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Edited Transcript of WPC earnings conference call or presentation 21-Feb-20 3:00pm GMT

Q4 2019 WP Carey Inc Earnings Call

NEW YORK Mar 5, 2020 (Thomson StreetEvents) -- Edited Transcript of WP Carey Inc earnings conference call or presentation Friday, February 21, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brooks G. Gordon

W. P. Carey Inc. - MD & Head of Asset Management

* Jason E. Fox

W. P. Carey Inc. - CEO & Director

* Peter Sands

W. P. Carey Inc. - Director of Institutional IR

* ToniAnn Sanzone

W. P. Carey Inc. - MD & CFO

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Conference Call Participants

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* Emmanuel Korchman

Citigroup Inc, Research Division - VP and Senior Analyst

* Greg Michael McGinniss

Scotiabank Global Banking and Markets, Research Division - Analyst

* Robert Jeremy Metz

BMO Capital Markets Equity Research - Director & Analyst

* Sheila Kathleen McGrath

Evercore ISI Institutional Equities, Research Division - Senior MD

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Presentation

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Operator [1]

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Hello, and welcome to W. P. Carey's Fourth Quarter 2019 Earnings Conference Call. My name is Jessie, and I will be your operator today. (Operator Instructions) Please note that today's event is being recorded. (Operator Instructions) I will now turn to today's program over to Peter Sands, Director of Institutional Investor Relations. Mr. Sands, please go ahead.

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Peter Sands, W. P. Carey Inc. - Director of Institutional IR [2]

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Good morning, everyone. Thank you for joining us today for our 2019 fourth quarter 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 wpcarey.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations.

And with that, I'll hand the call over to our Chief Executive Officer, Jason Fox.

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Jason E. Fox, W. P. Carey Inc. - CEO & Director [3]

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Thank you, Peter, and good morning, everyone. Today, I'll start by briefly reviewing some of the highlights of 2019 before focusing my remarks on a selection of our recent investments in the context of the market environment. Toni Sanzone, our CFO, will cover our 2019 results, our 2020 guidance and our balance sheet positioning, including the further flexibility we've gained with the renewal and upsizing of our credit facility. We're joined by our President, John Park; and our Head of Asset Management, Brooks Gordon, who are available to take questions.

During 2019, we executed on a variety of important initiatives. Coming into the year, we were focused on fortifying the benefits associated with our merger with CPA:17 while taking advantage of opportunities to further enhance our portfolio and balance sheet and continuing to replace investment management fees with higher quality lease revenue. On the portfolio front, our weighted average lease term continued to increase while enhancing the quality of our portfolio, including lowering tenant concentration, reducing office assets and converting a large operating self-storage portfolio to net lease with investment-grade rated extra space at the tenant.

Through our merger and a regular investment activity, we increased real estate AFFO per share by 8% year-over-year, which we feel particularly good about in the context of simultaneously reducing leverage and eliminating earnings from investment management. Our balance sheet is stronger than ever, and the quality of our earnings, EBITDA and dividend coverage, all significantly improved in 2019, with investment management representing just 5% of total AFFO, a percentage that will continue to decline as the remaining funds roll off.

In the capital markets, we accessed a variety of channels, raising a record amount of capital via the public markets. We prepaid over $1 billion of mortgage debt and achieved the lowest coupons and spreads in our history in both the U.S. and eurobond markets while reducing secured leverage below 10%. As a result of our strong execution on multiple fronts, we generated a total shareholder return of 29% and were placed on positive outlook by S&P. Most importantly, we believe our efforts will benefit shareholders, not just in 2019 but over the long run as we complete the wind-down of our investment management business and focus on delivering consistent and steady performance from our real estate portfolio.

Turning to the fourth quarter. From an investment standpoint, it was an especially active quarter, completing close to half of our 2019 investment volume, primarily into warehouse and industrial properties at attractive spreads to our cost of capital, and that momentum has continued into the new year. The market environment in the fourth quarter was again defined by the competitive conditions that prevailed throughout 2019, underpinned by low interest rates.

In Europe, very low rates continued to spur capital flows into the region with increasing amounts of money chasing widely marketed deals. Progress with Brexit helped renew interest in U.K. assets, and the Nordic commercial real estate market had a record year for deal flow. In the U.S., industrial and logistics continued to be the most sought-after property types amid continued economic growth, supported by low unemployment, low inflation and a low cost of credit.

