Earnings Call Transcript - WPC Q4 2025

Operator, Operator

Hello, and welcome to W. P. Carey's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded. After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Peter Sands, Head of Investor Relations

Hello, everyone, and thank you for joining us today for our 2025 fourth quarter earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historical facts and may be deemed forward-looking statements. Factors that could cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately one year. And where you can also find copies of our investor presentations and other related materials. And with that, let me hand the call over to W. P. Carey's Chief Executive Officer, Jason Fox.

Jason Fox, CEO

Thanks, Peter. Afternoon, everyone, and thank you for joining us. 2025 was a standout year for W. P. Carey. Reflecting successful execution across our business, producing strong performance for the year and laying the foundation for attractive sustainable growth. This supports long-term value creation. The 5.7% AFFO growth we generated for the year was among the best in the net lease industry, reflecting our record investment activity, sector-leading rent growth, and strong portfolio performance. The dividends we paid, combined with the appreciation of our stock price, provided our shareholders with a total return of 25% for the year, placing us in the top tier of publicly traded REITs. Looking ahead, we're confident the momentum we established in 2025 will carry into this year. Our deal flow remains strong, we have access to multiple forms of accretive capital, and we expect incrementally higher contractual rent growth compared to last year, along with stable credit quality within our portfolio. Our competitive advantage on investment spreads should also continue to differentiate us. Our average yields and IRRs are among the highest of the public net lease REITs, reflecting both the strength of our rent bumps and the long duration of our leases. Combined with our lower average cost of debt, aided by access to euro-denominated financing, we believe we're exceptionally well-positioned to drive industry-leading AFFO growth in 2026 and beyond. On this call, I'll briefly recap 2025 and expand on how we're positioned to continue delivering attractive growth. I'm joined by Tony Sanzone, our CFO, who will review the key details behind our results, balance sheet, and guidance, and Brooks Gordon, our Head of Asset Management, to take your questions. Starting with our investment activity, we finished the year at the top end of our guidance range, closing record annual investment volume totaling $2.1 billion, representing substantial growth over our initial guidance and demonstrating our ability to source and close a high volume of transactions in a competitive market. Throughout 2025, we put capital to work at attractive spreads relative to the pricing we achieved on our asset sales and to our overall cost of capital. Our investments carried a weighted average initial cash cap rate of 7.6% for the year, translating into an average yield just above 9% over long-term leases averaging seventeen years. In contrast, the occupied assets we sold traded at cap rates averaging 6%, generating an average spread of about 150 basis points and creating significant value as we recycled capital from non-core asset sales to higher-yielding net lease investments. We allocated the most capital to warehouse and industrial, which accounted for 68% of our full-year investment volume, and found additional compelling opportunities in retail, which represented 22%. Geographically, 26% of our 2025 investment volume was in Europe, and 74% was in North America, the vast majority of which was in the US. Importantly, we finished the year with continued strong momentum, completing $625 million of investments during the fourth quarter, one of which was our $322 million investment in a portfolio of high-quality, lifetime fitness facilities, which significantly expanded our relationship with that tenant, making it our third-largest by ABR. One of the compelling aspects of our business model that continued to stand out in 2025 was our industry-leading rent growth. Even with inflation remaining below the peak levels of recent years, we generated among the best internal growth in the net lease sector, driving a meaningful share of our overall AFFO growth independent of our transaction activity. We expect this to continue in 2026, supported by the strength of our fixed rent escalations. Turning to our sources of capital, as mentioned, our 2025 investment activity was supported by disciplined capital raising, funding new transactions primarily with sales of non-core operating assets. This approach enabled us to both accretively recycle capital and further simplify our portfolio mix, effectively exiting the operating self-storage business. During the year, we also successfully refinanced our euro-denominated term loan, locking in an attractive all-in rate below 3%, further demonstrating the advantages of having access to euro-denominated debt in multiple forms of capital. In mid-year, we achieved execution on our five-year U. S. Bond issuance, giving us additional funding flexibility. Furthermore, during the second half of the year, we utilized our ATM program to sell forward equity, getting ahead of our 2026 needs. So looking ahead to 2026, we remain very well positioned to sustain a high level of investment activity and deliver attractive AFFO growth. Following the strong fourth quarter, we've already closed approximately $312 million of new investments year to date, and we currently have a sizable investment pipeline with several $100 million transactions at various stages of completion. In addition, our year-to-date investment volume includes roughly $50 million of completed capital projects, with another $290 million underway and scheduled to deliver over the next twelve to eighteen months. We remain just as active, if not more active, in other net lease REITs and build-to-suit expansions, and redevelopment projects. These are capabilities we've built over many years and view as a meaningful competitive strength, now further supported by a recently launched carry tenant solutions platform. Historically, we've generally maintained a pipeline around $200 million of such projects, which typically deliver above-market yields, extend lease terms, and enhance the strategic importance of the assets involved, creating highly attractive proprietary deal flow that leverages and strengthens our tenant relationships. We see significant opportunity to lean further into these capabilities, with our carry tenant solutions platform positioned to do even more going forward, alongside other initiatives such as our expansion in U.S. retail. With all these factors in mind, we're confident in our ability to continue generating higher investment volumes, as we have historically, as we demonstrated in 2025. At the same time, we're mindful that it's still early in the year, so we're starting with an initial investment volume guidance range of $1.25 billion to $1.75 billion. As we move through the year and gain more visibility into the second half, we expect to refine and potentially raise that range, as we did in 2025. We also foresee cap rates being incrementally lower this year. Based on our current pipeline, we're anticipating going-in cash cap rates in the mid to low 7% range, compared to 2025's weighted average of 7.6%. The momentum we're generating on the investment side of the business is supported by our strong funding position, having already accounted for the vast majority of our anticipated 2026 equity needs. The more than $400 million of forward equity we sold in 2025 remains available for settlement, with an active ATM program in place enabling us to issue additional forward equity as needed. We also anticipate generating close to $300 million of retained cash flow this year, providing an additional source of equity capital. Importantly, with the option to pursue additional accretive disposition opportunities, potentially taking us over the top of our initial disposition guidance range, should we choose to do so, enabling us to continue driving AFFO growth. Accordingly, we have ample flexibility to fund additional investments above the top end of our initial acquisition guidance range, regardless of equity capital market conditions. Let me pause there and hand the call over to Tony to discuss our results, balance sheet, and guidance in more detail.

