Good afternoon, everyone. Will the meeting please come to order? I am Jason Fox, CEO and member of the board of directors. It is my pleasure to welcome you all to W. P. Carey's 2018 annual meeting of shareholders. With us today are the following current board members: Mark Alexander, Peter Farrell, Robert Flanagan, Ben Griswold, Non-Executive Chairman of the Board and Chairman of the Executive Committee. I should mention that Peter Farrell is Chairman of the Compensation Committee, and Mark Alexander is Chairman of the Audit Committee. In addition, we have Axel Hansing, Jean Hoysradt, Margaret Lewis, Richard Marston, Chris Niehaus, who is our Non-Executive Vice Chairman of the Board, Chairman of the Nominating and Corporate Governance and Investment Committees, and Nick van Ommen. I would also like to introduce you to some of the officers of the company who are present.
John Park, our President, Toni Sanzone, our Chief Financial Officer, Susan Hyde, Chief Administrative Officer, and Corporate Secretary. We also have Paul Marco, our General Counsel, Gino Sabatini, our Head of Investments, in the back, John Miller, our Chief Investment Officer, and others with us include Becky Reeves, Roger Hensman, [Sue] Will Carey, Sapna, Stephanie, Pam, Jeremiah, among others supporting us here today. At this time, I would like to introduce Mr. Tim Conlon of PricewaterhouseCoopers LLP, the company's independent auditors, who is available to answer appropriate questions. Susan Hyde is the Corporate Secretary of the company and will act as Secretary of the meeting. Susan?
Thank you, Jason. This meeting has been called pursuant to due notice dated April 3rd, 2018, sent to all stockholders of record on or about April 9th, 2018. Proxies were solicited on behalf of the board of directors. A copy of the notice, proxy statement, and proxy card and annual report are available for examination during the meeting. Stockholders of common stock of record April 2nd, 2018, are entitled to one vote for each share held at the meeting. The total number of outstanding shares entitled to vote is 107,194,767. The presence at this meeting, in person or by proxy, of a majority of the shares will constitute a quorum. I will now ask Peter Deskovich, who is acting as Inspector of Election, to report on the presence of quorum.
We are present in person or by proxy, approximately 94.8 million shares representing 88.5% of the votes outstanding.
Great. Thank you, Peter Deskovich. 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 Hansing, Jean Hoysradt, Margaret Lewis, Christopher Niehaus, and Nick van Ommen. The second order of business is the consideration of an advisory vote on executive compensation. The third order of business is the consideration to ratify the appointment of PricewaterhouseCoopers as W. P. Carey's independent registered public accounting firm for 2018. We'll now take a share vote by ballot. If you've already submitted your proxy, there's nothing that you need to do. If you still have to vote, if you could raise your hand, and we'll collect your ballot. I think everyone has voted already, thank you for that.
While the votes are tallied, Jason and Toni will deliver our investor presentation.
Thanks, Susan Hyde. As everyone can see by the cover of our presentation, we're celebrating our 45th anniversary this year since our founding in 1973 by William Polk Carey. That's the name of the company. Quick overview of the company. We are a New York Stock Exchange publicly traded REIT specializing in sale leaseback investments of commercial real estate, primarily located in Northern and Western Europe and the U.S. We're one of the largest owners of net lease properties in the world. One of the tenets of our investment thesis is focused on diversification. We have a highly diversified pool of properties, both by geography, by tenant, by industry, and by property type. As I mentioned, we've been around since 1973, have been public since 1998, and have had a successful track record of investing through many economic cycles throughout the history of the company.
We have a presence here in the U.S., based here in New York, as well as some satellite offices around the country, and an investment office based in London overseeing our European investments. Our operations are based out of Amsterdam, where we oversee tax, financial reporting, accounting, cash management, as well as asset management. Our balance sheet is investment grade. We're proud of the strength of our balance sheet and the risk profile of the company, that allows us to access many different forms of capital through both bank debt as well as unsecured bonds, in addition to the typical equity capital markets. We also have an investment management segment of our business that earns fee income for managing a pool of assets. As I mentioned, we're a public REIT and trade on the New York Stock Exchange with about $11 billion total enterprise value.
80% of our earnings or AFFO are generated through our owned real estate portfolio, the net lease assets that we own on our balance sheet. That includes a portfolio of close to 900 net lease properties, primarily in the major asset classes of industrial, office retail, and warehouse facilities. Those are leased on long-term triple net leases to a little over 200 tenants. As I mentioned earlier, we're based primarily in the U.S. and Europe. Occupancy is virtually 100%, just shy of it, actually, and we do have minimal exposure to JV interests. The other part of our business that contributes 20% of our earnings or AFFO is our investment management platform.
