Hello, and welcome to W. P. Carey's fourth quarter and full year 2021 earnings conference call. My name is Kevin, and I'll 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.
Good morning, everyone. Thank you for joining us this morning for our 2021 fourth quarter earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic 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. With that, I'll hand the call over to Jason Fox, Chief Executive Officer.
Thank you, Peter, and good morning, everyone. For 2021, we generated just over 6% AFFO growth on a per share basis, as well as providing an attractive dividend yield for our stockholders, averaging over 5%. More importantly, we demonstrated our ability to significantly increase externally driven growth, closing a record volume of deals and establishing a faster pace of investments, which we expect to maintain in 2022 as our guidance reflects. Over many years, we've constructed a portfolio that's uniquely positioned among net lease REITs to benefit from inflation. In 2021, we entered a period of higher inflation. While CPI-linked rent growth was not a dramatic contributor for the year, given the lagged effect on rents, we expect it to provide a meaningful tailwind in 2022.
This morning, I'll focus my remarks on these growth drivers and the continued positive trajectory of our business in 2022 amid expectations of both rising inflation and interest rates. After that, I'll pass the call over to Toni Sanzone, our CFO, to cover the key details of our earnings, portfolio, leverage, and guidance. We're joined this morning by John Park, our President, and Brooks Gordon, our Head of Asset Management, who are available to take questions. Starting with growth through acquisitions. We ended the year with a strong fourth quarter, completing $532 million of investments at a weighted average going-in cap rate of 6%, primarily into U.S. and European industrial assets, as well as European retail properties, which were largely essential retail.
This brought total investment volume for the year to a record $1.72 billion at a weighted average going-in cap rate of 5.9%. As I've said on prior calls, in addition to going-in cap rates, we also focus on internal rates of return and average yields, which factor in rent growth over the term of the lease and therefore better represent the spread or contribution to earnings accretion an investment generates over time. Our 2021 investments with fixed rent increases, for example, had an average yield about 150 basis points higher than their going-in cap rates, which could be even higher for inflation-linked leases. We believe our portfolio generates a meaningfully more attractive average annual yield than most other net lease REITs, which generally invest in assets with lower or even no rent growth.
While our diversified approach provides a vast addressable market over two continents, warehouse and industrial properties continued to generate the best opportunities for us in 2021, representing about two-thirds of our investment volume. As a result, warehouse and industrial properties comprised 50% of our portfolio at year-end, up from 47% a year ago. Our office exposure continued to decline in 2021, primarily through our focus on warehouse and industrial investments, taking our office AVR from 22.5% a year ago to under 20% at the end of 2021, which we expect to further decline as we continue to under-weight office in our acquisitions. From a geographic perspective, our 2021 investments were split between the U.S. and Europe, broadly in proportion to our overall portfolio.
We ended the year with 63% of AVR generated by assets in the U.S. and 35% from assets in Europe, primarily in Northern and Western Europe. While we have the ability to allocate capital to either region, depending on where we see the best risk-adjusted returns, we generally expect to maintain a similar geographic mix over the long term, especially given the size of our portfolio. Our investment activities are supported by our access to capital. In 2021, we raised a record amount of attractively priced long-term and permanent capital, funding our investments and refinancing into lower cost debt. Since 2014, we've become a regular issuer in the debt capital markets, raising a total of $6.4 billion through 13 bond issuances, including $1.4 billion in 2021.
Over that eight-year period, our spreads have come in meaningfully, reflecting both our status as an established issuer and the continued strengthening of our credit profile. The U.S. dollar and euro-denominated bonds we issued during the first quarter of 2021 were at the time executed at our tightest spreads and lowest coupons to date, with proceeds primarily used to prepay a combination of secured and unsecured debt. In addition to reducing refinancing risk, these offerings extended our weighted average debt maturity and further advanced our unsecured debt strategy. They also allowed us to take advantage of favorable market conditions to lock in long-term rates that lowered our overall cost of debt. In October, we completed our inaugural green bond issuance, which also had the distinction of being the first U.S. dollar green bond issued by a net lease REIT.
In addition to demonstrating our commitment to ESG, we achieved one of the tightest ever spreads for a net lease REIT on a 10-year bond offering. Looking ahead, we remain confident in our ability to continue accessing attractively priced debt capital. In April of 2021, we were placed on positive outlook by Moody's, reflecting the trajectory of our business and the strength of our balance sheet, and we believe we're well positioned for S&P to put us back on positive outlook. We issued about $1 billion of equity capital in 2021 through a combination of settling equity forward agreement and our ATM program. Currently, we have about $300 million of equity available for settlement under forward sale agreements, initially issued at around $80 per share.
So far in 2022, we've issued $47 million under our ATM program at a weighted average price above $81 per share, locking in additional well-priced equity capital ahead of the recent market volatility. We therefore have ample dry powder to execute on our current pipeline, raise at an attractive cost of capital, and the flexibility to continue accessing capital markets opportunistically. Turning to the market environment in our pipeline. Transaction markets remained very active throughout 2021, rebounding from the COVID-induced slowdown that affected much of 2020, with industrial remaining the favored asset class for investors, both in the U.S. and Europe. Capital flows, especially into private equity funds, continue to drive cap rate compression, although the pace of compression appeared to slow somewhat during the fourth quarter given increased expectations of rising rates, especially in the U.S.