ToniAnn Sanzone, CFO

Thanks, Jason, and good afternoon, everyone. Our fourth quarter and full-year results demonstrate a strong consistent pace of investment activity throughout 2025 at attractive spreads, coupled with sector-leading internal rent growth from our portfolio. I'll walk through the details of those results, starting with AFFO. AFFO per share for the fourth quarter was $1.27, representing a 5% increase over the prior year fourth quarter. For the full year, AFFO totaled $4.97 per share, representing 5.7% year-over-year growth and coming in just above the midpoint of our guidance range. As Jason mentioned, the record investment volume we completed came in just above the top end of our guidance range at an average spread of just over 150 basis points to our dispositions, which will continue to benefit our earnings in 2026 as the full-year impact flows through our results. During the fourth quarter, we continued to fund our investment activity accretively through opportunistic dispositions, selling 44 properties for gross proceeds totaling $507 million, bringing full-year disposition volume to $1.5 billion, the vast majority of which was sales of non-core assets. Our 2025 dispositions included sales of 63 self-storage operating properties for gross proceeds totaling approximately $785 million, leaving us with 11 such properties at year-end, which we're currently in the process of selling and hope to complete in the first half of the year. Turning to our portfolio growth, contractual same-store rent growth remained strong, averaging 2.4% both for the fourth quarter and the full year on a year-over-year basis. VPI-linked rent escalations averaged 2.6% for the year, which comprise about half of our ABR, while fixed increases, which make up the other half, averaged 2.1% for the year. We continue to see fixed increases in new investments trend higher than the averages in our existing portfolio, which will support sustained higher levels of internal growth even as CPI is moderating. About three quarters of our 2025 investment volume had leases with fixed rent escalations averaging 2.5%. For 2026, we anticipate that contractual same-store rent growth will trend slightly higher than it did in 2025, although still averaging in the mid-2% range for the full year. Comprehensive same-store rent growth for the quarter was 70 basis points, which moderated from the first half of the year as anticipated, driven by the impact of a prior year fourth quarter rent recovery, as well as higher vacancy over the back half of 2025. On a full-year basis, comprehensive same-store average 2.8%, in line with our contractual same-store growth. After taking into account the impacts of releasing, rent collections, vacancies, and lease restructurings, our portfolio continued to perform well throughout 2025 with minimal rent disruption. As previously announced, rent loss from tenant credit events totaled $400,000 for 2025, or about 40 basis points of rent, which was well within our conservative assumption of around $10 million earlier in the fourth quarter. We continued reducing our Helvic exposure in 2025 through a combination of releasing activities and asset sales, bringing it down to 1.1% of total ABR by year-end, and we're currently engaged in active transactions that will further reduce our exposure by midyear. Looking ahead to 2026, we're taking a similar approach to last year, initially assuming a conservative estimate for rent loss from tenant credit, totaling $10 million to $15 million, or 60 to 90 basis points of expected rent. Importantly, we've not seen any material changes in credit throughout the portfolio since our last earnings call. As was the case in 2025, we hope to be able to reduce our rent loss estimate as the year progresses, which could provide some upside to our initial AFFO guidance. Portfolio occupancy at the end of the year increased to 98%, up 100 basis points from the end of the third quarter, as we completed vacant asset sales and entered into new leases during the fourth quarter, as we had anticipated. During 2026, we expect portfolio occupancy to remain over 98% through a combination of releasing and dispositions. Fourth quarter releasing activity resulted in the recapture of 100% prior rent on 1.3% of ABR, and added almost eight years of weighted average lease term. We saw similar positive results for the full year, with about 100% recapture on 5.3% of total portfolio ABR, adding 5.7 years of weighted average lease term. Other lease-related income for the fourth quarter was $8.1 million, bringing the total for the year to $24.6 million, in line with our expectations. While the timing of these payments can vary from quarter to quarter and even from year to year, they demonstrate our proactive approach to managing our portfolio, often identifying opportunities to maximize the outcome for assets that may be better suited for releasing, redevelopment, or disposition. Turning now to our guidance. For 2026, we currently expect to generate AFFO of between $5.13 and $5.23 per share, implying a healthy 4.2% year-over-year growth at the midpoint, based on investment volume of between $1.25 and $1.75 billion. Currently, we're assuming 2026 dispositions total between $250 million and $750 million, which includes ordinary course net lease dispositions, notably certain of our vacant assets and a subset of our Helvic portfolio, as well as the expected sale of our remaining operating self-storage assets. As Jason discussed, we've identified additional opportunistic and non-core asset sales we could