We currently have around $13 billion of assets under management, focused across five separate funds, two diversified net lease funds that have around $8 billion of AUM, about $5 billion of AUM in two lodging funds, and a third fund that focuses on student housing in Europe. Our investment strategy has been consistent throughout our inception. We're focused on investing in net lease assets, in doing so, our goal is to generate attractive risk-adjusted returns by finding core long-term net lease assets in our primary markets of the U.S. and Northern and Western Europe. Through our structuring of our investments, we are first focused on protecting the downside, that is through a combination of sophisticated credit underwriting as well as looking at the real estate, understanding the markets in which we're operating, and determining the best structure to protect that downside.
When we do that, we're focused on acquiring mission-critical assets. These are assets that the tenants need to continue operating their business. As we structure our deals, we do look for providing upside opportunities within the portfolio as well. These are through lease escalations, primarily focused on inflation-based increases, which we'll talk about a little bit further. We also look for credit improvements in our tenant base within our portfolio, which allows us and others to more highly value those cash flows that are associated with those leases. Finally, we are an investor in real estate, and we pride ourselves on finding opportunities to invest that provide real estate appreciation over time. Finally, we are very proactive on how we manage our portfolio.
Through existing tenant relationships and our ability to invest additional capital into our portfolio, we're able to create additional value through expansions, renovations, redevelopments, and follow-on opportunities within our portfolio. As we talk about our investment strategy, we talk about diversification, words like disciplined, opportunistic in terms of markets and asset classes. I mentioned earlier we're very proactive on the asset management side. Finally, we maintain a conservative capital structure on the balance sheet. We'll go through all these points with Toni following up on the last point, our balance sheet and financial metrics. In terms of investment strategy, this is something that we've used this model since the inception of the company. It's really centered around three main underwriting factors that result in how we structure and price transactions. First, we look at the creditworthiness of the tenant.
When we're buying assets and structuring sale leasebacks under long-term net leases, typically of 15-20 years, the creditworthiness of the underlying tenant is critical in receiving our cash flows. A big part of our underwriting are focused on those tenants, where they sit within their industries. Are they leaders? How sustainable is their business model? What are the competitive pressures within their business? How have they done historically? How are they changing? Of course, what's their financial strengths, and where is the weaknesses that we can identify? Secondarily, we look at the criticality of assets. When we're buying portfolios of companies under long-term net leases, we're focused on downside protection. While it's unusual and rare that we have credit events within our portfolio, they do happen at time to time.
By buying critical assets, it gives us opportunities to retain our tenants even as they restructure. For example, if a company had to restructure its balance sheet through a bankruptcy filing, they're going to need our real estate when we own critical assets to restructure and continue going forward. The vast majority of any restructures that we do have result in the affirmation of leases because we have critical operating assets. Finally, the quality of the underlying real estate is of utmost importance. We're a REIT. That's what we own. That's where we can see a lot of upside, and that's what allows us to provide long-term and recurring dividends to our investors. Those three factors dictate how we price transactions and structure transactions.
How long of a lease term do we think we need based on the strength of the tenant and the quality of the real estate? What type of yields we want at the asset level or cap rates to compensate us for the type of risk involved in a transaction, and what kind of rental increases and other covenants within a lease that we think will provide both downside protection as well as upside. Net lease. One of the misperceptions about net lease is you buy the asset, you clip the coupon, and you wait to see what happens. That's not how we operate our portfolio. We have a very proactive and proven asset management approach. We have a very large team based here in the U.S. as well as Amsterdam overseeing our assets, making asset-level decisions on how to both mitigate risk and provide upside opportunities over time.
This includes the types of transactions you'd imagine with real estate: leasing, dispositions, lease modifications. Certainly, the credit analysis, just as we do on the original investment, we maintain that same systematic approach to the underlying assets in our portfolio and how those three main underwriting features change over time, whether it's the creditworthiness of the tenant, the criticality asset, or the quality or fungibility of that real estate. As part of our proactive approach to asset management, we developed a very systematic way of looking at our portfolio. We have close to 1,000 properties, and we take a bottoms-up approach to understand each of the assets, the various risks they present, and how to mitigate those risks. As I mentioned earlier, it falls within the same framework that we do on the investments originally upon underwriting. We look at tenant credit, asset quality, and asset criticality.
