Ladies and gentlemen, hello and welcome to W. P. Carey's First Quarter 2019 Earnings Conference Call. My name is Adam, and I will be your operator for 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 would now like to turn today's program over to Peter Sands, Director of Institutional Investor Relations. Thank you, Mr.
Sands. Please go ahead.
Good morning, everyone, and thank you for joining us today for our 2019 Q1 earnings call. 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 wpkerry.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentation. I'll now hand the call over to our Chief Executive Officer, Jason Fox.
Thank you, Peter, and good morning, everyone. The 2019 Q1 was the 1st full quarter since the completion of our merger with CPA:seventeen and we're off to a good start for the year. Investment volume was strong primarily into industrial and warehouse properties at attractive spreads to our cost of capital and we continue to have an active pipeline. From a funding perspective, we utilized our ATM program during the quarter to efficiently raise equity capital using the proceeds to prepay mortgage debt and fund acquisitions, which reduced leverage and expanded our pool of unencumbered properties. Today, I'll focus my remarks on our recent investments before handing over to our CFO, Tony Sanzone to discuss the details of our Q1 results, guidance and balance sheet.
We're joined this morning by our President, John Park and our Head of Asset Management, Brooks Gordon, who are here to also take your questions. Starting briefly with the investment backdrop, which was a continuation of the competitive environment we've been in over the last few years. In the U. S, cap rates remain low amid continued low interest rates and strong competition for deals, particularly from private equity funds, which have recently had strong capital inflows. Industrial sector especially continues to attract high demand.
While competitive, the market opportunity in the U. S. For net lease remains vast. Our long standing presence which stretches back close to 50 years and track record of providing certainty of close to sellers ensures we get access to almost every deal. Combined with our diversified approach and competitive cost of capital, we continue to win transactions without having to compromise on lease term or deal structure.
Similarly, in Europe, the industrial sector continues to attract the most interest followed by office. The transaction market remains very active with significant capital inflows and compressed yields despite lower forecasted economic growth. The ECB has pledged to keep interest rates low however and the resulting yield rate spread is likely to continue to drive capital inflows especially from international investors. We remain focused on sourcing off market transactions from both existing tenants and our deep network of relationships across the continent. As a pioneer of net lease in Europe, we benefit from our strong presence and established platform built on more than 20 years of investments in the region.
We're pleased with our first quarter investment volume, which totaled $240,000,000 at a weighted average cap rate of 7.1 percent, comprising 5 acquisitions totaling $188,000,000 all of which were in the U. S. And 2 completed capital investment projects at a total cost of $52,000,000 Looking at 3 of the acquisitions in a bit more detail. First, we completed the $48,000,000 acquisition of 220,000 square foot office facility net leased to PPD, a leading global pharmaceutical contract research organization. The facility is located in Morrisville, North Carolina in the Raleigh Durham Research Triangle, which has a heavy concentration of the pharmaceutical and biopharmaceutical companies they serve.
This is a triple net lease with the remaining lease term of about 15 years and includes fixed annual rent increases. 2nd, a $38,000,000 investment in a 763,000 square foot distribution facility in Inwood, West Virginia net leased to an existing tenant Orgill, which is the world's largest independent hardware distributor. The facility is strategically located on I-eighty one, which is home to distribution centers for many large companies and just south of the I-seventy interchange providing additional access to the Baltimore and Washington DC markets. The property is Orgill's sole distribution facility for the Northeastern U. S.
And is triple net leased for a period of 15 years with fixed annual rent increases. Lastly, we closed a $17,000,000 acquisition for a 58,000 square foot tractor trailer hub less than a mile from O'Hare International Airport. It's triple net leased to Amerifreight, a growing trucking company for a period of 12 years and includes annual fixed rent increases. It's a very desirable location at the center of 1 of the largest industrial markets in the country. We view this as a covered land play that may have significant development value at the end of the lease.
The acquisitions we completed during the quarter were all critical properties on long term leases with the weighted average lease term of approximately 17 years and supported by strong tenant businesses. They provide built in rent growth either tied to inflation or from fixed increases with a weighted average fixed increase of close to 2%. And in keeping with our diversified investment approach, they cover a range of property types, tenant industries and geographic locations. As I mentioned earlier, we completed 2 capital investment projects during the quarter at a total cost of $52,000,000 We also added one new capital project with an existing tenant for a 138,000 square foot expansion of an automotive manufacturing plant in Alabama that we expect to complete in the Q4 of this year at a total cost of $12,500,000 While this particular deal is small relative our overall portfolio, it's a great example of our proactive approach to asset management and the benefits of staying close to our tenants. This is the 3rd such expansion we've done with the tenant each time resetting the lease term which has resulted in a total term of 35 years since the inception of the original lease.