With rates starting to rise, we expect cap rates to initially level off, albeit with a one or two-quarter lag. A key advantage of our European platform is our ability to take advantage of any divergence in either cap rates or interest rates between the U.S. and Europe, both in terms of how we allocate capital or raise debt, and we're closely watching central bank policies and the potential impacts on both. Our significant experience with cross-border and complex deals also remains a competitive advantage, and given the scale of our portfolio, we continue to originate a meaningful volume of investments as follow-on deals through either existing tenant or sponsor relationships, which represented over half of our investments during the fourth quarter and about a third for 2021 overall.
2021 produced another record year for global M&A activity, providing a constructive backdrop for the supply of sale leaseback opportunities, which comprise just over half of our deal volume for the year. Given the amount of capital that private equity funds currently have to put to work, we expect M&A activity, and therefore the supply of sale leaseback opportunities, to remain strong in 2022. I'm pleased to say that the deal momentum we saw in 2021 has continued into 2022. Year to date through yesterday, we've completed $166 million of investments, and we continue to have an active pipeline currently totaling over $300 million of identified deals that we have high confidence in closing over the next few months, as well as a pipeline of deals further out.
We also have $275 million of capital projects or other commitments scheduled to complete this year. In total, that gives us good visibility into over $700 million of deal volume already, which in addition to a growing pipeline, gives us confidence in the $1.5 billion-$2 billion range built into our current guidance. In addition to strong externally driven growth, we entered a period of higher internally driven growth in 2021, which is especially valuable given the compression in investment spreads over the last few years. Among net lease REITs, we've constructed what we view as the best positioned net lease portfolio for inflation, with over 99% of ABR coming from leases with built-in rent growth and 59% with rent increases tied to inflation.
Although CPI-linked rent growth was not a dramatic contributor in 2021, given the lagged effect on rents, we expect it to provide a meaningful tailwind in 2022, both as further leases go through scheduled rent increases and because inflation has moved higher than originally anticipated. As a result, we estimate our contractual same store rent growth will increase to between 2.5% and 3% this year, with the bulk of the increase occurring in the first quarter. Of course, if inflation continues to move higher or runs for longer than currently forecast, we would expect to see additional upside. In closing, we believe we're exceptionally well positioned, and as we look ahead to 2022, we see two key drivers.
First, we believe we can maintain the strong pace of deal activity we established in 2021 as our initial guidance reflects, and we're already making good progress. While we expect rising interest rates to cause cap rates to stabilize and ultimately move higher after many years of cap rate compression, we also expect overall market transaction activity to remain strong. Our approach gives us a great flexibility in the types of deals we can pursue, including sale leasebacks, build-to-suit, expansions, and renovations across multiple property types and over two continents, all of which feed our deal pipeline. We'll continue investing in property types with exceptional long-term fundamentals and leases structured to generate strong annual rent growth and average yields well in excess of going-in cap rates.
Second, after many years in which our leases with fixed rent increases outpaced those with inflation-linked increases, we've entered a period where higher inflation will become a tailwind to our same-store growth, a distinguishing characteristic of our portfolio relative to the vast majority of other net lease REITs. As a result, we expect to continue providing very stable and growing cash flow with a strong dividend yield for our shareholders while further improving the quality of our earnings. With that, I'll pass the call over to Toni.
Thank you, Jason, and good morning, everyone. This morning, we reported total AFFO for the year of $5.03 per share and real estate AFFO of $4.89 per share, reflecting increases of over 6% on both metrics compared to the prior year. For the fourth quarter, we reported total AFFO of $1.30 per share and real estate AFFO of $1.27 per share, representing increases of 8.3% and 9.5% respectively, compared to the year ago quarter. Our fourth quarter results were driven primarily by record investment volume for the year and strong same-store growth, as well as significant interest expense savings resulting from debt refinancings.
Factoring in stronger rent collections at over 99.8% for the quarter and lower than expected expenses, AFFO for the full year came in above the midpoint of our guidance, with higher than anticipated lease termination and other income taking us $0.01 above the top end of the range. Our fourth quarter net income included total lease termination and other income of approximately $46 million, of which $7.8 million was recognized in AFFO. The vast majority of this came from a $41 million lease termination payment at the end of the fourth quarter from a tenant with annual base rent of $3.2 million. This was an unusual and time-sensitive transaction that developed quickly given the tenant's desire to wind down the division before year-end.
The economics were extremely favorable for us, representing substantially more than the tenant's remaining lease obligation, and the property is currently vacant and targeted for disposition in 2022. Comprehensive same-store rent growth, which is based on pro rata rental income included in AFFO, was 2% for the fourth quarter. As anticipated, this metric trended higher on average in 2021 compared to 2020 as the impacts of COVID on rents were resolved. Given how strongly our portfolio has performed throughout the pandemic, especially in relation to many of our peers, COVID-related deferrals and recoveries are expected to be very minimal going forward. The most meaningful driver of same-store growth, however, is expected to come from contractual rent escalators, which have a more sustained and compounding impact on base rents as inflation continues.