Throughout 2019, we continued to view sale-leasebacks and off-market acquisitions as well as build-to-suits and other capital projects as the best ways to put capital to work on a risk-adjusted basis. While the warehouse and industrial sectors presented the best opportunities in 2019, comprising close to 80% of our full year investment volume, we maintained our diversified approach, completing investments totaling $868 million that span all major property types across 55 properties, net leased to 29 tenants, operating in 14 different industries located primarily in the U.S. and Northern and Western Europe.

During the year, we also creatively converted the bulk of our operating self-storage assets to net lease, adding further diversity to our net lease portfolio as well as a potential source of future net lease opportunities as operators look to take an asset-light approach.

In 2019, we actively used our improved cost of capital to extend our investments into higher quality industrial and logistics assets that trade at lower cap rates. However, this did not displace our ongoing focus on the broader opportunity set of net-leased asset that we've traditionally invested in, namely operationally critical properties net leased to growing companies that sit just below investment grade, thereby providing additional spread and compelling risk-adjusted returns over long leases.

In aggregate, our 2019 investments were executed at an initial weighted average cap rate of 6.7% and had a weighted average lease term of 19 years. As anticipated, our 2019 investment activity was back-end weighted with an especially active fourth quarter during which we completed $412 million in investments at a weighted average initial cap rate of 6.3% and a weighted average lease term of 20 years.

This included the completion of 3 capital investment projects totaling $44 million, bringing the full year total for completed projects to $127 million, which represented about 15% of our total 2019 investment volume. These are truly off-market transactions, enabling us to negotiate better terms compared to widely marketed deals and create value to the lease structure itself. Such transactions not only provide a ready source of incremental deal flow given the size and breadth of our portfolio, they also add high-quality real estate at cost.

Let's go through a handful of the more notable deals from the quarter. Our largest investment during the fourth quarter was the $94 million sale-leaseback of a logistics facility net leased to Stanley Black & Decker, the widely known manufacturer of hand and power tools, which has an A rating from S&P. The facility is located in the greater Charlotte area, in close proximity to key transportation routes, and is the tenant's second largest distribution center in the U.S. It's a triple net lease with fixed annual rent increases and has below-market rent that provides potential upside at the end of the 12-year term.

In December, we completed a $56 million acquisition of an experiential retail store net leased to Bass Pro Group, a leading provider of outdoor sporting goods in the U.S. and Canada. This is a true destination retail location that's been in operation for more than 17 years. It's triple net leased on a 24-year term with CPI-based rent growth. We remain selective in our approach to the retail sector and continue to focus on top-performing locations with strong coverage where the tenant has a differentiated strategy, shielding it from e-commerce competition.

Earlier in the quarter, we closed a $53 million cross-border sale-leaseback for 3 industrial facilities net leased to Apex Tool Group, which is one of the largest producers of high-performance tools. Two of the facilities are located in the U.S. and 1 in Mexico, all of which are critical to the company's global operating footprint. The properties are leased on a triple net basis in U.S. dollars for a period of 25 years with fixed annual rent escalations.

The last one I'll mention is the $38 million sale-leaseback we closed in November for 2 logistics facilities in Denmark and Sweden net leased to Stark Group, which is the largest supplier of building and construction products in the Nordic region. Both assets are strategically located with easy access to major highways and shipping routes. They're triple net leased for a 20-year term with annual CPI-based rent escalations.

Our 2019 investments, in conjunction with our proactive approach to asset management, also improved the quality of our portfolio across many key metrics. ABR generated from warehouse and industrial properties increased to 45% of the ABR, while ABR from office was reduced to 22% compared to 25% a year ago. We increased the proportion of ABR generated by investment-grade tenants to 30% and further reduced our top 10 tenant concentration to 22%, which remains one of the lowest in the net lease peer group. We also extended the portfolio's weighted average lease term to 10.7 years, which is 6 months longer than it was a year earlier despite the passage of time and edged closer to full occupancy, ending the year 98.8% occupied.

Looking ahead, we expect the market environment to remain competitive in 2020 with central banks, both in the U.S. and Europe, signaling their intentions to keep rates low. Brexit has made some meaningful progress and fears of a trade war with China have eased somewhat. However, the impact of the coronavirus on global growth and supply chains has become an unknown.

