Pipeline Deals And Asset Sales Will Unlock Future Potential

Key Takeaways

• Strategic refinancing and asset sales enhance investment accretion, boosting earnings and net margins without capital market reliance.
  
• High occupancy and long lease terms stabilize net margins, with inflation adjustments in European leases potentially benefiting revenue growth.
  
• Economic and competitive challenges could impact W. P. Carey's revenue, tenant stability, and investment returns, with foreign exchange fluctuations adding risk to earnings.

Catalysts

W. P. Carey ranks among the largest net lease REITs with a well-diversified portfolio of high-quality, operationally critical commercial real estate, which includes 1,430 net lease properties covering approximately 172 million square feet and a portfolio of 78 self-storage operating properties as of September 30, 2024.

• A solid investment volume and robust pipeline of deals are expected to close in the coming months, potentially raising future investment volumes higher. This is likely to impact revenue growth positively.
  
• The ability to accretively fund new investments through non-core asset sales and strategic refinancing without needing capital markets access suggests potential positive impacts on earnings and net margins.
  
• An expected spread between asset sales and new investments suggests underappreciated investment spreads that could lead to investment accretion, improving net margins.
  
• High occupancy rates and long lease terms limit exposure to leasing and occupancy pressures, potentially stabilizing or improving net margins over time.
  
• Potential increases in rent escalations due to inflation adjustments, particularly in European leases, may positively impact future revenue growth.

W. P. Carey Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming W. P. Carey's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.2% today to 38.7% in 3 years time.
• Analysts expect earnings to reach $731.6 million (and earnings per share of $3.16) by about April 2028, up from $460.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $814.2 million in earnings, and the most bearish expecting $649 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, down from 29.1x today. This future PE is lower than the current PE for the US REITs industry at 24.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

W. P. Carey Future Earnings Per Share Growth

Risks

• The uncertainty surrounding tariffs could indirectly impact the performance of W. P. Carey's portfolio, potentially affecting tenant margins and leading to a downturn in the real estate market (impacting revenue and net margins).
  
• Hellweg, a significant tenant, is experiencing weak consumer spending and a competitive environment in Germany, which could lead to rent loss or tenant credit events (impacting earnings).
  
• The potential slowing of the overall flow of new deal launches, due to macroeconomic uncertainty, could impact W. P. Carey’s investment volume and subsequent revenue growth (impacting revenue and investment returns).
  
• Foreign currency fluctuations, particularly a weaker U.S. dollar, could negatively affect W. P. Carey's net earnings from their European operations, despite positive AFFO impacts from a stronger European currency (impacting earnings).
  
• Increased competition from private equity and capital partners could make it more challenging for W. P. Carey to secure investment opportunities at favorable cap rates, potentially reducing their future returns (impacting revenue and net margins).

Valuation

• The analysts have a consensus price target of $63.364 for W. P. Carey based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $731.6 million, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $61.14, the analyst price target of $63.36 is 3.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.