W. P. Carey Inc. Announces First Quarter 2014 Financial Results

PR Newswire

NEW YORK, May 8, 2014 /PRNewswire/ -- W. P. Carey Inc. (WPC) (W. P. Carey or the Company), a global net-lease real estate investment trust, today reported its financial results for the first quarter ended March 31, 2014.

Financial Update First Quarter 2014

  • Revenues of $209.2 million and revenues, excluding reimbursable expenses, of $163.4 million
  • AFFO of $118.2 million, equivalent to $1.31 per diluted share
  • Quarterly dividend of $0.895, equivalent to an annualized dividend rate of $3.58 per share
  • Affirm full year 2014 AFFO guidance range of $4.40 to $4.65 per diluted share

Business Update First Quarter 2014

  • Closed merger with CPA®:16 – Global
  • Issued $500.0 million of Senior Unsecured Notes
  • Structured $374.8 million of investments on behalf of our Managed REITs
  • Raised $416.6 million on behalf of our Managed REITs
  • Acquired one property for $43.1 million
  • Disposed of nine properties for total proceeds of $127.7 million
  • Owned portfolio occupancy of 98.3%

MANAGEMENT COMMENTARY

"We had an active first quarter, significantly increasing the size of our owned real estate portfolio through the closing of our merger with CPA®:16 – Global, and taking initial steps towards our long-term goal of becoming a primarily unsecured borrower, including the successful completion of an inaugural $500 million Senior Unsecured Note offering," said W. P. Carey President and CEO, Trevor Bond.  "We also completed close to $420 million of acquisitions, in aggregate, for our owned and managed real estate portfolios, and raised over $400 million on behalf of our Managed REITs."

QUARTERLY FINANCIAL RESULTS

Revenues

  • Total Company: Revenues, excluding reimbursable costs, for the 2014 first quarter totaled $163.4 million, up 45.1% from $112.6 million for the 2013 fourth quarter, and up 79.7% from $90.9 million for the 2013 first quarter. In each case the increase was due primarily to additional real estate revenues from properties acquired in the Company's merger with CPA®:16 – Global, which closed on January 31, 2014 (the CPA®:16 Merger).
  • Real Estate Ownership: Real estate revenues, excluding reimbursable tenant costs, for the 2014 first quarter were $129.2 million, up 64.6% from $78.5 million for the 2013 fourth quarter, and up 76.1% from $73.4 million for the 2013 first quarter. In each case the increase was due primarily to additional lease revenues from properties acquired in the CPA®:16 Merger.
  • Investment Management: Revenues from affiliates, excluding reimbursable costs, for the 2014 first quarter were $34.2 million, virtually unchanged from $34.1 million for the 2013 fourth quarter as higher dealer manager fees were almost completely offset by the cessation of asset management revenue from CPA®:16 – Global upon completion of the CPA®:16 Merger and by lower structuring revenue. Compared to the 2013 first quarter, revenues from affiliates, excluding reimbursable costs, increased 94.6% from $17.6 million, due primarily to higher structuring revenue and higher dealer manager fees.

Adjusted Funds from Operations (AFFO)

  • AFFO for the 2014 first quarter was $118.2 million, or $1.31 per diluted share, up 51.4% and 16.6%, respectively, from AFFO of $78.1 million, or $1.12 per diluted share, for the 2013 fourth quarter, due primarily to additional real estate revenues from properties acquired in the CPA®:16 Merger. Similarly, AFFO and AFFO per diluted share increased 63.7% and 26.7%, respectively, from $72.3 million, or $1.03 per diluted share, for the 2013 first quarter, due primarily to additional real estate revenues from properties acquired in the CPA®:16 Merger. Note: Further information concerning AFFO, a non-GAAP supplemental performance metric, is presented in the accompanying tables and related notes.
  • Per share data for the 2014 first quarter also reflects the issuance of approximately 30.7 million shares on January 31, 2014 in connection with the CPA®:16 Merger.

