Welcome to W. P. Carey's First Quarter 2021 Earnings Conference Call. My name is Jessie, and I will be your operator today. All lines have been placed on mute to prevent any background noise.
Please note that today's event is being recorded. After today's prepared remarks, I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.
Good morning, everyone. Thank you for joining us this morning for our 2021 Q1 earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward looking statements. Factors that could cause actual results to differ materially from W. P.
Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpkerry.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations and other related materials. And with that, I'll pass the call over to our Chief Executive Officer, Jason Fox.
Thank you, Peter, and good morning, everyone. I'm pleased to report that many of the positive trends we saw in the Q4 of 2020 have continued into 2021. We've had a very strong start to the year on several fronts. First, we're already on pace to exceed our initial expectations for investment volume in 2021. And our near term pipelines is strong, perhaps even stronger It's ever been with over $500,000,000 of active deals and in advanced stage, much of which we expect to close during the Q2.
2nd, we've delivered industry leading rent collections throughout the pandemic and continue to have high confidence in how our portfolio will perform going forward, Especially in a macro environment where the U. S. And global economies are expected to improve as COVID cases decline and business activity rebounds. 3rd, we executed on 2 significant bond issuances during the Q1, highlighting our access to very attractively priced capital, Locking in record low coupons in both the U. S.
And Europe and refinancing the majority of near term debt maturities with our next meaningful maturity now scheduled in In the past week, we were also placed on positive outlook by Moody's, which reflects the positive trajectory of our business and balance sheet It gives us confidence that we will continue to have access to attractively priced capital going forward. 4th, We raised equity through our ATM, accretively funding our recent investment activity and modestly delevering compared to where we ended the Q4. We also still have equity proceeds available through the Equity Forward we raised in 2020. So plenty of flexibility in how we fund our investment activity over the remainder of the year. The combination of closed investments, our active pipeline, strong portfolio performance And raising capital at attractive spreads on new investments has allowed us to raise our AFFO guidance for 2021.
Tony Sanzone, our CFO, will discuss our guidance raise along with our results for the quarter and balance sheet activity. Tony and I are joined this morning by John Park, our President and Brooks Gordon, our Head of Asset Management. During the Q1, we completed $214,000,000 of investments, comprising $149,000,000 of acquisitions And $65,000,000 of completed capital projects. Our first quarter investments had a weighted average initial cap rate of 6.6% And like virtually all of our investments provide built in rent growth, averaging 2.25% for those with fixed increases, Reflecting our diversified approach, Our Q1 investments span most of our core property types, though the bulk of our deals continue to be in industrial and warehouse, Which currently comprise about half of our portfolio on an ADR basis. I'll touch upon a few of the more notable deals from the Q1.
In February, we completed the $75,000,000 sale leaseback of 2 packing, production and distribution facilities Net leased to Prima Wawona, the leading vertically integrated grower, packer and shipper of seasonal high value summer fruit in the U. S. If you like peaches, There's a roughly 1 in 3 chance the last one UA is processed in these facilities. The properties are strategically located in proximity to the tenant's farmland in California Central Valley and represent the majority of its storage, processing and distribution operations, a significant portion of which is cold storage. The tenant has invested significantly in the facilities, underscoring their criticality and their triple net lease under a master lease for a 25 year term With fixed annual rent increases.
During the quarter, we also completed the $52,000,000 build to suit of a new industrial R and D facility In Germany, net leased to American Axle, which is a global Tier 1 supplier of automotive components and systems, including electric drive technologies. The facility is strategically located in a prime industrial park near the Frankfurt Airport and triple net leased for a 20 year term with rent increases tied to German CPI. Since quarter end, we've completed 3 additional acquisitions totaling $186,000,000 the majority of which relates to our second Significant investment over the last 6 months in grocery retail. Specifically, in early April, we closed the $119,000,000 sale leaseback Of 3 hypermarket properties located in Southern and Central France, which rank among the tenants' top performing sites. They're triple net leased to Casino, one of the largest food retailers in the world.
From an ESG perspective, this was also an opportunity to invest in a tenant Committed to transitioning to renewable energy. The properties are on a long term master lease with rent increases tied to French CPI. Including the transactions we completed in April, our investment volume year to date totals $400,000,000 In addition to accretive acquisitions, a meaningful contributor to our future growth comes from the rent increases built into our leases, A significant portion of which is tied to inflation. Given renewed expectations for higher inflation, I'll take a moment to provide a little extra detail on our rent escalations. 99% of our ABR is generated by leases with some form of built in rent increases.
