Greetings, and welcome to the W. P. Carey Inc. 2019 Annual Meeting of Stockholders. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Jason Fox. Thank you, Mr. Fox. You may begin.
Thank you. Will the meeting please come to order? I'm Jason Fox, CEO and Member of the Board of Directors. It's my pleasure to welcome all of you to W. K.
Perry's 2019 Annual Meeting of Shareholders. With us today are the following current Board members: Mark Alexander, Peter Farrell, Ben Griswold, Bob Flanagan, Axel Hansen, King Horserap, Margaret Lewis, Chris Niehaus, Nick Van Oman. I'd also like to introduce you to some of our the officers of the company who are here present. To my right is John Park Tony Sanzone Daphna, Daphna I always your last name. Brooks Gordon, Head of Asset Management, and I don't know if Brooks is here right now.
Peter Sands, Director of Institutional Investor Relations, there's Peter and others. We have Will Carey, he's in our Risk Department, among others as well. Mr. Seth Promisel of PricewaterhouseCoopers LLP, the company's independent auditors is also here and available to answer appropriate questions. Susan Hyde, the Corporate Secretary of the company, who will act as Secretary of the meeting.
Thank you, Jason. This meeting has been called pursuant to due notice dated April 4, 2019, sent to all stockholders of record on or about April 9, 2019. Proxies were solicited on behalf of the Board of Directors of the company for this meeting. A copy of the notice, proxy statement, proxy card and annual report will be open to examination by any stockholder during the meeting. Stockholders of common stock of record on April 2 were entitled to one vote for each share held of meeting.
The total number of outstanding shares entitled to vote is 169,800 and 27. The presence of this meeting in person or by proxy of a majority of the shares entitled to vote will constitute a quorum. And I'll now ask Peter Zestkovitch, who's acting as Inspector of Election.
They're all present today in person with our proxy, holders of 152,000,29,00907 shares of W. P. Carey Inc. This represents more than the majority of the shares the company entitled to vote at this meeting. Accordingly, I declare that a quorum is present and that this meeting is duly convened.
Terrific. Thank you. The first order
of business is the election of 10 directors. The following persons have been nominated as directors of the company: Mark Alexander, Peter Farrell, Robert Flanagan, Jason Fox, Benjamin Griswold, Axel Hansen, Heusrat, Margaret Lewis, Christopher Niehaus and Nick Van Omen. The second order of business is the consideration of an advisory vote on executive compensation. And the third order of business is the consideration to ratify the appointment of Pricewaterhouse Coopers as W. P.
Carey's independent registered public accounting firm for 2019. A share vote will now be taken by ballot. If you've already our presentation to investors.
Great. Thanks, Susan. So I'm going to give a company overview and Tony is going to walk through some other financial statements as well. So don't be carried. Publicly traded on the New York Stock Exchange.
We're publicly listed REIT. We specialize in sale leaseback financing, primarily investing in net lease assets. Geography wise, we are focused on the U. S. As well as Northern and Western Europe.
As a result of our merger with CPA:seventeen, at the end of last year, we are now ranked as one of the top 20 largest REITs in the MSCI U. S. REIT Index. One of the characteristics that helps define us is the fact that we are focused on diversification, which I'll talk about further in a little bit. We've been around since 1973 and during that time we've really had a couple of business models and I'll talk about how the business structure has shifted and where it is now.
Currently, we have about a $19,000,000,000 enterprise value based on share price in the balance sheet at the end of March 31st this year. It's really comprised of 2 components. The largest of which subsequent to the CPA:seventeen merger now accounts for about 95% of our earnings or AFFO and that's our real estate portfolio. I'll go into some of the details in a slide in a second. The next part of the company that accounts for about 5% of our earnings is our investment management platform.
Currently about $7,600,000,000 of assets under management that are spread across 4 fund vehicles, CPA 18, Kerry Watermark Investors 12 as well as our Kerry European Student Housing Fund. Digging into the real estate portfolio a little bit further, some high level numbers here that highlights our diversification. We have 11 68 properties leased to 310 different 310 different tenants, about 134,000,000 square feet of real estate that generates approximately $1,100,000,000 of annualized base rent. As I mentioned, we're diversified across the U. S.
