W. P. Carey Inc. Announces First Quarter 2014 Financial Results

May 08, 2014, 07:30 ET from W. P. Carey Inc.

NEW YORK, May 8, 2014 /PRNewswire/ -- W. P. Carey Inc. (NYSE: WPC) (W. P. Carey or the Company), a global net-lease real estate investment trust, today reported its financial results for the first quarter ended March 31, 2014.

Financial Update First Quarter 2014

  • Revenues of $209.2 million and revenues, excluding reimbursable expenses, of $163.4 million
  • AFFO of $118.2 million, equivalent to $1.31 per diluted share
  • Quarterly dividend of $0.895, equivalent to an annualized dividend rate of $3.58 per share
  • Affirm full year 2014 AFFO guidance range of $4.40 to $4.65 per diluted share

Business Update First Quarter 2014

  • Closed merger with CPA®:16 – Global
  • Issued $500.0 million of Senior Unsecured Notes
  • Structured $374.8 million of investments on behalf of our Managed REITs
  • Raised $416.6 million on behalf of our Managed REITs
  • Acquired one property for $43.1 million
  • Disposed of nine properties for total proceeds of $127.7 million
  • Owned portfolio occupancy of 98.3%

MANAGEMENT COMMENTARY

"We had an active first quarter, significantly increasing the size of our owned real estate portfolio through the closing of our merger with CPA®:16 – Global, and taking initial steps towards our long-term goal of becoming a primarily unsecured borrower, including the successful completion of an inaugural $500 million Senior Unsecured Note offering," said W. P. Carey President and CEO, Trevor Bond.  "We also completed close to $420 million of acquisitions, in aggregate, for our owned and managed real estate portfolios, and raised over $400 million on behalf of our Managed REITs."

QUARTERLY FINANCIAL RESULTS

Revenues

  • Total Company: Revenues, excluding reimbursable costs, for the 2014 first quarter totaled $163.4 million, up 45.1% from $112.6 million for the 2013 fourth quarter, and up 79.7% from $90.9 million for the 2013 first quarter. In each case the increase was due primarily to additional real estate revenues from properties acquired in the Company's merger with CPA®:16 – Global, which closed on January 31, 2014 (the CPA®:16 Merger).
  • Real Estate Ownership: Real estate revenues, excluding reimbursable tenant costs, for the 2014 first quarter were $129.2 million, up 64.6% from $78.5 million for the 2013 fourth quarter, and up 76.1% from $73.4 million for the 2013 first quarter. In each case the increase was due primarily to additional lease revenues from properties acquired in the CPA®:16 Merger.
  • Investment Management: Revenues from affiliates, excluding reimbursable costs, for the 2014 first quarter were $34.2 million, virtually unchanged from $34.1 million for the 2013 fourth quarter as higher dealer manager fees were almost completely offset by the cessation of asset management revenue from CPA®:16 – Global upon completion of the CPA®:16 Merger and by lower structuring revenue. Compared to the 2013 first quarter, revenues from affiliates, excluding reimbursable costs, increased 94.6% from $17.6 million, due primarily to higher structuring revenue and higher dealer manager fees.

Adjusted Funds from Operations (AFFO)

  • AFFO for the 2014 first quarter was $118.2 million, or $1.31 per diluted share, up 51.4% and 16.6%, respectively, from AFFO of $78.1 million, or $1.12 per diluted share, for the 2013 fourth quarter, due primarily to additional real estate revenues from properties acquired in the CPA®:16 Merger. Similarly, AFFO and AFFO per diluted share increased 63.7% and 26.7%, respectively, from $72.3 million, or $1.03 per diluted share, for the 2013 first quarter, due primarily to additional real estate revenues from properties acquired in the CPA®:16 Merger. Note: Further information concerning AFFO, a non-GAAP supplemental performance metric, is presented in the accompanying tables and related notes.
  • Per share data for the 2014 first quarter also reflects the issuance of approximately 30.7 million shares on January 31, 2014 in connection with the CPA®:16 Merger.

Dividend

  • As previously announced, on March 20, 2014 the Company's Board of Directors declared a quarterly cash dividend of $0.895 per share, equivalent to an annualized dividend rate of $3.58 per share, which was paid on April 15, 2014 to stockholders of record as of the close of business on March 31, 2014. The dividend represented a 2.9% increase over the 2013 fourth quarter and was the Company's 52nd consecutive quarterly increase.