Over the long term, we believe the market opportunity for net lease remains vast. Our diversified approach enables us to invest across property types and on 2 continents. And our cost of capital allows us to do so accretively, supported by established access to the capital markets and a well-positioned balance sheet with ample liquidity to execute on our investment pipeline.

As I mentioned, the transaction momentum we saw in the fourth quarter has extended into 2020. Year-to-date, we've added $206 million of investments, comprising 2 closed acquisitions totaling $139 million and 3 completed capital projects totaling $67 million. We also have an additional 6 projects totaling $176 million scheduled for completion by the end of this year. So we currently have good visibility into about $380 million of investment volume for 2020 and a healthy pipeline of additional new investments, an excellent position to be in this early in the year. And with that, I'll hand the call over to Toni.

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ToniAnn Sanzone, W. P. Carey Inc. - MD & CFO [4]

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Good morning, everyone. As Jason said, we are very pleased with the progress we made on several fronts in 2019 and believe we are well positioned for the year ahead given our current outlook.

Starting with our results. As a reminder, our 2019 results reflect the full year impact of the merger with CPA:17, which significantly improved the composition of our earnings, with 95% of total AFFO generated by our core real estate business. As our investment management fee streams decline over time, we are actively replacing them with more highly valued and steady real estate cash flows.

We were pleased to generate 8% year-over-year growth in real estate AFFO per share while at the same time significantly deleveraging and strengthening our balance sheet. Total AFFO for the fourth quarter was $1.28 per share, bringing full year AFFO to $5 per share, a decrease of 7.2%, driven by the expected decline in investment management earnings. AFFO from real estate totaled $1.21 per share for the quarter and $4.74 per share for the full year, an increase of 8% over the prior year, driven by substantially higher lease revenues from the properties we acquired in the CPA:17 merger as well as our net investment activity and strong same-store growth. Real estate AFFO in 2019 also included 2 significant lease-related settlements and recoveries totaling $16 million, which we discussed on prior calls.

As Jason discussed, our fourth quarter investment volume totaled $412 million, representing close to half of our full year total of $868 million. And because the majority of investments closed near the end of the quarter, they had minimal impact on the fourth quarter and full year earnings.

Disposition activity was also largely back-end weighted, driven by the New York Times repurchase at the start of December. During the fourth quarter, we disposed of 12 properties for $348 million, bringing full year dispositions to $384 million. Since the end of the year, we've closed the sale of an operating hotel in Miami for $115 million, leaving us with just 1 remaining operating hotel, which we expect to sell over the next year.

Our 2019 occupied dispositions were executed at a weighted average cap rate of 7.8%, excluding the New York Times, which we view as an outlier given its fixed price purchase option. Other dispositions during the fourth quarter included 6 retail properties and 1 educational facility, which were vacant and transferred back to the lenders, thereby eliminating their associated carry costs.

ABR increased 5% year-over-year, driven by our 2019 net investment activity, the conversion of self-storage assets to net lease and solid year-over-year contractual rent escalations. Same-store rent growth, as we define it, was 2%, which represents an average contractual rent increase written into our leases. As many of you know, there's been growing interest for net lease REITs to disclose the same-store growth metric that includes the impact of leasing activity, vacancies and credit losses. Incorporating the impact of those factors would reduce our same-store rent growth about 100 basis points and is something we'll look to add to our supplemental disclosure going forward.

From a re-leasing perspective, we had an active fourth quarter, executing 15 lease renewals and extensions, representing 2% of ABR. A portion of this related to the lease restructuring of 4 manufacturing facilities, which we discussed on our last earnings call. As anticipated, that restructuring included an initial rent reduction from $5.4 million to $1 million but will steadily grow to $2.4 million by year 4 of the lease. This roll down more than offset positive re-leasing spreads on several office and warehouse properties.

In aggregate, our re-leasing activity recaptured 89% of the prior rent and added 7 years of incremental weighted average lease term. Given the variability in this metric from quarter-to-quarter, internally, we look at it over the trailing 8 quarters, over which time frame we recaptured 97% of the prior rent, and on a weighted average basis, added 7.7 years of incremental lease term while only spending $1.16 per square foot on tenant improvements and leasing commissions.