Briefly turn to the portfolio itself to give you a couple different cuts at how we view this portfolio. As we mentioned, they have close to 1,000 properties, just under 900 to be exact, spread across 200 tenants, many of which are on master leases for those properties. About 85 million square feet. It produces close to $700 million of annualized base rent. As we talked earlier, it's spread across the U.S. and Europe predominantly. We have a lease portfolio that has substantially all the assets. 99% have some level of increases, which we'll talk about. 10 years of cash flow are locked in through our weighted average lease term. It gives us comfort and high visibility into the cash flows we produce, and therefore, the dividends that we're able to pay. As I mentioned, occupancy is virtually 100% full.
We do track the credit of the underlying tenants within our portfolio. Close to 30% are investment grade. While that's a large percentage, it's not part of our strategy to originate investment-grade tenants. We think the better risk-return profile is in sub-investment-grade tenants. We mainly drive our investment-grade tenant portfolio through credit upgrades, through both improving credits as well as M&A activity within our portfolio. Finally, tenant concentration. We have a highly diversified portfolio of tenants, with the top 10 tenants only comprising a little over 30% of our annualized base rent. Some quick slides that I'll just touch on very briefly on diversification. Diversified across property type. As you can see, industrial and warehouse combined are over 40% of our portfolio, followed by the other main property types of office and retail.
Industry diversification, a pretty colorful pie chart there demonstrating a broad exposure to many different industry types. I should note that our retail stores, while they are the number one tenanted industry, many of the leases associated with those tenants are on industrial properties such as warehouses. It doesn't mean we have high exposure to retail stores in terms of the real estate, but we are underweight in that category. Geographically, we are spread about two-thirds in North America, which virtually all of that is in the United States, and about one-third or roughly 30% in Europe, with the largest countries exposures being Germany. It's predominantly Northern and Western Europe, with a little bit of exposure in Canada and Mexico to round out North America. Our rent increases are well diversified as well. 99% of them have contractual rent increases built in.
This is what allows us to continue to, or one of the reasons why we're able to continue to increase our dividend over time, in addition to some of the growth we're able to do through new investments. As you can see here, over two-thirds, close to 70%, of our annualized base rent, or ABR, is tied to inflation, with a large percentage of that, 43 out of that 68%, tied to uncapped inflation. Something that we are very focused on when we're structuring new opportunities. We like to think of our portfolio as having a base of fixed increases that provides increases regardless of the economic environment, but more importantly, with our CPI-based increases, we have a good hedge against rising interest rates and the inflation that's typically correlated with rising interest rates. This is, in our opinion, one of the highest out of all REITs.
We would expect in inflationary times to outperform our peers on a same-store growth basis. Lease expirations. We also have a well-laddered portfolio here with really very little expiring over the next several years. It's important to note our strategy, which is consistent with the proactive approach that we take to asset management. We're working on lease expirations well in advance of the actual expiration of that lease. Two, three, five years ahead of time, and we continue to look for opportunities to reinvest in our portfolios, generate incremental yield with that capital, but also, at the same time, reset those leases back to perhaps what the original lease term was 15 or 20 years. Exciting slide here. It basically shows that we are very good at keeping our occupancy high. Over the last five years, we've been above 99%, as I've mentioned already.
We're virtually 100% occupied at this point in time. I think the other thing to note in this portfolio is, this slide goes back well past the economic crisis, and you can see our occupancy maybe dipped a point or two points during 2008 and 2009. That's pretty unique for a real estate company. Part of that is the fact that we focus on net lease and long-term net leases, but I think an equal amount of that is the way that we select our original investments with long-term enduring tenants, and the way that we proactively prune and manage our portfolio. Give you a quick overview of a couple recent deals that we did, some international and some domestic. This is a build-to-suit investment. We build a property for a tenant who's executed a lease. We have a third-party developer build the asset. We don't take development risk.
When the building is complete, we have a brand new custom-built building for a tenant under a long-term triple net lease. This one is in Poland, which we like the market given its proximity to Germany. It plays an important role in the European supply chain, given the low cost of labor, and again, its close proximity to Germany. 15-year triple net lease, CPI-based rent consistent with our model. This deal right here is an example of our approach to asset management. We did a very good sale leaseback with a company that subsequently to that sale leaseback had changed its need for the property. We bought it at a very good basis, which gave us lots of opportunities to reposition that asset. One of which, given that it's just outside of Boston, was to find a life science user, which we did quite quickly in Astellas.