And Europe with about 2 thirds of our real estate by ABR annualized base rent generated through the U. S, 1 third coming from Europe. We are focused on long term net lease transactions and typically when we purchase that are between 15 20 years long, currently the weighted average lease term is just over 10 years. We're also focused on annual rent increases about 2 thirds of which are tied to inflation with the remaining tied to fixed rent increases. Talk about some of the further diversification in the second as well.
But we're virtually 100% occupied which we've been currently 98.2%, so just under 100%. Moving on to diversification, really across all facets of diversification. By property type, our largest asset class is industrial that we have subcategories of warehouse and industrialmanufacturing that makes up just under 50% of our portfolio. Following that is office and retail. Retail, we've been relatively vocal for a number of years, perhaps even decades of being underweight retail, in particular in the U.
S. And we've maintained that stance with just 4 of that 18% invested in retail invested here in the U. S. Self storage rounds out the pie chart property type. That's net lease self storage and that's going to grow based on a transaction that we announced last week where we converted a large percentage of our self storage operating properties to net lease.
That category will probably be above 5% once those are accounted for. We're also well diversified across industry type, pretty colorful tile. Top 10 tenants, we have one of the lowest top 10 tenant concentrations out of our net lease peer group, which is a good thing. Again, we value diversification. Just 23% of our ABR is from our top 10 tenant list.
I think many of these top 10 tenants are household names, but the largest being U Haul. Those are a large diversified group of self storage assets under a long term net lease with U Haul, which is strong credit. Moving on to geographic diversification. As I mentioned about 2 thirds or 64% of our ABR is generated from the U. S.
About 3rd or 34% coming from the U. S. With the remaining I also mentioned that virtually all of our leases have contractual rent increases, that's 99% have rent built in. Of those 63%, roughly 2 thirds are based on CPI, either uncapped CPI or CPI that tends to have formulas related to CPI such as a floor and a cap. Exposure that we seek in negotiating new investments, we view it as a possible hedge against rising interest rates, which tend to be correlated with rising inflation.
1 third that are fixed increases, those tend to average in and around 2% per year, but it's clearly each lease. As mentioned, we are focused on long term net leases. Currently, the weighted average lease term is 10.2 years with a well diversified 1st lease maturity schedule that you can see here in particular. A quick flavor of some deals that we've done recently. This first one is a transaction, Orgill, which is the world's largest independent distributor of hardware goods.
So it's not true value, but it's the independent version of true value. And they're $38,000,000 warehouse that we purchased, it's actually in West Virginia on a very strong logistics corridor on I-eighty one just south of the I-seventy interchange, close proximity to Baltimore, Washington, well located from a distribution standpoint, long lease term, fixed annual rent escalations. 2nd deal, I liked a couple of aspects of our business. Number 1, it's a European investment. This is a logistics property leased to Nippon Express.
It's located in the Port of Rotterdam, which is the largest port in Europe. This is actually an expansion of an existing facility that we've already owned. So it highlights our ability to do follow generate what we view as incremental yield to the market, new buildings, long lease term, especially given the strength of this market. And again, this one is the CPI based construction. I'm going to turn presentation over to Toni to walk through our balance sheet.
Thanks, Jason. Since becoming a REIT in 2012, our balance sheet has been focused our strategy has been focused on maintaining our investment grade ratings, remaining committed to our unsecured debt strategy and ensuring we have variety of capital sources and ample liquidity to give us flexibility in executing our business plans. In the past year, we further enhanced our credit profile. We have substantially improved our leverage metrics both through the issuance of equity in CPA:seventeen transaction and through our capital markets activity, we accessed the ATM program taking advantage of a significant improvement in our cost of capital. We also successfully accessed both the U.
S. And European bond markets. Last year alone, we issued €1,000,000,000 of bonds in Europe and those were at coupons just over 2%. In the U. S.
