Capital Markets Day Transcript - WPC 2026-06-03

John Kilachowski, Analyst — Wells Fargo

Good morning. Thank you all for joining us. My name is John Kilachowski. I'm the lead analyst at Wells Fargo for net lease REITs, and today I'm joined by Jason Fox, CEO of WP Carey, and Jeremiah Gregory, head of strategy for WP Carey. So, gentlemen, thank you very much for joining us. Today, during, you know, any point during this conversation, please feel free to raise your hand. We're calling you for Q&A, or you could just wait to the end of prepared questions that we can get to you as well. So just to get started here, you know, on your last earnings call, you raised your 2026 AFO per share guidance to $15, or excuse me, $5.16 to $5.16.

Jason Fox, CEO

$15 would be good, but yeah.

John Kilachowski, Analyst — Wells Fargo

Heck of a year. And since then, you've announced another $400 million of investments. Can you talk a little bit about how the year is progressing and the key drivers behind your guidance raise?

Jason Fox, CEO

I mean, there are really two main drivers for that earnings increase, and they're high-quality drivers. I mean number one is the strength of our investment activity. I think we are ahead of schedule and in volume So ahead of pace and deal size Importantly with you know good cap rates and interesting spreads that will flow through That did allow us to erase our full year investment volume guide It's about 250 million at the midpoint. So we're now at 1.5 to 2 billion dollars is the assumption for deal line for this year So that was one of the drivers. I think the other main driver is the more favorable outlook that we have for our estimated or maybe it's better put assumed rent loss that's embedded into our guidance. You know, we've taken the tactic where we've, you know, assume a cushion on credit loss to start the year, one that I may view as being conservative with the idea being that it can accommodate a wide range of scenarios that aren't entirely visible at the beginning of the year. And then as we have more visibility into the year and see, you know, actual outcomes, we can refine that range, which is what we did. So we lowered it from 10 to 15 million to 8 to 12 million, which is about 50 to 75 basis points of ABR. And again, we think that that can accommodate a wide range of scenarios for this year and ones we think could be conservative as well. I think if you look at us historically, we've been in the 30 to 50 basis point range for credit loss as a percentage of ABR. I think there's certainly a pathway where we could be, you know, back in that range at the end of this year, like we were last year.

John Kilachowski, Analyst — Wells Fargo

So in the press release announcing the $400 million transaction with GardenCore, you also noted that you currently have visibility into about $1.5 billion of investment volume, which already puts you at the low end of your full year guidance of $1.5 to $2 billion. Can you talk a little bit about the GardenCore acquisition as well as the momentum you're seeing in the transaction environment and where you're seeing the most compelling opportunities, both in terms of property type, whether it be industrial warehouse, retail, as well as region?