execute at attractive cap rates, giving us a great deal of optionality and funding investments accretively. As the year progresses and we have greater visibility, we'll be able to refine that range. G and A is expected to total between $103 million to $106 million for 2026, which includes additional investments in data and technology initiatives, with a focus on expanding AI further into our business processes and portfolio monitoring. We have a highly scalable operating platform and remain keenly focused on driving further long-term efficiencies. For modeling purposes, just a reminder that our G and A expense runs highest in the first quarter, mainly due to the timing of payroll taxes. We currently expect first quarter G and A to total about $28 million, with the balance of the year expected to trend lower and more evenly. Non-reimbursed property expenses are expected to total between $56 million and $60 million for 2026, including approximately $6 million of expected demolition costs associated with the planned redevelopment work. I'll note these incremental costs are expected to mostly occur in the first half of the year and will be more than offset by an associated termination payment, which will be recognized in other lease-related income since we proactively terminated the in-place lease at these facilities to commence the development work. Excluding demolition costs, we expect non-reimbursed property expenses to decline as we continue reducing vacancy and the related carrying costs. Including the termination payment related to this redevelopment, other lease-related income is expected to total in the low to mid-$30 million range for 2026, with about $20 million of that total expected to be recognized in the first half of the year. Tax expense on an AFFO basis, the vast majority of which comprises foreign taxes on our European assets, is anticipated to fall between $45 and $49 million for 2026, with the increase over last year mainly reflecting growth in our European portfolio. As we've now exited the vast majority of our operating assets, we expect operating NOI to total only about $10 million in 2026, which contemplates the sale of our remaining self-storage properties by the end of the first quarter. Investment management fees are expected to decline to about $5 million this year, down from $9 million in 2025 as NLOP continues to asset sales. Non-operating income for 2026 is currently estimated to total between $7 and $11 million, declining from about $17 million in 2025. For 2026, we assume a flat dividend from our equity stake in Lineage of about $11 million, as well as lower estimated FX derivative hedging impacts, assuming the euro remains around its current level for the full year. Given the effectiveness of our hedging strategy, movements in the foreign currency rates are not expected to result in any meaningful impact on our 2026 AFFO. Considering all these factors, we see encouraging momentum heading into the year. The midpoint of our initial AFFO guidance range implies meaningful year-over-year growth of 4.2%, driven primarily by accretive external growth and continued strong internal growth. And importantly, we're delivering this growth outlook even while initiating guidance with a conservative stance towards both investment volume and credit-related rent loss. Moving to our balance sheet. In 2025, we demonstrated we have a variety of capital sources to fund our investment activity accretively, and we expect to continue to optimize our funding approach in the coming year, allowing us to execute on a strong pipeline of activity, generating attractive spreads. We sold 6.3 million shares of forward equity through our ATM program at a weighted average price of $67.53 for gross proceeds totaling $423 million. All of this forward equity remains outstanding, positioning us well to fund our investment activity throughout the year. Our strong investment-grade balance sheet and diversified asset base also give us the unique opportunity to access attractive debt capital across a variety of markets. We have two bonds maturing in 2026: a €500 million bond in April and a $350 million US bond in October. Our initial guidance assumes we refinance these bonds with issuances in the same currencies, although we continue to have a wide range of options available to us. Our weighted average interest rate on debt was 3.2% for 2025, which we believe is among the lowest in the net lease sector. Despite having to refinance our upcoming bond maturities, our weighted average interest rate for 2026 is expected to remain in the low to mid-3% range. Net debt to adjusted EBITDA was 5.6 times, inclusive of unsettled forward equity at the end of the year, well within our target range. Excluding the impact of unsettled equity forwards, net debt to adjusted EBITDA was 5.9 times. We expect to continue to manage the balance sheet, maintaining leverage within our target range of mid to high five times. We ended the year with liquidity totaling $2.2 billion, including the availability of our credit facility, cash on hand or held for 1031 exchanges, and unsettled forward equity. In December, we increased our quarterly dividend by 4.5% year-over-year to 92¢ per share. Based on our current stock price, that equates to an attractive annualized dividend yield of over 5%, which remains well supported with a full-year payout ratio of approximately 73%. We expect our dividend to continue to grow in line with our AFFO growth while maintaining a conservative payout ratio. And with that, I’ll hand the call back to Jason.