The increased size of our portfolio provides a fertile source of investment volume for us. We ended the quarter with 8 capital projects outstanding for an expected total investment of approximately $200,000,000 We currently expect 5 such projects to be completed in 2019 for a total investment of just over $100,000,000 in addition to the 2 we completed during the Q1. So plenty of investment activity both completed and underway. We continue to find transactions at attractive cap rates without compromising on deal structure or asset quality. And with the demonstrably improved cost of capital, we're able to generate wider spreads on those deals as well as select the best deals from an expanded opportunity set.
And with that, I'll hand the call over to Tony to talk more about our earnings, guidance and balance sheet.
Thank you, Jason, and good morning, everyone. This morning, we announced AFFO of $1.21 per share for the Q1, in line with our projections and, as expected, down from $1.28 in the prior year. Real Estate AFFO increased almost 7% to $1.13 per share compared to $1.06 in the prior year. Since announcing our merger with CPA:seventeen, we've discussed its near term impact on our earnings and we see the 1st full quarter of that impact in our 2019 Q1 results. The elimination of advisory fees previously earned from CPA:seventeen were partly offset by the accretive impact of the real estate acquired in the merger as well as net acquisitions over the last 12 months.
1st quarter lease revenues increased to $263,000,000 compared to 169 $1,000,000 for the year ago quarter, highlighting the impact of the merger on our real estate earnings. Separately, I'll take a moment here to highlight a presentation change as a result of adopting the new leasing standard on January 1 this year. Lease revenues reported in our income statement now include the reimbursement of operating costs from tenants, which was historically reported as a separate line item within the revenue section. This presentation change has no impact on our AFFO or net income. Related to this within the operating expenses section of our income statement, we are now separately breaking out reimbursable tenant costs, which helps identify the amount we received within lease revenues.
Given that the majority of our Q1 acquisition activity occurred at the end of March, the related lease revenues did not flow through our Q1 results in a material way. Annualized base rent, however, increased to $1,080,000,000 at quarter end, resulting primarily from the $240,000,000 of investments we completed during the Q1, which Jason discussed. We also benefited from same store rent growth of 1.5% year over year on a constant currency basis, driven by rent increases built into our leases. Disposition activity for the quarter was limited to the sale of 1 small retail property for $5,000,000 at a 6.4 percent cap rate. For the full year, we continue to expect total dispositions to be in line with our original guidance assumption of between $500,000,000 $700,000,000 which we generally expect to be weighted towards the second half of the year, including the New York Times repurchase in December.
Turning to our Investment Management segment. The significant decline in the contribution from this segment reflects the full quarter's impact of the elimination of fees and earnings previously received from managing CPA:seventeen. Last year's Q1 included asset management fees from CPA:seventeen of $7,500,000 and earnings from equity method investments of $8,800,000 representing our prior ownership and profits interest in that fund. We continue to earn fees on the remaining non traded funds we manage, which are laid out in detail in our supplemental. Structuring and other advisory revenue has become a much less meaningful component of our investment management earnings, totaling $2,500,000 for the Q1 of 2019, and nothing significant is expected for the remainder of the year.
Moving to expenses. G and for the Q1 was $21,000,000 compared to $19,000,000 for the year ago quarter, due primarily to the elimination of expense reimbursements previously received from CPA:seventeen. G and A expense is typically higher in the Q1 of the year due to timing of annual compensation and related taxes. We continue to expect G and A for the full year to fall within our guidance range of $75,000,000 to $80,000,000 Turning now to our balance sheet and capital markets activity. As a result of our recent merger, we have significantly larger scale and greater trading liquidity in our stock.
During the Q1, we utilized these benefits to further enhance our credit profile by efficiently raising $304,000,000 of equity capital issued through our ATM program at a weighted average price of $76.17 per share. Proceeds from this equity issuance were used primarily to fund acquisitions and prepay $200,000,000 of mortgage debt that had a weighted average interest rate of nearly 5% while incurring minimal fees. Since the end of the Q1, we've raised an additional $59,000,000 through our ATM at a weighted average price of $78.20 $0.27 per share and have continued to use those proceeds to prepay mortgage debt. Debt prepayments had a minimal impact on our Q1 results given their timing. However, they are expected to reduce our interest expense going forward, largely offsetting the dilutive impact of the shares issued to date.