As part of this reinvestment, we were able to commit to investing around $50 million, $56 million into the property, on which we're earning a very high yield. The tenant is also contributing a very large amount, and we converted it to a state-of-the-art life sciences building within one of the top life sciences markets in the country. Highly desirable asset from a tenant perspective, also highly desirable asset from an investment perspective. We would expect significant yield compression having signed this lease with Astellas. Astellas is one of the world's largest life sciences companies. It's Japanese based. Its parent is investment grade. This is a large facility under an 18-year triple net lease with fixed annual increases. Then finally, another European deal to show our ability to continue to expand with our tenants. Existing building with a company called Nippon Express.
This is in the Port of Rotterdam, one of the top worldwide ports with lots of activity. We have a prime piece of real estate on which our tenant wanted to expand. We are providing the capital to do that expansion. We're doing it under a 10-year standard Dutch lease. We have CPI-based increases. Very high quality asset in a very high demand market. This is something that we're going to see tremendous appreciation over time, is our expectation. With that, I will turn the mic over to Toni to walk us through our balance sheet and some of our shareholder metrics. Thanks, Toni.
Thanks, Jason. Good afternoon, everyone. As Jason mentioned, we're very proud of the strength of our balance sheet and our credit profile. Since our transition to a REIT in 2012, we've achieved our investment grade rating. We are very proud of that fact. We've been focused on our unsecured debt strategy. Over the past four plus years, we've had the benefit of access to multiple markets through various cycles, which has certainly been of a large benefit to us. We've shifted from the secured debt model to an unsecured strategy with six different issuances in the bond markets, both in the U.S. and in Europe. That's really supported by the diversified strategy that Jason talked about on our balance sheet. Having access to the markets in various cycles has proven truly beneficial to our shareholders, to our credit profile overall.
We currently have access to a $1.5 billion credit facility with less than $300 million drawn at the end of the quarter. The bond issuances that I mentioned have also allowed us to fix our interest rate. We have limited interest rate volatility at this point with less than 7% of our outstanding debt subject to interest rate movements, which is pretty important at this time in the cycle with rising interest rate environment. In addition to that, I think we have really shown the well-laddered maturities, which has limited our exposure over the next few years to needing to address anything that's imminent. We can continue executing on our strategy through whatever cycle is ahead of us, and that's where we've proven ourselves.
As we've continued to pay down the mortgage debt over time, we've really gone from having a secured balance sheet of about 36% two years ago to just under 10% based on where we are right now. We'll continue to follow that strategy through. It's given us access to different bondholders in different markets. We have a presence in Europe, as Jason mentioned, with our platform, our teams in London and Amsterdam, and that's been received very well by shareholders and by bondholders across our capital stack. At this point, I think as Jason mentioned, we are committed to this investment-grade strategy. We monitor our operations through our covenants, and we ensure that we're constantly in compliance, and that's a focus of ours.
I think I will turn briefly to our investment management segment, which has become a smaller part of our business since we announced last June that we are exiting the non-traded retail fundraising business. That was part of the execution of our long-term strategy. We've made some progress in that regard from a simplification standpoint, from making the story easier to understand for our investors, for our analysts, and we expect that to continue going forward. We are committed to continuing to manage the existing funds that we manage, which include the diversified net lease REITs, the CPA:17 and CPA:18, and our lodging fund, CWI 1 and 2, and we have a smaller student housing fund. We will manage those to the end of their natural life cycles, and whatever the liquidations would follow there.
I think these last two slides we're very proud of, and they really demonstrate our commitment to our shareholders. This is a chart that shows the history of our dividend growth. For the last 20 years as a public company, we have increased our dividend every year. We've done that while maintaining a conservative payout ratio, again, which is very beneficial to our shareholders and gives us a fair amount of flexibility in how we manage the business. Lastly, I think we have a proven track record for not only the last 20 years as a public company, but for the last 45 years under our investment model of delivering returns. What we're showing here is how we've outperformed the general market and the REIT indices over multiple different economic cycles.
That is largely in part due to our commitment to our shareholders and our execution on our long-term strategy, which includes the dedication to our diversified model, following through our investment strategy, our active approach to asset management that Jason walked through, and our strong, flexible balance sheet. With that, I will hand it back to Susan.
Terrific. Thank you, Toni. Now that the presentation is done, we will open up our meeting for any questions that our shareholders have.
Howard.
Yes. Shareholder, I have two questions. Feel free to cut me off. I'm sorry. My first question is, I know you converted to a REIT several years ago, as Toni had just mentioned. Now that the new tax legislation's been enacted, any chance of converting back to a regular corporation at this point?