Jason Fox, CEO

Thanks, Tony. 2025 was a successful year that demonstrated the strength of our business model, the quality of our portfolio, and the dedication of our team. We executed on our objectives across the company, delivering attractive external and internal growth, maintaining disciplined capital allocation, and continuing to strengthen and incrementally optimize our portfolio composition. We've entered 2026 well prepared to build on that progress. Our investment momentum remains strong and our initial acquisition guidance for the year is effectively fully funded, with the flexibility to execute additional investments without needing to access the equity capital markets. Through the combination of our internal growth, the spreads we're achieving on new investments, and a well-supported dividend, we're confident that we can again deliver attractive double-digit total returns this year, before factoring in any expansion to our multiple. That includes our prepared remarks. I'll pass the call back to the operator for questions.

Operator, Operator

At this time, we will take questions. If you would like to ask a question, please press. If you would like to withdraw your question, please press the star, then the number two. And your first question comes from Jana Gallen with Bank of America. Please state your question.

Jana Galan, Analyst

Thank you. Hi, and congratulations on a very successful 2025. Jason, I wanted to follow up on the strategy of the expansion in U.S. Retail. It looks like Lifetime Fitness was part of this goal. I'm curious what other categories within retail you're targeting, and whether these will be in the form of larger sale leaseback opportunities.

Jason Fox, CEO

Yeah. Sure. We're making good progress in retail. It accounted for about 22% of our deal volume last year, and, of course, about two-thirds of that was the Lifetime deal. Looking forward to this year, a good chunk of our pipeline is retail. It's probably about half and half right now. Overall, retail is the biggest part of the net lease market, especially in the US, and we think it could become a bigger part of our deal volume on an annual basis. I’d like to build it to maybe 25, even 30% of our annual deal volume. That would include both the U.S. and Europe. When you think about what we're targeting, I mean, we've done deals recently with Dollar General and Lifetime, some other fitness. We've done some family entertainment, some grocery, and some convenience stores in Europe. We're looking across the sector, and we’ll be somewhat opportunistic in the things that we typically look for in net lease. We're focused on tenant credit, lease term, and structure, you know, master lease versus individual leases, coverage, things like that are all important, and that won’t change.

Jana Galan, Analyst

Thank you. And then maybe also on the carry tenant solutions platform, how much above $200 million should we think about that growing?

Jason Fox, CEO

Yeah. Sure. We've historically done about $200 million per year or had active projects at any given point in that range. And we do think that this can become a larger component of the business. Last year, we started a number of new projects. Year to date, we completed about $50 million of those, and there is another $280 million in construction that will deliver over the next twelve to eighteen months. Some of those new deals were done in conjunction with some recent investments where we agreed to either a build-to-suit or an expansion as part of that. There are other things that we're doing related to our existing portfolio, namely, some expansions and redevelopments. It includes two redevelopments that Tony had referenced earlier as well as an expansion for one of our top tenants. It’s becoming more of an emphasis for us, and it’s hard to predict exactly how big of a component it could be. But I do think we can increase it.

Operator, Operator

Thank you. Next question comes from Greg McGinnis with Scotiabank. Please state your question.

Greg McGinnis, Analyst

Hey, Jason. I appreciate the commentary on the retail side. Also hoping you can dig in a bit more on the industrial types of assets that you're finding or looking for cap rates, and then, U.S. versus Europe. If you could comment on whether or not Realty Income is becoming more of a competitive company that you're seeing more on deals in Europe as well, that'd be appreciated.

Jason Fox, CEO

Yeah. Sure. Industrial is still really the core part of our business. We want to keep on adding retail, but you know, industrial is significant. It's probably made up two-thirds to maybe even three-quarters of our deal volume over the last number of years. In terms of what type of industrial, it's really a mix between both manufacturing and logistics, and we do provide some disclosure on those two components. In the past, we've layered in some food production and processing, which we've always liked. Those tend to be nondiscretionary spend type products. The tenants tend to have a very meaningful investment in these facilities. We also tend to get long lease terms, and in many cases, higher yields as well. So that's a component as well. In terms of cap rates, I mentioned earlier that there's some expectation they could tighten a little bit this year. Last year, our average for the year was 7.6%. We'll continue to target deals in the sevens this year, but I do think they could come in some, maybe that ends up somewhere in the low to mid-7% range on average for us versus the mid-sevenths last year, maybe that's 25 basis points of tightening, but it's early in the year. It's kind of hard to predict what will happen over the next ten months or so. In terms of Realty Income, we see them time to time, I would say more in Europe than we have in the U.S. They've focused a lot of their investing in the UK, which has not been a country in which we've allocated a lot of capital. We're still doing more of our deals in Continental Europe, and we're doing more of our deals, at least lately, in industrial. We see them time to time, but Europe's a big market, and there's not a lot of competition there generally, so I wouldn't say it's all that impactful.

Greg McGinnis, Analyst

Okay. And then just, I don’t know if I missed anything else there.