Dividend

  • As previously announced, on March 20, 2014 the Company's Board of Directors declared a quarterly cash dividend of $0.895 per share, equivalent to an annualized dividend rate of $3.58 per share, which was paid on April 15, 2014 to stockholders of record as of the close of business on March 31, 2014. The dividend represented a 2.9% increase over the 2013 fourth quarter and was the Company's 52nd consecutive quarterly increase.

AFFO GUIDANCE

  • The Company affirms its previously announced AFFO guidance range of $4.40 to $4.65 per diluted share for the 2014 full year. This guidance range reflects certain assumptions, substantially as described in a Form 8-K filed by the Company on January 27, 2014.

BALANCE SHEET AND CAPITALIZATION

CPA®:16 Merger

  • As previously announced, on January 31, 2014 W. P. Carey merged with its publicly held, non-traded REIT affiliate, CPA®:16 – Global, immediately following which the Company's owned portfolio consisted primarily of 702 leased properties, comprising 83.6 million square feet leased to 232 tenants, with an average lease term of 8.9 years and an occupancy rate of 98.4%.
  • In connection with the CPA®:16 Merger, the Company incurred expenses of $43.4 million during the 2014 first quarter, including $29.5 million within the Real Estate Ownership segment and $13.9 million of merger-related income tax expense within the Investment Management segment. Such expenses have been excluded from the calculation of AFFO as they are not part of our normal business operations and we believe that doing so provides a measure more comparable to REITs not currently engaged in mergers.

Senior Unsecured Credit Facility

  • As previously announced, on January 31, 2014 the Company closed a new credit agreement that increased the capacity of its unsecured line of credit from $625.0 million to $1.25 billion, comprised of a $1.0 billion revolver and a $250.0 million term loan.

Senior Unsecured Notes

  • As previously announced, on March 11, 2014 the Company priced an underwritten public offering of $500.0 million aggregate principal amount of 4.6% Senior Unsecured Notes due April 1, 2024, offered at 99.639% of the principal amount with a yield to maturity of 4.645%. The Company used the net proceeds from this offering primarily to pay down its prior senior unsecured credit facility.

Mortgage Prepayments

  • During the quarter, the Company prepaid several non-recourse mortgage loans with an aggregate outstanding principal balance of $116.8 million, in addition to scheduled mortgage loan principal payments totaling $16.7 million.

OWNED REAL ESTATE PORTFOLIO

Acquisitions and Dispositions

  • During the quarter, the Company completed one investment for $43.1 million and disposed of nine properties for total gross proceeds of $127.7 million, including four properties acquired in the CPA®:16 Merger.

Composition

  • As of March 31, 2014, the Company's owned portfolio consisted of 700 net-leased properties, comprising 82.8 million square feet leased to 230 tenants, and four operating properties. As of that date, the average lease term of the net-leased portfolio was 8.7 years and the occupancy rate was 98.3%.

MANAGED REITs

  • W. P. Carey is the advisor to CPA®:17 – Global, CPA®:18 – Global (together the CPA® REITs) and Carey Watermark Investors Incorporated (CWI) (together the Managed REITs). At March 31, 2014, the Managed REITs, in aggregate, had total assets under management of approximately $7.3 billion.

Acquisitions

  • During the quarter, the Company structured nine new investments totaling $374.8 million on behalf of the CPA® REITs.

Fundraising

  • During the quarter, the Company raised $399.0 million on behalf of CPA®:18 – Global in its initial public offering and $17.6 million on behalf of CWI in its secondary offering.
  • In May 2014, the board of directors of CPA®:18 – Global approved the discontinuation of sales of its class A common stock after June 30, 2014 in order to moderate the pace of its fundraising.

Supplemental Information

The Company has provided supplemental unaudited financial and operating information regarding the 2014 first quarter, including a description of non-GAAP financial measures and a reconciliation to GAAP measures, in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on May 8, 2014.

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Date/Time: Thursday, May 8, 2014 at 11:00 a.m. Eastern Time
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W. P. Carey Inc.