For new leasing activity, we entered into 11 new leases on existing properties with a weighted average lease term of 17 years. This included leasing approximately 1 million square feet of roof space for the installation of solar panels on a recently expanded logistics facility we own in the port of Rotterdam in The Netherlands. This will generate additional lease revenues without any additional investment on our part. Given the opportunity set provided by the size of our warehouse and industrial portfolio, we're actively looking to replicate these leasing opportunities, which also serve to further our ESG initiatives.

Moving to our capital markets activity and balance sheet. We continue to have access to a variety of capital markets in 2019, in total, raising $1.4 billion of well-priced, long-term and permanent capital. We accessed the U.S. dollar and euro debt capital markets in June and September, respectively, raising approximately $900 million through unsecured bond offerings. Net proceeds from these offerings were primarily used to reduce amounts outstanding on our unsecured credit facility and to repay higher yielding mortgage debt, further advancing our unsecured debt strategy.

In the fourth quarter, we paid down $324 million of mortgage debt, bringing the total for 2019 to $1.3 billion. As a result, secured debt as a percentage of gross assets was effectively cut in half during 2019, ending the year at 9.7%, unencumbering an additional $180 million of ABR in the process. As a result, at the end of 2019, 73% of total ABR was unencumbered, up from 53% at the start of the year.

Our 2019 bond issuances had a weighted average interest rate of 2.3%, which is well below the 4.8% weighted average cost of the mortgage debt we repaid, creating significant interest savings in 2020 and beyond. In addition, through our ATM program, we raised $523 million of equity capital in 2019 at a weighted average price of $79.70, all of which completed earlier in the year as no ATM activity was issued in the fourth quarter. We ended the year with net debt-to-adjusted EBITDA of 5.4x and debt-to-gross assets of 40.3%, reducing overall leverage from 5.8x and 42.8% a year ago.

Since year-end, we've amended and restated our senior unsecured credit facility, increasing total capacity to $2.1 billion, of which $1.8 billion is a multicurrency revolving line of credit in addition to a GBP 150 million term loan and a $105 million equivalent multicurrency delayed draw term loan, all of which mature in 5 years. The increased size and improvements in pricing, duration and other terms reflect the significant progress we've made over the last several years, executing our business strategy and the strong demand in the bank market for our credit.

As such, we are starting the year with an extremely well-positioned and strong balance sheet with ample liquidity, ensuring we have significant flexibility in funding our acquisition pipeline and allowing us to continue accessing the capital markets opportunistically.

Turning now to guidance. For 2020, we expect to generate total AFFO of between $4.86 and $5.01 per share, including real estate AFFO of between $4.74 and $4.89 per share. Our guidance assumes investment volume of between $750 million and $1.25 billion, which includes capital investment projects we expect to complete during the year.

Regarding the timing of 2020 investments. As Jason mentioned, we've closed $206 million of investments already this year, reflecting continued momentum from an active fourth quarter. And we have an additional $176 million of capital investment projects scheduled to be completed in 2020 with expected completion dates for each provided in our supplemental. Based on our experience, our guidance also assumes investment activity not currently in our pipeline is likely to be more weighted towards the end of the year.

Disposition activity for the year is expected to fall between $300 million and $500 million. This includes the $115 million sale of an operating hotel, which closed in January, as I previously mentioned. From a forecasting perspective, it's important to note this hotel is running near breakeven, so its sale will not have a significant impact on 2020 AFFO.

As expected, our investment management earnings will continue to decline with the pending merger and internalization of the CWI lodging funds. We currently expect the transaction will close at the end of the first quarter, subject to shareholder approval, at which time we will receive an estimated $32 million of common stock and $65 million of preferred stock in the combined company, which we anticipate will carry a 5% dividend. This is in addition to the approximate $100 million of common stock we currently own in the CWI funds. At the same time, we will cease earning asset management fees and profits interest in the funds and will no longer pay sub-advisory fees.

On the expense side, we expect total G&A for 2020 to fall between $80 million and $84 million. This includes certain one-time expenses of about $4 million in 2020 as we transition to a new headquarters office later this year. In addition, we expect to absorb the cost of previously shared platform costs as the reimbursements we received from the CWI funds for transition services wind down over the course of the year.