Jason Fox, CEO

Yeah. No. Thank you. I appreciate that. Just on the potential cap rate tightening, is that just an assumption based on maybe cost of borrow lowering or increased competition? Is it anything that you're seeing today, or is it just some conservatism that we should be building in there? Yeah, you know, it's really a combination of all of that. I think that to the extent rates come down and stay stable, I mean, they've really been range-bound in this kind of low fours for probably the better part of six months now. I think a lot of that, you know, maybe has flowed through to cap rates, but probably not all of that. Incremental competition, yes, maybe there's some of that, but we haven't seen a lot of it. We hear about new entrants, but we haven't seen it, and we haven't seen it, you know, be all that impactful yet. But I think ultimately that could be a little bit of a catalyst toward that as well. Overall, the cost of capital across the sector is getting a little stronger too, but we haven't seen a lot of it. I would say our year-to-date deals are still within our target range. Maybe at the low end, but I would probably attribute that most of what we've done year-to-date have been in Europe. We can borrow, call it, 100 basis points in euros inside of where we can borrow in dollars. So even if those cap rates are a little bit lower than what we've done historically, I think our spreads are still wider than where we've been. So it's shaping up. It's a good market. We think that we're going to be quite active this year, and I think our spreads are probably going to be similar to what we did last year.

Greg McGinnis, Analyst

Okay. Great. Thank you.

Operator, Operator

Thank you. And your next question comes from John Kim with BMO Capital Markets. Please state your question.

John Kim, Analyst

Thank you. I wanted to ask about carry tenant solutions, which I think is just your branding for Build A Suit. I just want to make sure that was the case. But how do you protect yourself from development risks associated with these types 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?

Jason Fox, CEO

Yes. Sure. It may be helpful just to spend a minute or so high-level on Carry Tenant Solutions. I mean, we've been quite active on what we call capital investment projects for some time. It's been in our disclosures for many years at this point in time, and it includes build-to-suits, expansions, and redevelopments. We're good at these types of investments. We have a lot of experience on the team. I've mentioned that I'd like to see us do more, and I think there's real potential for that. Part of our effort around this is to formalize it, brand it, be a bit more holistic in our outreach to our tenants, and be more proactive in our approach overall. I think that we can see some increased activity. I mentioned earlier that we historically have seen about $200 million of in-process capital projects, and I think that can get bigger and become a more meaningful component of our annual deal volume. Look, it's also something that investors ask us about. There have been some other REITs that have made it more high profile, and we've been asked about what our capabilities are. So that's the thought process behind our recent launch of Carry Tenant Solutions. In terms of development risk, most of what we're doing here are build-to-suits and expansions. There are occasionally really high-quality, very attractive redevelopments, and it’s a real high bar for us to do that type of work. So it's going to be predominantly build-to-suits and expansions, and you can see that in our supplemental, that's what the disclosure is as well. The development risk typically has you know, very strong and large general contractors that provide fixed-price contracts. In many cases, on build-to-suits, we'll have guaranteed start rent start dates built into the structures, so even if there's delays, we still get our rent. We'll also have a construction rent built into the budget as well. We effectively earn or accrue interest for our cost of capital during the construction period. We've done this for a really long time. We box the risks. We have a great team in place, and one of the benefits of being as large as we are and having the scale is, we can build out a dedicated in-house project management team. They have lots of experience and lots of connections to local partners, and it's a real competitive advantage for us. Regarding cap rate spreads, on a build-to-suit, which is more of a market deal, it's probably in the 25 to 50 basis point premium, and a lot of that will depend on the length of the build period and maybe the specifics of the deal with respect to the construction costs relative to market rates. On the other end of the spectrum are these expansions we do for our tenants, where this is truly proprietary deal flow. The tenant can either fund these expansions themselves on property that we own or they can do a deal with us. We have some pricing power. We're very mindful of our tenant relationships and want to ensure fairness in how we price it, but we'll typically see spreads anywhere from 100 to 200 or 300 basis points, depending on the specific project. It's not just the premium we benefit from in many cases on these expansions; we're also increasing the criticality of the real estate. We're lengthening lease terms, when those are on master leases with other properties, there's a drag along effect with other properties as well, and also just deepening the tenant relationship through separate transactions. Those are reasons we want to lean into this more, especially because we're quite good at it.

John Kim, Analyst

Great. Thank you. And then my second question is on your leverage. You talked about operating at a mid to high five times leverage. Is that where you think you could the premium multiple for your stock? Just wondering how you balance AFFO growth versus having a cleaner balance sheet with more firepower.

Jason Fox, CEO

Yeah. Sure. There are no real changes to our leverage targets. We'll continue to operate in the mid-near to high fives. We're very comfortable with that. But I think you're right. There is certainly an impact on the equity multiple based on leverage. Over time, I could see us drifting to the lower end of that range. I wouldn't say there's a specific timeline for that, and that should help the equity multiple, but right now, we're very comfortable within that mid-to-high fives range.

Operator, Operator

Thank you. And your next question comes from Jason Wayne with Barclays. Please state your question.

Jason Wayne, Analyst

Hi, good afternoon. Just on the $60 million in dispositions year to date, I'm just wondering the cap rate there. Can you give some color on the cap rates that you're assuming on dispositions for the full year?