For the fourth quarter, contractual same-store rent growth was 1.8% year-over-year, up 20 basis points from the third quarter. As Jason mentioned, we expect it to increase to between 2.5% and 3% in 2022, starting in the first quarter when an additional 40% of CPI-linked leases are scheduled to go through rent increases. Turning now to expenses. G&A expense was slightly lower than expected, totaling $20 million for the quarter and $82 million for the full year. Property expenses not reimbursed by tenants totaled $11.5 million for the quarter and approximately $48 million for the full year, which was slightly elevated at about 4% of cash rent compared to about 3.5% in recent years.
As we continue working through re-leasing and disposing of vacant assets, we expect these expenses to decline from the current level. Tax expenses impacting AFFO, which represents our cash taxes, were about $8 million for the quarter, marginally lower than our expectations, and totaled $35 million for the full year. While taxes may vary from quarter to quarter, the full year 2021 amount represents a reasonable annual run rate. Before turning to guidance, I wanted to highlight a change in presentation on our income statement, which has no net impact on total revenues, AFFO or net income. Beginning this quarter, we've added a line item within real estate revenue that shows the revenue we receive from direct financing lease and loans receivable separately from lease revenue. This line item substantially comprises income from the leases that do not qualify as operating leases under accounting standards.
Despite the accounting presentation, we view the income from these leases no differently than our lease revenues and note they have been and remain part of our ABR. Turning now to the guidance we announced this morning. For 2022, we expect to generate AFFO of between $5.18 and $5.30 per share, including real estate AFFO of between $5.03 and $5.15 per share, which implies just over 4% AFFO growth at the midpoint. This is based on expected investment volume of between $1.5 billion and $2 billion. As Jason discussed, we already have good visibility into over $700 million of investments.
Regarding the timing of investment volume, we are assuming a relatively even pace of investments throughout the first half, with investments in the second half weighted more towards the fourth quarter. This takes into account the expected timing for the completion of capital projects, which is provided in our supplemental. Disposition activity for the year is expected to total between $250 million and $350 million, including some vacant asset sales. Our AFFO guidance assumes lease termination and other income of $15 million - $20 million for the year.
We currently have visibility into various tenant negotiations, which could result in a significant portion of these payments being recognized in the first half of the year. G&A expense is expected to be between $86 million-$89 million in 2022, with a slightly higher proportion expected in the first quarter, as is typical given the timing of payroll related taxes. In 2022, cash dividends received, which are included in the non-operating income line item on our income statement, are expected to total approximately $5.2 million, all within the first quarter. This comprises the annual dividend on our investment in Lineage Logistics, plus the final dividend on our preferred equity in Watermark Lodging Trust, which is the surviving entity from our previously managed lodging funds.
In January of this year, our preferred equity investment in Watermark, which was yielding 5%, was redeemed at par for $65 million. We are pleased to have redeemed our investment at full value, and we'll redeploy this capital accretively into our real estate portfolio. While we continue to hold common shares in Watermark, our guidance assumes we do not receive any common dividends during 2022. Moving to our capital markets activity and balance sheet. As Jason discussed, we remained active in the capital markets in 2021, raising well-priced debt and equity capital.
The $1.4 billion of bond issuances we completed had a weighted average interest rate of about 1.7%, enabling us to further lower our overall cost of debt through refinancing activities, retiring secured and unsecured debt totaling $1.3 billion during the year, which had a weighted average interest rate of 3.5%. The continued improvement in our cost of debt has translated into meaningful interest savings. For the fourth quarter, we reported interest expense of $47.2 million, which was $5.6 million lower compared to the year ago quarter.
In addition to lowering our overall cost of debt, our 2021 debt issuances also extended our weighted average debt maturity to 5.5 years, up from 4.8 years at the end of 2020, and reduced our secured debt to gross assets ratio to just 2.2%, down from 7.2% a year earlier. Our balance sheet remains in excellent health with a well-laddered series of debt maturities, including just $70 million of mortgages maturing in 2022, which have a weighted average interest rate of 3.8%. Our next bond maturity is not until 2024. Our guidance assumes that we continue repaying debt as it comes due, with no expectation of additional prepayment activity included in our projections. We ended the year with leverage well within our target ranges.
Debt to gross assets was 40.1%, which continues to be at the low end of our target range of mid- to low-40%s. Net debt to EBITDA was 5.7 x, well within our target range of mid- to high-5x , and down from 6.2 x at the end of 2020. Our cash interest coverage ratio is among the strongest in the net lease peer group at 6.0 x for the year, a substantial increase from 5.2x a year ago, reflecting both the improvement in our cost of debt and our earnings growth. During the fourth quarter, we issued equity through the settlement of equity forward agreement totaling $240 million and raised an additional $37 million from ATM issuance.