Jason Fox, CEO

Yeah, sure. And for those that follow us know that many, if not most, of the transactions we complete are sale leasebacks. We're buying corporate-owned real estate from companies and leasing back to them over long periods of time, and the sale leaseback is a source of capital. Sometimes that's directed with companies. Sometimes that's in conjunction with larger transactions. This particular deal that we closed in May, it was a $400 million sale lease back for 43 manufacturing properties spread across the eastern half of the U.S. It was done with a company called Garden Core, which is one of the largest U.S. manufacturers of lawn and garden consumables. think about bagged mulch bagged soil um you know lime products and other you know rocks that you may find at lowe's or home depot or walmart for that matter um you know high quality company very strong tenant base been around for a long time either the number one or number two market share you know in their you know product lines that i mentioned earlier uh triple net lease 20 year term i think importantly this deal was done in conjunction with the carve out of this business from a much larger company that a private equity firm pacific avenue capital purchased we were a big source of their acquisition financing um which in those scenarios the our counterparty our partner on this deal you know they're most focused on execution so i think that's reflected in pricing and structure so good transaction for us 400 million it's gonna be one of our top tenants now um we think about it as uh production lines plus lay down yards or ios industrial outdoor storage but space is kind of the the format of these properties in terms of the deal volume that you mentioned um you know we had talked about uh being with that transaction 1.1 billion dollars of deals completed year to date with visibility into another 400 million about half of that are construction projects build the suits or expansions that we're doing within our portfolio that will deliver this year um the other half is called kind of the pipeline and i would say advanced stage pipeline where you know much of that will close over the you know the coming weeks or the next you know month or two as well so i think the trajectory is good you mentioned our guidance range of 1.5 to 2 billion you know we're obviously you know have visibility to the lower end of that range i think to the extent we continue to see you know opportunities that that make sense for us um you know the top end of that guidance range is probably in play but i think it's difficult you know to to predict at this point we don't have really visibility into what we're going to transact you know in the second half of the year in particular the fourth quarter which tends to be you know the largest for us um i mean i'm happy to go into some details on on kind of what we've been buying and what the pipeline looks like you know the predominantly uh is industrial that's um it's a mix of both manufacturing and warehouse um you know that's kind of reflected in the deals we closed in q1 about 60 percent of them were in that category and about three quarters of that were warehouse properties i think once you add in the 400 million dollar garden core portfolio that equates to about three quarters of our year-to-date deal volume is in the industrial space which has always been a core part of our investment target we picking up okay great um i'll get a little closer to the microphone uh we also did some retail in Canada, which we're happy to talk about as well, and I would say the pipeline looking forward is going to be more weighted towards industrial as well. And then in terms of geography, I think those that follow us know that we are diversified across geographies as well with a platform based in Europe. About a third of our ABR is based in Europe, and so that's a source of good deal volume for us. Europe continues to show good opportunities for us, especially over the last year we've seen it ramp up i think year to date about a third of the deals have been europe the pipeline is probably closer to half right now so activities are increasing there one of the the the big benefits of targeting europe is our borrowing costs are quite low there relative to the u.s yet cap rates are in the similar zip code so we're generating you know wider spreads there and which flow through to earnings growth for us so speaking of different geographies a meaningful proportion of your 1q investment volume was in canada through the go auto acquisition you know can you talk through your history and the opportunity for investing in that market and how deals and cap rates there compared to the u.s and europe yeah sure so we've been investing in canada for you know probably several decades at this point in time i wouldn't say it was in scale for most of that period of time you know many of the deals we had done in canada were part of you know multi-country sale lease backs where there was a portion of the deal was based in the u.s and some of it was in canada many of those were u.s based companies and i'd say the bulk of those deals were u.s dollar denominated both the u.s piece as well as the canadian piece since these were u.s based companies you know over the last couple years we've had more focus there we have a a person on our a canadian on our investment team that that spends a decent amount of time sourcing deals um north of the border we did a large deal with a company called apotex a couple years ago the the largest generic drug producer in canada And then most recently, we did a large car dealership portfolio called Go Auto with high-quality real estate, very strong locations, a concentration in the greater Vancouver market, which is going to be, between that and Toronto, the two strongest markets within Canada. These deals were Canadian dollar denominators since these were Canadian companies, so it allows us to add some Canadian denominated debt into our balance sheet as well. But I think overall, you asked about cap rates. I think cap rates are similar to the U.S., maybe slightly tighter. Our borrowing costs are better there or cheaper, so we are able to generate wider spreads.

John Kilachowski, Analyst — Wells Fargo

You answered my next question, so I'll move along. So you've previously mentioned capital projects becoming a larger proportion of your investment volume, particularly given the launch of your Cary Tenant Solutions platform. What percentage of annual deal volume do you see that becoming in 27 and 28?

