Hello, and welcome to W. P. Carey's Second 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, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. And now, I will turn the 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 Q2 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. Having proved the resilience of our portfolio throughout the pandemic, the first half of twenty twenty one has been characterized by an acceleration in growth Driven primarily by record deal volume, enabling us to further increase our investment expectations for the year and raise our AFFO guidance. We continue to see a high level of deal activity with several $100,000,000 of deals currently in our pipeline. And with inflation taking center stage with investors, W. B.
Carey is well positioned to generate additional upside, with 60% of our ABR coming from leases that have rents bumps tied to CPI. I'll focus my remarks this morning on these 2 growth drivers, accretive investments and the rent escalations embedded in our leases. After which, I'll hand the call over to our CFO, Tony Sanzone, who will focus on our results, guidance and balance sheet. As usual, we're joined by our President, John Park and our Head of Asset Management, Brooks Gordon. Starting with our growth through acquisitions.
For the Q2, investment volume was $780,000,000 driven primarily by the completion of 11 acquisitions. Our net lease investments had a weighted average cap rate of 5.6%, Reflecting the mix and quality of the assets we acquired amid a competitive market environment. For example, About 40% of our 2nd quarter investment volume was in Class A warehouse, including a $195,000,000 investment in a newly constructed logistics Facility in the UK, which is expected to receive a green, very good environmental rating and is net leased to Jaguar Land Rover for a 30 year term. Also, about 40% of our 2nd quarter investment volume came from Europe, where cap rates tend to be lower, although spreads remain attractive Given our ability to issue euro denominated debt, which is currently over 100 basis points cheaper than where we can issue U. S.
Bonds. Differentiating factor from other net lease REITs is our ability to achieve attractive rent increases over long lease terms. In recent years, we believe we've been originating leases that are among the longest in the net lease sector. Our 2nd quarter investments had a weighted average lease term of 21 years With increases averaging 2.2% for those with either fixed rent increases or floors. The profile of our investments results in an average yield that's meaningfully more attractive than peers.
We're originating shorter term leases with lower Initial going in cap rates taken in isolation do not tell the whole story of the prolonged accretion we achieved. For example, A lease with a 6% going in cap rate and 2.5% annual rent increases over a 20 year term has an average annual yield Over 7.5%. Turning now to our growth through rent escalations and how we're positioned for inflation. 99.5 percent of our ABR comes from leases with built in rent growth, which includes 60% from leases tied to inflation. The majority of that, representing 37% of total ABR, comes from leases tied to uncapped CPI, Just split roughly sixty-forty between Europe and the U.
S. 23% of our ABR comes from leases tied to CPI that have floors And or caps. For the average floor, it is approximately 1.5% on an annualized basis and the average cap is approximately 3%. And lastly, leases with fixed rent bumps represent 35% of ADR and have average annualized increases of around 2%. Because inflation generally flows through to rents with a lag, we expect our contractual same store rent growth to increase about 100 basis points From 1.5% to about 2.5% over the next 12 months.
Based on current economic forecasts, Holding all other factors constant, this assumes inflation over the remainder of 2021 of about 3.5% in the U. S. And averaging 2.75 percent across Europe, which then stabilizes in 2022 to around 2% in both regions. Of course, if actual inflation runs higher than currently predicted, we would expect our contractual same store growth to ultimately be above 2.5%. While this gives a sense of the impact of inflation on our rent growth about a year from now, the impact on ABR is of course cumulative And the effect of compounding can be powerful over longer timeframes.
Turning now to the internal and external factors contributing to the sustainability of our increased investment activity. With $1,000,000,000 of investments completed in the first half of the year, dollars 122,000,000 of capital investment projects Scheduled to complete in the second half of the year and the several $100,000,000 of deals in our pipeline, we expect 2021 to be a record year for deal volume. We also expect to maintain a high volume of deals through a combination of factors. From an internal perspective, with the simplification of the company largely complete, From a macro perspective, sale leasebacks continue to gain popularity with corporations as part of an overall trend of leasing Rather than owning real estate, an M and A activity has picked up, driving net lease deal flow as companies seek to optimize their balance sheets And Privatewood Equity Firms monetize assets to drive returns. We also benefit from the scale of our portfolio With about 30% of our 2nd quarter investment volume coming from follow on deals originated through our existing tenant and sponsor relationships.