We've issued an additional $47 million under our ATM program so far in 2022, ahead of the recent equity market volatility. We are strongly positioned from a liquidity perspective with $1.85 billion of total liquidity at year-end, including $300 million remaining to settle on outstanding forward equity agreements, providing ample liquidity to execute on our deal pipeline and retaining significant flexibility in when we access capital markets. In closing, we're pleased with our performance for 2021, including record investment volume driven by strong execution across our business. We look forward to continuing that positive trajectory in 2022, supported by sustained investment activity, a tailwind from same-store growth, and the strength of our balance sheet. With that, I'll hand the call back to the operator for questions.
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Sheila McGrath from Evercore. Your line is now live.
Yes, good morning. Jason, last year you initially guided for investment volume in 2021 at $1 billion-$1.5 billion. I'm just wondering what gives you the confidence in the guiding to the larger investment volume. Are there any larger transactions currently in your pipeline?
Yeah. Good morning, Sheila. You know, we are off to a good start to the year. We talked about earlier that we've closed about $166 million year to date so far. We have a big pipeline of capital investment projects and other commitments that are scheduled to complete this year as well. That's about $275 million. So, you know, between those two, we've pretty much locked in $450 million investment volume. We also have a good pipeline. I mean, right now we're sitting on, I would call it, over $300 million of deals that I would characterize in advanced stages. You know, much of that should close in Q1. Obviously nothing's closed until the ink is dry, but we have, you know, high expectations there.
Beyond that, the pipeline's growing. You know, we feel like we're really well positioned to have another record year deal volume. We have, you know, a lot of confidence in our ability to transact and our position within the market. You know, we feel good where we sit relative to that $1.5 billion-$2 billion range that we just announced.
Okay, great. Can you remind us where things stand on the CPA:18 process? I know it's difficult to comment on specifics, but that was initially announced in August. If W. P. Carey were not the winner, what is the rough magnitude of back-end fees we should be thinking about?
In terms of process, you know, really right now, currently, I would say there's nothing new to update since you know, the filings that were done over the last couple months. Obviously if something changes, we'll let everyone know. Toni, I don't know if you have the you know, the data on what back-end fees you know, might be. It's you know, likely tens of millions of dollars, I would say. It's not gonna be hundreds. I don't know, Toni, if you have any you know, better numbers you can give Sheila.
Yeah. I think that's probably the best we can do given kind of, it's highly dependent on the transaction itself.
Yeah.
Okay. Thank you.
You're welcome.
Thank you. Our next question today is from John Kim from BMO Capital Markets. Your line is now live.
Thank you. Jason, you mentioned, you know, the benefits of your CPI-based leases will lead to 2.5%-3% increases beginning earlier this year. Yet your guidance for AFFO is only 4%, despite another record volume of investment that you're expecting. Why such a low guidance range just given that organic growth potential that you have?
Yeah, you're right. For 2022, we are expecting contractual rent growth to be between 2.5% and 3%. You know, perhaps some upside there as well, you know, given that the CPI prints both here in the U.S. as well as Europe and the U.K., maybe came in a little higher than it forecast. I think we do have healthy deal volume, again, between $1.5 billion and $2 billion. You know, I would say we are expecting spreads to be a little bit tighter in 2022 with cost of debt increasing. You know, we're assuming cap rates that may be similar to where they were last year, maybe even slightly tighter.
If we achieve, you know, better spreads, or maybe more attractive debt as the year goes on, I think that could help our AFFO growth certainly. You know, likewise with our deal volume. If that's higher, or if we close more deals in the first half of the year, you know, timing does matter, I think that could, you know, increase it as well. You know, for now, that's kinda how we're projecting the year. I think it's also maybe important to note that this year we do have some higher than usual remaining lease obligations or expirations for 2022 that will not be renewed. I think some of these are temporary roll downs because we'll re-tenant those properties.
I think some are great redevelopment opportunities, and some will wind up as vacant sales, but it'll take a little bit of time for those to kind of run through the system as well. It's early in the year. You know, I think that we need to wait and see how things play out, and we're trying to be prudent with cap rate expectations and some of our other assumptions. You know, we're hopeful that things progress well and maybe there's an update during the year where we can increase guidance if things you know, move in the right direction.
Okay. Can you elaborate on the timing or the impact of the lag effect from the CPI increases? I guess what I'm trying to get to is what would your 2023 contractual rent increases look like today?
Toni, I don't know if we've looked that far in advance, but do you wanna jump in there?
Yeah. I think, you know, you raise a good point. I think we've highlighted, you know, that the lag really is impactful in terms of how it flows through our, CPI-based lease escalations. You know, I think with the prints that we saw this morning or in the past few days on both, U.S. and Europe inflation rates, you can expect that to really tick up in the back half of the year. That would really take hold also into the early part of 2023. You know, we've had since probably call it mid-year this year, about 36% of our CPI linked ABR escalate, and that only did so at about a 3.2% rate. Again, not the headlines you're seeing today.