61% of ABR comes from leases tied to inflation. So So if you enter a period of sustained inflation, we remain very well positioned for it to flow through as incremental rent growth. Of our leases with rent increases tied to inflation, the majority representing 38% of total ADR is based on uncapped CPI, With the largest category being those tied to US CPI. The other 23% of ABR that's tied to inflation Includes leases with floors and or caps, which we refer to as CPI based. Within this category, The average floor is around 1.5% on an annualized basis and the average cap is approximately 3%.
In an inflationary environment, if our 3% CASK become relevant, it would likely mean that we would be achieving substantially higher Same store rent growth than we are today. For now, however, the floors continue to be more relevant than the caps as drivers of annual growth in our leases. Finally, 35% of ABR is generated from leases with fixed rent increases, where the average increase is approximately 2% on an annualized basis. Rent increases generally occur annually. So over time, we'll flow through to rents.
Given the profile of our rent escalations, We believe we are the one that best positioned net lease REITs for inflation. Turning to how we're positioned in the current environment. In the U. S, With economic indicators trending positive on the back of a vaccine led recovery, we're seeing strong deal flow across almost all property types. The exception being office, where sellers seem to be taking a wait and see approach, given the significant rise of work from home during the pandemic.
Industrial assets continue to be aggressively pursued by a wide range of buyers, but it remains a very deep and diverse sector. We continue to find plenty of accretive opportunities as our recent transaction momentum demonstrates underpinned by our cost of capital. As the manufacturing sector continues to gather strength in the U. S, it should support growing interest in sale leasebacks as a means of freeing up capital In Europe, while competition also remains strong for industrial assets, Our significantly lower cost of debt in the region results in spreads that are generally 50 to 100 basis points wider than for comparable assets in the U. S.
Food retail, particularly grocery, has proven to be a resilient sector during the pandemic and has seen further cap rate compression, especially in the U. S, Driven by a flight to quality. We generally prefer retail in Europe, where there is lower retail square footage per capita, Higher barriers to entry and less competition. As our recent sizable investments in retail grocery illustrate, we have good access to deals in this sector, Successfully executing on top performing stores. Recent market theme in Europe has been the record amounts of real estate being sold by companies As they look to shore up their COVID impacted balance sheets.
As the market leader for sale leaseback transactions in the region, this is a positive trend that expands our addressable market And our ability to continue generating growth even in an environment where cap rates remain tight. Our cost of debt has become increasingly efficient in recent years. In Europe, we issued 9 year bonds during the Q1, the coupon below 1%. And in the U. S, we issued 12 year bonds, In addition, our investments continue to have attractive built in growth, and we originate leases that tend to be the longest in the net lease sector.
We believe it's important for investors to understand not only the day one accretion from our going in cash cap rates, but also the average yield We are achieving over lease terms of 20 years or more with strong annual rent bumps. For an investment within the initial cap rate in the mid-6s, The average yield over 20 years with 2% annual rent bumps is approximately 8%. In closing, Through a combination of the deals we closed to date, the capital projects and commitments scheduled to complete this year and a near term pipeline that's the strongest we've seen in many years, We're on track for a record year for deal volume, supported by a favorable cost of capital, substantial liquidity and the flexibility to access capital markets opportunistically. And with that, I'll pass the call over to Toni.
Thank you, Jason, and good morning, everyone. This morning, we reported AFFO of $1.22 per diluted share and Real Estate AFFO of $1.19 per share. We had a strong Q1 on all fronts, with our investment activity and debt refinancings positioning us well to raise our earnings expectations for the remainder of the year. And as Jason mentioned, we have over $500,000,000 of active deals in our near term pipeline. Our portfolio continues to perform consistently well as it has since the start of the pandemic with 1st quarter rent collections at 98% of ABR.