While our diversified approach ultimately provides a vast and deep addressable market over 2 continents, from a top down perspective, Our core focus remains on industrial and warehouse assets, which comprised about 70% of our 2nd quarter deal volume. Within these sectors, we've recently expanded into attractive subsectors like R and D and lab space and industries like food processing and production, which are all well suited for sale leasebacks. We've also been investing in essential retail properties in Europe, especially stores with strong unit level performance, Completing investments in grocery portfolios in Spain and France over the last 9 months. In addition to our core focus, We create incremental deal volume and growth through more opportunistic investments. A very recent example of our ability to put additional money to work in this way The construction loan we entered into during the Q2 related to a retail complex currently under development on the Las Vegas Strip.
We funded an initial $85,000,000 draw in June and expect to fund additional draws over the next 12 months to 18 months, up to $225,000,000 The drawn amounts earned 6% interest and upon completion, there's the option to convert part of the loan into ownership of net lease retail assets At an extremely desirable location at very attractive cap rates. In closing, given all these factors, Coupled with the cost of capital that allows us to consistently make accretive investments, we're confident that we can maintain a strong pace of investments in the second half of the year And we've raised the investment volume in our 2021 guidance to reflect that. Lastly, while the worst of the COVID pandemic seems to be behind us, The recent surge in Delta variant case numbers serves as an important reminder that in addition to investment volume, underwriting and portfolio quality still matter The proven performance of our portfolio continues to differentiate W. P. Carey from other net lease REITs.
And with that, I'll pass the call over to Toni.
Thank you, Jason, and good morning, everyone. I'm pleased to say that we exceeded expectations with our 2nd quarter results, completing a strong first half of the year and positioning us to again raise our full year guidance. For the quarter, we generated total AFFO of $1.27 per share and real estate AFFO of $1.23 which increased 12% year over year Reflecting the accelerated pace of our investment activity year to date and the continued strength of our rent collections, which were 99% for the quarter. We are raising our full year AFFO guidance increasing at $0.06 at the midpoint. We currently expect to generate total AFFO of $4.94 $5.02 per share for the full year, including real estate AFFO of between $4.82 And $4.90 per share, representing over 5% year over year growth at the midpoint.
We've raised our full year expectations for investment volume to a range of $1,500,000,000 to $2,000,000,000 including capital investments and commitments scheduled to Also included in our investment volume is the construction funding of the Las Vegas retail complex Jason discussed. Earnings from this investment are expected to add about $3,000,000 to AFFO this year, which will be reflected in earnings from equity method investments. Disposition activity during the Q2 totaled $86,000,000 bringing dispositions for the first half of the year to 100,000,000 Based on our current visibility into the timing of certain sales, we've lowered our expectations for total disposition activity for the year to between $150,000,000 to $250,000,000 Comprehensive same store rent growth, which is based on pro rata rental income included in AFFO was 2% year over year. On a full year basis, We expect our comprehensive same store rent growth to exceed our recent pre COVID growth rates, driven by sustained collections of 99% as well as certain COVID related rent recoveries we assume will occur in the back half of the year. During the second quarter, We resumed collecting substantially all quarterly rent due from a retail tenant in Europe that had made partial rent payments in prior quarters due to lockdowns.
Our AFFO guidance range now assumes that during the second half of twenty twenty one, we recover most, if not all, The $4,500,000 of outstanding rent due from this tenant. Lease termination and other revenues increased During the Q2 due primarily to the receipt of $4,400,000 in lease related settlements. We currently assume no significant additional payments of this nature in the back half of the year. For G and A expense, we've raised and narrowed our guidance outlook for the full year to fall within a range of $82,000,000 to $84,000,000 up moderately from our prior expectations. On last quarter's call, I noted that in April we received preferred stock dividends totaling $3,300,000 from our investment in Watermark Lodging Trust, representing the amount due for the prior 4 quarters, which was the primary driver of our non operating income line item for the 2021 Q2.