AFFO GUIDANCE

  • The Company affirms its previously announced AFFO guidance range of $4.40 to $4.65 per diluted share for the 2014 full year. This guidance range reflects certain assumptions, substantially as described in a Form 8-K filed by the Company on January 27, 2014.

BALANCE SHEET AND CAPITALIZATION

CPA®:16 Merger

  • As previously announced, on January 31, 2014 W. P. Carey merged with its publicly held, non-traded REIT affiliate, CPA®:16 – Global, immediately following which the Company's owned portfolio consisted primarily of 702 leased properties, comprising 83.6 million square feet leased to 232 tenants, with an average lease term of 8.9 years and an occupancy rate of 98.4%.
  • In connection with the CPA®:16 Merger, the Company incurred expenses of $43.4 million during the 2014 first quarter, including $29.5 million within the Real Estate Ownership segment and $13.9 million of merger-related income tax expense within the Investment Management segment. Such expenses have been excluded from the calculation of AFFO as they are not part of our normal business operations and we believe that doing so provides a measure more comparable to REITs not currently engaged in mergers.

Senior Unsecured Credit Facility

  • As previously announced, on January 31, 2014 the Company closed a new credit agreement that increased the capacity of its unsecured line of credit from $625.0 million to $1.25 billion, comprised of a $1.0 billion revolver and a $250.0 million term loan.

Senior Unsecured Notes

  • As previously announced, on March 11, 2014 the Company priced an underwritten public offering of $500.0 million aggregate principal amount of 4.6% Senior Unsecured Notes due April 1, 2024, offered at 99.639% of the principal amount with a yield to maturity of 4.645%. The Company used the net proceeds from this offering primarily to pay down its prior senior unsecured credit facility.

Mortgage Prepayments

  • During the quarter, the Company prepaid several non-recourse mortgage loans with an aggregate outstanding principal balance of $116.8 million, in addition to scheduled mortgage loan principal payments totaling $16.7 million.

OWNED REAL ESTATE PORTFOLIO

Acquisitions and Dispositions

  • During the quarter, the Company completed one investment for $43.1 million and disposed of nine properties for total gross proceeds of $127.7 million, including four properties acquired in the CPA®:16 Merger.

Composition

  • As of March 31, 2014, the Company's owned portfolio consisted of 700 net-leased properties, comprising 82.8 million square feet leased to 230 tenants, and four operating properties. As of that date, the average lease term of the net-leased portfolio was 8.7 years and the occupancy rate was 98.3%.

MANAGED REITs

  • W. P. Carey is the advisor to CPA®:17 – Global, CPA®:18 – Global (together the CPA® REITs) and Carey Watermark Investors Incorporated (CWI) (together the Managed REITs). At March 31, 2014, the Managed REITs, in aggregate, had total assets under management of approximately $7.3 billion.

Acquisitions

  • During the quarter, the Company structured nine new investments totaling $374.8 million on behalf of the CPA® REITs.

Fundraising

  • During the quarter, the Company raised $399.0 million on behalf of CPA®:18 – Global in its initial public offering and $17.6 million on behalf of CWI in its secondary offering.
  • In May 2014, the board of directors of CPA®:18 – Global approved the discontinuation of sales of its class A common stock after June 30, 2014 in order to moderate the pace of its fundraising.

Supplemental Information

The Company has provided supplemental unaudited financial and operating information regarding the 2014 first quarter, including a description of non-GAAP financial measures and a reconciliation to GAAP measures, in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on May 8, 2014.

Live Conference Call and Audio Webcast Scheduled for 11:00 a.m. Eastern Time Please call to register at least 10 minutes prior to the start time.

Date/Time: Thursday, May 8, 2014 at 11:00 a.m. Eastern Time Call-in Number: +1-877-317-6789 (US) or +1-412-317-6789 (international) Audio Webcast: www.wpcarey.com/earnings

Conference Call Replay

Replay Number: 1-877-344-7529 (US) or +1-412-317-0088 (international) Replay Passcode: 10044261 Available until May 22, 2014 at 9:00 a.m. Eastern Time. Podcast: www.wpcarey.com/podcast Available after 2:00 p.m. Eastern Time.