Jason Fox, CEO

Maybe I'll start, and if Brooks has any color he can add. For the full year, our disposition guide is quite wide. It includes a hold on another call that came in. It includes kind of normal course dispositions, but also a meaningful number of assets that we've talked about how we can sell opportunistically at very attractive pricing. I would characterize it as non-core. The average disposition cap rate for the year is very much going to depend on the mix of assets we choose to sell. There are certainly scenarios that could put us in and around the execution we saw in 2025, especially if we factor in some vacant sales. We'll dial that in as we execute and as the year continues. In terms of the $60 million, I mean, it's a small amount. It probably depends on the exact assets we've disclosed. We tend not to go into that level of detail. Brooks, if you have any commentary broadly on if this is any indication for the rest of the year?

Brooks Gordon, Head of Asset Management

No. I think you've largely hit it. We have closed a few transactions. The largest so far in Q1 was a warehouse property formerly leased to Joanne, which vacated. We sold that at an extremely attractive price relative to the prior in-place rent. I can't show a specific cap rate, but it was highly accretive.

Jason Fox, CEO

What’s still available there? Yeah. Sure. It’s a mixture, you know, of assets, and maybe I’ll just rattle off a couple. These are just examples, of course. I mean, we do have a final property in Japan, and given where rates are, those tend to sell tight. We have an operating student housing asset, a net lease hotel. And really, there are a number of assets that are leased to tenants who regularly approach us about repurchasing properties. Those tend to be at very aggressive pricing. I think we can answer the phone on some of those if we feel a need to do it. And of course, Brooks mentioned the Joanne’s deal, which was very attractive as a sub-six cap rate based on prior rent for a vacant asset. Good transaction there. The important note is we have lots of flexibility here. We mentioned earlier that we feel that we’ve pre-funded our equity needs for the year, and to the extent we need to, if our deal volumes are higher than our initial guidance suggests, we can lean into some of these accretive asset sales. We can also consider equity as well. We’ve certainly had a nice run over the last twelve months, and equity is a lot more interesting too. But, you know, there’s a lot of flexibility. There are no immediate needs, though, based on our current deal volume guidance, it’s fully funded. Thank you.

Operator, Operator

Thank you. And your next question comes from Smedes Rose with Citi. Please state your question.

Smedes Rose, Analyst

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 comments on your third quarter call, you talked about having the infrastructure in place to support a similar pace of activity you were seeing in 2025, and not seeing anything that would disrupt the pace of activity that you were seeing from a broader macro perspective. It seems like this is more than conservative. It seems like a very market slowdown from what you’re seeing and especially in light of what you've already talked about in year-to-date. So can you just help me understand a little bit more, you know, conservative versus if there's something disruptive that's happening that's slowing down the overall pace, and trying to get a better handle on that.

Jason Fox, CEO

Yeah. No. There’s nothing that we're seeing in the market right now that suggests there could be a slowdown. It’s strong and constructive. Stable interest rates. We’re confident in our ability to continue generating high deal volumes. Maybe we’re to what we did in 2025. If you look back to last year, maybe at the beginning of last year, we took a measured approach to how we view guidance, and that led to a series of increases throughout the year. That’s our preference going forward. You can think about our initial guidance as a starting point, and our expectation is that as we progress through the year and get more visibility into the back half of the year, we’ll refine that range and hopefully raise it as we get into 2025. It’s worth noting that even at the current midpoint, of what I think could be characterized as conservative deal volume guidance, we believe we can achieve AFFO growth of over 4%, and that should be very attractive relative to many of our net lease peers. Look at where we started the year; we're off to a good start, a little over $300 million closed already. I mentioned earlier that we have about $200 million of capital projects that we'll deliver this year and a sizable near-term pipeline that I would characterize as several $100 million. So we're probably ahead of pace with our initial guidance. But again, we don't have visibility into the back half of the year to necessarily extrapolate this initial pace for the full year. As we get more into the year, we’ll continue to review and we’re hopefully going to be in a position to raise it.

Smedes Rose, Analyst

Okay. You talked a little bit more about your leaning into more retail; you need Lifetime Fitness to be your number three tenant. I'm wondering if you could talk a little bit more about the profile of that tenant. I know if you can give kind of coverage levels. And I'm just asking because it seems like the fitness world can be subject to a certain amount of fickleness on the part of consumers and things come and go. I realize this is a popular asset class amongst the large net lease companies. But I'm just wondering if you could talk a little bit about your comfort level of moving them to such a large position within the portfolio.