Going forward, we expect to receive preferred dividends of approximately $800,000 on a quarterly basis, which is embedded in our full year guidance. Moving now to our capital markets activity and balance sheet. Following an active Q1 during which we issued bonds at our tightest spreads and lowest coupons to date. We raised well priced equity during the Q2. In June, we completed an equity forward offering For just over 6,000,000 shares, locking in our ability to match fund acquisitions was $455,000,000 of equity raised at a gross price $75.30 per share.
We settled a portion of these latest forward agreements during the Q2 as well as the remaining forward agreements from those we put in place last year. We also issued shares under our ATM program. In aggregate, we issued 6,700,000 shares during 2nd quarter raising $472,000,000 in net proceeds. The majority of our share issuances occurred later in the quarter will therefore be fully reflected in our Q3 weighted average share count. At quarter end, our weighted average interest rate was 2.6%, A significant decline from 3.2 percent a year ago, reflecting the continued improvement in our cost of debt.
Interest expense for the Q2 totaled $49,300,000 which declined 6% year over year, primarily reflecting the full quarter impact of the interest cost savings generated by our Q1 debt prepayments and refinancings. From a leverage perspective, debt to gross assets remains at the low end of our target range ending the 2nd quarter at 41.1%. Net debt to adjusted EBITDA was 6 times at the end of the quarter and 5.8 times when factoring in the remaining shares available under our latest equity forward. Our liquidity position remains very strong, ensuring we're well positioned to fund new acquisitions and continue accessing capital markets opportunistically. We ended the Q2 with total liquidity of approximately $2,000,000,000 including cash, the available capacity on our $1,800,000,000 credit facility And our ability to settle 4,000,000 shares remaining under forward agreements by the end of 2022 for anticipated net proceeds of approximately $300,000,000 In closing, building on the recent momentum in our deal volume, which is expected to continue in the second half of the year, We anticipate a record year for acquisitions supported by strong liquidity, capital markets flexibility and a favorable cost of capital.
In addition to the proven downside protection our portfolio provides, with sustained higher inflation, we'd also expect it to generate additional upside to our growth over the longer term. And with that, I'll hand the call back to the operator for questions.
Thank Thank you. Our first question is coming from Sheila McGrath with Evercore. Please proceed with your question.
Yes, good morning. Good morning. Good morning. Good morning. Big investment quarter, Pipeline is larger.
Can you help us understand how the volume has picked up so much? Is it have you added new personnel? Have you broadened the initial yield criteria because your cost of capital has improved? Or is there just more product for sale maybe as a result of increasing M and A.
Yes. I mean, I think it's a little bit of all of those things. I mean, certainly With the simplification of our business largely complete after the CPA merger and the continued wind down of our investment management There's more of a singular focus on growth for us. I think our cost of capital continues to work really well and obviously the diversified approach doesn't hurt either. That's a wide opportunity set that's both clearly in the U.
S. And Europe and we can compete at a broad range of cap rates as you mentioned. We've expanded that target cap rate range some and I think that allows us to buy higher quality, probably mainly industrial assets, which is But to your point, M and A, that's led to more sale leasebacks in our mind and it seems more And maybe more of a permanent shift in how corporates view owning versus leasing their real estate. And of course, as the market leader in sale leaseback, this is clearly favorable to us as well. So lots of changes.
I think there are some more incremental changes we made within our investment process and with the team as well. And I think all of that has led to what we view as more sustained deal activity. And where we sit today, the opportunities have been there and there's really no reason for us to believe that level of transaction Activity won't continue into the future, so we feel good about where we are.
Okay. That's great. One more question. I think it was helpful highlighting how much of your leases are tied to like uncapped CPI. Just wondering if you could explain how that works.