To give some additional context on our 2020 expectations in relation to this year's results, AFFO for 2019 included significantly higher lease termination and other income than we expect in 2020, primarily as it relates to the 2 larger lease-related recoveries that totaled $16 million in 2019. Similarly, in 2019, we recognized certain income tax benefits totaling over $5 million, which reduced our cash tax expense to about $20 million on an AFFO basis. Based on our current visibility, we would not expect similar benefits in 2020, thereby increasing our cash tax expense.

Lastly, we expect interest expense to decline significantly in 2020, resulting from the full year impact of last year's capital markets activity, which reduced our cost of debt to 3.2% at the end of the year. While we don't provide specific guidance on capital markets activity, our guidance range assumes we run our balance sheet leverage-neutral on a debt-to-gross asset basis.

In closing, our balance sheet is stronger than ever with low leverage, ample liquidity and well-established access to various forms of capital. We're pleased with the early momentum we're seeing with the investments we've already closed to date and how our pipeline is building. As Jason noted, we have good visibility into about $380 million of 2020 deal volume through investments that have already closed and capital projects scheduled from -- for completion by the end of the year. And with the expected closing of the CWI merger at the end of the first quarter, we will further simplify our business, moving incrementally closer to generating 100% of our earnings from real estate.

And with that, I'll pass the call back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Sheila McGrath with Evercore.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

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I guess, I was wondering if you could give us insights on same-store NOI for self-storage, which was particularly strong. Are all those properties leased properties? And just how -- what was driving that growth and participation in the leases?

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [3]

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This is Brooks. The vast majority are net leased in the Extra Space transaction. We have 10 that are currently operating properties and another 9 that are scheduled to be added to the Extra Space lease. And the same-store performance is really just embedded in that portfolio. Those are in markets that have seen good rent growth.

So for example, in the 10 that we retain as operating properties, for example, those have seen very good growth, north of 10% NOI growth. And on the net lease, those are subject to a long-term rent growth formula where there's a fixed component and a variable component based on revenue growth.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [4]

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Okay, great. And then -- go ahead.

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [5]

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And also just U-Haul had a bump in there as well and that's a big piece of the puzzle.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [6]

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That's right. And then on the leasing spread on industrial being negative, was there 1 deal that was skewing that? Just a little color on the leasing spreads in industrial.

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [7]

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Yes, that's very much just driven by that 1 workout that Toni mentioned in her opening remarks. So if you back that out, the leasing spreads were quite strong this quarter, kind of in the 112% range. But that 1 workout transaction on 4 industrial properties really drove that.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [8]

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Okay. And last question. If you could just comment on tenant watch list, how that's tracking? And if there's any notable tenants you want to call out for us to be mindful of?

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [9]

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Sure. Credit quality is quite good right now. Heightened watch list is under 2% of ABR. In terms of any concentration, there aren't really any industry trends in there. It's just a mix. Again, we closely monitor all tenants and are quite cautious and willing to downgrade onto our watch list quite proactively. So we think that's a safe list to look at and one we feel pretty good about. So no real concentrations or particularly notable ones.

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Operator [10]

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Our next question comes from Greg McGinniss with Scotiabank.

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [11]

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Toni, I was just hoping you could help us think about sort of the acquisition guidance, kind of what the underwriting assumptions on there, whether it's cap rates or investment spreads?

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Jason E. Fox, W. P. Carey Inc. - CEO & Director [12]

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Greg, this is Jason. I'll take that, sure. So in our guidance, we talked about an acquisition range of $750 million to $1.25 billion of new investments. I think embedded in that, we have seen some cap rate compression over the year, both in the U.S. and Europe. If you look at our Q1 deals to date, the $200 million we referenced earlier across 5 investments, both new investments as well as capital projects, those blended to around a 6.5% cap rate.

Hard to predict a full year of where the markets will go and where the opportunities will arise, but I think that's probably a good run rate for you to think about on the year. It's come down a little bit from the mid- to high 6s that we were for a blended cap rate in 2019. And I think that's a reflection of 2 things: One is, we have seen continued yield compression; but I think equally important, we are kind of broadening the types of deals that we look at.

We're still focused on what we've traditionally done, which is sale-leasebacks, critical operating properties where we've generated above-market yields, but we're also adding higher quality real estate that may trade at lower cap rates, may have higher embedded growth or better re-leasing outcomes at the end of the terms.