W. P. Carey Inc. is a leading global net-lease REIT that provides long-term sale-leaseback and build-to-suit financing solutions for companies worldwide.  At March 31, 2014, the Company had an enterprise value of approximately $9.5 billion.  In addition to its owned portfolio of diversified global real estate, W. P. Carey manages a series of non-traded REITs with assets under management of approximately $7.3 billion.  Its corporate finance-focused credit and real estate underwriting process is a constant that has been successfully leveraged across a wide variety of industries and property types.  Furthermore, its portfolio of long-term leases with creditworthy tenants has an established history of generating stable cash flows, enabling it to deliver consistent and rising dividend income to investors for over four decades.
www.wpcarey.com

Cautionary Statement Concerning Forward-Looking Statements:

Certain of the matters discussed in this communication constitute forward-looking statements within the meaning of the Act and the Exchange Act, both as amended by the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, among other things, statements regarding the intent, belief, or expectations of W. P. Carey and can be identified by the use of words such as "may," "will," "should," "would," "assume," "outlook," "seek," "plan," "believe," "expect," "anticipate," "intend," "estimate," "forecast," and other comparable terms. These forward-looking statements include, but are not limited to, statements regarding the benefits of the CPA®:16 Merger, annualized dividends, funds from operations coverage, integration plans and expected synergies, and anticipated future financial and operating performance and results, including estimates of growth. These statements are based on the current expectations of the management of W. P. Carey. It is important to note that W. P. Carey's actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results, performance, or achievements of W. P. Carey. Discussions of some of these other important factors and assumptions are contained in W. P. Carey's filings with the SEC and are available at the SEC's website at http://www.sec.gov, including Item 1A.  Risk Factors in W. P. Carey's Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 3, 2014. In light of these risks, uncertainties, assumptions, and factors, the forward-looking events discussed in this communication may not occur. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication, unless noted otherwise. Except as required under the federal securities laws and the rules and regulations of the SEC, W. P. Carey does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this communication or to reflect the occurrence of unanticipated events.

W. P. CAREY INC.

Consolidated Balance Sheets

(in thousands)






March 31, 2014


December 31, 2013

Assets








Investments in real estate:










Real estate, at cost

$

4,487,928



$

2,516,325




Operating real estate, at cost


84,494




6,024




Accumulated depreciation


(193,370)




(168,958)


Net investments in properties


4,379,052




2,353,391


Net investments in direct financing leases


898,335




363,420


Assets held for sale


95,209




86,823


Equity investments in real estate and the Managed REITs


186,965




530,020


Net investments in real estate


5,559,561




3,333,654


Cash and cash equivalents


198,947




117,519


Due from affiliates


32,497




32,034


Goodwill


700,024




350,208


In-place lease intangible assets, net


997,520




467,127


Above-market rent intangible assets, net


595,430




241,975


Other assets, net


255,489




136,433


Total Assets

$

8,339,468



$

4,678,950














Liabilities and Equity








Liabilities:








Non-recourse debt

$

2,961,999



$

1,492,410


Senior credit facility and unsecured term loan


366,278




575,000


Senior unsecured notes


498,210





Below-market rent and other intangible liabilities, net


182,741




128,202


Accounts payable, accrued expenses and other liabilities


291,038




166,385


Deferred income taxes


89,250




39,040


Distributions payable


90,079




67,746


Total liabilities


4,479,595




2,468,783


Redeemable noncontrolling interest


7,303




7,436










Equity:








W. P. Carey stockholders' equity:








Preferred stock (None issued)






Common stock


100




69


Additional paid-in capital


4,016,019




2,256,503


Distributions in excess of accumulated earnings


(302,799)




(318,577)


Deferred compensation obligation


29,342




11,354


Accumulated other comprehensive income


17,443




15,336


Less: treasury stock at cost


(60,948)




(60,270)


Total W. P. Carey stockholders' equity


3,699,157




1,904,415


Noncontrolling interests


153,413




298,316


Total equity


3,852,570




2,202,731


Total Liabilities and Equity

$

8,339,468



$

4,678,950


 


W. P. CAREY INC.

Consolidated Statements of Income

(in thousands, except share and per share amounts)


Three Months Ended


March 31, 2014


December 31, 2013


March 31, 2013

Revenues









Real estate revenues:









