Is WP Carey Stock a Buy?

WP Carey Inc (NYSE:WPC) is a Real Estate Investment Trust (REIT) that manages over 1,000 properties in the United States and Europe. The property management group owns everything from hotels to industrial facilities to self-storage locations. With a market capitalization of almost $15 billion, the company is one of the top 20 REITs in the world.

WPC stock has traded nearly even over the past 5 years, with the stock only up a marginal 0.88%. The past year has been tough on the company; shares have fallen by over 16%.

WPC share price is down around 12% year-to-date due to concerns surrounding the cooling real estate market. Plus, there are fears that the company’s leases might end before WPC can find tenants to replace them. 

Despite the share price lull, WPC has lots going for it, including one of the most diversified portfolios in the industry, with tenants spread across multiple industries.

And the stock’s current dividend yield of 6.24% should be enough to generate buzz on its own. WP Carey currently pays out a quarterly dividend of $1.07 per share, and the REIT has consistently raised its dividend over its long history.

So is WP Carey stock a buy?

WPC Is a Real Estate Innovator

Now employing around 700 employees, WP Carey has acquired 1,449 properties in multiple industries. It primarily focuses on single-tenant properties that are spread across 26 countries.

The firm was an early adopter of several trends that have become commercial real estate mainstays. For example, the majority of the company’s properties are net-lease agreements, meaning the tenant assumes many of the costs of the property.

WPC has triple net leases (NNN) with most of its lessees, so its tenants pay all of the expenses for the property, from taxes to insurance to maintenance and utilities.

It was also an innovator in leaseback contracts, in which the group buys a property and leases it back to its original owner. This allowed the company to continue to grow by purchasing properties that weren’t previously rental properties.

64% Exposure to US Markets vs 36% Europe

WPC technically has two business segments: Real Estate and Investment Management. But the Investment Management segment has been shrinking over the years to the point where revenue from the segment is marginal.

The Real Estate division is what drives revenues. It’s split into industrial, warehouse, self-storage, office, and other properties.

Geographically, properties are split across the US and Western Europe, with 64% in America and 36% in Europe.

The cooling real estate sector hasn’t weighed much on the company’s expansion. In Q1 2023 alone, WPC completed new investments to the tune of over $740 million. Seven more are expected to finalize by the end of the year, for a total investment volume of another $82.9 million.

Is WP Carey Overvalued?

WP Carey reported total revenue of $427.8 million in Q1 2023, a 22.8% increase from $348.4 million in the first quarter of 2022. The increased revenue and reduced expenses led to an 87.5% jump in net income year-over-year, from $157 million last year to $294.4 million in the first quarter.

Adjusted Funds From Operations (AFFO) is an important metric for REITs because it gives a better indication of the recurring income the company receives. The company’s first quarter AFFO was $1.31 per diluted share, down 3% from $1.35 per share in 2022. That’s due to continued investment costs and higher rent.

Despite the slight decrease, the company reaffirmed its AFFO guidance for the rest of the year. Management expects investments to total between $1.75 billion and $2.25 billion by the end of the year, delivering an AFFO of between $5.30 and $5.40 per diluted share.

The stock currently has a P/E ratio of 19.28, and while that’s high compared to other industries it’s in line with the average for REITs as a whole. There is still the chance that WPC is approaching overvaluation.

Analysts’ Ratings for WP Carey

The 11 analysts who’ve given ratings on WPC are split nearly down the middle. Five analysts rated WP Carey a Buy and one analyst forecasts that WP Carey shares will outperform the market. The most bullish forecast has shares reaching $89 over the next 52 weeks, which translate to a gain of almost 30%.

Five of the eleven analysts believe the stock is a Hold, and the median forecast still has the stock on a positive trajectory to $79.50, a 16% increase over where the stock currently trades.

There is one lone sell rating for WPC, but the bearish forecast still has the stock increasing 8% over the next 12 months to a price of $74.

Is WP Carey Stock a Buy?

WP Carey is a well-established property ownership group that has delivered consistent growth. Despite concerns about the real estate market, the company has still made remarkable gains in revenue and net income in the first quarter of this year.

But most investors will be drawn to the stock because of its 6% dividend. The company has consistently raised its dividend and rewarded its shareholders over the years. Investors who are concerned about the company’s ability to continue to increase its dividend should be comforted by the 2023 AFFO guidance of $5.30 to $5.40 per share, which should cover the annualized dividend of $4.27.

Dividend investors are looking for long-term consistency and stability in their investments, and that’s hard to find in many high-yielding stocks. But WP Carey is a well-diversified, firmly established REIT that is continuing to invest in profitable properties. All told that should translate to a predictable income stream for the foreseeable future for buy-and-hold investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.