who we may be competing with, but we expect incremental competition that likely leads to some pricing pressures. - Jason Fox(CEO)

How might tariffs affect your portfolio and new investments? - Brad Heffern (RBC Capital Markets)

2024Q4: We have not seen any interest from private equity, and we should have visibility on that, and we'll let you know if we do. - Jason Fox(CEO)

Contradiction Point 4

Disposition Cap Rates

It involves the expected cap rates for disposition of assets, which affects financial modeling and expectations for future asset sales.

What cap rate was achieved on self-storage assets? Will you fully sell out at similar cap rates? - Greg McGinniss (Scotiabank Global Banking and Markets, Research Division)

2025Q3: Cap rates on the storage assets are around 6%. Overall, we expect the full platform exit to be in and around that 6% cap rate. - Brooks Gordon( MD & Head of Asset Management)

Are the disposition proceeds expected to be 100 basis points under the acquisition cap rate? - Greg McGinniss (Scotiabank)

2025Q1: Yes, that's roughly the estimate, and it's built into our guidance model. We hope to do better than that, but it's a good number to use based on term visibility. - Jason Fox(President, CEO & Director)

Contradiction Point 5

Disposition Strategy and Capital Allocation

It reflects differing views on the company's disposition strategy and capital allocation, which are crucial for understanding its financial management and growth prospects.

With the near completion of the operating self-storage asset sales, can you outline the noncore and internally generated capital sources available as we consider deal activity next year? - Anthony Paolone (JPMorgan Chase & Co, Research Division)

2025Q3: When we think about next year, equity is going to be a much bigger picture, and we're not currently teeing up a disposition program, anything close to what we did this year. So dispositions should revert back to a more typical run rate. - Jason Fox(CEO)

What asset types are planned for disposition? - Mitch Germain (Citizens JMP)

2024Q4: This year we are targeting a run rate of $1 billion for divestitures, in addition to our typical acquisition pace. - Jason Fox(CEO)