The number of tenants with rent disruption remains very small and manageable with no new themes to report. During the Q1, We had one retail tenant in Europe partially pay rent as a result of the temporary lockdown, and we excluded the unpaid portion totaling $2,900,000 from AFFO, in line with our continued conservative approach to revenue recognition. We're actively pursuing this rent and would only recognize it in As a reminder, we had no significant rent receivables from 2020 and minimal rent deferrals. The few deferrals we did have were part of broader lease restructures, where the deferred rent amount is now reflected in current ABR and the tenants have resumed paying rent. Overall, our collection rate remains very strong and on track with our expectations for the year, with April collections in line with the Q1.
As such, going forward, we will be reporting rent collections on a quarterly basis. Turning to same store rent growth. Comprehensive same store rent growth, which is based on pro rata rental income included in AFFO, was negative 0.6% year over year, in part reflecting the fact that the prior period was pre COVID. As we've previously noted, this metric will move around from quarter to quarter, especially as COVID related disruptions and rent recoveries flow through the period over period comparisons in our results. For the full year, we expect our comprehensive same store rent growth to be in line with our pre COVID growth rate.
Contractual same store rent growth, which reflects the average rent increases in our leases, was 1.6% year over year, A 10 basis point increase over the 4th quarter, driven primarily by a rent escalation for Advanced Auto, which has moved back into our top 10 tenant list as a result. Leasing activity for the quarter was primarily comprised of 5 year lease extensions on properties leased to Obi, a do it yourself retailer in Europe, Extending the maturities from 2024 to 2029 with full rent recapture on $14,000,000 or 1.2 percent of ABR And no capital outlay. On a trailing 8 quarter basis, we've recaptured 95% of the prior rent, Which relates to 11.5 percent of ABR and added 7.2 years of incremental lease term, while spending just $1.44 per square foot Moving on to our balance sheet activity. The Q1 was a busy quarter for our capital markets activity, Raising over $1,000,000,000 in well priced long term and permanent capital. In February, we issued $425,000,000 of 12 year senior unsecured notes at a coupon of 2.25%, representing a 108 basis point spread to the benchmark treasury.
Also in February, we issued €525,000,000 of 9 year unsecured notes at a coupon of 0.95%, representing a 110 basis point spread to the benchmark. I'm pleased to say both of these bond issuances were executed at our tightest spread and lowest coupons to date, demonstrating the continued strengthening of our credit profile. Proceeds from these offerings were primarily used prepay approximately $400,000,000 of mortgages with a weighted average interest rate just over 5% and for the Early redemption of €500,000,000 bonds, which carried a 2% coupon and was scheduled to mature in 2023. In addition to taking advantage of favorable market conditions and getting ahead of a rising interest rate environment, we effectively reduced refinancing risk by addressing the majority of our debt due before 2024, while extending our weighted average debt maturity from 4.8 to 5.9 years. In addition, we further advanced our unsecured debt strategy, reducing secured debt as a percentage of gross assets to 4.6%, Down from 7.2% at the end of the 4th quarter and increasing our unencumbered ABR to 87%.
Locking in these long term rates also resulted in an overall reduction to our weighted average cost of debt by 20 basis points to 2.7%, which is expected to generate annualized interest savings of approximately $17,000,000 Since the debt repayments occurred closer to the end of the Q1, We expect to see the interest savings start to flow through earnings more meaningfully beginning in the second quarter. On the equity side, during the Q1, we tapped into our ATM program, issuing just over 2,000,000 shares of common stock At a weighted average price of $70.26 per share, raising net proceeds of $140,000,000 So far in the Q2, we've issued just over 443,000 shares at a weighted average price of $71.67 per share, raising additional net proceeds of approximately $31,000,000 We continue to have the flexibility to settle 2,500,000 shares under forward agreements in 2021 for anticipated net proceeds of approximately $160,000,000 From a leverage perspective, we ended the Q1 with debt to gross assets of 41.2% And net debt to adjusted EBITDA of 5.9 times, which does not factor in the additional equity we have available to issue under forward agreement. We continue to target debt to gross assets in the low to mid 40% range and net debt to adjusted EBITDA in the mid to high five times.
Our successful execution raising capital this quarter has bolstered our already strong balance sheet With over $1,800,000,000 credit facility virtually undrawn at the end of the quarter, ensuring we remain extremely well positioned to execute on our investment pipeline Turning now to our 2021 guidance. As announced this morning, we've raised our AFFO guidance range by $0.06 at the midpoint, driven primarily by the strong momentum in our investment activity year to date, both in terms of volume and pace as well as by the interest savings we will generate from the debt refinancing activity I discussed earlier. We've increased our investment volume range to between $1,250,000,000 $1,750,000,000 which as always includes capital investments and commitments scheduled to complete this year. Our expectations for disposition activity remain unchanged at between $250,000,000 $350,000,000 for the year. Year to date, disposition activity has generated about $93,000,000 in proceeds, including $79,000,000 that closed in the Q2.