Sure, that's a good question. We still believe that the REIT form affords us a great deal of flexibility and more sufficient ownership of our assets and businesses. We don't have any plans to convert. I will mention that the tax change does give us several advantages and positives in that the limitation on the interest deduction could lead to increased volume on acquisitions. Also, the fact that some of the REIT dividends will be excluded, in effect, get tax lowered. Lower rate should be a benefit to our shareholders as well.
Okay. My next question is, Toni had mentioned the fact about the rising interest rates not going to affect us in terms of our debt. In terms of our overall picture of the company, in terms of the net leases, do you consider the rise of the interest rate environment perhaps a plus for us in terms of the bottom line in our balance sheets?
It's a good question. In terms of the balance sheet, as Toni showed, we've transitioned our balance sheet not only to longer-term debt, but also to predominantly fixed-rate debt. Virtually all of our debt, apart from our credit facility, is fixed rate in nature, and it is long term. In terms of interest rates and how it affects the investment side of our business, we do think that over time, cap rates should increase as interest rates increase, but there typically is a lag effect. Within our existing portfolio, however, as I mentioned, we have a significant amount of our leases tied to inflation-based increases. Even if we have rising interest rates, we think that's going to be correlated to higher inflation. As I mentioned earlier, we think we should outperform.
The short answer to your question is, I think that we will outperform net lease peers in a rising interest rate environment.
Okay. My next question is concerning our overseas, especially in the Europe end of it. In fact, I remember I asked your predecessor two years ago how the effects of Brexit will be affecting us. Now that we have also additional environment where Italy had their recent elections and the possibility of more countries perhaps breaking out of the EU, how would that affect our strategy in terms of the European side? Do you think we'll invest more in Europe or de-emphasize Europe? How would that go from that end of it?
We're committed to investing in Europe. We're certainly mindful of the political and structural risks that exist there. Because of that, we look for higher yielding investments or higher spread investments relative to the risk at the asset level than we would in the U.S. One thing that we talk about when we think about risk is risk can create opportunity. With regards to Brexit.
We were expecting that there may be some capital outflows that could provide opportunities for us to generate higher yields. I think you also have to remember that we are structuring our leases with very long-term leases with typically strong credits, multinational in nature, which allows us to ride through more shorter term, either political instability, economic cycles, or anything else that may disrupt economies or a company's ability to pay rent.
Okay. Can I ask two more questions?
Yeah. Then we'll open it up to others.
Okay. Sorry to take-
That's all right
My next question, have we ever dealt in terms of cryptocurrencies, or do you intend to deal with that in the future if we haven't? What do you basically think of the cryptocurrency end of it?
We have not dealt with cryptocurrencies at all within our business model. I don't expect us to be dealing with cryptocurrencies going forward to the extent blockchain technology can be beneficial. I think that's probably more applicable than the currencies themselves. To the extent the industry moves towards tenants utilizing cryptocurrencies, we'll certainly look at it, but I don't expect it to be impactful anytime soon.
Okay. My final question is.
Sure
You can settle this as being the tiebreaker. I've asked a couple of folks, perhaps you consider competitors from Brookfield and SL Green. In your opinion, do you consider the commercial real estate market here in Manhattan weak or strong, in your opinion?
Well, for starters, we don't have a lot of exposure to New York City real estate.
Okay.
The one commercial asset that we own in New York City is The New York Times corporate headquarters, in which we have a tremendous asset at a very low basis on a lease with a company that we expect to continue paying for as long as we own that asset. Generally speaking, I think that office landlords probably have some headwinds, given the amount of new supply and the changes in efficiency that companies operate with their employees, in other words, needing less space for the same number of employees. Those probably create some headwinds. That being said, New York City is a dynamic market. It's still, in my view, one of the top places to live and to conduct business, especially in the financial services industry. That should continue to drive demand for office space in this market.
Okay. Thank you very much.
You're welcome.
Thank you.
Great. If there are no further questions, we'll turn to the results of our voting. Peter, if you could provide your report.
Each of the nominees received in excess of 92% favorable vote and therefore have been elected. As to proposal two, to approve the advisory resolution on executive compensation, that proposal has received a favorable vote in excess of 96% and therefore approved. As to proposal three, the ratification of PricewaterhouseCoopers LLP as the company's independent registered public accountant, that proposal has received in excess of 98% favorable vote and therefore approved.
Perfect. Thank you. Jason?
Sure. If there's no further business to come before the meeting, I'd like to entertain a motion to adjourn.
Moved.
Is there a second?
Second.
All in favor, aye.
Aye.
Any opposed? Thank you.
Thank you.
Thank you.