We ended the Q1 with debt to gross assets of 41% and net debt to EBITDA of 5.8 times. We also reduced secured debt as a percentage of gross assets to 16.8% at quarter end, down from 18.3% at the end of the 4th quarter. And based on our current plans, we see a clear path to reducing this to below 14% by the end of the year. Given the current availability on our credit facility, which is substantially undrawn and expected proceeds from our disposition pipeline, we have considerable financing flexibility and can remain opportunistic in our capital markets efforts. We are extremely well positioned to execute on the acquisition volume in our guidance and access the capital markets when it's most advantageous to do so.
In summary, we've had a solid start to the year on all fronts. As we noted in our earnings release this morning, we are affirming our guidance range for total AFFO of $4.95 to $5.15 per share for the full year and real estate AFFO of $4.70 to $4.90 per share. And with that, I will hand the call back to the operator to take questions.
Thank Our first question comes from the line of Sheila McGrath from Evercore. You are now live.
Yes, good morning. Good morning, Sheila. Jason, you still have guidance for dispositions at $500,000,000 to $700,000,000 I was wondering if you could give us a little insight on what the profile of those assets that you're targeting for sale is and if the proceeds from these transactions will match fund planned acquisitions? Or do you still expect to use ATM in your current plan?
Yes. Why don't I turn to Brooks to talk on some color?
Sure. So on the disposition pipeline, as Tony mentioned, it's certainly we expect to be back end loaded in the year. Again, we sold 1 small asset this quarter and we subsequently sold 1 further small asset subsequent to quarter, but we do expect to be in the $500,000,000 to $700,000,000 range, again inclusive of the times purchase option in December. We expect kind of all in execution to be roughly in line with our acquisition cap rate from a pricing perspective. In terms of deal type, again with The New York Times, it's about 50% purchase option, about 30% what we call non core, and then small percentages in the other asset types.
Kind of geographically, it's about 85% U. S, 8% Asia Pacific and 8% Europe and about half office, 22% we think will be, an operating hotel that we're looking at exiting. So it's a good mix, but it is weighted towards the back half of the year.
And Brooks, does that include, self storage from the recent CPA:seventeen?
It does not.
Okay. And then just quickly on G and A, you maintained guidance for the year. Tony, I was just wondering if you could just give us a little insight on seasonality. Q1 is typically higher than the other 3 quarters?
It is. I think the Q1 differential includes roughly around $2,000,000 of additional compensation related costs, payroll taxes and one time costs in nature that wouldn't recur over the remainder of the year.
Okay. Thank you.
Thank
you. Our next question comes from the line of Greg McGinnis from Scotiabank. You are now live.
Hey, good morning. Good morning. Tony, AFFO is in line with your projections, but it's a bit below Street estimates. Could you let us know how you're thinking about earnings acceleration into the end of the year?
And if you still feel that
the top end of guidance is a realistic goal, I'm curious what needs to happen if you actually reach the top end?
Sure. In terms of kind of just looking at the Q1 results, I think I highlighted in my remarks a number of issues or a number of areas where we don't feel that's a run rate. If we focus first just on the lease revenue, in terms of the Q1, the acquisition activity occurring at the end of the quarter and no dispositions at that point certainly isn't something we'd expect to annualize. So from a modeling perspective, I think it's better expirations. And right now, we're working on some leasing activity that we expect to have a expirations.
And right now, we're working on some leasing activity that we expect to have a positive impact on our lease revenues over the back half of the year. It's too soon to get into any specifics on that, but we look forward to giving more details on that as things firm up. So I think that's on the revenue side. On the expense side, I mentioned in my remarks that the interest expense would be impacted by the debt prepayments we made that were just at the end of the quarter and subsequent to quarter end. So I think you're going to see a lot of these impacts flow through more towards the back half of the year, as we get into that.
And that really drives a lot of the reasons why the Q1 is not a run rate for us.
Okay. Thank you. And moving on to kind of acquisitions, dispositions, you have one of the largest investable universes within net lease REITs considering the breadth of asset types and geographies within the portfolio. Are there any industries or geographies that are particularly attractive today? I know you touched on a few in the opening comments, but I'm also curious where you might be seeing some trouble or some areas with some trouble.