Our guidance continues to assume uncollected rents of between 1% 2% of ABR. We continue to expect G and A expense for the full year to fall within our original range of $79,000,000 to $83,000,000 And I'll note that our Q1 G and A generally trends higher than other quarters due to the timing of payroll related taxes and is therefore not a run rate for the rest of the year. Embedded in our AFFO guidance is $9,700,000 of cash dividends generated by other real estate investments, which we spoke about on our last earnings call. In January, we received a $6,400,000 dividend on our common equity investment in Lineage Logistics, which we assume will be the only distribution we received from Lineage this year. And in April, we received $3,300,000 of preferred stock dividends on our investment in Watermark Lodging Trust, reflecting the amount due for the prior 4 quarters.
These dividends will be the primary components of the new line item on our income statement called non operating income. Taking all of this together, for the full year, we currently expect total AFFO of between $4.87 $4.97 per share, including real estate AFFO of between $4.74 $4.84 per share. In closing, we remain focused on growth. Our strong start to the year and robust pipeline Put us on a path to deliver our highest annual investment volume since converting to a REIT. Furthermore, our balance sheet is well positioned for rising rates With no significant maturities until 2024, and we have one of the best positioned net lease portfolios with embedded rent growth, especially for an inflationary environment.
And with that, I'll hand the call back to the operator for questions.
Thank you. Our first question is coming from the line of Harsh Hanani with Green Street. Please proceed with your question.
Thank you. I just wanted to ask in light of yesterday's deal Of the income acquiring belief, do you feel like the competitive landscape will change with the income entering So, Continental Europe and whether that will make it more difficult or competitive for you to get deals there?
Yes, good morning. I don't think it really changes anything. This is certainly they're now a larger net lease REIT, but they've been You're making progress moving towards Europe, the UK first and based on what we read that they say, You're up next and it's a big market over there. It's as large if not larger than the United States And there's actually a higher percentage of owner occupied real estate. So the sale leaseback market is even deeper.
Generally, we don't compete directly with them in the U. S. There's probably a little bit more overlap than what we do in Europe, but I don't think this change Thanks. And if anything, I'll say that anything that brings attention to the net lease space, maybe in particular, A diversified model within the net lease space and one that includes geographic diversification, I think that's a positive from my point of view.
Thank you. And then another one from me. Can you talk about the occupancy declines On a sequential basis in the past two quarters, what is driving this? And then can you talk about what you're Going forward, I know you don't provide guidance on this, but just your outlook would be helpful.
Yes, Brooks, you want to take that one?
Sure. So vacancy did tick up slightly. It's a few properties, I think 5 over that period that have come off lease. Not really any trends in there, pretty anecdotal. We do expect occupancy will tick back up to in the 99% range Over the course of this year, there's a lot of activity in process, active deals on roughly 30% of that vacant square footage and Good prospects on the balance.
So that will go up and down in any given quarter, but we would expect it to remain in that 99% range In the long run.
Great. Thank you. Welcome.
Thank you. Our next question is coming from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.
Yes. Hey, guys. I hope everyone is well. Hi, Josh.
Question on the inflation front. What inflation metric are your Releases based on and then maybe what's the lag between when we see inflation and how that hits your P and L?
Sorry, Josh, I didn't hear the very first part. You said what's the metrics?
Yes, the inflation metric. Like is it core CPI,
So, CPI or some other metric?
Yes. Just on the region, clearly. Brooks, do you have the details On kind of driving into the type of CPI? Sure.
Yes. As Jason said, it's really a mixed bag. But on balance, The majority are on the headline basis. In Europe, there's a bit more diversity in terms of country specific Or whether it's more of a producer measure or not. But on the whole, it's largely a headline type metric.
And then from a timing perspective, CPI itself has a bit of a lag just inherently as actual price increases Flow through the year over year metric, from our lease perspective, it really just depends on when the actual bump occurs. The frequency of our bumps is generally annually, it's on a weighted average basis, I think about 1.5 years. So it will flow through Our revenues for sure, but there is a bit of a lag there.