Jason Fox, CEO

Yeah. Sure. I think, first of all, this is not a new tenant for us. We've done deals with them in the past and had, because of that, good access to management during underwriting. Both on the credit itself and also into the specific assets. We like Lifetime as a credit; they're one of, if not the strongest of the U.S. fitness operators. They're publicly traded, have a $6 to $7 billion equity market cap, had a nice run since their IPO, and they’ve been bringing leverage down as well. It’s a good credit. We bought 10 facilities; these are all well-located in affluent and highly desirable markets near dense retail. It’s very difficult to replicate these locations. I think our basis is very attractive, well below replacement costs. Low in-place rents, and that’s both for these locations but also relative to the rents that Lifetime pays on other properties throughout the country. We also have strong site-level coverage; I can’t get into the details on the specifics for it, but it’s quite strong. Our understanding is it’s better than the median within their portfolio. The other part about this deal is the seller is a group we know well and have transacted with before on other portfolio deals. They were exiting a fund, looking to make distributions to their investors by year-end, which drove a quick close, and we think that dynamic contributed to the better-than-market economics. But overall, I think fitness is something we've done some deals over the last couple of years, but clearly, this is the largest one, and we do like Lifetime. If I lived in the suburbs, I’d be a member. They have a number of kids, and their model is great; it’s a unique model relative to none of the other fitness operators out there. These are more like country clubs with outdoor pools and water slides and restaurants, and obviously, very large and modern fitness facilities and workout rooms.

Smedes Rose, Analyst

Okay. Thank you. I appreciate that.

Operator, Operator

Your next question comes from Anthony Paolone with JPMorgan. Please state your question.

Anthony Paolone, Analyst

Thanks. Yeah. Just first 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 to $15 million is spoken for at this point or if that's just the number you're giving yourself a cushion on?

ToniAnn Sanzone, CFO

Yeah. I think you're setting the range.

Jason Fox, CEO

Sorry. Go ahead, Tony.

ToniAnn Sanzone, CFO

Yeah. We're setting the range there really to capture a wide variety of scenarios. I think there’s nothing really specific in the portfolio at the moment. We set this range last year and this year. Our objective is really early in the year, taking a broad view so that we have no concerns around any AFFO impact from rent disruption. I think that, again, similar to what Jason said on the investment side, our guidance is set at a level where we can achieve over 4% growth even with a range of rent loss at this level. So again, nothing specific. The only uncertainty out there is in the macro environment, and we feel comfortable with it at this stage of the game. Our goal is to continue managing the portfolio, see the same limited level of disruption that we’re seeing now and hopefully be able to reduce that and see some upside to our guidance.

Anthony Paolone, Analyst

Okay. Thanks. And then second question is coming up just on the balance sheet. You have two and a quarter percent euro bonds. Where do those get refinanced today? Any other details on how you're thinking about debt refinancing over the course of the year?

Jason Fox, CEO

Yeah. Sure. Maybe I'll start here. I don't know if there’s anything to add, Tony. The 2026 maturities are very manageable. It’s two bonds; one in each market, a euro bond, and then later in the year, a US dollar bond. I think the balance sheet's in great shape. We have access to multiple forms of debt and lots of flexibility right now given our liquidity. Our guidance assumes that we replace each bond coming due with unsecured debt, probably in the same currency. I think that’s what we will do. But we have lots of flexibility. In terms of where things are pricing, a ten-year euro bond is probably somewhere in the low 4% range and US is maybe 100 basis points inside of that. Obviously, we’ll think about which tenors we want to do, and to the extent it’s a little less than ten years in Europe, which is maybe more the norm, we’ll pick up some basis points and get inside of 4%, is my guess.

Operator, Operator

Your next question comes from Jim Kammer with Evercore ISI. Please state your question.

Jim Kammert, Analyst

Thank you. Good afternoon. Perhaps just an extension of that last topic. You've obviously done a very nice job benefiting the company by having a lot of euro debt exposure. Could you remind me where you stand in terms of capacity? It's about two-thirds of your overall debt. Can you do a lot more there? Or are you thinking about that going forward in terms of your overall debt composition?

Jason Fox, CEO

Yeah. Tony, do you want to take that?

ToniAnn Sanzone, CFO

Sure. Yeah. I'd say we still have room in our capital structure to issue incremental euro-denominated debt. As Jason mentioned, we have a euro bond that's maturing this year as well. A big part of our pipeline is denominated in euros. So we'll still have room beyond that. I'd say it still continues to create an effective hedge for us on both the foreign currency side and we’re benefiting from a lower cost in borrowing there. You’ll continue to see us access those markets when the time makes sense for us. But overall, we do see that there’s really no bright line at the moment. We have some room for additional capital there.

Jim Kammert, Analyst

Okay. And then a different question. Obviously, you're not going all in on retail investing assets, but thinking about protecting your above-sector average escalator, weighted average escalator, can you get industrial-like escalators on convenience stores in Europe or fitness centers in the U.S., etc.? I'm curious how that blend is incorporated into your numbers.

Jason Fox, CEO

Certainly. I mean, in Europe, I would say that retail, like industrial, typically has inflation-based increases. I think we’ll continue to get that. Whether we’re doing industrial or retail. I think in the US, you’re right; we've always talked about this, that the bump structures in retail deals tend to be a little lower. I think that it’s probably, if we’re doing industrial deals in the two-and-a-half to three percent range, the retail deals are probably 50 to 100 basis points below that, but it depends on the deal. When we’re investing in the mid-sevenths based on a going-in cap rate with bumps that are in the mid-to-high twos on average, that puts us to average yields in the nines, which I think is quite attractive. There will be a mix of retail in there, but we don’t think it’s going to be overall impactful.

Jim Kammert, Analyst

Appreciate the comments. Thank you.

