W. P. Carey Inc. (NYSE:WPC) Q1 2024 Earnings Call Transcript

Jason Fox: Yes. Maybe I’ll tackle the last point first and then kind of address some of the points you made in the first half of your question. I mean, look, we’re always considering options when it comes to how we allocate or deploy capital, including buybacks or distributions, however, you do it to return capital. But right now, the best opportunity is still allocating capital to new investments. I mean we can achieve cap rates. The year-to-date, we’re kind of mid-7s. Depending on where rates go and the allocation between Europe and U.S., I would say mid- to high 7s. But hard to predict exactly what the cap rates look like, but we think they will generate some interesting spreads regardless, especially since we’re sitting on significant cash right now.

And so where we can issue either equity or debt in the markets right now is important, and that certainly factors into how we price deals. But right now, we are sitting on a lot of cash that’s earning 5%. So we’re generating really good day 1 accretion, maybe significant accretion when you think about the 5%. That’s not a hurdle for us by any stretch. But even if we were to issue new capital where we’re trading now, we think that we can generate interesting spreads, especially because we’re not totally focused on just going in cap rate. We’ve mentioned it several times today, but the embedded increases built into our leases is really important. When you factor, call it, 3% bumps on mid- to high 7s cap rate, that generates an average yield or unlevered IRR somewhere in the 9s.

And even relative to where equity and debt is trading right now, we think that probably generates within the range that we’ve been at historically, which is a 200 to 300 basis point spread to our cost of capital. So we’re comfortable investing now. And I do think that if rates stay where they are in the U.S., we’ll see some cap rate expansion in the [indiscernible] as well.

Operator: And at this time, I’m not showing any further questions. Thank you for your interest in W. P. Carey. If you have any additional questions, please call Investor Relations on 212-492-1110. That concludes today’s call. You may now disconnect.