Just thinking about how you're going to build or decrease exposure from here?
Yes, sure. Yes, the diversification certainly is something that we value substantially. It does allow us to allocate capital across asset classes and geographies where we see the best risk return opportunities in any given point in time. If you look back at Q1 even into 2018 as well, we had a lot of success allocating capital into the industrial segment. Many of those deals were structured deals, sale leasebacks, some build to suits as well and we can command better pricing and structure as well, both lease term and lease provisions which we find very important.
We hope to continue that. I think our pipeline looking forward also is more heavily weighted towards industrial. I think currently right now we're also more heavily weighted towards the U. S. I think some of that is more just timing of specific transactions as opposed to a fall off in expected deal flow in Europe.
But I would expect us for the full year to be more weighted towards the U. S. This year certainly compared to last year. In terms of asset classes that we are not focused on, I think retail is certainly one that we continue to maintain in underweight position, something that we've talked about for years years now going back close to 2 decades at this point in time. It's always been the asset class that we view as the one that trades most efficiently with a lot of capital inflows, a lot of smaller bite sized deals with tenants that are easily understood by a broad range of investors.
So they do trade pretty tight. And obviously over the last 10 years, there's been the Amazon effect and e commerce on that asset class not to mention the supply issues that we see in the U. S. We've also talked in the past about where we do see opportunity in retail is more in Europe. I think out of our total ABR, 18% of the portfolio is retail, but 14% of that 18% is in Europe.
But we think the supply dynamics are much more in check. And we've also focused on tenants and components of the retail industry that are less exposed to e commerce.
Great. Thanks so much for the color.
Yes. Welcome.
Thank you. Our next question comes from the line of Manny Korchman from Citigroup. You are now live.
Hey, good morning, everyone. Just to follow-up on the comments on industrial, you mentioned that it's a healthy industry, but you also talked about some of the competition looking for assets there. So just how do you balance the deals that you're able to execute on and source versus the mass amount of competition out there?
Yes, sure. It's yes, there's a lot of competition within industrial, even within net lease, but certainly the broader industrial market I think is where even more of the capital inflows have shifted. I mean we compete in a couple of fronts. I mean number 1, we've been around for close to 50 years now. We have a strong reputation.
We're going to get an opportunity to look at all the deals of anything of meaningful size. We typically get early looks at those transactions as well. And I think through our long track record of ease of execution and the lack of execution risk, we're given very good opportunities to compete on these deals. I think we've also really carved out a niche specifically within the sale leaseback and build to suit component of net lease. Those transactions tend to have more structure and complexity upfront, which allows us to drive some yield as well as structure as I mentioned earlier.
And so that's primarily where we compete. I think the other component of this is and this is a bit of a differentiator relative to our peers is we do have the ability to invest within our existing portfolio both follow on deals with existing tenants whether those are expansions or other capital investment projects or follow on transactions with, some of our existing tenants. And I think the Orgill transaction I mentioned earlier is a good example of that. That's a tenant that we've done some deals with and hope to do more with over time.
So if we think about your pipeline right now, how many of those sort of follow on exclusive to you deals if you wouldn't are in that, whether you can quantify it in some way for us?
Yes. I mean, I think the deal flow that I think is truly proprietary and truly upmarket are those, what we call capital investment project, these expansions and follow on investments, particularly on ones that are related to an existing asset or portfolio of assets. The pipeline right now contains about $200,000,000 of those projects and that's inter supplemental. Those are projects that are under contract and really underway in terms of construction. They count towards our deal volume for the year once they complete and rents commences.
So out of that $200,000,000 about $100,000,000 of those are expected to close in 2019. Perhaps we would see a little bit of incremental deal flow to that this year, but more building to future years as well.
Thanks. Tony, maybe just to dig into earnings more specifically, can you help us sort of just understand the trajectory or cadence of how earnings is going to fall in? I think a couple of other analysts have mentioned that 1Q was a surprisingly low number. If we annualize your real estate AFFO, we don't get your range. So how quickly does that ramp, especially given the dispositions at the end of the year?
Yes. I mean, I think we've always historically said we don't give quarterly guidance. But what we can give you color on, as I mentioned, is really around the lease revenue. The timing of transactions does have an impact for us. I mean, we can have a quarter like we did this quarter, which is on pace with the guidance range that we've given on acquisition volume and have no dispositions towards the end of the year.