Jason Fox, CEO

Yeah, Cary Tenant Solutions is something that we've been placing more emphasis on recently, and that was really the catalyst to rebrand something that we've done for a long time. You know, we've been doing build-a-suits and expansions within our portfolio and redevelopments, for that matter, for, you know, the better part of a couple decades. Typically, you know, we typically have, call it $200 million on average, that would deliver per year. I think this new emphasis on this where we are kind of systemizing and, you know, doing a more kind of holistic approach to our tenants, you know, and others that can bring opportunities to us, the tenant reps, you know, corporations that may be growing, you know, more systematic outreach that we think can generate more of this. you know one of the benefits of scale and we're one of the larger net lease companies is we have a dedicated project management team on staff that oversees these type of projects very capable and we think that these construction projects are some of the best deals we can do i think build the suits and expansions effectively leases in place but there's also opportunities to work with our tenants on buildings that may be in very strong locations with buildings that are showing some obsolescence and we can you know redevelop those into you know a plus buildings and strong locations we think there's opportunities to do that as well so you think about it um you know if we've done 200 million dollars of this on average historically could we you know see a pathway to doing maybe three or 350 per year which is added to the deal volume with i think that's that's kind of the goal ultimately now maybe back to some of your early comments on the investment volume guidance you know given the strong pace on investments year to date is there a potential for further raise in that volume guidance yeah i mean similar to the commentary i had around tenant credit in our assumptions for guidance around credit loss we take a similar approach to deal volume we started the year uh with a with one i'm sorry with one and a quarter to 1.75 billion a number that you know still supported a earnings growth that was in the low fours which we think was attractive relative to many of our peers with the idea that as we saw there had more visibility into you know our transaction pipeline and closed deals that we would you know adjust that volume as we've gone and we have we've increased it to 1.5 to 2 billion as i mentioned earlier up about 250 million at the midpoint i think that we are you know trending towards the top end of the guidance without you know providing any you know full updates but there is um you know we're kind ahead of pace from where we started the year and this is a similar approach we took the last year i think last year we completed you know 2.1 billion for the year at very attractive cap rates and very attractive spreads to our funding cost and we would expect to do something similar this year could you talk about the geographical construction of what those numbers would be in terms of just the guidance range as you look at the low and the high end if you think about the u.s canada okay yeah um i mean we're agnostic to where we're investing i think overall within our portfolio we have targets to be you know roughly split two-thirds North America with the bulk of that being in the U.S. and the remaining one-third in Europe but I think on any given quarter or given year it really is dependent on on opportunities I think this year you know maybe coincidentally you know the the pipeline plus the deals that have closed are roughly in that two-third one-third split two-thirds north america you know one-third in europe um but we are seeing good opportunities in europe and i think there's better better spread opportunities there so to the extent there's more deals there and we can overweight at this point in time towards europe relative to our your portfolio allocation i think we'd be open to that and then and then also kind of going back to an earlier comment you made on tenant credit your portfolio appears to have continued to perform so far this year and on your last earnings call you lowered your rent loss assumption to 8 to 12 million from 10 to 15 million you know what were the main factors enabling you to bring this down yeah i mean it's you know i think it's quite simple we have better visibility into more of the year and you know i've talked about the range of scenarios that we think that our initial guidance could accommodate those have tightened but we think that there are are a narrow group of scenarios that could lead to credit loss you know we're seeing a macro environment that certainly has, you know, headlines on a day-to-day basis and swings in oil prices that flows through to the indices and rates. But I think overall within our portfolio, if you think about how we're constructed, you know, we generally have large companies, 80 plus percent of our ABRs with companies that have, you know, more than a half a billion of sales. Large companies tend to be able to absorb, you know, some of the impacts of either higher inflation or increased energy costs I think the thing to watch and this is what we read about all the time is the consumer and you know how stressed the consumer is getting from from oil prices and other increases we don't have a lot of exposure to consumer oriented businesses in the US certainly relative to many of our US retail peers where you know whether it's casual dining or family entertainment or other areas like that you know our exposure is more towards larger industrial companies that we think can absorb changes in economic conditions. And I think that's reflected in our credit loss assumptions.

John Kilachowski, Analyst — Wells Fargo

Does lowering your Helwig exposure factor into this?

Jason Fox, CEO

Yeah, I mean, certainly. Again, those who have followed us for a couple of years have heard us talk about Helwig on a regular basis. They're a large DIY retailer in Germany that we restructured two and a half years ago. and we continue to update the market on their health and our exposure to them the goal here has primarily been to continue to decrease our exposure we've taken them you know out of our top 10 list through asset sales as well as proactive lease terminations we think they'll be out of our top 25 by the end of this quarter and in all likelihood out of our top 50 by the end of this year in you know where we've been successful terminating some leases we have alternative DIY or home improvement operators you can think of a Lowe's or a Home Depot in Germany that can replace them and we've done that at or around the same rents that Heldig has been paying so these are good real estate to the extent we can diversify our exposure away from Heldig I think that's a positive and we've been doing that and look I think that's you know one of the drivers here of lowering our guidance we started the year kind of assuming a wide range of scenarios with Heldig and they continue to pay us rent which is a good thing And Cornerstone was mentioned on the earnings call as well.

