When you're looking for a millionaire-maker REIT, there's a good chance you're trying to find the little guy that has all of the pieces in place to explode. You may think the large-cap REITs are reserved for the safe, steady side of a portfolio. Could W.P. Carey (NYSE: WPC) be an exception to that rule?
W.P. Carey is the largest of the diversified Real Estate Investment Trusts (REITs) and also one of the highest dividend-paying ones. Even though it's already well established with an impressive portfolio, there may be a window to get in and ride this one to the next level. We'll dig in to see if W.P. Carey is a millionaire-maker REIT.
W.P. Carey's management team has done an impressive job building a solid portfolio over the past 47 years. They've been strategic in keeping the company's portfolio well-diversified between property types and geography.
The REIT owns 1,216 properties that are occupied by 352 tenants. These tenants bring in a total of $1.1 billion in annual base rent, with 30% of that rent coming from investment-grade tenants. If that's not impressive enough, the REIT has an occupancy rate of 98.9%, with a weight average lease term of 10.7 years. Only 15% of its annual rent is tied to leases that are expiring within the next five years.
Nearly 70% of its properties are distributed pretty evenly between industrial, warehouse, and office properties, and only 17% are retail. This leaves little exposure to the troubling retail real estate market. Geographically, 63% of its properties are located throughout the United States, and 35% throughout Europe.
The diversification between property types and geography helps limit W.P. Carey's exposure to particular markets, but it has also kept its tenant mix diversified enough to prevent being over-reliant on any specific companies. Its top 10 tenants make up only 21.6% of total annual base rent. These tenants include companies such as U-Haul (which is owned by AMERCO (NASDAQ: UHAL )); Marriott (NASDAQ: MAR); the international private school provider Nord Anglia (NYSE: NORD); Advance Auto Parts (NYSE: AAP), and other big names.
The balance sheet
A rock star real estate portfolio doesn't mean much if it's consumed by debt, so we want to take a look at W.P. Carey's balance sheet as well.
With as many properties as W.P. Carey has, there's a lot of debt to manage. Fortunately, the real estate investment trust (REIT) has been able to stay on top of managing it. While a 6x debt/EBITDA ratio is on the high side of what I like to see, an average interest rate of only 3.2% makes that ratio a pretty healthy number.
The size of the REIT's European portfolio gives it easy access to European debt markets, which typically have a lower interest rate than the U.S. And 65% of the company's total debt is in unsecured notes, with the majority of that being from the European market. This mix of debt also provides a hedge against currency fluctuations, which is especially helpful with the current economic uncertainty.
Only 12.5% of its debt is maturing through the end of 2022, which all happens to be some of the highest-interest secured mortgage debt. With interest rates expected to stay near 0% for the foreseeable future, this debt can likely be refinanced at a much lower rate.
You wouldn't expect a REIT the size of W.P. Carey, with the consistent year-over-year growth in revenue, FFO, and the size of its portfolio, to pay such an attractive dividend. However, its dividend yield is currently sitting at 6.4% with an annual rate of $4.17 per share. This dividend rate has increased every year since 1998, when it was at $1.65 per share.
While the AFFO payout ratio is a bit high at 87%, that ratio isn't unusual for W.P. Carey. The payout ratio has averaged 80% since 2015.
Compared to its five closest peers, W.P. Carey has the second highest dividend yield, only being beat by Vornado Realty Trust (NYSE: VNO), which currently has a yield of 7.39%