Like is it An annual adjustment for as you look back over the past year and I would guess that CPI is tracking across the different countries where you have assets pretty significantly. Just wondering if that's an annual adjustment every 5 years or how it works?
Yes. Each lease is going to be unique. I would say the majority of our leases have annual increases, But there certainly are leases that would bump every 2 years or every 5 years as well. Those will be in the portfolio. There is a lag effect, I think, as you pointed out, because the leases are more in this annual cadence.
For some of them, it may take 12 months before that fully flows through to our ABR. And then you're right, I mean the U. S. Leases are predominantly based on CPI. And then in Europe, it depends.
Some of them are Eurozone inflation based, some of them are more specific to a country, German CPI or Dutch CPI For UK RPI, so it's really deal specific. But I think generally speaking, we like this exposure to
Thank you. Our next question comes from Spencer Allaway with Green Street. Please proceed with your question.
Thank you. Just on the construction loan, I was wondering if you guys could provide a little bit of color on the expected risk adjusted yields that you guys expecting on these Relative to more traditional acquisitions and capital investment projects?
Yes, sure. I mean, look, our core focus is still on acquiring Industrial and warehouse properties in the U. S. And Europe and also retail in Europe for that matter as well. And when we think about retail in the U.
S, we typically are taking a more And I think this transaction falls into that category. For now, it's a construction loan. I think we talk about that it's going to earn During the construction period, 6% interest, which we think is a pretty healthy rate, especially relative to where cap rates Have trended. It's a phenomenal location. I'd call it one of the best development parcels on the entire Las Vegas Strip, if you know the market at all, at the intersection of Las Vegas Boulevard and Harmon, the southern end of the pedestrian bridge that links in hotel to City Center and Crystal's Mall.
And from our analysis, it's location with some of the highest foot traffic in the entire United States. So for us in terms of risk adjusted returns, we actually completed a very similar project to this across the street Probably 6 or 7 years ago, it was very, very successful. It's with the same operating partner, so we have lots of confidence in our We'll execute here. And as I said, we think it's a good risk adjusted return for the loan. And for now, it is a loan, but ultimately, we'll have You have the opportunity through some purchase options to buy some longer term net leases and we can talk about kind of specifics That if it were to happen, down the road construction is complete.
Okay, great. And then realizing you guys have been focusing On industrial like you mentioned in your prepared remarks and I understand you don't have a crystal ball for everything in 22 yet, but just looking forward, how optimistic or do you have a sense of the addressable market really in Europe Remaining related to that property type?
Specifically industrial in Europe was the question? Yes. Or just generally about how we see our ability to keep on ramping up transaction volume?
Both would be great, but yes,
more specifically as it relates
to industrial, that's where you've been focused.
Yes. And it is both in U. S. And Europe. I mean, look, it's clear to everyone that industrial has been the focus Many investors and it's had tremendous capital inflows.
I mean what we're not doing is competing on the Shorter term multi let industrial assets that are hitting the headlines that we're seeing. It was in the 4s and now it's probably 3s in terms of going in cap rates. Those are trading at those levels because there's a perception that they have and It's probably real that they have good mark to market opportunities. We're focused more on longer term, 15, 20 Your leases with good industrial assets, this can be logistics, could be high quality like the JLR deal that we purchased earlier this year. We're also focused on light manufacturing, food production, R and D, all which also fall under our industrial category.
And we have a very good track Sourcing predominantly through sale leasebacks and I think that's a big reason why we're able to acquire these with those structures in place What we feel are higher than market cap rates as well. So look, it's hard to predict what's going to happen in 2022, but we think we're set up very well, as I You mentioned earlier on Sheila's question to continue to show the momentum that we've had on the acquisition front.
Great. Thanks for the color.
Yes, you're welcome.
Thank you. Our next question is coming from the line of Anthony Paolone with JPMorgan.
Great. Thank you.
I
don't know if I missed this, but can you comment on just Your current pipeline and the SKU between Europe and the U. S. And also just how yields might look Compared to the 5.6 that you mentioned in the Q2?