John Kilachowski, Analyst — Wells Fargo

Anything to note there?

Jason Fox, CEO

Yeah, Cornerstone, I mean, the goal is to provide as much transparency as we can around credit events within our portfolio. Cornerstone is a large building supply company, about $5 billion in sales. They are not a top 25 tenant. They're probably somewhere in our top 50. We have about 60 basis points of our ABR leased to them. You know, the message that we talked about is that they are over-levered. We can expect a restructure in all likelihood at some point this year, we think. And we wanted to, you know, deliver the message that we own critical operating assets for the company. It's a large company. They will restructure, and we think they need our properties, which means they're going to continue to pay our rent with really no disruption. And that's kind of the bottom line here is some distress on the balance sheet side but no impact to our rents. And maybe that's a theme. I mean, we think about, you know, in how we structure transactions, really focusing on downside protection. It's not often that we have credit events, but we think about structured deals as if we could. One of the main, you know, things that we look for are critical, you know, the critical nature of assets that we own relative to the company's overall operations. And we have critical operating assets, and there are restructurings. We tend to fare quite well, which we will hear.

John Kilachowski, Analyst — Wells Fargo

Beyond those two tenants, are there any others that we should be aware of?

Jason Fox, CEO

No, I mean, beyond that, you'd have to go down to 20 to 25 basis points in terms of scale, so it's kind of de minimis. We have a portfolio of 1,700 properties, over 400 tenants, so there's always going to be some tenant that we're looking at. We're in the business of taking risk, but there's nothing of scale or of significance that would be impactful to earnings, and certainly nothing that's not well covered by this credit loss assumption built into our guidance. maybe if we could pivot to the internal growth of the business wp carry has a high proportion of leases with rent bumps tied to inflation and given the potential inflationary impact of the iran conflict is having on energy prices can you just remind us how your portfolio is positioned from a rent growth standpoint yeah about half maybe slightly above half of our portfolio by abr has rents leases indexed to inflation so i think we have what i would view is positive exposure to inflation it's probably a little bit higher proportion of our european abr has inflation it's more customary in those markets to structure deals with inflation-based increases i think the point is to the extent we see higher inflation and it's correlated with higher interest rates which which typically is we do have some offsets to anything that may flow on the interest rate side i think that's a bit you know unique to us and when we don't have inflation increases we do have strong fixed increases that typically average you know in the mid twos and this is one area that i think is quite unique to wb carry a big portion of our growth of our earnings growth is generated through you know same store or internal growth as we put it which is you know a bit different than many if not most of our net lease peers who are you know more um you know maybe exclusively or certainly more weighted towards growing through external investments which you have less control over i look at internal growth that portion of our earnings growth is being uh more certain with more visibility and therefore higher quality and and you know having inflation as well as our fixed increase is a big part of that are you still able to get inflation link bumps on your new investments and how should we think about that mix going forward yeah in in europe as i mentioned it's more customary so i think those are part of the transactions i would say what has changed and we're structuring sale lease back so um you know there's you know all the elements are certainly the economics of a transaction are part of the negotiation and the bumps are a big part of that and so yeah i think in europe we still are getting cpi where uh where there is more of a negotiation that might be around instituting caps into the equation and i think when we're open and willing to uh to include a cap in our cpi lease we tend to get floors as well think about caps in the you know four to five percent range and floors and the one to two percent range so we feel you know well protected i may argue over a 20-year lease that two percent floor may come into play more often than the five percent cap so we think all in all these are still you know strong leases and even with caps they are uh they give good inflation protection i think the u.s it's been it's less customary and so it's more of a negotiation we still are getting deals in fact the the go auto deal in canada that was a cpi you know base increase there um and again when we're not getting cpi it's flowing through to higher fixed rent increases historically if you kind of look back um you know five to ten years ago most new deals with fixed increases were more probably in and around two percent on average more recently it's been two and a half to three and a half percent some of that is the environment some of that is the increased focus on industrial real assets where market rents tend to have, you know, grow at a higher pace, and our bumps tend to reflect that.