The Black -- the Stanley Black & Decker would be a good example of that. So I think those 2 components really are kind of driving the slight cap rate compression, at least how we're seeing the year unfolding.

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Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [13]

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And then I know you talked about this a bit previously, so I apologize if this was covered. But on the capital investment side, where you're looking to deliver almost $0.25 billion of projects in 2020, do you see this as a reasonable expectation for deliveries going forward? Just kind of curious what you see as the -- how deep is this pipeline within the current portfolio of potential investment projects? And then what's the process for sourcing more?

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Jason E. Fox, W. P. Carey Inc. - CEO & Director [14]

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Yes, we -- I'll start here and I'll see if Brooks wants to add some color. Yes. So 2018, 2019, we -- about 10% to 15% of our deal volume was these capital investment and development projects that also include build-to-suits, by the way. This year, you heard the numbers that we just talked about. We expect that to double in -- the 2019 numbers. I think we're expecting about $240 million of investments that are scheduled to complete this year, again both build-to-suits and expansions. Some of those have already completed year-to-date.

We also have another $130 million in our supplemental that are expected to complete in 2021. So hard to predict, as always, but I think a good run rate is probably in that 20% to 30% range. It's become a big focus of our investment management team. We have the skill set to identifying the tenant relationships. We also have a sizable pool of assets, and particularly, the industrial assets that tend to lend themselves quite well to expansions.

And as we've talked in the past, we're putting more money to work but we're also putting money to work at higher yields. We're extending lease terms when we're doing expansions. It's higher quality real estate, and we're also adding criticality of the portfolio given that we're building or expanding to a tenant's current specs and needs. So a lot of positives that come out of that type of investment. And I think you'll continue to see us focus and, hopefully, a growing portion of our annual deal volume.

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Operator [15]

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Our next question comes from Jeremy Metz with BMO.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [16]

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Question for Jason, or maybe Brooks here, but I was hoping we can get any sort of update on the Pendragon situation, if you're having any discussions there about potentially restructuring those leases and that's something we need to keep an eye out for possibly here in 2020? And just as a follow-on, the Pendragon property count went down an asset. It's down to 69 now, but I didn't see a sale listed on the disposition page. So any color on that would be great as well.

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [17]

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Sure. I'll -- this is Brooks. I'll take that one. On that specific question, we just went direct with a tenant that was formerly the subtenant. So we still own the property, but that was a good outcome for going direct with the subtenant that was already in place. And then with respect to Pendragon, more broadly, we think the company has made a lot of progress, especially in the second half. A lot of their actions are bearing fruit. Those include hiring a very well-regarded new CEO, substantially reducing cost.

But really, the biggest driver of their turnaround and the biggest cause for some of their challenges was just way too much inventory. And they drastically reduced that by close to 30% and they are in a much better place. I think that's in the context of a very conservative balance sheet. Certainly, industry headwinds and their competitors share those headwinds, but we don't view this as a default risk. We have over 10 years of weighted average lease term. There's no intention to restructure that deal nor do we foresee a need to. So we think the company is in a good place now. Certainly, industry headwinds but they're well positioned on recovery.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [18]

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That's helpful. And then Toni, I appreciate the added color you gave on the same-store. You mentioned that including vacancies and credit loss, it would have had about 100 basis-point impact. Not sure if you have it but interested in what that would have been in terms of impact for the full year? How much of that was credit loss versus vacancy? And just as you think about credit loss in 2020, any sort of color on what you're forecasting here even if just relative '20 versus '19?

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [19]

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This is Brooks. In terms of credit losses, we make assumptions that are baked into our guidance. I don't have the specific percentage right in front of me, but in any given year, we're always assuming some portion of credit loss. Our expectations are historically that we would actually perform better than that.

I'll say with respect to the drag on same-store, that's -- 100 basis points is a good placeholder, and we intend to disclose more of that going forward. I think our real-world experience in recent years has been somewhat better than that. And so we do think that's a good placeholder for the moment, and you'll see more disclosure from us on that in the future.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [20]

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And that 100 basis points, that is both a mix of credit loss and vacancy impact, right? So should we think about that half-and-half? Or is there any sort of rough ballpark?