Yes, sure. So Yes. So pipeline is strong, as we've talked about, year to date at this point. Just to recap, We've closed about $1,000,000,000 of deals including the $780,000,000 in the second quarter. We also have $122,000,000 of capital projects, And build to suits that are expected to complete in 2021.
At that point, they get added to our volume or rent roll. So we have kind of $1,100,000,000 locked in at this point in time and our pipeline remains strong. There's over $300,000,000 of deals in advanced Right now, which we believe much of that will close during the Q3. And then beyond that, we still have a couple $100,000,000 more of identified deals that are earlier stages, but advancing through the diligence and closing process. And of course, our Q4, as we've talked about in the past, Our most active quarter of the year.
We don't have visibility into that now, but it does tend to be the most active year. I think a lot of that has led to Our guidance raise, we feel good about that midpoint and maybe with the potential to get into the top half of that range as well. So there's really no reason to think that Anything that's going to slow down here assuming market conditions don't change substantially. You asked about U. S.
Versus Europe. Year to date, it's been about sixty-forty U. S. To Europe. Europe has slowed a little bit, but that's typical This time of year, I think current pipeline is probably more, call it, 3 quarters U.
S, a quarter Europe, but we would expect that to pick up As we get a little further into the year, I think the last part of your question was about cap rates. We look at a pretty wide range of cap rates, part of the benefits of a diversified approach. I would say we target deals into this 5% to 7% Cap rate range, you pointed out that the quarter was 5.6 weighted average cap rate. Year to date, it's around 5.8 Weighted average cap rate and this is the going in cap rate, I think that's important to note. A lot of that I think you can attribute to market compression, but I think also We talked about the mix of assets that we're acquiring and higher quality warehouse is just going to trade a little bit lower, but we think we're getting Good risk adjusted returns from where we'll acquire them.
And you also mentioned Europe and Europe does have lower cap rates that's driving that sum also. And as you know, our cost to borrow in Europe is meaningfully lower. So while we might be doing some tighter going in cap rates in Europe, they still generate even The same or maybe even better spreads. I think the last thing to note here is that from an accretion standpoint, we're not overly focused Ongoing in cap rates. If you think about especially how we structure our transactions, virtually all of our leases have built in bumps.
Many of them as we talk about are based on inflation. The ones that are fixed are probably in the 2% range. These are long leases. So over a 20 year period with interesting bumps, the average yield is significantly higher. And I think that will be the case for all the deals that we've purchased in this year.
Got it. And just appreciate the context on the duration side Of your deals, is it something that when a deal comes to you, The duration is there and either take it or leave it or is it something that you want Longer duration and so you make other concessions to get it or how
does that work? Well, most of the deals that we source are through sale leasebacks and build to suits. So the entire structure is a negotiation and there's give and takes throughout that process. But certainly lease terms important to us, The types of bumps that we have, that's important to us, especially inflation. So I think it's all on the table and there are trade offs, especially in a competitive market.
But as you can see, we've been successful in transacting with very long lease terms, Very distinct bump profiles and still maintaining an attractive initial cap rate and spread to our cost of capital.
Great. And just one last maybe detailed question. It seemed like lease termination income in the quarter was a bit elevated. Any Color around that and whether that does anything to the NOI run rate we should think about going forward?
Tony, you want to take that one? Tony, just
answer that one. Yes, I've got that one. Thanks. Thanks, Jason. No, I think that we did mention that the this quarter specifically Included a couple of larger payments from tenants, it totaled about $4,000,000 $4,500,000 in a small bankruptcy settlement in that amount as well.
I think there are there's a recurring portion of this line item that runs through every quarter and then sort of these one off amounts that do tend to recur From time to time during the year, I'd say on average, we're looking at about $12,000,000 for the full year, which is in line with where it was last So I don't think we're really expecting anything or
we don't have anything in
our line of sight right now for the remainder of this year. I'd say this quarter was certainly an uptick.
Okay. But the payments didn't tie to us having to take like a piece of your run rate revenue out because something big was terminated or anything?