The ramp up that you'll see will come again from the timing on the investment volume, when that closes, and as I mentioned, in terms of the leasing activity that we mentioned. So that's not something that we can guide on specifically and give you much color, but we do see that happening more towards the 3rd and the 4th quarters of the year. I mean that's specific to the revenue side.
Thank you. Our next question comes from the line of Karin Ford from MUFG Securities. You are now live.
Hi, good morning.
Good morning, Karin.
Can you give us some color on where investment spreads today? And are you the
answer to the the answer to the last question is yes. We do have a meaningfully better cost of capital, a lot of which is related to the simplification of the business that we've talked about in the past as part of our CPA:seventeen strategy. So, yes, we do have interest in expanding the funnel into lower yielding investments that may be with higher quality real estate or real estate that may provide higher than typical growth. But we view that as incremental to our typical deal flow the opportunity set that we more historically have targeted. I would say to give a range in terms of deal spreads, We typically target cap rates in the U.
S. In the low to mid-6s up into the 7s. We referenced the weighted average for the Q1 which was almost entirely U. S. Deals was a little bit over 7%.
But we can come down from that. We can get into the sub 6 category if we think there's the appropriate risk return associated with that. Cap rates in Europe are probably 25 to 50 basis points lower, all else being equal. And of course, our borrowing costs are even wider or even wider spread than that to cap rates. So we could pick up some higher accretion there.
And again that's one of the benefits of being diversified and the ability to invest in Europe.
Great. That's helpful. Second question is just on releasing spreads. It wasn't a huge volume, but they did look pretty positive this quarter. Is that the start of a trend?
Or was that just the nature of the leases that you did this quarter?
Sure. This is Brooks.
I certainly would hesitate to extrapolate trends in any given quarter, but it was an active quarter and one we're very pleased with. If you look at the last 8 quarters for example, to try and extrapolate a little bit more trend, we've recaptured on the order of 96% and we're optimistic going forward as well. I think it's important to note that during that trailing 8 quarter timeframe, we've added 8 years of weighted average lease term. The tenant improvement allowance has been kind of sub-one dollars per square foot and that's impacted about 14% of ABR. So it's a good outcome for us.
Again, each quarter is going to be very different. But over the long run, we're optimistic about our lease expiration outlook.
Great. Thanks. And just one more. Given the favorable current debt environment, any interest in extending out debt duration from the current level just under 5 years?
Sure. I think that currently we have excellent access to almost all forms of capital. We have a lot of options at our disposal to efficiently access capital both here in the U. S. And Europe.
So we are actively evaluating our options.
Great. Thank you.
Thank you. Our next question comes from the line of Anthony Paolone with JPMorgan. You are now live.
Great. Thank you. Just on the cap rate side with your comment about the current pipeline leaning a bit more toward industrial, Do you think you'll be able to keep that 7 ish number over the balance of this year? Should we think about the rest of the activity in the pipeline and your guidance being a bit lower?
Yes, it's hard to predict how the full year will come out. If you look over the past couple of years, we have been in that 7% range. But it's a pretty big range. I mean, we'll do deals in the low 6s and perhaps even lower depending on the opportunity set that we see. Certainly, our cost of capital could allow us to do those.
But we're also finding deal opportunities into the 7s including deals that are higher than that especially the ones that are the capital investment products I mentioned earlier. So hard to give you a number right now, but we hope that if we do have a lower cap rate it will come with a larger opportunity set and hopefully incremental growth from there.
Okay. And then any comments on just Realty Income going outside the U. S. And whether that creates more competition for you or whether that helps spread the word about shaking corporate real estate loose. Any thoughts on what that does if anything?
Yes, sure. I mean we have great respect for Realty Income as a peer. And we certainly understand their rationale behind their decision to expand into Europe as a source of both growth as well as diversification. As you know diversification has always been a hallmark of our approach to investing in net lease. We've been over there for 20 years and have a substantial platform centered in London and Amsterdam.
But in terms of competition, I mean, I think Sumit said it well last week on their call, their investor call post their announcement that we have a complementary existence. I think that will be true in Europe as well. It's a very large market over there. So we may see them on a handful of deals, but I don't think we envision competing with them substantially directly. But we'll wait and see how that plays out.