Okay. Okay. Interesting. Cool. And then on the Yes.
And Josh,
as I think you know, We do have close to 2 thirds of our leases tied to CPI, which is why you're asking the question So we think there could be some real upside in our same stores going forward.
Yes, I know. And it's nice that it applied to headline inflation too. It always Seems like it's got a little bit more juice than core, so nice work.
And then
on the impressive on the euro debt issuance Do you think you'll kind of continue to kind of increase your leverage in Europe to kind of continue to Enhance your spreads or is there some kind of governor that you would limit yourself to over there?
Yes, there's more of a hedging mechanism certainly, but Tony, why don't you dig into some of the details?
Yes. We certainly do look to kind of increase and over lever in Europe to protect ourselves on the foreign currency side. I don't expect that we would take that up significantly higher than where we are from a leverage perspective. I think we'll, by and large,
Awesome.
Thanks guys. Appreciate it.
Thanks Josh.
Thank you. Our next Question comes from Sheila McGrath with Evercore. Please proceed with your question.
Yes, good morning. Jason, you mentioned new opportunities emerging in manufacturing. In general, is pricing of these assets, are they at a meaningful yield premium to more traditional warehouses? And just some more color on how you're sourcing these opportunities, are they widely marketed or relationship driven?
Yes, I mean, the I'll take the first part of the question first. Certainly, the headlines that we all read about are for logistics assets when we hear I'm trading in the 4s or even sub 4s on occasion. And a lot of that is driven by the type of real The location, but also the fact that these are shorter term leases, in many cases, multi tenant, and there's a real mark to market opportunity When those leases expire, so that the stabilized yields might be meaningfully higher. What we're behind are stabilized assets. So the zip code in which Our cap rates would range for logistics themselves are probably more in the low fives and up into the 6s Depending on a number of factors.
You talk about sourcing, much of what we do are sale leasebacks. So there's Inherently a more limited universe of buyers that participate in that market. So we think we do have some pricing power in addition to The benefits that we get on structuring and underwriting given that our tenant is also our counterparty on the sale. Digging a little deeper, we do see that Industrial is a really deep and diverse sector. It's not just logistics assets as you pointed out.
There's also Manufacturing, particularly light manufacturing that we do a meaningful amount in, food production, cold storage we've talked about, R and D, all property types that we've had success targeting and properties that tend to have a meaningful yield premium, just given The fewer buyers targeting those assets. Generally for cap rates, I would say our targets are from 5% to 7%, maybe the average In the mid-sixes over the last 18 months, maybe a little longer. And I think that will continue going forward. Perhaps It dips down a little bit depending on the mix of assets and what we see trending in the market. But we feel pretty good about our ability To find these deals, in many cases off market, in some cases, very limited marketing given the structuring of the transaction.
Okay, great. And one more question for me. You do have lower investment grade revenues versus your peers and that might be Some of the reason that you traded lower multiple. Can you just outline for us how you don't necessarily think your strategy is more risky despite this Differentiation either like over historic context on collection losses or underwriting losses, just to give people the Perception of the risk inherent in your strategy.
Yes, sure. I mean, we do have perhaps a little bit lower investment grade Rents compared to some of our peers, it still stands around 30%. So it's a meaningful portion. And obviously, those cash flows are quite strong. And where we do focus, the reason why it's 30% and not higher perhaps is because we do focus in the just below investment grade credit spectrum, An area that we think is there's much less capital flow.
It requires more underwriting expertise where our deal team can really differentiate themselves. A long history of deep credit underwriting and structuring capabilities that I think really provides a competitive advantage for And of course, you're also going to get some incremental better yields there. You also get better structuring. We get longer lease terms. We get better bumps.
We occasionally get covenants there. And it doesn't necessarily lead to any difference in performance. I think our Collections throughout the pandemic reflects that from the very beginning. We were in the mid-90s, trended Quickly, once we got into summer to the high 90s and we remain in that area. And it's mainly because when we're targeting sub investment grade, we're also focusing on larger companies, Companies with balance sheets that can withstand some economic disruption, they have access to institutional capital and we think that's Really the sweet spot for investing in Net Lease.