No, these were end of lease payments, typically to restore the premises. We'll settle with a tenant On their way out, so nothing in terms of recurring NOI there, but certainly an economic part of the lease that we enforce.
Got it. Understand. Thank you.
Thank you. Our next question comes from the line of Elvis Rodriguez with Bank of America. Please proceed with your question.
Hi. Thanks for taking the call. Just a couple of questions. So one, you mentioned the increased interest On sale leasebacks, in particular what sectors or property types are you seeing this more in today versus perhaps 2 years ago? And then on that question, if you could just update us on the lab office or interest in lab, lab R and D space, like what are you seeing there?
What markets? Is it the mega clusters that some of the other public REITs own and or is these secondary markets? Thanks.
Yes, sure. So sale leasebacks, I would say it's more broadly increasing as corporates perhaps a result of some of the The crunches that they had during COVID, corporates I think are moving more towards leasing rather than owning their real estate. And that includes critical operating real estate that are good candidates for sale leasebacks and long term leases. And that's where we've been targeting. And it's we talk about industrial being a broad asset class for us.
There's certainly A lot of warehouse deals that we're doing, but within that, we're also doing, as you mentioned, R and D, cold storage, Food processing and production, so I think all of those lend themselves well to sale leasebacks again because of the criticality of the assets, Which lends themselves well to corporates being willing to sign very long term leases. Your specific question on lab, I mean, we're not primarily focused on lab. I think it's going to be more incremental deal volume when there are opportunities to do sale leasebacks. It's not going to be competing with the Alexandre's of the world in Cambridge and San Diego. So it's just a little different approach for us.
Great. And then just a question. So at the end of 4Q 2020, you had about 9.5% of your leases Of your ABR rolling in 2024 and now you only have about 8%. Is that a function of Bringing leases up, selling assets, how should we think about the role that's occurring in the portfolio over the next Few years and what retention can look like? Thanks.
Brooks, you want to take that one?
Sure. So with respect to 2024, It's really just ongoing leasing activity that has occurred. So that's not really disposition activity. So we are very focused always on reducing that next 5 year lease roll percentage and we're making good progress on that. In the next 3 years, we have a very manageable lease expiration outlook, less than say 8% through 2023.
2024 and 2025, certainly larger years, but that's pretty typical at this point in time. And so We're focused on all of those years right now and that's really our approach. It's kind of 5 years out, really taking a proactive approach to those. I'll note in 2024, The biggest piece of that is the U Haul lease expiration, and that's one where they have a purchase option in 2024. So When you back that out, it's really only about 5% of ABR expiring in 2024.
At this point to your best of your knowledge, do you expect them to exercise that option?
We do.
Great. Thank you very much.
Thank you. Our next question is coming from Manny Korchman with Citigroup. Please proceed with your question.
Hey, good morning everyone.
Good morning. So as I went through your presentation, I noticed that the percentage of income from investment grade tenants Ticked down this quarter, was that anything specific, just mix of new acquisitions and dispositions, something you've done on Or is it just a stat that's maybe less relevant for what's actually happening in the portfolio?
Yes. I think it's probably more of a function of the latter is that What we have been buying have not been investment grade and maybe it's important to kind of touch on that a little bit. We We've talked about it in the past that we feel the sweet spot in net lease is just below investment grade. There's much less capital chasing deals and Not only does that help us generate higher yields, but we also get better lease structures, whether those are rent bumps, the duration of the leases or really even specific lease provisions. And maybe more importantly are the results.
While our portfolio may have a lower percentage of investment grade ABR, we've outperformed all of our peers during the stress test that was the pandemic, and that includes these peers with higher investment grade rated So I think it's about underwriting, it's about portfolio construction and I think track record matters.
Great. Thank you. And then just going to dispositions for a second, you sold the portfolio of Helwick Stores. Was that just a tenant concentration issue? Was it just opportunity to sell or give
us some color on why you sold those?
Sure. Yes, we exited 7 Hellwig's stores in the quarter. It's really an opportunistic sale. There's an aspect of Managing diversification as well there, but we created a lot of value when we extended that portfolio a few years ago. It's kind of the lease there.
