W. P. Carey Announces Completion of State of Andalusia Office Portfolio Sale for $359 Million

Rhea-AI Summary

W. P. Carey Inc. (WPC) has announced the sale of a portfolio of 70 office properties net leased to the State of Andalusia for approximately $359 million. This sale reduces the company's office exposure to less than 3% of its total annualized base rent (ABR) and is part of the company's strategic plan to exit office assets within its portfolio. The CEO expects over 60% of the company's ABR to come from industrial and warehouse assets, with a well-diversified portfolio and strong rent growth.

Insights

Real Estate Investment Analyst

W. P. Carey Inc.'s strategic divestiture of its office properties, specifically the State of Andalusia portfolio, represents a significant portfolio repositioning that aligns with broader market trends favoring industrial and warehouse assets. The transaction's size, at approximately $359 million and its impact on the company's annualized base rent (ABR), reducing office exposure to below 3%, are indicative of a substantial shift in asset allocation.

The company's pivot towards industrial and warehouse assets, which post-sale will comprise over 60% of ABR, is reflective of the sector's robust demand dynamics, driven by e-commerce growth and supply chain reconfiguration. The weighted-average lease term of over 11 years suggests a stable income stream, while the built-in rent escalations hint at resilience against inflationary pressures.

Investors should note the potential for increased REIT stability and possibly enhanced shareholder value stemming from this strategic reorientation. However, they should also consider the execution risks associated with the remaining sales under the Office Sale Program and the integration of new industrial assets.

Market Research Analyst

The real estate market has seen a shift in investor preference, with a growing appetite for industrial spaces over traditional office settings. W. P. Carey's move to divest from office spaces and increase their industrial and warehouse holdings is a strategic response to these market conditions. By focusing on properties with long-term net leases and rent escalations, the company is positioning itself to capture the high demand for logistics and distribution centers, which has been fueled by the persistent expansion of online retail.

The anticipated rent growth positioning W. P. Carey among the strongest in the net lease sector is a compelling narrative for investors seeking growth in a post-pandemic economy. However, the success of this transition will largely depend on the company's ability to secure high-quality tenants and manage the properties efficiently.

Financial Analyst

The sale of the office portfolio for $359 million, which generated an ABR of approximately $31 million, suggests a capitalization rate of roughly 8.6%, assuming the ABR reflects net operating income. This rate is a critical metric for evaluating the profitability of real estate investments and indicates the yield that can be expected on the investment. In the context of the current interest rate environment, this divestiture could be seen as a strategic move to reallocate capital to higher growth potential sectors.

For shareholders, the reduction of office exposure to below 3% of total ABR may translate into a more focused and potentially more resilient business model. The long-term implications for W. P. Carey's financial performance will depend on the company's ability to effectively reinvest the proceeds from the office sales into industrial and warehouse properties, which are currently seen as higher-growth areas within the real estate market.

Recent Sales Bring Current Office Exposure Below 3% of Total ABR

NEW YORK, Jan. 11, 2024 /PRNewswire/ -- W. P. Carey Inc. (W. P. Carey, NYSE: WPC) a leading net lease REIT, today announced that it sold a portfolio of 70 office properties net leased to the State of Andalusia for approximately $359 million. The State of Andalusia portfolio was the company's largest office portfolio which generated annualized base rent (ABR) of approximately $31 million and estimated net operating income of approximately $29 million, as of December 31, 2023.

The sale completes the largest component of the company's previously announced Office Sale Program, under a strategic plan to exit the office assets within its portfolio through (i) the spin-off of Net Lease Office Properties (completed in November 2023) and (ii) an asset sale program to dispose of certain office properties retained by W. P. Carey (the Office Sale Program).

Jason Fox, Chief Executive Officer of W. P. Carey, said: "The sale of our largest office asset, along with the progress we've made to date executing on our strategic plan to exit office, has reduced our office exposure to less than 3% of our total ABR. And we expect that number to further decline over the near term as we complete the remaining sales under the Office Sale Program, at which point over 60% of our ABR will come from industrial and warehouse assets, on a portfolio that remains well diversified with a weighted-average lease term over 11 years and rent growth that we believe will be among the strongest in the net lease sector."

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 1,413 net lease properties covering approximately 171 million square feet and a portfolio of 86 self-storage operating properties, pro forma for the spin-off of Net Lease Office Properties, as of September 30, 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

Certain of the matters discussed in this communication constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended by the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, among other things, statements regarding the intent, belief or expectations of W. P. Carey and can be identified by the use of words such as "may," "will," "should," "would," "will be," "goals," "believe," "project," "expect," "anticipate," "intend," "estimate" "opportunities," "possibility," "strategy," "maintain" or the negative version of these words and other comparable terms. These forward-looking statements include, but are not limited to, statements made by Mr. Jason Fox regarding W. P. Carey's strategic plan to exit office and expectations regarding lease term and rent growth. These statements are based on the current expectations of our management, and it is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to fluctuating interest rates, the impact of inflation on our tenants and us, the effects of pandemics and global outbreaks of contagious diseases and domestic or geopolitical crises, such as terrorism, military conflict, war or the perception that hostilities may be imminent, political instability or civil unrest, or other conflict, and those additional risk factors discussed in reports that we have filed with the Securities and Exchange Commission (SEC), could also have material adverse effects on our future results, performance or achievements. Discussions of some of these other important factors and assumptions are contained in W. P. Carey's filings with the SEC and are available at the SEC's website at http://www.sec.gov, including Part I, Item 1A. Risk Factors in W. P. Carey's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in Part II, Item 1A, Risk Factors in W. P. Carey's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication, unless noted otherwise. Except as required under the federal securities laws and the rules and regulations of the SEC, W. P. Carey does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this communication or to reflect the occurrence of unanticipated events.

Institutional Investors:
Peter Sands
1 (212) 492-1110
institutionalir@wpcarey.com

Individual Investors:
W. P. Carey Inc.
1 (212) 492-8920
ir@wpcarey.com

Press Contact:
Anna McGrath
1 (212) 492-1166
amcgrath@wpcarey.com

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SOURCE W. P. Carey Inc.

FAQ

How much did W. P. Carey sell the office properties for?

W. P. Carey sold the office properties for approximately $359 million.

What is the current office exposure of W. P. Carey in terms of total ABR?

The current office exposure of W. P. Carey is less than 3% of its total ABR.

What is W. P. Carey's strategic plan for exiting office assets within its portfolio?

W. P. Carey's strategic plan includes the sale of office assets through a spin-off of Net Lease Office Properties and an asset sale program.

Where does W. P. Carey focus its investments?

W. P. Carey focuses on investing 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.