Thank you. One quick question for Tony. On The non operating income, you said no more, lineage distributions. Is that the case also for Watermark, so that line item goes to 0?
That's our assumption right now. The Watermark preferreds, their quarterly payments, they can pay quarterly or annually. We're currently We just collected the last four quarters that we don't see anything else for the rest of this year in guidance.
Okay. Thank you.
Thanks, Sheila.
Thank you. Our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.
Hey, good morning everyone. Jason, you talked about a pipeline, I think of $500,000,000 was most expected to close in 2Q. Can you just give us a rough breakdown of the types Properties within that near term pipeline?
Yes, sure. I'll just recap quickly what we've done for the year so far. I mean, we feel like We've had great momentum coming out of Q2 in the beginning or Q4 in the beginning of Q1. That's about $400,000,000 of deals completed, Another $130,000,000 of capital project. These are under construction properties that are fully leased that we expect to complete in 2021 and So there's about $530,000,000 locked in.
And then yes, I did reference, I would call it over $500,000,000 of deals In advance of stages and much of that we think will close in the Q2 and the pipeline continues to build as well. Year to date, just to give you Some comparison, year to date, it's about what we've closed is about 55% industrial, I think 30% retail, which is predominantly in Europe. The split between U. S. And Europe is about fifty-fifty, call it, fifty five-forty five U.
S. To Europe. And then the pipeline is trending more towards industrial. It's 80 plus percent industrial at this point in time. The remaining amount is really retail.
And again, it's slightly higher weighted towards the U. S, call it sixty-forty, but that pipeline is changing and building. So The components of that will change as well. And of course, it's what we've done year to date is almost entirely sale leasebacks, Build to suits or expansions of our existing portfolio, I think all but one transaction at this point year to date falls in those categories. So we're still having a lot of success Sourcing through those channels and putting meaningful amount of dollars to work.
Great. And then if we look at your overall pipeline for the year, you obviously increased your acquisition guidance. How have you changed your pricing expectations on that increased pipeline, if
at all? Well, I mean, given our diversified approach, We really target a wide range of cap rates. I'd say generally speaking, we've talked about this before, probably it's from 5% to 7% with Some outliers above and below those ranges depending on the specific details of a particular Transaction. Year to date, I think we're mid-six cap rate. I do think that probably trends down a little bit, maybe into the Low to mid-6s, but a lot of it will depend on the mix of properties, in particular Europe.
Cap rates might be a little bit lower in Europe, call it 50 basis points lower, but our borrowing costs are still at least 50 basis points, probably more like 100 basis points cheaper there. So we're still generating Better spreads despite lower cap rates. I think the other thing to note is that, we talk about going in cap rates, But I think you really got to factor in the bump structure that we have. And I mentioned that at the beginning of the call that our leases have meaningful bumps and The going in cap rates maybe are less relevant, and the average yield or unlevered IRR in many case It's more important in how we look at deals and how we evaluate their spread to our cost of capital.
Thanks, Jay.
Yes. Welcome, Andy.
Thank you. Our next question comes from Greg McGinnis with Scotiabank. Please proceed with your question.
Hey, good morning. In regards to the pipeline, I guess, just transactions In general, have you changed your internal approach or are there some external factors that may be contributing to the improved pipeline? And does this potentially point to a longer term trend of increasing investment expectations in future years?
Yes. It's a good question, Greg. And we've gotten that question in some individual meetings as well. And I think there's a couple of things To talk about here and we understand the perception because the last number of years we've hovered around the $1,000,000,000 mark. So it's probably helpful just to provide some context here on why and maybe that's not a good run rate for us and it's something higher.
If you look back over the last number of years, there are some macro forces or really strategic events at W. P. Carey that are important to note. For 1, we closed CPA:seventeen merger at the end of 2018. And then from there, we continue the process of winding down the investment management platform.
So as a result, our cost of capital has improved since 2018 and that's really expanded our funnel. We began putting that Into practice in, call it, 2019, especially by the end of that year and into the beginning of 2020, I think at that time, we had closed probably about $500,000,000 of deals in that Q4 and maybe the 1st couple of weeks of January. So we were really beginning to hit our stride. And in fact, last March, we were sitting on a very sizable pipeline, probably something that feels a lot similar to what it is right now. And then of course, we got derailed by COVID, which clearly none of us could have predicted.