   Lease revenues

$

123,213



$

77,479



$

72,460


   Reimbursable tenant costs

6,030



3,532



3,117


   Operating property revenues

4,993



250



227


   Other

1,000



753



679



135,236



82,014



76,483


Revenues from affiliates (Investment Management):









   Reimbursable costs

39,732



22,878



11,968


   Structuring revenue

17,750



19,050



6,342


   Asset management revenue

9,777



11,341



10,015


   Dealer manager fees

6,676



3,526



1,223


   Incentive, termination and subordinated disposition revenue



199





73,935



56,994



29,548



209,171



139,008



106,031


Operating Expenses







Depreciation and amortization

52,782



32,141



29,376


Reimbursable tenant and affiliate costs

45,762



26,410



15,085


Merger and acquisition expenses

29,613



2,351



121


General and administrative

28,111



24,903



19,698


Property expenses, excluding reimbursable tenant costs

8,429



2,212



1,765


Stock-based compensation expenses

7,045



11,765



9,149


Impairment charges



5,294





171,742



105,076



75,194


Other Income and Expenses







Gain on change in control of interests

103,574






Net income from equity investments in real estate and the Managed REITs

14,262



354



10,656


Interest expense

(39,075)



(26,132)



(25,584)


Other income and (expenses)

(5,372)



2,795



1,399



73,389



(22,983)



(13,529)


Income from continuing operations before income taxes

110,818



10,949



17,308


(Provision for) benefit from income taxes

(2,221)



1,798



1,208


Income from continuing operations

108,597



12,747



18,516


Income (loss) from discontinued operations, net of tax

6,135



36,113



(2,677)


Net Income

114,732



48,860



15,839


Net income attributable to noncontrolling interests

(1,578)



(25,624)



(1,708)


Net (income) loss attributable to redeemable noncontrolling interest

(262)



(214)



50


Net Income Attributable to W. P. Carey

$

112,892



$

23,022



$

14,181


Basic Earnings Per Share







Income from continuing operations attributable to W. P. Carey

$

1.19



$

0.14



$

0.25


Income (loss) from discontinued operations attributable to W. P. Carey

0.07



0.19



(0.05)


Net Income Attributable to W. P. Carey

$

1.26



$

0.33



$

0.20


Diluted Earnings Per Share







Income from continuing operations attributable to W. P. Carey

$

1.18



$

0.14



$

0.24


Income (loss) from discontinued operations attributable to W. P. Carey

0.07



0.19



(0.04)


Net Income Attributable to W. P. Carey

$

1.25



$

0.33



$

0.20


Weighted Average Shares Outstanding







Basic

89,366,055



68,607,619



68,967,209


Diluted

90,375,311



69,628,498



69,975,293


Amounts Attributable to W. P. Carey







Income from continuing operations, net of tax

$

106,609



$

9,830



$

17,135


Income (loss) from discontinued operations, net of tax

6,283



13,192



(2,954)


Net Income

$

112,892



$

23,022



$

14,181


Distributions Declared Per Share

$

0.895



$

0.980



$

0.820


 

W. P. CAREY INC.

Reconciliation of Net Income to Adjusted Funds From Operations (AFFO) (Unaudited)

(in thousands, except share and per share amounts)






Three Months Ended





March 31, 2014


December 31, 2013


March 31, 2013

Real Estate Ownership












Net income from Real Estate Ownership attributable to W. P. Carey

$

110,407



$

21,021



$

16,692



Adjustments:














Depreciation and amortization of real property


51,620




31,390




29,687




Impairment charges





6,790




3,279




(Gain) loss on sale of real estate, net


(3,176)




(39,422)




931




Proportionate share of adjustments to equity in net income of partially-owned

   entities to arrive at FFO


1,265




4,917




3,154




Proportionate share of adjustments for noncontrolling interests to arrive at

   FFO


(3,492)




18,549




(4,267)





Total adjustments


46,217




22,224




32,784


FFO (as defined by NAREIT) - Real Estate Ownership


156,624




43,245




49,476



Adjustments:














Gain on change in control of interests (a)