John Kilachowski, Analyst — Wells Fargo

Now, just pivoting to the balance sheet, based on the capital you've raised this far, you've effectively pre-funded your investments for 2026. How are you thinking about funding going forward? Yeah, Jeremiah, you want to talk through that?

Jeremiah H. Gregory, Other

Yeah, I mean, like you said, we've kind of addressed most of our needs this year already. We did a large bond raise and an equity raise in the first quarter, so we're in a good position and really most of our needs are addressed, but just to talk it through, in terms of the equity, we're sitting as of the end of the first quarter on approximately $650 million of forward equity, and so that we believe can take us through the rest of this year in terms of our guidance range on investments or even through the high end of our guidance range. In addition to the equity, we also have free cash flow and a handful of dispositions which we can talk about if that's helpful. In terms of debt, we would expect to continue to fund our debt capital needs with a mix of U.S. dollar and euro-denominated unsecured debt. All else equal, we have a bias when a refinancing comes up. We're just going to keep it in the same currency. So, the only additional maturity we have this year is a $350 million USD maturity. That's in October. That's a very small amount of refinancing for us. We have an almost fully undrawn $2 billion revolver, So there's no question about the liquidity to, you know, take out that bond maturity. But I think in all likelihood, we'll find a window of opportunity here sometime in the second half of the year to do another bond issuance and take that out in USD.

John Kilachowski, Analyst — Wells Fargo

Could you talk more about dispositions as a lever here?

Jeremiah H. Gregory, Other

Yeah. I mean, like I said, we do have a guidance range of $250 million to $750 million for potential dispositions. I think that range is intentionally wide. we were, you know, part of what we were signaling to the market is that we have the flexibility if we feel like there's good opportunities to do more dispositions and to have that be a source of capital. I think where we sit today with the forward equity we've raised, with the bond issuance we've already done, I think, you know, we're more likely to be in the lower half of that If you see us going into the higher half of the range, I think it just means that there's really just great opportunities for dispositions that we want to take advantage of. And all of that will just serve to, I think, further kind of bolster our position or extend the runway that we have to make investments on a leverage neutral basis you know into 2027 perhaps well into 2027 are there any assets in particular that you're thinking of or subsects that we can think of on the disposition front yeah it's really the story on the disposition side i mean those of you who follow us know that in recent years you know we've gone through some larger disposition programs we uh addressed you know we got out of office and we're selling some office several years ago last year a part of our story was uh liquidating the operating self-storage assets we had on the balance sheet so that the headline is that there's no there's no major disposition program like some of these ones we've done in the past nothing that we're looking at this year and really nothing that we could see in the in the foreseeable future that we'd be targeting so the dispositions we do today they're more one-off dispositions you know single assets there are still a handful of you know one-off assets that we think can be good accretive sources of capital and also I guess even though they're small you know serve a bit of a strategic purpose you know this year we we did sell we had one asset left in Asia. This was, you know, a legacy investment we made when we were in the fund management business, you know, years ago and looking at, you know, assets in that region. So this was our last asset in Asia. It was in Japan. We sold it. So, you know, it was only $30 or $40 million. You know, simplifies our story a bit. You know, it was a creative source of capital. We have a single student housing asset left. That's one that, you know, we'll target for disposition. Again, it's, you know, probably a $40 or $50 million asset. So none of these assets by themselves are meaningful, but that would be a creative as well and, again, help with the story. And then we have several hotel operating assets. For those of you, again, who have followed us, you know we had a net lease with Marriott, a very long-term lease, and that lease matured recently. When it matured, those assets converted effectively to assets that were managed by Marriott instead of leased to Marriott. So we now own the hotels. Marriott manages. These are Courtyard by Marriott brands. So we've sold most of those. we have three left those are redevelopment opportunities for us um you know one that we may do ourselves the other two probably to sell for sell to developers so i guess it's all to say the main point there's no major kind of programmatic asset disposition uh going on anymore but there are you know kind of one-off deals that we think are you know make sense to sell and that we think will be you know good source of capital and maybe if we could just wrap up with valuation here at the end of your last earnings call you mentioned that you continue to execute and expect your stock multiple to expand further.

John Kilachowski, Analyst — Wells Fargo

What is the case for further expansion of WPC's multiple?