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [21]

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Yes, I think the rough ballpark, I think half-and-half is probably a good assumption. For example, that workout that I just mentioned and Toni mentioned certainly plays into that number.

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Operator [22]

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Our next question comes from Emmanuel Korchman with Citi.

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [23]

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Just maybe one for Toni. The dispositions, can we talk about the timing and expected yields on those throughout the year?

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ToniAnn Sanzone, W. P. Carey Inc. - MD & CFO [24]

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For the upcoming year or what we've experienced?

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [25]

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For the upcoming year.

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ToniAnn Sanzone, W. P. Carey Inc. - MD & CFO [26]

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Sure. I think -- I mean I think the timing is pretty well spread at this point in time. I don't really see a significant waiting. I mean I think the pipeline is something we actively work on.

Brooks, can you give some color on this, just the breakdown of how we're looking at that?

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [27]

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Yes. So the -- obviously, we've announced 1 transaction which is already closed, which is the operating hotel. The disposition pipeline is pretty evenly spread over the year. But historically, that has tended to slip closer towards the end of the year but we do expect it to be pretty well spread out.

From a deal makeup perspective, the 40% of that expected disposition volume is what we call non-core, again the vast majority of that being that operating hotel and minimal vacant asset sales kind of about 5% to 7% of that with the balance kind of roughly split between residual risk management and opportunistic sales. It's about 60% international, 40% U.S., and pretty evenly split across property types.

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Emmanuel Korchman, Citigroup Inc, Research Division - VP and Senior Analyst [28]

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Great. And Jason, going back to a comment you made, you said that you're sort of maybe broadening the types of properties you looked at. You put out the Stanley Black & Decker deal. Does that then put you in a situation where you're competing with a different competitive set of other investors? And how do you think about your cost of capital on your sort of operating advantages versus theirs when you're operating in a different asset category?

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Jason E. Fox, W. P. Carey Inc. - CEO & Director [29]

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Yes. I mean on the margin, there probably are some different competitors that we'll compete against, especially as you get into higher quality, more infill or Tier-1 markets. I think where we differentiate ourselves in a lot of those deals is our ability to execute. The focus is still going to be on sale-leasebacks. We can drive some yield relative to what the market typically bears. To the extent there is complexity in the upfront structuring, that will play well into us.

But our cost of capital has gotten stronger. And we can do deals like the Stanley Black & Decker deal that's kind of well below a 6% cap rate and still generate sufficient spreads to our cost of capital. We're not going to win all those deals, of course, but we do have very good relationships within the net lease community. We think we'll get first look and last look at a lot of these and that's an advantage to us as well. So again, we look at that as more incremental to our deal volume. We're going to continue to focus and do lots of deals in the traditional space where we can generate cap rates of north of 6% and even north of 7% in some circumstances.

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Operator [30]

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(Operator Instructions) We do have an additional question from Sheila McGrath with Evercore.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [31]

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Yes. Jason, I saw an article in Crain's that you guys were thinking about doing something new in Chicago, maybe redevelop or expand a building at Clinton St. I was wondering if you could just give us some information on that opportunity.

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Jason E. Fox, W. P. Carey Inc. - CEO & Director [32]

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Yes, sure. I mean it's a great asset that we've owned for a while. I'll let Brooks give some color on what our possibilities are for that asset.

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [33]

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Sure. So it's a -- an office asset in the West Loop in Chicago. It has a way below-market rent and the tenant doesn't have any renewal options, so we have an excellent opportunity to push economics there. We also own a parking lot directly adjacent. And so the article, I believe, you're mentioning references the planned expansion that we're working on for that site. It's early days but it's a very, very good opportunity with an extremely attractive site. And so hopefully, hear more about that soon.

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Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [34]

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Okay, great. And that's currently not in the investments in the supplemental, correct?

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Brooks G. Gordon, W. P. Carey Inc. - MD & Head of Asset Management [35]

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No, it is not.

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Operator [36]

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Thank you. At this time, I am not showing any further questions. I'll now hand the call back to Mr. Sands.

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Peter Sands, W. P. Carey Inc. - Director of Institutional IR [37]

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Great. Thank you. Thank you for your interest in W. P. Carey. If you have additional questions, please call Investor Relations on (212) 492-1110. That concludes today's call. You may now disconnect.