You know, kind of playing out the first quarter, we have another 40% of leases that we expect to bump. You know, that'll continue over the course of the year. You know, as they all go through bumps, it'll certainly depend on where inflation goes. You know, we highlighted the 2.5%-3% range in our remarks, and I think that doesn't really factor in the potential to go higher based on what we've seen in the last day or two. You know, we could see us trend higher to the top end of that range or even higher than that, and that is likely to hold into the early part of 2023.
Okay. Final question on CPA:18. Can you remind us what the timing is of the decision for that? And also of the $2.5 billion of AUM, what percentage of those are you interested in acquiring, and what would be the likely cap rate if so?
Yeah. Timetable, I mean, from the inception of the fund when it was raised, it generally points to 2022, but there's lots of flexibility in that. That's not a hard date or a deadline. It you know, it's really at the discretion of the independent directors. In terms of the portfolio itself, yeah, it's about $2.5 billion in asset value. I would say about 20% of that is operating student housing assets that there's some disclosure around this. Those are under a lease agreement with a purchase option that I think reasonably could be expected to be exercised in conjunction with a change of control
That kinda leaves, I would call it, you know, roughly $2 billion of assets that, you know, would be part of a transaction or a long-term hold for us for that matter. In terms of cap rate expectations, I don't think there's anything we can say about that. There is obviously disclosures in the CPA:18 filings around NAVs and cash flows. I don't think we're gonna speculate on what, you know, where that portfolio could trade at.
That's great color. Thank you.
Okay, you're welcome.
Thank you. Our next question today is coming from Anthony Paolone from JP Morgan. Your line is now live.
Yeah, thank you. Good morning. Jason, you had mentioned the 5.9% cap rate for 2021 and that, you know, they had declined, but it seemed to stabilize in the fourth quarter. Like, where do you think that lands you as we go into 2022 on your investment volume?
Yeah. I mean, it's a good question. You know, interest rates obviously have been rising. You know, we have not seen cap rates rise yet. We think they're starting to bottom out. I think the pace of the compression has certainly slowed. You know, I think our expectations are that they have or will bottom out and you know, potentially rise in the second half of the year. But it tends to be a quarter or two lag when you see interest rate movements happen. Yeah, we were in the high 5s for 2021. I think that's a reasonable expectation for 2022, you know, based on our pipeline and our best guess as to visibility on where rates move throughout the year.
Perhaps it could be a little bit tighter if there's more waiting on deals in the first half of the year. I think that's a, you know, that's probably a reasonable number to think about.
Okay. A question on the acquisitions that you did in the quarter. I know it's real small numbers, but the Outfront transactions, were those billboards? Just curious as to the thoughts there, and if that's something new or you've had some of those before.
Yeah. The Outfront Media deal, they are small, and they are outdoor advertising billboards. We're funding those in conjunction with an operating partner. You know, they'll effectively eventually be leased under long-term contracts with a good credit. Not a lot of work, given the structure of the partnership for us internally. It is small in scale right now. You know, I think it remains to be seen, but we think there could be potential to do something more meaningful there and want to kind of see how it develops over time.
Okay, thanks. Just last one maybe for Toni, just make sure I got this detail right, given some of the change in the line items on the income statement. So the $7.8 million of, I guess, other income that you kept in AFFO, you're saying that on a go-forward basis for 2022, is that what matches with the $15 million-$20 million of, like, lease terms/other that you'll have in AFFO for 2022?
That's correct. The total in AFFO for the full year 2021 was around $16 million, and that compares to the $15 million-$20 million that we have in our guidance expectations.
Okay. Got it. Thank you.
Thank you. Next question is coming from Spenser Allaway from Green Street. Your line is now live.
Hi. Thank you. You know, I know we've just kind of discussed some cap rate commentary. I was just hoping to get, like, a little bit more specifics in terms of what you are seeing on the cap rate front in early 2022. Just any discernible differences in property types or just particularly because you guys obviously see what's going on in the U.K., Europe, and then the U.S.
Yeah. I don't think there's any noticeable, you know, differences in the trends between the markets. I think that we had, you know, seen cap rates compress pretty much in all markets throughout 2021. I think that compression has continued into the beginning of the year, but as I mentioned, I think it's leveling off. You know, we're still seeing, you know, I would say cap rates in Europe are still maybe slightly lower, but we're still getting the benefit of lower borrowing costs in Europe. I think that, you know, equates to better spread opportunities. Perhaps in the U.K., you know, maybe that's one market where we've seen rates rise more quickly relative to the cap rates.
You know, so we keep an eye on that, but we're still seeing some opportunities over there at the same time.
Okay. Then just looking at your upcoming capital investments, can you just talk about how you guys felt comfortable underwriting credit for the outdoor advertising? Just curious what metrics you looked at. Are the fundamentals or yields different in that space versus traditional net lease?
Yeah. I think they're a little bit better than what we've seen. You know, this is still early in anything that we're doing there. It's quite small as was noted, you know, previously. I mean, the credit in this case is Outfront Media, public company and you know, one of the market leaders. You know, ultimately, the way that the deal works is there's some funding that happens during construction, and then it converts into a lease over time at a you know, formulaic rental number to provide some level of coverage. Like I said, it's small, not impactful at all right now.