W. P. Carey Inc.

W. P. Carey Inc. is a leading global net-lease REIT that provides long-term sale-leaseback and build-to-suit financing solutions for companies worldwide.  At March 31, 2014, the Company had an enterprise value of approximately $9.5 billion.  In addition to its owned portfolio of diversified global real estate, W. P. Carey manages a series of non-traded REITs with assets under management of approximately $7.3 billion.  Its corporate finance-focused credit and real estate underwriting process is a constant that has been successfully leveraged across a wide variety of industries and property types.  Furthermore, its portfolio of long-term leases with creditworthy tenants has an established history of generating stable cash flows, enabling it to deliver consistent and rising dividend income to investors for over four decades. www.wpcarey.com

Cautionary Statement Concerning Forward-Looking Statements:

Certain of the matters discussed in this communication constitute forward-looking statements within the meaning of the Act and the Exchange Act, both as amended by the Private Securities Litigation Reform Act of 1995. The forward-looking statements include, among other things, statements regarding the intent, belief, or expectations of W. P. Carey and can be identified by the use of words such as "may," "will," "should," "would," "assume," "outlook," "seek," "plan," "believe," "expect," "anticipate," "intend," "estimate," "forecast," and other comparable terms. These forward-looking statements include, but are not limited to, statements regarding the benefits of the CPA®:16 Merger, annualized dividends, funds from operations coverage, integration plans and expected synergies, and anticipated future financial and operating performance and results, including estimates of growth. These statements are based on the current expectations of the management of W. P. Carey. It is important to note that W. P. Carey's actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results, performance, or achievements of W. P. Carey. Discussions of some of these other important factors and assumptions are contained in W. P. Carey's filings with the SEC and are available at the SEC's website at http://www.sec.gov, including Item 1A.  Risk Factors in W. P. Carey's Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 3, 2014. In light of these risks, uncertainties, assumptions, and factors, the forward-looking events discussed in this communication may not occur. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication, unless noted otherwise. Except as required under the federal securities laws and the rules and regulations of the SEC, W. P. Carey does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this communication or to reflect the occurrence of unanticipated events.

W. P. CAREY INC.

Consolidated Balance Sheets

(in thousands)

March 31, 2014

December 31, 2013

Assets

Investments in real estate:

Real estate, at cost

$

4,487,928

$

2,516,325

Operating real estate, at cost

84,494

6,024

Accumulated depreciation

(193,370)

(168,958)

Net investments in properties

4,379,052

2,353,391

Net investments in direct financing leases

898,335

363,420

Assets held for sale

95,209

86,823

Equity investments in real estate and the Managed REITs

186,965

530,020

Net investments in real estate

5,559,561

3,333,654

Cash and cash equivalents

198,947

117,519

Due from affiliates

32,497

32,034

Goodwill

700,024

350,208

In-place lease intangible assets, net

997,520

467,127

Above-market rent intangible assets, net

595,430

241,975

Other assets, net

255,489

136,433

Total Assets

$

8,339,468

$

4,678,950

Liabilities and Equity

Liabilities:

Non-recourse debt

$

2,961,999

$

1,492,410

Senior credit facility and unsecured term loan

366,278

575,000

Senior unsecured notes

498,210

Below-market rent and other intangible liabilities, net

182,741

128,202

Accounts payable, accrued expenses and other liabilities

291,038

166,385

Deferred income taxes

89,250

39,040

Distributions payable

90,079

67,746

Total liabilities

4,479,595

2,468,783

Redeemable noncontrolling interest

7,303

7,436

Equity:

W. P. Carey stockholders' equity:

Preferred stock (None issued)

Common stock

100

69

Additional paid-in capital

4,016,019

2,256,503

Distributions in excess of accumulated earnings

(302,799)

(318,577)

Deferred compensation obligation

29,342

11,354

Accumulated other comprehensive income

17,443

15,336

Less: treasury stock at cost

(60,948)

(60,270)

Total W. P. Carey stockholders' equity

3,699,157

1,904,415

Noncontrolling interests

153,413

298,316

Total equity

3,852,570

2,202,731

Total Liabilities and Equity

$

8,339,468

$

4,678,950

 

W. P. CAREY INC.

Consolidated Statements of Income

(in thousands, except share and per share amounts)

Three Months Ended

March 31, 2014

December 31, 2013

March 31, 2013

Revenues

Real estate revenues:

