W.P. Carey is Soaring: Buy, Hold, or Sell? (WPC Stock)

Update on WP Carry: Investment Insights

Overview of WP Carry's Performance

• Yosh introduces WP Carry, highlighting its recent surge in value and significant outperformance compared to peers like NNI and Realty Income.

• After cutting its dividend in late 2023, WP Carry has returned 44% to shareholders, contrasting with many investors who sold their shares due to the dividend cut.

Understanding WP Carry's Business Model

• WP Carry operates as a net lease REIT, generating consistent cash flow from long-term leases (10-15 years) with fixed rent escalations.

• Unlike most peers targeting retail properties, WP Carry focuses on industrial net lease properties, which may offer better performance over the next decade due to trends like e-commerce growth and onshoring.

Advantages of WP Carry's Strategy

• The AI revolution is expected to boost demand for industrial properties owned by WP Carry as online marketing becomes more effective.

• With an average remaining lease term of 12 years and true triple net leases, WP Carry minimizes exposure to property expenses compared to competitors that have mixed lease types.

Unique Lease Structures and Growth Potential

• Many of WP Carry’s leases feature CPI-based rent escalations, providing better protection against inflation than fixed escalation leases common among peers.

• The sale and leaseback model allows WP Carry to create its own deal flow by purchasing real estate from companies and leasing it back, leading to superior property acquisitions.

Current Financial Position and Future Outlook

• Currently trading at 13.3 times its AFO with a cost of equity around 7.12%, using a conservative LTV ratio of about 40%.

• Recent debt acquisition at a low interest rate (3.7%) enables a favorable spread on new investments; last year saw over $2 billion in asset purchases.

Conclusion: Is It Time to Hold or Sell?

• Cutting the dividend was strategic for retaining cash flow; this decision is now yielding higher valuation multiples as growth accelerates.

• Despite limited near-term upside due to higher share prices, access to cheaper equity positions the company well for future growth opportunities.

Investment Insights on WP Carry

Current Valuation and Returns

• WP Carry is currently trading at 13.3 times its Adjusted Funds from Operations (AFO), which is competitive compared to its peers that range between 12 to 16 times.

• The REIT offers a dividend yield of approximately 5.4%, suggesting a potential for around 10% total returns for shareholders when combining the dividend yield with growth rates.

Risk-Reward Proposition

• The investment in WP Carry is characterized as a blue-chip, defensive, investment-grade rated REIT, focusing on net lease industrial properties.

• It provides strong long-term growth prospects and stable cash flow due to long-term leases, making it an attractive risk-to-reward opportunity.

Future Growth Potential

• If interest rates decrease as anticipated, there could be an additional upside potential of 20% to 30% for the stock, potentially increasing average annual total returns closer to 15% over the next five years.

• The valuation multiple of the REIT may expand alongside its growth acceleration, enhancing overall returns.

Investment Strategy

• There are no plans to sell the current position in WP Carry; it remains a significant part of the retirement portfolio at H High Landlord.

• There is consideration for purchasing more shares if there’s a market dip, indicating confidence in future performance.