This week actually we just announced the pricing on a 10 year U. S. Bond, 3 $25,000,000 3.85 percent. So we've had a good amount of success in the capital markets, and we'll continue to look to do that. We've continued to pay down our secured debt, including the debt we acquired from CPA:seventeen in that transaction.
We'll do that in advance of maturity and that maturity wherever we can, increasing our unencumbered pool of assets. So if you just take a look at our current balance sheet position, our leverage levels are well within our target ranges. We have clear path to bringing our secured debt below 10%. And we have debt maturities that are very well laddered and manageable over the foreseeable future. We have substantial availability on our unsecured credit facility, leaving us well positioned to address near term maturities and so that we can act opportunistically when the markets are well positioned for us.
I'm going to flip now to the dividend and stock performance. 2018 marked our 21st consecutive year of providing rising dividends to W. P. Carey shareholders. That's something we're very proud of and we continue to remain focused on.
We will continue growing our real estate earnings to support that. And then finally and most importantly, I think what you'll see here is a graphic demonstration of the total return that W. P. Carey has realized since for its shareholders since going public in 1998 and how those returns have dramatically outpaced the broader market, which we're very happy to see and we will continue to execute on our strategy and our business plans to
done our presentation done our presentation, we'll open up for questions, if anyone has questions.
Howard, I assume you have a question.
I'm sorry. Actually, my first question is a simple one. I asked my fellow CPA to when you just mentioned about the bonds and notes that we just issued, do they have sinking fund provisions and callable provisions in those notes and funds out of curiosity?
Most of the bonds that we issue, all of them are callable just in right before maturity. So in a short window before maturity.
And what about the sinking fund? Any sinking fund provisions in those bonds?
Protections against? No, there's nothing.
Okay. And my first question is well, second question is regarding our office in Great Britain and our properties there, I know it's about only 3.6%. I know I've asked you this last year, but due to the chaos in Brexit and we also have an office I understand in London as well. How is that affecting our operations, not only in Britain, but the fact that the whole EU is in the quagmire as a result of Brexit? So since we got the properties and you mentioned in the Netherlands and there's also I think I had seen one in Denmark since part of the EU.
How is that affecting our strategies in terms of that as well?
It's a good question and one that we get from a lot of our investors. First of all, when you think about our business model, we're buying long term net leases. We have creditworthy tenants. They tend to be highly critical real estate to the operation of these companies. We build our portfolio for these very economic environments that you're talking about when there's uncertainty, when there's perhaps low growth, perhaps even some dislocation as well.
So we do monitor all of our tenants to make sure that the health of the tenant is such that we think that there's no risk of them not being able to pay our rent. But the short answer to your question is we don't have a lot in the U. K. Right. We do have a lot across Europe.
Our tenants across Europe are generally very healthy. There's not a lot of concerns. In the UK specific, a lot of our exposure is in 2 areas, really one prime area. It's car dealerships and we haven't seen too much weakness in that space yet, especially since a big component of the profitability of that industry is in parts and service, which tends to be exposed to any cycles or disruptions. Another large building that we have in the UK is leased to the UK government and their taxing authority, the UK version of the IRS.
So I don't think that's going anywhere anytime soon. But again, we feel good about our tenant base. In fact, if anything, when there is uncertainty and when there is dislocation, that could create opportunity for us. Companies that need to access capital, they may look to their real estate to do sale leasebacks. And as Tony mentioned, we do like to keep our balance sheet flexible with a lot of liquidity.
We're virtually undrawn in our credit facility. And so to the extent there is some disruption opportunity, we'll have liquidity to take advantage of it.
Okay. Because I understand from what I've read, since Brexit, the British commercial market has been stagnant. It's actually gone down a little bit. So that's why. Yes.
And I think a lot of that is focused, in the office space in Central London. That's probably taking the biggest hit. But you're right. I mean, trade has slowed down. There's uncertainty.
There's less transaction volume. There's probably incrementally less liquidity in the marketplace. So it's something that we monitor. And I just want to ask one last question for now before I hand it over because I know I don't want to hog
up the floor. Even though, hand it over because I know I don't want to hog up the floor. Even though potentially there's potential privatization of Fannie Mae and Freddie Mac, which is solely in the residential area, how would that ratification if they do turn private affect, let's say, the commercial side and specifically our company, if that should occur?
