Real estate is a wonderful investment as it represents tangible property. Land, like gold, has been the universal currency of mankind for centuries. Looking over my quarterly results I find I am still too heavily weighted towards consumer staples. I recently added on to companies like P&G and Hormel. Overall, 30% of my portfolio is invested in these types of companies. Realistically, I should be adding on to the banking & finance, real estate, and consumer discretionary sectors. Therefore, I took this as an opportunity to double my stake in W.P. Carey. This equals another 31 shares at a starting dividend yield of 6.16%.
W.P. Carey was founded in 1973 and operates as a real estate investment trust. More specifically, it’s a global net-lease REIT. A net-lease REIT is a structure where the tenant or lessee is responsible for paying, in addition to rent, some or all expenses related to the property. In triple net leases, for instance, the tenant is responsible for property taxes, insurance, and maintenance. However, in these cases rent is typically lower. As of December 2017, WPC owned 887 properties in 17 different countries. This includes 208 tenants, 87 million square feet, and an occupancy rate of 99.6%. The weighted average lease term in approximately 10 years. WPC’s market cap sits at just under $7 billion.
Results have been mixed so far this year. The Owned Real Estate segment (90% of revenue) grew by 4.8%. The much smaller Investment Management segment declined by 23% due to strategic changes. These investment management activities included selling off-balance sheet REITs to independent investors. In other news WPC is likely to merge with Corporate Property Associates 17. After the transaction is completed, the new company will have an enterprise value of around 17.3 billion. Properties under management would spike from 886 to 1159 and annual base rents will nearly double. Close is expected in quarter four.
I will continue to monitor the company as this merger moves forward. An additional concern is interest rates. REITs like WPC grow by utilizing debt to purchase additional properties. When interest rates rise it puts cost pressures on companies that regularly utilize debt. It also makes high yield securities like REITs less attractive when investors can simply invest in bonds. Even so, WPC has an incredible occupancy rate, long leases, a diversified global portfolio, and manageable debt levels. A 6.16% dividend yield also provides a high current income. Over the coming months I plan on opening totally new positions. In the end, 30 holdings or more would be optimal. But for now, I’m happy to double my stake in a solid, global real estate company.
DISCLAIMER: I am long on W.P. Carey (WPC). I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.