You know, perhaps down the road over the next couple of years, it could add, you know, some deal volume for us is kind of the idea.
Okay, that makes sense. Just one more, if I may. You guys have, you know, meaningfully increased your pace of external growth in 2021. You know, you've said that's gonna continue for 2022. Longer term, do you think this 8%-9% rate of growth is right for your company, or are there internal conversations going on to perhaps pick up the pace further and match some of the double-digit cadence of some of your peers like O or STORE. You know, just curious if those conversations are going on at all.
Yeah. I mean, sure. I mean, we certainly are, you know, expecting to maintain this level of deal volume. I think that, you know, we are exploring new ideas and new ways to source deals that we hope could lead to some upside to that. I think, you know, generally speaking, if you look at, you know, 2021, for instance, we achieved kind of an 11%-12% combined FFO growth in dividend yield. I think our hope and expectation is to deliver, you know, something above 10% on an ongoing basis. I think, you know, one of the things that differentiates us from a lot of our peers is that we can drive a lot of growth through the internal lease bumps, especially in an inflationary period like we're in right now.
You know, I think in many ways that the growth that comes from the internal leases is probably of higher quality. It's more repeatable. There's more visibility into, you know, what you may see on a year-to-year basis driven by investment timing, where I would say most of our peers rely, you know, predominantly or almost entirely on external deal volume to provide earnings growth, and that's a little different from us. You know, we do think about, you know, headline deal volume numbers and how that flows through to earnings growth, but there's other components that I think are important for people to focus on when they look at, you know, look at an investment in us.
Okay. Great. Thank you.
You're welcome.
Thank you. Our next question today is coming from John Massocca from Ladenburg Thalmann. Your line is now live.
Good morning.
Good morning, John.
Just, a quick follow-up on the kinda other income line item question that was asked earlier. If you think about kind of the $15 million-$20 million you're seeing in 2022, is that a good long-term run rate as you're looking kind of out years, or is it closer to maybe, I think it was a $12 million number that was kind of mentioned in some of the previous earnings calls?
Yeah, it's a good question. I think, you know, there is some variability in that number. I think, you know, over time, as our portfolio is increasing in size, you know, we do expect, you know, the types of payments that would be coming in here will increase, you know, in relation to the size of our portfolio. You know, I think in every year, we'll kind of comment on at the beginning of the year based on what we're seeing in front of us. I don't expect it to move materially from that. You know, we'll kind of keep updated as we're seeing transactions progress.
Okay. On kind of the non-recourse debt kind of prepayment, early repayment cadence, should that kind of move maybe to more of something as we think of, you know, we look at the debt expiration schedule or the debt maturity schedule as being something that happens kinda, you know, basically a 12-month early lead on what's on that expiration schedule versus kind of the, let's call it, prepayment of stuff further out, you know, in terms of expiration? Or is there still some low-hanging fruit that can be taken out early in terms of your, you know, 2023, 2024 kind of debt maturities?
Yeah, I mean, I think we've highlighted kind of, you know, what we've done has been pretty outsized over the last few years in terms of reducing our secured debt. You know, I don't think there's as much opportunity in front of us. You know, I don't know that I would kind of schedule out a year ahead in terms of prepayments. You know, we talk about what we assume in guidance is sort of the regular timing of repayments at maturity. You know, we do continue to look at opportunities and to the extent that, you know, there's an interesting dynamic in the market with relation to the interest expense as it relates to the secured debt rate, then, you know, we would take advantage of that.
I don't think there's as much of that as we've seen in the past. You know, I think there's certainly opportunities out there if you look out into 2024 with respect to the bonds that we have coming due. Again, we're kind of, you know, evaluating all of that with our sources and uses of capital and, you know, we'll continue to kind of monitor the different mixes of where we expect to tap the markets.
Okay. Jason, you kind of called out, I guess private equity or non-public REIT capital competition in the markets. I mean, how has that cadence of competition, you know, maybe increased in your view over the course of last year? Has there been any pullback in it, in the level of competition maybe at the start of 2022?
Yeah, I don't know there's necessarily been a pullback. I think that a lot of the new competition, especially from the private equity and some that are raising through the non-traded channel, I think that they're, you know, not necessarily focused on exactly what we buy. I think there's predominantly more focus on retail properties, and I think there's certainly U.S. focus as well. Yeah, I think overall there has been more competition. It's an interesting investment opportunity. Obviously, we like the risk-return dynamics of what we invest in. I think others are seeing those opportunities. It's a big market. It's only gotten bigger, especially with the increasing sale-leaseback opportunities.
You know, we've been operating in a competitive market for a long time and, you know, we think that our scale is a competitive advantage, our ability to access capital and, you know, close quickly on deals, you know, the execution history really matters, reputation matters in this space, and, you know, we've been doing this now for almost 50 years. So we think we're still well positioned. As I mentioned, Europe, there's still much less competition there, and that's a competitive advantage for us as well. More competition, but we haven't seen the impacts on expected deal volume at this point. Okay.
That's it for me. Thank you very much.
Thanks, John.
Thank you. Next question is coming from Emmanuel Korchman from Citi. Your line is now live.