(103,361)










Merger and acquisition expenses (b)


29,511




2,238




111




Loss on extinguishment of debt


7,463




1,399




74




Other gains, net


(3)




(97)




(270)




Other depreciation, amortization and non-cash charges


483




88




800




Stock-based compensation


220




(997)




174




Deferred tax benefit


(5,944)




(3,777)




(1,025)




Acquisition expenses (c)


100




89







Realized losses on foreign currency, derivatives and other


655




503




52




Amortization of deferred financing costs


873




792




511




Straight-line and other rent adjustments


(2,669)




(1,643)




(2,169)




Above- and below-market rent intangible lease amortization, net


13,486




7,374




7,256




Proportionate share of adjustments to equity in net income of partially-owned

   entities to arrive at AFFO


5




398




278





AFFO adjustments to equity earnings from equity investments


2,936




10,659




9,249





Hellweg 2 restructuring (d)





8,357







Proportionate share of adjustments for noncontrolling interests to arrive at

   AFFO


(1,417)




(1,858)




(1,561)





Total adjustments


(57,662)




23,525




13,480


AFFO - Real Estate Ownership

$

98,962



$

66,770



$

62,956

















Investment Management












Net income from Investment Management attributable to W. P. Carey

$

2,485



$

2,001



$

(2,511)


FFO (as defined by NAREIT) - Investment Management


2,485




2,001




(2,511)



Adjustments:














Merger-related income tax expense (b)


13,867










Other depreciation, amortization and other non-cash charges


937




271




262




Stock-based compensation


6,823




12,761




8,975




Deferred tax (benefit) expense


(4,986)




(4,703)




2,253




Impairment charge on marketable security





553







Realized losses (gains) on foreign currency


6




(4)




2




Amortization of deferred financing costs


152




464




318





Total adjustments


16,799




9,342




11,810


AFFO - Investment Management

$

19,284



$

11,343



$

9,299

















Total Company












FFO (as defined by NAREIT)

$

159,109



$

45,246



$

46,965


FFO (as defined by NAREIT) per diluted share

$

1.76



$

0.65



$

0.67


AFFO

$

118,246



$

78,113



$

72,255


AFFO per diluted share

$

1.31



$

1.12



$

1.03


Diluted weighted average shares outstanding


90,375,311




69,628,498




69,975,293


__________

(a)

Gain on change in control of interests for the three months ended March 31, 2014 represents a gain of $73.1 million recognized on our previously-held interest in shares of CPA®:16 – Global common stock, and a gain of $30.5 million recognized on the purchase of the remaining interests in nine investments from CPA®:16 – Global, which we had previously accounted for under the equity method.

(b)

Amount for the three months ended March 31, 2014 included $29.5 million of merger expenses for the Real Estate Ownership segment and $13.9 million of merger-related income tax expense for Investment Management segment incurred in connection with the CPA®:16 Merger.

(c)

Prior to the second quarter of 2013, this amount was insignificant and therefore not included in the AFFO calculation.

(d)

In connection with the Hellweg 2 restructuring in October 2013, our share of the German real estate transfer tax incurred by Hellweg 2 during the three months ended December 31, 2013 was $8.4 million.

 

Non-GAAP Financial Disclosure

     Funds from Operations, or FFO, is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets and extraordinary items; however, FFO related to assets held for sale, sold or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations.

     We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries and unrealized foreign currency exchange gains and losses. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude acquisition expenses and non-core expenses such as merger expenses. Merger expenses are related to the CPA®:16 Merger. We also exclude realized gains/losses on foreign exchange and derivatives which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income as they are not the primary drivers in our decision making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs which are currently not engaged in acquisitions, mergers and restructuring which are not part of our normal business operations. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation.

     We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP or as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

Institutional Investors:
Peter Sands
W. P. Carey Inc.
212-492-1110
psands@wpcarey.com

Individual Investors:
W. P. Carey Inc.
1-800-WP CAREY
ir@wpcarey.com

Press Contact:
Guy Lawrence
Ross & Lawrence
212-308-3333
gblawrence@rosslawpr.com

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