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As CEO Jason Fox discussed W.P. Carey's (NYSE: WPC) 2024 results, he specifically noted that the year was the "new baseline" for the company's adjusted funds from operations (FFO). This highlights the fact that 2024 was a reset year for the net lease real estate investment trust (REIT). But the changes aren't quite over yet. Here's why W.P. Carey may not be much bigger in a year, but why it will, likely, be a much better REIT.
What happened to W.P. Carey's dividend?
In 2024, W.P. Carey paid $3.49 per share in dividends, approximately 15% lower than what it paid in 2023. That's not exactly good news, but there was a very specific reason for the lower dividend. In late 2023, W.P. Carey announced that it would exit the troubled office sector, a process that involved selling properties that accounted for roughly 16% of its rent roll. This effort wasn't completed until early 2024, and, given the size of the office portfolio, it required a dividend reset.
However, W.P. Carey has exited 2024 with a stronger portfolio than when it entered the year. Office properties have continued to struggle with the work-from-home trend that ramped up following the shutdowns of the coronavirus pandemic. It's worth noting that the dividend has been increased each quarter since the dividend reset, quickly returning the increase cadence to the pre-reset norm. The REIT is clearly attempting to tell investors that it is working from a position of strength.
In fact, the CEO announcing that 2024 is the new baseline for adjusted FFO results is effectively drawing a line in the sand. Reading into the statement, Fox was saying: "Yes, 2024 was a bad year, but the future is likely to be brighter." However, even in light of this fact, 2025 is probably going to be a mixed bag.
Buying and selling to improve W.P. Carey's portfolio
Generally speaking, REITs grow by acquiring assets. So jettisoning a large portfolio of office properties meant that W.P. Carey shrank in 2024. But the cash freed up from the office exit, and other sales, was used to buy new properties, to the tune of $1.6 billion for the year. Roughly half of that total occurred in the fourth quarter, so the benefit from those new assets won't show up until 2025. That's a good start.
Looking at 2025, W.P. Carey is expecting to buy between $1 billion and $1.5 billion of new properties. So more growth is on tap, but there's a caveat here. The REIT is expecting to sell between $500 million and $1 billion in assets, using the proceeds to fund a material portion of the acquisition activity. So, overall, W.P. Carey's portfolio isn't likely to be much bigger when 2025 draws to a close.