Well, you're right. They're focused on the residential, which is an area we don't play. But we also don't rely on mortgages either to finance our investments. We've transitioned from a strategy in which in the CPA programs and we were borrowing mortgage to now an unsecured strategy where we have the ability because of our investment grade rating to access the bond markets. So it's a completely different marketplace and anything that happens there wouldn't necessarily impact our ability to access, the type of bonds that we just issued for the bond markets, such as what we just issued last week.
Mr. Fox, nice to see you again. And thank you for doing a great job and helping this company grow.
By the
way, I assume there's going to be a Board meeting after this and that we may have a vote on maybe another percentage increase in the dividend at the board meeting. Is that a possibility? Because I think there's one due at the end of June, right?
We'll issue a press release on the dividends when we I'm
just trying to see if I have psychic powers. That's
all. I mean you don't, but
I'm reading in here, we have in 5 years that 19% of leases are supposed to be up for renewal. But generally speaking, that's not a major concern because 19% in 5 years doesn't seem like a very large number. Am I right in assuming that?
Yes, I think that's right. I mean, we showed the slide earlier on our maturity profile. And the way we manage our assets, we're very proactive in the approach. But we're looking 2, 3, 4 years, sometimes even longer ahead. So you'll see that the profile of the lease maturities come down as we get closer into those years.
I think the biggest year out of those 4 or 5 years is 2022. I think 2024 as well is actually a big year. And we're already working on those. We feel comfortable with those years. 2024, which now I think about is the biggest spike.
A big piece of that is the New York Times headquarters that we own here in Manhattan. That lease does expire in 2024, but The New York Times will exercise their purchase option to buy back that facility at the end of this year. So when that happens, you'll see that tower in 2024 come down as well.
Okay. That's great. Before the meeting started, I asked you something about the hotels. We have 2 hotels to mention here. And you said I said, I think we were to sell them, but you said you already contemplated an idea.
You think it's a possibility we sell them this year?
Well, we're focused on
as you
can tell from the transitions or the progressions we've made being a pure play net lease REIT. So owning operating assets long term are not part of our model and our expectations are that at least one of those hotels we will try to sell this year, another one which is going through the other one which is going through, a renovation, a planned renovation. We'll complete that renovation, look to stabilize the asset in terms of its ramp up after having been closed some and then we would likely look to sell that as well. But you're right, that's our plan. Ultimately, we want to be a pure play net lease REIT.
We're almost there, but there are some incremental moves that we can make to get us there.
Another short question. I might have asked this question last year because it's Howard and I, we go to a lot of shareholders meetings and they seem to have this thing on my mind, I can't get it off, it's the blockchain. You did
last year.
I did, I know. I ask it all the time, every company I go to, because the thing moves very quickly, this blockchain technology, it's moving quickly. And I'm wondering if the companies explore that possibility maybe dealing with IBM or one of the major players in the blockchain space. Do you think there's any room for that in this organization or not? And then a side note, cryptocurrencies, again, they're hot up and down.
I understand they're very volatile and all that, but the Bitcoin this morning is 8,200.
I will say I can probably have a little bit more insight to your question this year than last year because I'm reading right now a book called Bitcoin Billionaires. You must be right. By Ben Mezrich and it's about the Winklevoss twins and how they became Bitcoin billionaires. But the shorter answer is, it's not all that impactful at this point on our business. The currency side of it, I think that down the road perhaps that becomes more mainstream.
Will tenants look to transact? Perhaps, but I don't have visibility into that. In terms of the blockchain chain technology, there could be applications. I think that's a growing industry that has wide ranging applications and our Head of IT certainly is more in tune in that than I would, but that's kind of the extent of any interactions we would have with that.
Just a question on the accounting here. Do most of the tenants that pay the rents and all that, are they paying the rents electronically or are they still using things like checks?
The majority are now doing it electronically. You'd be surprised though that we do still get a handful of checks in the office.