   Lease revenues

$

123,213

$

77,479

$

72,460

   Reimbursable tenant costs

6,030

3,532

3,117

   Operating property revenues

4,993

250

227

   Other

1,000

753

679

135,236

82,014

76,483

Revenues from affiliates (Investment Management):

   Reimbursable costs

39,732

22,878

11,968

   Structuring revenue

17,750

19,050

6,342

   Asset management revenue

9,777

11,341

10,015

   Dealer manager fees

6,676

3,526

1,223

   Incentive, termination and subordinated disposition revenue

199

73,935

56,994

29,548

209,171

139,008

106,031

Operating Expenses

Depreciation and amortization

52,782

32,141

29,376

Reimbursable tenant and affiliate costs

45,762

26,410

15,085

Merger and acquisition expenses

29,613

2,351

121

General and administrative

28,111

24,903

19,698

Property expenses, excluding reimbursable tenant costs

8,429

2,212

1,765

Stock-based compensation expenses

7,045

11,765

9,149

Impairment charges

5,294

171,742

105,076

75,194

Other Income and Expenses

Gain on change in control of interests

103,574

Net income from equity investments in real estate and the Managed REITs

14,262

354

10,656

Interest expense

(39,075)

(26,132)

(25,584)

Other income and (expenses)

(5,372)

2,795

1,399

73,389

(22,983)

(13,529)

Income from continuing operations before income taxes

110,818

10,949

17,308

(Provision for) benefit from income taxes

(2,221)

1,798

1,208

Income from continuing operations

108,597

12,747

18,516

Income (loss) from discontinued operations, net of tax

6,135

36,113

(2,677)

Net Income

114,732

48,860

15,839

Net income attributable to noncontrolling interests

(1,578)

(25,624)

(1,708)

Net (income) loss attributable to redeemable noncontrolling interest

(262)

(214)

50

Net Income Attributable to W. P. Carey

$

112,892

$

23,022

$

14,181

Basic Earnings Per Share

Income from continuing operations attributable to W. P. Carey

$

1.19

$

0.14

$

0.25

Income (loss) from discontinued operations attributable to W. P. Carey

0.07

0.19

(0.05)

Net Income Attributable to W. P. Carey

$

1.26

$

0.33

$

0.20

Diluted Earnings Per Share

Income from continuing operations attributable to W. P. Carey

$

1.18

$

0.14

$

0.24

Income (loss) from discontinued operations attributable to W. P. Carey

0.07

0.19

(0.04)

Net Income Attributable to W. P. Carey

$

1.25

$

0.33

$

0.20

Weighted Average Shares Outstanding

Basic

89,366,055

68,607,619

68,967,209

Diluted

90,375,311

69,628,498

69,975,293

Amounts Attributable to W. P. Carey

Income from continuing operations, net of tax

$

106,609

$

9,830

$

17,135

Income (loss) from discontinued operations, net of tax

6,283

13,192

(2,954)

Net Income

$

112,892

$

23,022

$

14,181

Distributions Declared Per Share

$

0.895

$

0.980

$

0.820

 

W. P. CAREY INC.

Reconciliation of Net Income to Adjusted Funds From Operations (AFFO) (Unaudited)

(in thousands, except share and per share amounts)

Three Months Ended

March 31, 2014

December 31, 2013

March 31, 2013

Real Estate Ownership

Net income from Real Estate Ownership attributable to W. P. Carey

$

110,407

$

21,021

$

16,692

Adjustments:

Depreciation and amortization of real property

51,620

31,390

29,687

Impairment charges

6,790

3,279

(Gain) loss on sale of real estate, net

(3,176)

(39,422)

931

Proportionate share of adjustments to equity in net income of partially-owned

   entities to arrive at FFO

1,265

4,917

3,154

Proportionate share of adjustments for noncontrolling interests to arrive at

   FFO

(3,492)

18,549

(4,267)

Total adjustments

46,217

22,224

32,784

FFO (as defined by NAREIT) - Real Estate Ownership

156,624

43,245

49,476

Adjustments:

Gain on change in control of interests (a)

(103,361)

Merger and acquisition expenses (b)

29,511

2,238

111

Loss on extinguishment of debt

7,463

1,399

74

Other gains, net

(3)

(97)

(270)

Other depreciation, amortization and non-cash charges

483

88

800

Stock-based compensation

220

(997)

174

Deferred tax benefit

(5,944)

(3,777)

(1,025)

Acquisition expenses (c)

