Most real estate investment trusts (REITs) focus on a specific property type, like apartments, shopping centers, or office buildings. That enables them to concentrate on what they know best to create the most value for investors. Meanwhile, that strategy provides investors with the opportunity to own a pure-play REIT in a sector where they see the most upside.
However, some REITs take the opposite approach, preferring to own a diversified portfolio of real estate. That allows them to become more of a one-stop-shop for investors, as they can gain exposure to a broad base of properties.
The largest diversified REIT by market cap is W.P. Carey (NYSE: WPC). Here's a closer look at the company.
W.P. Carey profile
W.P. Carey is a well-diversified REIT by tenant, property type, geographic location, and tenant industry. The company focuses on owning operationally critical real estate, primarily in the industrial, warehouse, office, retail, and self-storage industries. The REIT owns 1,215 single-tenant properties across the U.S. and Northern and Western Europe as of the end of the third quarter of 2020. Its portfolio has 142 million square feet of space secured by triple net leases with 351 tenants.
Diversification is the name of the game for W.P. Carey. Here's a look at its portfolio by property type as a percentage of its annual base rent (ABR):
- Industrial: 24%
- Warehouse: 23%
- Office: 23%
- Retail (including automotive dealerships): 17%
- Self-storage (net lease): 5%.
- Other (includes education facilities, hotels, fitness facilities, laboratories, student housing, movie theaters, and restaurants -- all net lease properties): 8%
Here's its portfolio by tenant industry as a percentage of its ABR:
- Retail stores (includes automotive dealerships): 23%
- Consumer services: 9%
- Automotive: 6%
- Cargo transportation: 5%
- Business services: 5%
- Healthcare and pharmaceuticals: 5%
- Beverage and food: 4%
- Construction and building: 4%
- Sovereign and public finance: 4%
- Capital equipment: 4%
- Hotel and leisure: 3%
- Containers, packaging, and glass: 3%
- Durable consumer goods: 3%
- High-tech industries: 3%
- Other (includes tenants in the insurance; banking; telecommunications; aerospace and defense; nondurable consumer goods; media: advertising, printing, and publishing; media: broadcasting and subscription; wholesale; chemicals, plastics, and rubber; metals and mining; oil and gas; environmental industries; electricity; consumer transportation; forest products and paper; real estate; and finance industries): 14%
About 63% of its portfolio by ABR is in the U.S., 35% is in Europe, and 2% is in other nations (1.1% Canada, 0.7% Mexico, and 0.2% Japan). Meanwhile, its top 10 tenants only account for 21.7% of its ABR. Further, this group includes two leading self-storage operators, a regional government office in Spain, a leading hotel operator, and a major auto parts distributor.
While W.P. Carey owns a well-diversified portfolio, that doesn't mean it will buy everything it sees. The REIT has a well-defined investment strategy focused on four key factors:
- The creditworthiness of the tenant: It seeks financially sound tenants in industries benefiting from solid demand trends.
- The criticality of the asset: It focuses on corporate headquarters, key distribution facilities, profitable manufacturing plants, critical research and development or data centers, and top-performing retail stores.
- The fundamental value of the underlying real estate: W.P. Carey looks at the property's condition, replacement cost, and the cost to re-lease it if a tenant vacates.
- Transaction structuring and pricing: It considers the lease term, financial covenants, and credit protection.
In addition to its owned real estate portfolio, W.P. Carey also manages private real estate funds. The company had $2.8 billion of assets under management in two funds:
- Corporate Property Associates 18: A diversified net lease fund.
- Carey European Student Housing Fund.
The company earns fees for managing these funds on behalf of investors. However, it exited the non-traded retail fundraising business in mid-2017. It's managing the remaining two funds through their liquidation stage, which starts in 2021 for both funds.
W.P. Carey news
The COVID-19 outbreak ravished the global economy and the real estate market in 2020. However, the pandemic didn't have much effect on W.P. Carey, as the company benefited from its high-quality portfolio of mission-critical real estate leased to financially sound tenants. The company had consistently high rent collections, which averaged 96% in the second quarter and 98% during the third quarter.
The company briefly paused making new investments early in the pandemic. However, by November, it had completed about $700 million of deals. Some of the notable transactions included a $102 million sale-leaseback acquisition of a 27-property supermarket portfolio in Spain and an $85 million investment in two transactions to buy four operationally critical industrial properties in the U.S.
W.P. Carey expects to complete $750 million to $1 billion of deals by the end of 2020 and anticipates making significant investments during the early part of 2021. The REIT had a strong investment-grade balance sheet to help finance its shopping spree.
W.P. Carey stock price
W.P. Carey has done a fair job creating shareholder value over the last several years.