Last year was a transitional period for W.P. Carey(NYSE: WPC). The diversified real estate investment trust (REIT) spent the latter part of 2023 and the first few months of last year tearing out parts of its portfolio as it exited the office sector and sold off other non-core properties. It used those proceeds to rebuild its portfolio throughout the year, investing a total of $1.6 billion into new properties.
Those deals enabled the REIT to slowly rebuild its dividend (it raised its payout four times last year) following a reset in late 2023. That payout, which now yields nearly 6.5%, appears poised to continue rising in 2025 as W.P. Carey benefits from a recent surge of new investments and other growth drivers.
Ending 2024 on a high note
W.P. Carey's total investment volume of $1.6 billion last year was toward the high end of its guidance range ($1.25 billion to $1.75 billion). It had a strong end to the year, with a record fourth-quarter investment volume of $845 million.
The diversified REIT acquired a range of properties during the year's final period. Notable deals included:
Discount-retail portfolios: It spent about $200 million to buy four portfolios of 106 discount retail properties across 21 states leased to Dollar General. Those triple-net leases (NNNs) have a weighted-average remaining term of 14.3 years with built-in rent escalation. As part of that deal, it will buy nine more stores in the first quarter of this year for around $20 million.
A Class A industrial facility: The REIT bought a 1.1 million-square-foot U.S. battery factory leased to Canadian Solar for roughly $100 million. The factory has an NNN with 12.4 years remaining on the term and an escalation clause.
A manufacturing and industrial campus: W.P. Carey completed an approximately $100 million sale-leaseback of a five-building manufacturing and industrial campus totaling 1.1 million square feet in Mexico. The company signed a 25-year NNN (with built-in rent escalators) with the tenant, one of the oldest and largest privately-held industrial manufacturing conglomerates in the U.S. It will pay rent in U.S. dollars.
A data center: The REIT bought a 209,000-square-foot data center in the U.S. that's triple-net leased to a subsidiary of Brookfield Infrastructure with a remaining term of 11.1 years (and built-in rent escalators) for around $100 million.
W.P. Carey acquired a broad array of properties leased to high-quality tenants. The long-term leases all feature rental escalation clauses that will provide the REIT with incremental income growth in the coming years.
Overall, the company concentrated on buying industrial real estate (60% of its investment volume, with retail properties the next highest at 30%). It also focused on North America (75% of its investment volume, compared to 25% in Europe).
The REIT was able to buy properties at a strong initial real estate cap rate (7.5%). Meanwhile, the average yield on its investments will be around 9% when factoring in the rent growth over the life of the leases.
Set up for more growth in 2025
W.P. Carey's strong finish gave it a lot of momentum heading into this year, when it will capture the full benefit of its record fourth-quarter investment volume. On top of that, the company will continue to benefit from its best-in-class rent escalation. Those drivers position it to grow its adjusted funds from operations (FFO) and dividend this year.
The REIT is also in a strong position to continue making investments in 2025. It has built up substantial liquidity from selling off its office portfolio and other noncore properties, which it can continue to deploy into new properties this year.
And it has other noncore properties it can sell, including some legacy locations it currently operates (78 self-storage centers, four hotels, and two student housing properties at the end of the third quarter). It also owns a stake in cold storage REIT Lineage Logistics that it could liquidate now that Lineage has completed its initial public offering.
These added sources of liquidity should enable the company to continue making accretive acquisitions without needing to sell any extra stock this year.
Building back better
W.P. Carey has spent much of the past year remodeling its portfolio. It removed offices and other noncore properties, providing it with the capital to upgrade to higher-quality properties with better long-term prospects (primarily from built-in rental escalation clauses).
This strategy positions it to grow its income faster in the future, which should support a growing dividend. Add that growth potential to its high yield, and W.P. Carey looks like an attractive REIT to buy for passive income.
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Matt DiLallo has positions in Brookfield Infrastructure Partners and W.P. Carey. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