So this was a pretty targeted opportunity to reduce some of the weakest stores in the portfolio with good execution, but we wouldn't expect to
And then Jason, just on the construction loan for another second, Was that something you guys were actively in the market looking forward to land on a project like that? And are you looking at other deals like that or maybe just give us a little bit of back story as
how you ended up investing in there to begin with? Yes. We're doing this transaction with a really trusted partner of ours. We've probably done, I don't know, 4 or 5 Construction projects with a lot of downside protection structured in, which is consistent with how we look at the world And perhaps some upside with especially in this case with the potential to exercise purchase options to own it. Yes, I wouldn't say it's A new vertical, but we like the risk return profile of this investment.
And again, we have a proven track record in partnership with our operating partner. So, we'll see if there's more to come, but it's a meaningful size A capital put to work and we like finding ways to do that. Great. Thanks very much. Welcome.
Thank you. Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.
Good morning, everybody. Just kind of
following up on the last question. Jason, just maybe give some risk parameters. What's the expected loan to cost on that construction loan?
Well, the way this is structured is, We're funding the vast majority of the capital going in With some downside protections put in place, I don't want to go into all the specifics of what that is, but there's really strong collateral package Behind that, which gives us a lot of comfort, especially given the location. As I mentioned earlier, we think it's one of the best development parcels on the entire strip and probably one of the better ones across the country if that matter for retail. It's got some of the highest foot traffic counts in the entire country at this point. So we like the risk return profile, especially with the structure that we have in place, but For several reasons, I can't get into the specifics. Okay.
And then, as it relates Just sort of the participation or equity conversion or purchase rate, what is the structure of your potential Ownership at the end, is it a portion by converting your loan into an equity piece or is it a first right of
No, it's an option to purchase into really 2 components, some of The net lease units as well as into the full project, a minority interest if that's what we prefer as well. So I would say that we'll have more color and disclosure on that. If that happens, it is just an option, but we can go into some more details down the road.
And what's the general timeframe for when sort of you started funding, so when is the project expected to be completed and stabilized?
It's probably a 12 to 18 month period. So perhaps this time next year, Q3, Q4 Of 2022 is my expectation.
Okay. And then Tony, just on the guidance bump to G and A, Was that cash or non cash comp that's primarily driving that bump?
We're giving guidance on the cash G and A expense. So that's really on the cash side.
And what is driving that increase?
We narrowed the range based on where we are in the year and the increase is driven predominantly by the portion of compensation that's Tied to our results for the year given we're tracking above target.
Okay, perfect. Thank you. That's all I had this morning.
Thank you. Our next question is coming from Frank Lee with BMO. Please proceed with your question.
Hi, good morning everyone. Jason, you mentioned the potential benefits from higher rent bumps tied to inflation. Just curious if any of the benefits are factored into your current guidance or Just lagging fact pushes entirely to 2022.
Toni, do you want to talk about the components of that?
Yes. I think if you look at kind of the same store results for this quarter, there's certainly no impact from the I think Jason gave the example of how that would flow through. And I think we'd expect it to be seen more fully, a full year from now. So call it the 12 months from now, Q2 of next year, Potentially 100 basis point increase in our same store growth at the current level, but we do expect kind of a gradual increase there. And the curve that Jason mentioned in his example are what we have baked into our guidance.
So you'll see a small piece of that in the back half This year, but more fully by the middle of next year.
Okay, thanks.
And then
just want to ask about CPA We're coming up on the 7 year anniversary. Are you starting to have any conversations? I just want to get a sense on how we should think about timing?
Yes, there's really nothing new to update there. The CPA team hasn't reached its liquidity timetable yet based on the guidelines And the prospectus and there's flexibility in that. We've talked about that in the past, but it's really up to the independent directors and their discretion on when to consider options. So, other than that, there's really nothing new to update.
Okay. Thank you.
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 for your interest in W. P. Carey. If anyone has additional questions, please call Investor Relations directly on 212