Hey, everyone. Good morning. Jason, you mentioned the reduction in office as a percentage of the portfolio. Are you looking at any office opportunities as part of your pipeline?
You know, pure office, I would say no right now. Occasionally with you know, larger portfolios or sale-leasebacks, there could be a component of a portfolio that may have some office. I think generally speaking, it's not part of our core focus. You know, right now it's really acquiring industrial logistics assets and you know, retail in Europe, and we're exploring some retail opportunities in the U.S. at the same time. You know, office at this point in time, it's gone from, I think we were a little over 30%, five or six years ago in terms of percentage of ABR, and today it's just under 50%. I would certainly expect that downward trajectory to continue as we overweight industrial and logistics.
Thanks. One for Toni. As we think about your capital and financing plans for next year, how should we think about how much of that's gonna be common equity versus debt versus, I guess as your disposition plan is out there, but how do we think of just holistically funding?
Yeah. Holistically, I mean, I think you can expect that we'll continue to manage our balance sheet, you know, as we have from a leverage standpoint. You know, we ended the year at about 5.7 x, well within our target range. I think you've seen us kind of trend from that area to about 6 x over the last year plus. You know that's about where we would expect to trend over the course of the year. You know, in terms of timing and, you know, where we would access that, I think, you know, we're pretty well positioned in terms of where we sit right now. I think we mentioned we have about $300 million in forward equity available that can be settled over the next year.
We raised another $50 million from ATM early in January. You know, we're sitting well in terms of what we expect, you know, in terms of how we're gonna fund. We mentioned, I think, the midpoint of our guidance on disposition volume is about $300 million. You know, all of that really, you know, gives us kind of a good head start to the year in terms of how we expect to fund our investment volume.
Great. Thanks all.
Thank you. Our next question is coming from Joshua Dennerlein from Bank of America. Your line is now live.
Yeah. Hey, guys. Sorry if I missed it.
Hey, Josh
in the inflation commentary. What's assumed on the high and low end of guidance as far as inflation flow through? Or is the range in-range not driven at all by inflation?
No, the range does have an impact. I think what we highlighted, you know, in terms of our overall same-store growth is about 2.5%-3% in our remarks. I'd say, you know, that doesn't factor in sort of the more recent headlines that we're seeing in the U.S. and Europe in the last couple of days. You know, we could expect that to trend up, you know, even up to the top end of that, maybe over the top end of that range before the end of this year. I think, you know, it'll be gradual. I think we will start to see the impact roll in more significantly in the first quarter.
Certainly bringing us into that, you know, 2.5%-3% range and seeing that tick up over the course of the year if especially if this continues. But there's definitely some upside based on the fact that we continue to outpace expectations.
Okay. That only includes, as you said, inflation bonds. Is that only like what's already kind of baked in? It doesn't include kind of future like renewals that haven't happened yet throughout the year or?
No, I think we actually do schedule out kind of based on kind of the projected curves, you know, what we're expecting to flow through on the timing of the resets that we have in our existing leases. You know, again, the rates could move from what we're seeing now and what's forecasted, but you know, it would move kind of in relation to how you're seeing the headline prints move.
Okay. Maybe one more from me. Can you remind us of what's expiring on the lease side this year and next, and then kind of what your expectations are, whether it's like renewals or to get properties back?
Sure. This is Brooks. In 2022, we have about 2.2% of ABR expiring to 23 tenants. It's pretty evenly split between property types, office and warehouse industrial. As Jason mentioned, we do expect a handful of move-outs in 2022, a few of which are really attractive redevelopment opportunities. One is a potential lab conversion opportunity in Boston. Another is an industrial opportunity in Irvine, California. Some of the expiring ABR that won't renew is part of that disposition plan, which Jason mentioned. All this is incorporated into guidance. In 2023, we have about 3.8% of ABR expiring. Similar mix, though heavier on the warehouse industrial.
I'll note that we have the first tranche of our Marriott net lease expiring in 2023. You know, a probable outcome there is that it may convert to operating properties, in which case, you know, that really isn't a non-renewal. There's underlying operations there which we expect, you know, depending on the trajectory of the COVID recovery for that underlying NOI to potentially exceed our net rent. You know, all in all, we're in pretty good shape. We do have some non-renewals in 2022, which we're addressing, but making good progress there.
Okay. Appreciate that. Thank you.
Thank you. Before I take the next question, I'd like to remind everyone it's star one to be placed into question queue. Our next question is coming from Greg McGinniss from Scotiabank. Your line is now live.
Good morning. This is Jason Wayne on with Greg . Versus last quarter, the proportion of uncapped CPI-linked escalators ticked down while CPI-based escalators grew. Jason, you've said it's more customary for inflation to be factored into these increases in Europe. I was curious if Europe was responsible for the increase in CPI-based escalators.
