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Backing Off Our Buy Rating, W.P. Carey's Dividend Is Covered, But International Exposure Adds Risk

Published Tue, 06 Nov 2018 10:29:09 -0500 on Seeking Alpha

This research report was produced by The REIT Forum with assistance from Big Dog Investments.
We've previously mentioned W.P. Carey (WPC) as a great REIT for income investors. They carry a solid dividend yield, have reasonable coverage, and have a global platform to provide diversification. WPC didn't cease to be a great REIT, but it ceased to offer a great value. We'll break this analysis down into two parts. The first part demonstrates the factors leading up to our decision to buy shares. The second part demonstrates why we dropped WPC to a neutral rating at $67.15.
W.P. Carey Brief Introduction This brief introduction will use valuations as of 8/26/2018, which is when we decided WPC offered an attractive risk-adjusted return.
WPC usually trades on a modest correlation to the other triple net lease REITs. That makes sense since they are operating in the same general area. Their correlation broke down over the last 2 months (as of 8/26/2018) with WPC underperforming by a notable margin:

Following that underperformance, we see WPC trading at a modestly lower multiple of FFO than Realty Income (O) or National Retail Properties (NNN). However, we believe WPC belongs in the same sentence as those stellar REITs.
We also included the performance of VEREIT (VER) to provide another triple-net lease REIT for comparison.
The recent underperformance of WPC can be attributed to the market focusing on concerns about Europe. Europe’s market... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CBL & ASSOCIATES PROPERTIES 2.21   0.0 -0.18 0.30 13.45
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 6.70   0.0 -0.82 0.84 12.21
VEREIT 7.61   0.0 -0.22 0.55 7.27
TAUBMAN CENTERS 50.39   43.8 1.15 2.62 5.23
SIMON PROPERTY GROUP 171.23   23.1 7.41 8.00 4.64
REALTY INCOME 64.77   54.4 1.19 2.65 4.13
NATIONAL RETAIL PROPERTIES 49.95   26.2 1.91 2.00 3.94

CBL & ASSOCIATES PROPERTIES - CBL
CBL & ASSOCIATES PROPERTIES - CBL  


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