But I think what you're seeing now in 2021 is Really just a combination of having a clear runway, free of all distractions from some of our prior strategic changes and really a cost of capital that works quite well. Certainly, our diversified approach helps. We can generate a pretty wide opportunity set across property types and geographies and as I mentioned a few minutes ago, Broad range of cap rates. And then our improved cost of capital has also allowed us to expand that range to include probably more in that lower yielding, Bottom end of that range, but what we think are higher quality industrial assets, maybe ones that have higher embedded growth or better market dynamics. And then lastly, you've seen us continue to ramp up sale leasebacks and the availability of sale leasebacks really continues to increase.
We feel a bit of a permanent shift in how corporates view owning versus leasing real estate. And as the market leader in sale leasebacks, I think this is Really a good trend for us. So all of this is now being reflected in 2021. I mentioned Year to date, about $400,000,000 deals done to date, another $130,000,000 under construction and in the pipeline of, call it $500,000,000 and really growing. So we feel like that that's a sustainable trajectory for us, and kind of there's no reason to think that that won't continue going forward.
Okay. Great. Thanks for the color. And then a quick funding question. So on the forward Equity offering.
Do you actually need to settle that? It was like maybe makes sense to let it expire and just use an ATM at $73 a
share versus the Forward at 63?
No, I think we would have to settle that sometime this year. I don't think we have But I do think our expectation is that we like that capital still. We like having the flexibility of having it out there. As you mentioned, we did hit it tap the at pretty accretive pricing compared to our investment activity. But I think you would expect us to Continue to do that as well as to potentially draw that the remaining proceeds perhaps even as soon as the end of the second quarter.
I think we'll just keep an eye on The investment volume, but I think the point is we have a significant amount of activity ahead of us that we need to fund and we like our opportunity set and where we can fund that
Thank you. Our next question comes from the line of Frank Lee with BMO. Please proceed with your question.
Hi, good morning everyone. Jason, just curious if
you also took a look
at the Hi, Jason. Just curious if you also took a look at the Varete deal and does that transaction make it more imperative for you to do a similar deal given their combined market cap And the advantages that brings?
Yes. I mean, it's a high profile transaction and we're digesting that announcement and We probably can't talk too much about it specifically. I don't think it changes anything from how we're motivated. We still are looking at everything, whether it's portfolios, individual acquisitions and potentially M and A as well. I don't think that changes Real Team, as I mentioned earlier, they were the largest.
They're a little bit larger now. So I think it's business as usual for us.
Okay. Thanks. And then you mentioned the majority of the $500,000,000 of active deals will likely close in the Q2. So that puts you close to $1,000,000,000 for the year if you include the capital investment projects. Is it safe to assume that there could be some upside to your investment guidance range given that the acquisitions tend to Back end
weighted? Yes. It's hard to predict what happens for the rest of the year. We don't have a lot of visibility into more than the next But the trends are quite positive. And I think if we continue at the pace that we're on right now, I think you could probably expect Something that could put us in the top half of that range or maybe even above the range, and we're talking next in the end of July, perhaps We're talking about a further increase, but it's hard to predict.
And as you know, our transactions tend to be a little bit lumpier, so maybe even Less visibility into them, but we like our pace right now. We like the market opportunity. We like our cost of capital and liquidity. So we're feeling quite positive about it.
Okay.
And
then just one more and then if we look at your capital investment pipeline, You added a lab project. I think this is the first one in this property type. Can you talk about the opportunity there and potential for additional similar projects?
Yes. I mean, we're certainly as a diversified with our diversified approach within and we feel The R and D is kind of a hybrid between industrial and office in some ways, but this specific use, the tenant tends to have Hi. Investment into the property as well. We kind of do these on long lease term, which is the case here. And you get some incremental cap rate given that it's a little bit Outside of the core focus of most industrial buyers, you focus on warehouse.
So we like a lot about R and D. We think there are more opportunities. There are some in our pipeline that we're looking at right now. And so again, as a diversified net lease investor, we have the benefit look across a broad range of property types and we'll continue to do that.
Okay, great. Thanks, Jason.
Yes. You're welcome.
Thank you. At this time, I am not showing any further questions. I'll now hand the call back to Mr. Sands.
Great. Thank you everyone for your interest in W. P. Carey. If anyone has additional questions, please call Investor Relations directly on 212-492