Yeah, we did do, I think about a third of our deals in Europe. Maybe a little bit more than that in 2021. I'm just checking to see, you know, roughly, you know, what that mix looks like. I mean, Europe tends to be most of those deals are CPI based. You know, but we still, you know, we're getting, you know, maybe less than we have in the past, but still, you know, certainly some U.S. CPI based deals as well. I think it's also important to note where we are getting fixed increases in the U.S., we've seen that the magnitude of that fixed increase. I mean, typically I would say over the last, you know, 5+ years, it's been closer to 2%.
For 2021, I think it was around 2.3%, maybe even a little bit higher than that for the deals that we did in the fourth quarter. I think that's also, you know, a reflection of what's happening in the interest rate and inflation market, where even the fixed increases that we're able to negotiate are increasing at the same time. Important to keep in mind.
I agree. Just looking at Outfront Media and other less traditional investments that you made in 2021, with where the warehouse and industrial space is continuing to be competitive in 2022. I just wanted to cover if you're starting to look at investing in any other net lease asset types moving forward, maybe what types of cap rates you're seeing there.
Yeah, look, we're pretty well diversified at this point in time. You know, we're always interested in adding new verticals, especially to the extent we think they can add, you know, growth over time. But even within industrial, I mean, there's a lot of diversification. You think about what we own, that might be classified within industrial or logistics. We own a lot of cold storage, food production and processing, some R&D and lab space. You know, we've done a lot of self-storage obviously over time. There's a lot of, you know, interesting verticals that could provide growth in addition to, you know, what you might view as traditional industrial warehouse.
Mm-hmm. Got it. Thank you.
You're welcome.
Thank you. Our next question today is a follow-up from John Massocca from Ladenburg Thalmann. Your line is now live.
Just a quick one for me. As we think about the two main silos of investment activity, you know, which I would categorize as, you know, industrial assets and European retail, what is the rough, you know, initial cap rate differential between those two buckets, if any?
Yeah, I mean, it's hard to pinpoint. If you think about, you know, what we're buying in the U.S. industrials, I just mentioned it's a pretty diverse mix of assets. You know, a lot of it is pure warehouse. These tend to be on long leases. I would say that they're priced more at a long-term stabilized yield as opposed to what you may see transact in the market, you know, assets that have shorter lease terms with, you know, near term mark-to-market opportunities. They're priced a lot lower, but the expectation there'll be a big increase when the lease resets and reach perhaps the stabilized type deals that we're achieving, you know, from the start.
You know, again, our cap rate range that we focus on, we've mentioned this in the past, I would say tends to be in the 5%-7% range, and that's across all asset classes. I think that you know, perhaps retail in Europe is gonna be in the lower half of that range, more likely. There is less competition over there, and we are able to drive maybe better yields than what we would you know, normally get for similar assets in the U.S. Of course, you know, when we talk about cap rates, you know, I think that's an easy reference point. I think what's more important is you know, what unlevered IRRs or average yields are for these investments.
'Cause we do have long leases with really meaningful bumps built in, and that all factors into how we look at things and what you know how accretive they may be.
I guess maybe just kind of in terms of property, what ends up being on the higher end than of that cap rate range? Is it more just-
I think it's a lot of those.
Sorry. Manufacturing?
Yeah. I think there's two pieces to that. One is it's gonna be the subsectors within industrial that I mentioned, you know, manufacturing, food production, et cetera. Though those tend to be on long leases. They tend to be with good credits and highly critical to the operations. I think that's number one. Then the fact that we're originating a lot of these deals could be warehoused as well through sale leasebacks. Some of those help us with the cap rate and may put us in the midpoint or even the high end of the range because of our ability to source deals that might be more complex from the start.
Okay. Very helpful color. That's it for me. Thank you.
You're welcome.
Thank you. Next question is a follow-up from Joshua Dennerlein from Bank of America. Your line is now live.
Yeah. Hey, guys. Thanks for the follow-up. I just wanted to follow up on the Marriott assets and I guess next year converting to potentially operating properties. How does that work, and are there more in the future? I think the messaging has kind of been to go full net lease, so just curious how you think about that.
Yeah. Just to reiterate, we've got two tranches of the Marriott net lease. One is expiring in 2023, and the other is in 2027. The way that may turn out, it's not a sure thing yet, is those convert to an operating hotel, in which case, you know, we're likely to over time consider dispositions there. But I think the key to understand there is it's not a kind of a binary non-renewal. It reverts to the operating economics of the underlying business, which those have been recovering quite well from COVID. Really depending on the trajectory of that, we do expect the underlying NOI to exceed the net rent. You know, we can't predict that with precision at this point. But you're right.
I think over time, if that's the direction these go, we would look at those for disposition opportunities. You know, I'll note that there are three of those in that first tranche, which are really interesting potential redevelopment locations. One in San Diego, one in Irvine, California, and one in Newark, all of which are really excellent locations. We'll evaluate those somewhat separately.
Okay. What's the ABR on those two tranches?
The first tranche is about $16 million, and the second tranche is about $4 million.
Okay. Appreciate it. Thank you.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Peter for any further closing comments.
Thank you, Kevin, and thank you everyone on the line for your interest in W. P. Carey. If anyone has additional questions, please call investor relations directly on 212-492-1110. That concludes today's call. You may now disconnect.
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