Operator, Operator

Thank you. Your next question comes from Michael Goldsmith with UBS. Please state your question.

Michael Goldsmith, Analyst

Good afternoon. Thanks a lot for taking my questions. 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? Does that help drive your acquisition strategy? I'm just trying to understand the implications of this cap rate compression for your acquisition strategy.

Jason Fox, CEO

Yeah. I mean, it’s a good question, Michael. We tend to target a diverse set of opportunities. The cap rate range tends to be quite wide depending on a lot of factors. Certainly, the bumps that I mentioned on the prior question are a factor in that as well. I would say that the more commodity-driven net lease is going to have the most compression, and it’s an area we’ve seen in investment-grade retail. It’s not something that we target mostly for that reason, as the cap rates and the bump structures are being driven down more and more there. On the other side of that, sale-leasebacks—which is maybe our specialty and where a large part of our deal volume is generated from—we're able to maintain cap rates that are closer to what we've done historically. There could be a little bit of compression there. I think we’ll have more pricing power around there, and I think you’ll continue to see us emphasis on sale-leasebacks as a means to source new transactions.

Michael Goldsmith, Analyst

Thanks for that, Jason. And then just as a follow-up, you guys cited a roughly 150 basis points spread between dispositions and acquisitions. So is that expected to be sustainable this year? And just, given what you're disposing, is that the right range to think about this? And does that still make sense in a more competitive net lease environment?

Jason Fox, CEO

Yeah. Sure. I mentioned earlier that our disposition range is quite wide, and where we shake out on cap rates is going to depend on the mix of assets we choose to sell, a combination of our normal course dispositions, and these accretive non-core assets that I've listed off earlier. When you put all that together, we're probably in and around where we were last year. It’s really going to depend on the mix. Where we started last year with spreads, we talked about that we think we can achieve at least 100 basis points, and then we dial that up through the year. That’s probably a reasonable starting point for this year. I think that cap rates could come down, but our equity price has improved. If we choose to fund deals that exceed our investment volume with new equity, there are a number of assets we can lean into with very attractive pricing if we choose to do so through asset sales. We feel comfortable being in the same or similar ballpark as last year, which gives us a green light to keep on investing and driving earnings growth.

Operator, Operator

Thank you. And your next question comes from Ryan Caviola with Green Street Advisors. Please state your question.

Ryan Caviola, Analyst

Good afternoon, everyone. There were four vacant warehouse sales in the fourth quarter, and it sounds like there's a fifth after the quarter-end. Can you walk us through the decision on retenanting versus disposing of those properties? Were retenanting opportunities not there, or is the choice to sell just opportunistic? Thanks.

Brooks Gordon, Head of Asset Management

Sure. Yeah. We look at vacancy just like we would any new investment. We want to understand what are the forward-looking risk-adjusted returns that we can underwrite to, and where those returns are sufficient and attractive, on a risk-adjusted basis, we will aggressively lease properties up. When available disposition opportunities have insufficient returns, we won’t hesitate to sell and do that quickly. Something like Joanne, where an owner-occupier needed to own it and could pay a large premium, that’s an easy decision for us. But elsewhere, we won’t hesitate to release properties where we see a direct path to leasing velocity and an ability to underwrite those forward-looking returns.

Ryan Caviola, Analyst

Thanks. I appreciate that. And it was outshined by the Lifetime purchase, but there was the health care acquisition with NewAir for $140 million during the quarter. I noticed there is also an expansion on the capital commitments with the same tenant. Just wanted to see if you could share some color on the relationship there and if health care is a venue you view as attractive going into 2026.

Jason Fox, CEO

Yeah. Sure. We're always looking to expand our opportunity set in health care, which is an area we’ve been tracking for a while, and we do have some in-house expertise as well. It's a competitive space, but we do think there’s probably an opportunity to add some deal volume there over time. It's a diverse sector with lots of segments. I think broadly, it continues to outperform real estate and is supported by long-term dynamics of a growing and aging population. What we target in health care is still going to fit within our existing net lease framework. It’s going to be single-tenant, going to be long-term leases, typically absolute net, and we’re going to focus on strong site level coverage and, of course, reputable operators and creditworthy tenants. One of the deals we recently closed is in the inpatient rehab facility space. To be clear, we’re not looking at acute care hospitals. When I talk about health care more generally, but on the New Era deals, there's one else that we did earlier in the year called Earnest Health as well, which is a large IRF operator at the same time. These were all somewhat recently developed, well-located, attractive basis, and I mentioned earlier, strong site-level coverage, and they’re good operators. I think that the IRF model is one that we like, and I think we could do hopefully more of those. One of them did come with an expansion because it’s performing quite well with a lot of demand, so that's an easy thing to do if you have the land to expand these properties.

Operator, Operator

Thank you. And I'm at this time, I'm not showing any further questions. I'll now hand the call back to Mister Sands.

Peter Sands, Head of Investor Relations

Great. Thank you, everyone, for your interest in W. P. Carey. If anyone has additional questions, please call Investor Relations directly at (212) 492-1110. And that concludes today's call. You may now disconnect.