You still get checks?
I would say the majority, the vast majority are now electronically.
Okay. Thanks.
Okay. If there's no more questions. You have another one, Howard. Okay.
I'm back. Anyway, just curious, what is the vacancy rate of our properties? I know it's a lot harder to do it in that lease than acquiring the property, but have we figured what our vacancy rate is overall?
Currently, just over 98% is our occupancy. So the vacancy is just 1.8%. That will fluctuate, comfortable in that
zone. And in terms of by the way, I think the average is something like 96%, at least in New York metropolitan area. So we're above that. But have we ever done like an analytical study what these vacancies are costing us on the balance sheet? I know it's pretty hard to distinguish when you got properties, let's say, if you got, let's say, security, but they got to do the whole thing whether you have a vacant space or not.
But have we ever done some type of study where how much what these vacancies of the 1.8% in terms of the carrying costs on our books?
Yes. I think
that's something we evaluate on an ongoing basis. Given that we have been able to maintain, occupancy in the 99% range, it has not really been a significant expense for us on any of our assets. It's certainly something that we're mindful of and that's why when there is a vacancy, we've either addressed it ahead of time or quickly thereafter and we'll look to dispose the property or release it pretty efficiently. So definitely not heavy vacancy carrying costs for us.
And these few vacancy properties that we've had, how what's usually the timeframe from the termination, from the tenant to a new tenant? In other words, how long these vacancies usually remain?
It's a big range. I mean, as Tony mentioned, we stay on top of the assets and we typically have a lot of dialogue with our tenants well in advance of their lease expiration. So we have good specific. It could be vacant for a very short period of time, less than a couple of months or depending on the depth of the market and how long we want to hold out for certain rent levels, it could be substantially longer than that.
And then finally, any of our buildings here in New York City area have built out steel since according to our Comrade Mayor, we're going to have to tear it down?
Yes. The answer to that is yes. We do have a lot of steel structured buildings.
So if we have to tear it down now, what we're going to do, build it from cardboard and tinfoil?
But we have 1 and a half and then we have some self storage properties that will have some steel to sell it. We'll figure that out when time comes.
Okay. And I just have a comment after the meeting is over to you.
Great. Thank you. Thanks for
the questions.
Yes, Matt.
Matt, Paul Shipper, I'm a Private Trustee from Boston. We have clients who have a fair number of shares. Very pleased. Great to hear. We are concerned that interest rates from current level in due course will go up.
And how does Cary
bond
today, the likelihood that rates will go higher, at least higher than they are?
That's a good question. I think in terms of our balance sheet and where we're positioned right now, we have very limited exposure to variable rate debt. I think that our credit facility is the bulk of it and we keep that at very low balances. So with our business model, we look to lock in fixed rates so that we are not subject to volatility on the interest expense side.
Fixed rate as opposed to hedged?
Variable rate. Excluding rate.
Right. Not hedged. You're right. These are fixed rate debt.
I think on the asset side, what's important is that because we have CPI increases built into majority of our leases, As the interest rates rises, typically it's associated with inflation rates and we're going to capture the increase in inflation rate in our lease escalations. So that will hedge the impact on the valuation of our assets. So that's one of the ways how we build in the protections against different cycles, including rising interest rate environment.
But you were not hedged in the sense hedging your gains. No.
Right. No financial instruments.
That's right. And keep in mind also, we own hard assets. And to the extent we're in inflationary environment, we would expect our hard assets to increase in value as well. It's not a bond that gets eroded. Hard assets that do have, as John mentioned, cash flow characteristics that should do well in inflation, but also hard asset itself.
Okay, terrific. Thank you. Now that we are finished with the Q and A, we'll be in the sector of elections. Please announce the results.
Great. Well, if there's no further business to come before the meeting, I will now entertain a motion to adjourn. Is there a second? 2nd. Great.
It has been moved and seconded that the meeting will be adjourned. All in favor, say aye. Aye. Opposed? The ayes have it and the meeting is adjourned.
Thank you for joining us. See you all next year. Thank you.