W.P. Carey (NYSE: WPC) is one of the leading names in the net lease sector, having long helped to popularize the sale/leaseback transactions that underpin the niche. There's so much more to like about this real estate investment trust (REIT) that I can't point to one single reason why I own it and never plan to sell. So here are four reasons instead.
1. A long record of success
One of the key selling points for me is that W.P. Carey has been operating in the net lease space (which means that tenants pay for most of a property's operating expenses) for nearly 50 years. It basically helped develop the niche and is very well respected. But as an income investor, I want more than just a good business story, I want tangible results. In the REIT space, that means dividends.
W.P. Carey has increased its annual dividend for 24 consecutive years. Having already increased its payout again this year, it is on the verge of becoming a Dividend Aristocrat. That's impressive, but here's the real story: W.P. Carey has increased its dividend every year since its 1998 IPO. That includes when it converted from a master limited partnership to a REIT (after which I felt comfortable enough to buy it) as well as right now, while it is in the process of exiting an asset management business it operated for many years. Regular dividend growth matters to me, and it clearly matters to W.P. Carey, which has increased its dividend regularly right through good markets and bad.
2. Property diversification
I'm a big fan of diversification within my portfolio, which helps reduce risk. However, I've increasingly focused on owning companies that have diversified businesses as well. W.P. Carey is almost a perfect fit in that regard. Its portfolio is spread across the industrial (25% of rents), warehouse (22%), office (22%), retail (18%), and self-storage (5%) sectors. A fairly large other category, at around 8% of rents, rounds things up to 100% and gives the REIT flexibility to build new lines of business. Notably, the self-storage sector started in the other category before growing to the point where it earned a specific call-out. Another thing I like here is that retail is such a small percentage of the mix compared to net lease peers, many of which focus heavily on the space. That means that W.P. Carey mixes well with other net lease REITs I own without doubling me up on the retail sector.
3. Geographic diversification
W.P. Carey's diversification doesn't stop at the sector level. It also generates around 38% of its rents from outside the United States. Roughly 36% is from Europe. This is notable because it provides the REIT with a different avenue for growth that most peers simply don't have. In fact, industry giant Realty Income has only recently started to invest across the pond. W.P. Carey, for reference, has been doing this for 22 years. A good example of the benefit here is that most of W.P. Carey's retail exposure is in Europe where retail isn't overbuilt like it is in the United States.
4. When opportunity knocks
Points two and three provide a foundation for point four, which is that W.P. Carey takes an opportunistic approach to investing. Put simply, it likes to ink deals both when and where others aren't as eager to roam. For example, it announced plans to start buying industrial and warehouse assets in the middle of 2020, essentially during the worst days of the global coronavirus pandemic. But the key is that it has the portfolio diversification to actually put money to work in just about any environment.
This isn't the only way W.P. Carey is opportunistic. It's also willing to work with lower-quality tenants than many of its peers. Investment-grade credits make up a relatively modest 30% of its portfolio. Since it tends to originate its own deal, however, the REIT gets to do a deep dive into a potential lessees' financial statements, so it has a good understanding of the strengths and weaknesses of its partners. That gives it the comfort to take on a little more risk, given that the cash it provides in a sale/leaseback transaction often gets used to support the property seller's growth. And, like the low retail exposure, this approach balances nicely with net lease REITs I own that have a greater focus on investment-grade tenants.
Forever is a long time
I would be lying if I said that I would never, ever sell W.P. Carey. There's always the possibility that something changes and I decide to push it out of my portfolio. However, as long as the REIT keeps these four pillars intact, I can't see a reason that would make me want to sell this great REIT. And for anyone looking at W.P. Carey today, it is offering a fairly generous 5.3% yield compared to the average REIT yield of around 2.3%, using Vanguard Real Estate Index ETF as a proxy. While that's another reason to like it, that's not the main reason I own it.