I think more than anything, I think you're right. We view this as a positive from W. P. Carey's perspective and from a capital markets perspective. In many ways it validates the value of our platform in Europe and the benefits of geographic and the industry diversification within the net lease asset class, so something that we've talked about for decades.
And I do think that we'll see an increased focus from the investment community on European net lease. And I think they'll no longer be examining it just in the context of W. P. Carey. So all that we see as beneficial to our story.
Okay. And then last question maybe for Tony. And I think this is along the lines of some of the other questions around just the Q1 variance to perhaps street models. If I look at your AFFO statement, you added back $4,100,000 of it looks like FX related stuff. Is it fair to think about that?
Is kind of we should maybe just net that against or add that to NOI to kind of get the full effect quarter to quarter? Or is that just being overly simplistic?
Yes. I mean, I think it's hard to look at this on an individual line item basis, but I think what you're highlighting is the issue that the currency is flowing through on the various NOI lines. So certainly on our lease revenue, we'll see it on the interest expense as an offsetting impact. And then we do offset that with realized gains from settling hedges. So as part of our hedging strategy, we actually have contracts in place that will mitigate some of the remaining risk of our unhedged of the cash flows that are not hedged naturally.
So that does flow through that line and that add back. So I think, again, depending on how your model is working specifically, looking at that as a component of the NOI is probably reasonable.
Okay. Thank you. Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America Merrill Lynch. You are now live.
Hey, good morning guys.
Good morning, Josh.
Hey,
you mentioned earlier that the deals this year would most likely be in the U. S. And heavy industrial focus. Is that a function of competition, just supply of deals or kind of pricing? Is it
In terms of less deals in Europe?
Yes. Yes. And like
Yes. I mean there's GDP growth has slowed a little bit in Europe. I think that perhaps that has dampened activity a little bit. But if you think about it, interest rates are still quite low there. The ECB has pledged to keep rates low throughout 2019 and perhaps beyond that.
So there still are good spreads there. I think we'll see some pickup in Europe. Our pipeline does include some of that. And we certainly don't have visibility to what a full year would look like at this point in time. Pipeline is really, I would say, maybe 3 months forward looking.
So I think stay tuned there. But we are seeing better opportunities in the U. S. Than we have in the past. The Q1 was indicative of that.
I think our current pipeline is maybe it's 2 thirds weighted towards the U. S. Right now. So more to come as deals progress forward. But I think you'll probably see a little bit more of a U.
S. And industrial theme this year. Okay.
Okay. And then just kind of following up on the earlier question about Europe and O. Do you think there's opportunities for some more, I guess, cap rate compression over there as kind of you get a big peer coming in and then maybe others following on the back of that? Or is that an opportunity for you guys to maybe monetize some assets over time?
Yes. And we have been doing that some. We've been opportunistic and especially with some retail assets. More recently, we talked last quarter about taking some profits on our Helvig portfolio, especially after acquiring some more Helvig as part of the CPA:seventeen transaction. So I think certainly that's a possibility.
But the broader message is Europe is a very, very big market. In fact it has from a sale leaseback standpoint, it has a meaningfully higher percentage of owner occupied real estate that, really could be targeted for sale leasebacks and net lease assets. So it's big. I think that the benefits of someone like a realty income and perhaps others entering the
Got it. Thank you. Appreciate it. Sure.
Thank you. Our next question comes from the line of Todd Stender with Wells Fargo. You are now live.
Good morning. Thank you.
Good morning, Todd.
So regarding the ATM, we haven't seen you very often in the equity market. So the volume is pretty big, but not compared to your size, but it does definitely improve your liquidity. How much visibility do you get to see who the shareholders are? Is it more of a blind issuance? Are these truly reverse increase?
You get to see who it is. Can you just kind of characterize who you're placing the shares in the hands of?
Good morning, Todd. We don't have a lot of visibility in terms of the ultimate buyers of the ATM issuance. But the way we view that is that while we have excellent access to all forms of capital, given our increased trading volume, we felt that last quarter and this quarter was particularly attractive time for us to access the ATM market.
Thanks for that. And is it a handful of shareholders? Is it 1 or 2 building a position or you really don't get to see who it is on the other side?
No. We've had broad interest from institutional investors. So I think that the distribution and ownership has been broad.
Okay. Thanks. And then probably for Jason, the Amerifreight acquisition in the quarter seems pretty interesting. You characterized it as a covered land play. How much land is in the deal?
And maybe kind of just share what the cap rate was? Thanks.