100

89

Realized losses on foreign currency, derivatives and other

655

503

52

Amortization of deferred financing costs

873

792

511

Straight-line and other rent adjustments

(2,669)

(1,643)

(2,169)

Above- and below-market rent intangible lease amortization, net

13,486

7,374

7,256

Proportionate share of adjustments to equity in net income of partially-owned

   entities to arrive at AFFO

5

398

278

AFFO adjustments to equity earnings from equity investments

2,936

10,659

9,249

Hellweg 2 restructuring (d)

8,357

Proportionate share of adjustments for noncontrolling interests to arrive at

   AFFO

(1,417)

(1,858)

(1,561)

Total adjustments

(57,662)

23,525

13,480

AFFO - Real Estate Ownership

$

98,962

$

66,770

$

62,956

Investment Management

Net income from Investment Management attributable to W. P. Carey

$

2,485

$

2,001

$

(2,511)

FFO (as defined by NAREIT) - Investment Management

2,485

2,001

(2,511)

Adjustments:

Merger-related income tax expense (b)

13,867

Other depreciation, amortization and other non-cash charges

937

271

262

Stock-based compensation

6,823

12,761

8,975

Deferred tax (benefit) expense

(4,986)

(4,703)

2,253

Impairment charge on marketable security

553

Realized losses (gains) on foreign currency

6

(4)

2

Amortization of deferred financing costs

152

464

318

Total adjustments

16,799

9,342

11,810

AFFO - Investment Management

$

19,284

$

11,343

$

9,299

Total Company

FFO (as defined by NAREIT)

$

159,109

$

45,246

$

46,965

FFO (as defined by NAREIT) per diluted share

$

1.76

$

0.65

$

0.67

AFFO

$

118,246

$

78,113

$

72,255

AFFO per diluted share

$

1.31

$

1.12

$

1.03

Diluted weighted average shares outstanding

90,375,311

69,628,498

69,975,293

__________

(a)

Gain on change in control of interests for the three months ended March 31, 2014 represents a gain of $73.1 million recognized on our previously-held interest in shares of CPA®:16 – Global common stock, and a gain of $30.5 million recognized on the purchase of the remaining interests in nine investments from CPA®:16 – Global, which we had previously accounted for under the equity method.

(b)

Amount for the three months ended March 31, 2014 included $29.5 million of merger expenses for the Real Estate Ownership segment and $13.9 million of merger-related income tax expense for Investment Management segment incurred in connection with the CPA®:16 Merger.

(c)

Prior to the second quarter of 2013, this amount was insignificant and therefore not included in the AFFO calculation.

(d)

In connection with the Hellweg 2 restructuring in October 2013, our share of the German real estate transfer tax incurred by Hellweg 2 during the three months ended December 31, 2013 was $8.4 million.

 

Non-GAAP Financial Disclosure

     Funds from Operations, or FFO, is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss (as computed in accordance with GAAP) excluding: depreciation and amortization expense from real estate assets, impairment charges on real estate, gains or losses from sales of depreciated real estate assets and extraordinary items; however, FFO related to assets held for sale, sold or otherwise transferred and included in the results of discontinued operations are included. These adjustments also incorporate the pro rata share of unconsolidated subsidiaries. FFO is used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers. Although NAREIT has published this definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations.

     We modify the NAREIT computation of FFO to include other adjustments to GAAP net income to adjust for certain non-cash charges such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rents, stock compensation, gains or losses from extinguishment of debt and deconsolidation of subsidiaries and unrealized foreign currency exchange gains and losses. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude acquisition expenses and non-core expenses such as merger expenses. Merger expenses are related to the CPA®:16 Merger. We also exclude realized gains/losses on foreign exchange and derivatives which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income as they are not the primary drivers in our decision making process and excluding those items provides investors a view of our portfolio performance over time and make it more comparable to other REITs which are currently not engaged in acquisitions, mergers and restructuring which are not part of our normal business operations. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies, and determine executive compensation.

     We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP or as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

Institutional Investors: Peter Sands W. P. Carey Inc. 212-492-1110 psands@wpcarey.com

Individual Investors: W. P. Carey Inc. 1-800-WP CAREY ir@wpcarey.com

Press Contact: Guy Lawrence Ross & Lawrence 212-308-3333 gblawrence@rosslawpr.com

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SOURCE W. P. Carey Inc.



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