Jason Fox, CEO

Yeah, I mean, look, I appreciate the question, as always, because you probably won't have any CEO up here ever think they're fairly valued, and I'll fall into that category. I mean, look, but I think our story is quite interesting right now if you kind of look at, you know, over the last number of years, this point in time in particular. We've had a number of strategic initiatives, you know, over the last, you know, call it eight or nine years during the time that i've been in the seat we've we've uh you know wound down our fund management business and many of those funds were net lease that we acquired under our balance sheet jeremiah mentioned that you know we exited office through a spin and asset sale program you know three years ago at this point in time and most recently we sold down operating storage assets very strong business but maybe not necessarily one that fits perfectly within a net lease portfolio and those were very attractive dispositions kind of in and around six caps that allowed us to reinvest in net lease you know so where we sit today um you know if you look let me go back one year 2025 is you know the first base year in which we've had a clean story after all these strategic initiatives and i think the results speak for themselves we put up your record deal volume which is over two billion uh earnings growth at you know just under six percent And I think we're set up, you know, very well to continue that progress, you know, into 2026. Investment activity is strong. We mentioned where we are, deal volume to date. We've mentioned, you know, raising our guidance there. We're very well positioned from a funding perspective. Jeremiah had just gone through this. We think we can, you know, fund through the top end of our deal volume without having to get into the capital markets at all. I think we can maintain an opportunistic, you know, stance, but we're well funded to fund any needs or foreseeable needs for this year. And our portfolio continues to perform, both from a credit perspective with continuing, you know, lowered assumptions around credit loss. And, of course, the same sort of growth within our portfolio is a meaningful component, you know, of our growth that many of our peers don't have. So, you know, when you kind of combine those factors there, I think we have a profile that we think can generate, you know, mid-single-digits earnings growth on a go-forward basis. When combined with a, you know, dividend yield that's in and around 5%, you know, that gets you to a low double-digit total shareholder return before any multiple expansion that we think is going to be attractive to net lease investors. And, you know, of course, you know, in net lease, once you get the cost of capital and you get into this flywheel, you know, spinning and you're, you know, into the algorithm, you can really grow. And, you know, we have a long history of acquiring and structuring in net lease assets, and we think we're really well suited for growth going forward.

John Kilachowski, Analyst — Wells Fargo

And we have about a minute left if there's any questions from the audience. Yes.

Jason Fox, CEO

Yeah, go ahead, Jeremiah.

Jeremiah H. Gregory, Other

Yeah, we we target mid to high fives on net debt debida. That's right We also look at debt to gross assets call it low 40s. So we've been operating in that zone Really for a long period of time. That's probably been our target for the last five to ten years and we expect to stay there You know if there's any bias that's maybe to the lower end We think you know REITs in general get the best cost of capital by by running conservative balance sheets But we think the target is appropriating conservative for our profile Yeah, maybe first in the front and second behind yeah nothing discernible or thematic uh i mean we mentioned that we generally focus on large companies

Jason Fox, CEO

and you know some of that may be impacting their margins and kind of the equity values of these companies but not their ability to pay rent at this point in time and you think about it we went through a case study of this a couple years ago when you know russia invaded the ukraine and we saw spike in energy prices and gas prices in particular at that point in time and and i think we made that uh we made through that that scenario um you know relatively unscathed you know relative to to those pressures one more question in the back no we've as jeremiah mentioned we exited the Japanese market. We had, you know, one asset, legacy asset from 15 years ago that we finally sold. So, you know, we're out of the business and focused on Europe and North America.

Jeremiah H. Gregory, Other

The short answer is we wouldn't do that. I mean, when we do go into these other debt markets, it's reflecting the business platforms that we have there. So we're not just sort of going around the world kind of arboring currencies. We're matching currencies. And we get the benefit in Europe, and we will believe we get that benefit in Canada. So it's good to be able to access those markets and blend into lower costs of debt um and we can even overweight in those currencies you know that's part of our hedging approach um but we wouldn't you know go go do japanese yen without having a business there we have no expectation we just exit it so we don't expect to be in that market yeah well jason jeremiah thank you very much for joining us and telling us the W.B.

John Kilachowski, Analyst — Wells Fargo

Carey story, and thank you all for coming.

Jason Fox, CEO

Yeah, thanks, everyone.