Yes. I think it's a little over, I think in and around 10 acres. It's currently being used predominantly for truck parking. And so we think we have the ability to convert that into a trucking terminal as well at some point in time. But we have a good tenant in place.
We have 12 years of term. And so over time, I think that becomes more value as a redevelopment play. But in the meantime it will provide some pretty solid income. The cap rate we don't really give specifics but call it mid-6s.
Okay. Thank you. And then probably for Tony, you paid off quite a bit of secured debt. Any prepayment penalties? When were these due?
And is there a sense of urgency to do more of this?
Yes. No, we did. We paid off roughly $200,000,000 during the quarter and even subsequent to the quarter end through today about $185,000,000 but we've incurred right just under $2,000,000 of prepayment penalty, so pretty minimal at this point.
No issue with your credit rating, right? I mean, is this a renewed sense to do this or coupons were still fairly low?
Yes. I mean, look, we knew we assumed $2,000,000,000 of secured mortgage debt with our acquisition of CPA:seventeen. And as we've always said, we're committed to the unsecured strategy, looking to reduce those borrowings and increase our unencumbered asset pool. This was a good opportunity for us to pull some of forward, and it did have a weighted average interest rate of about 5%. So we will see some incremental interest savings from that as well.
So I mean, we'll continue to explore opportunities to reduce the secured debt ahead of scheduled maturities, but balance that with certainly the other needs on the capital side, including our acquisition pipeline.
Todd, I would add that we certainly not we don't have an issue with credit rating. In fact, I would say that our credit profile continues to improve as our revenue composition quality improves as we continue to pay down our secured debt. So I think that we're in a good place and we continue to improve.
Okay. Thank you.
Thank you. Our next question comes from the line of Chris Lucas with Capital One Securities. You are now live.
Hey, good morning everybody. Good morning, Chris. Jason, given the news with Realty Income and obviously the increased attention that you guys are receiving based on the post CPA 2017 side. I guess maybe if you could remind us the scale of the operation you guys have in Europe in the 2 main offices and their responsibilities and roles there?
Yes, sure. So about a third of our portfolio is in Europe, call that $6,000,000,000 or $7,000,000,000 And as we mentioned, we've been over there since 1998 investing in Europe. It's predominantly out of 2 offices. We're investing out of London. It's a team of 5 or 6 people, very experienced, all Europeans who understand the culture and the markets and have deep relationships within the European markets.
From an operational side, it's based out of Amsterdam. It's call it 40 plus people based in Amsterdam with a host of ranges of responsibilities and job functions. Asset Management is focused there. We have a large team that really follows the same proactive approach that we do in the U. S.
Staying ahead of lease maturities and trying to find opportunities to continue to further invest in our properties through expansions and follow on deals with our tenants. Again, all Europeans who understand those markets. And then the other functions we have there are really what you'd expect. We have financial reporting, treasury, tax, accounting, all based within the office.
Thank you
for that. And then I guess just one other question. Just as it relates to deal sourcing, is there a material differences between sort of how you source deals in the U. S. Versus how deals are sourced in Europe?
We've been in the U. S. For 50 years, Europe and 20 years. So I think reputationally we're very understood, a lot of name recognition and a long history of and track record of good execution. But the approach is similar.
I mean it's relationship driven through the different deal sources whether they're through developers, brokers, investment banks or directly with the tenants themselves. Very much relationship driven with a wide funnel given the diversification.
Great. Thank you for that. That's all I have this morning.
Great.
Thank you. Next question comes from the line of Greg McGinniss with Scotiabank. You are now live.
Hey, hello again. I just wanted to get a couple of quick details, actually from Sheila's follow-up question. I know we asked about this a lot, but I was just hoping you could give us your updated thoughts on the self storage platform, whether you expect to hold on to it or what your options are for offloading those assets and what that time frame might look at?
Right, sure. Yes, we've talked about this in the past a little bit and really the message is similar. We remain focused on being a pure play net lease REIT. So we're not going to own operating properties long term. And when we have something to announce on that front, we'll let you know.
Okay. Thanks.
Yes, sure.
Thank you. Ladies and gentlemen, at this time, I'm not showing any further questions. I would now like to turn the call back over to Mr. Sands.
Thanks everybody for your interest in W. P. Carey. If you have additional questions, please feel free to call Investor Relations directly on 212 4921-110. And that concludes today's call.
You may now disconnect. Thank you.