W. P. Carey - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a clean fundamental beat: revenues of $430.8M rose 10.5% YoY and 5.1% QoQ, while AFFO was $1.28 per diluted share; management raised FY25 AFFO guidance to $4.87–$4.95, citing stronger investment volume and lower anticipated rent loss.
• GAAP diluted EPS was $0.23; the delta vs AFFO reflects sizable non-operating items (mark-to-market losses and FX), which management highlighted, reinforcing why AFFO is the primary performance metric for REIT investors.
• S&P Global consensus was exceeded: Q2 revenue beat by ~3.4% and Primary EPS (normalized) by ~31% (see Estimates Context) — a positive surprise that supports upward estimate revisions and a constructive near-term setup.*
• Key catalysts: stronger pipeline with mid-7% going-in cap rates and fixed rent bumps averaging ~2.8%, accretive funding via operating asset sales (spreads >100 bps), and improved tenant credit outlook with reserve lowered to $10–$15M.

What Went Well and What Went Wrong

• What Went Well

  • Raised FY25 AFFO guidance on stronger deal flow and lower rent loss assumptions: “we're raising our outlook for full year AFFO growth to 4.5% at the midpoint”.
  • Attractive spreads and disciplined capital allocation: management expects at least 100 bps, potentially ~150 bps, spread between dispositions (~sub-6% cap rates) and new investments (~mid-7% cap rates).
  • Liquidity strengthened with $400M senior notes at 4.65% and low weighted average cost of debt (~3.1%), supporting flexible funding without equity issuance.

• What Went Wrong

  • GAAP EPS pressured by non-operating items: Q2 “Other gains and (losses)” included a $69.0M mark-to-market unrealized loss, $66.4M FX losses, and a $9.9M non-cash credit loss allowance.
  • Other lease-related income was elevated in Q2 and expected to normalize, tempering back-half run-rate; management quantified ~$0.03 per share swing per quarter for this timing factor.
  • Back-half AFFO caution: rent loss reserve (~$12.5M midpoint) assumed to hit Q3/Q4, reducing quarterly AFFO by ~$0.03 per quarter, albeit potentially conservative.

Transcript

Operator (participant)

Hello and welcome to W. P. Carey's second quarter 2025 earnings conference call. My name is Diego and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded. After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. I will now turn today's program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Peter Sands (Head of Investor Relations)

Good morning everyone and thank you for joining us for our 2025 second quarter earnings call. Before we begin, I'd like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward looking statements. Factors that could cause actual results to differ materially from W. P.

Carey's expectations are provided in our SEC filing. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com where it'll be archived for approximately one year and where you can also find copies of our investor presentation and other related material. With that, I'll pass the call over to Jason Fox, Chief Executive Officer.

Jason Fox (CEO)

Thank you, Peter and good morning everyone. Our second quarter results highlight a very strong first half of the year, tracking ahead of our initial expectations on a variety of fronts. As a result, we're raising our outlook for full year AFFO growth to 4.5% at the midpoint of our revised guidance range. To date, we've closed over $1 billion of new investments at initial cap rates averaging in the mid 7s primarily with fixed rent escalations approaching 3%.

We've made excellent progress with asset sales, including the first batch of self-storage operating properties executed at attractive pricing and a significant spread to where we're reinvesting the proceeds. While we haven't needed to access the capital markets this year to achieve our investment goals, earlier in July we opportunistically issued bonds that enhanced our liquidity and further strengthened our balance sheet. While there's lingering uncertainty over the broader economy, to date we've not experienced any unforeseen disruptions in our business either tenant credit events or tariffs. Accordingly, we're reducing our reserve for estimated potential rent loss. This morning I'll review our progress over the first half of the year and our confidence in sustaining that momentum. ToniAnn Sanzone, our CFO, will focus on our results and guidance raise as well as touch upon aspects of our portfolio and balance sheet.

ToniAnn and I are joined by Brooks Gordon, our Head of Asset Management, to take questions starting with investments supported by favorable market conditions. We maintain strong investment volume throughout the first half of the year, building on the increased level of activity we achieved in the fourth quarter of 2024. Year to date, we've completed over $1 billion of investments, including the approximately $550 million of deals we closed during the second quarter at an initial weighted average cap rate of 7.5% near weighted average lease term of 19 years. Factoring in rent escalations over those long lease terms, that translates to an average yield in the mid 9% range, which we believe is one of the highest average yields in the net lease sector and one that provides a very attractive spread to our cost of capital.

We've already closed about $230 million of investments in the third quarter and our pipeline remains strong. Several hundred million dollars of deals at advanced stages, some of which we expect to close in the next few weeks. At just over the halfway point in the year, we've surpassed our initial expectations and are therefore raising our investment guidance, which ToniAnn will review in detail. Looking ahead, we believe there's still potential to be towards the top end of the new range if the transaction environment remains favorable in the second half of the year and we have a strong fourth quarter for deal closings. As is often the case, we've also continued to build out our pipeline of capital projects, which includes build-to-suits, expansions, and redevelopments, areas of investment where we have always been relatively active.

Currently, we have nearly $300 million of projects underway and scheduled for completion over the next 18 months or so, which add to our pipeline and help support future growth. In terms of property type, virtually all of our second quarter investments were warehouse and industrial, which also represent the vast majority of our investments year to date as well as the bulk of our pipeline. The strength of our internal growth continues to be supported not only by inflation-linked rent escalations, but also by our ability to structure leases with attractive fixed rent bumps, which have averaged 2.8% on our investments year to date. Geographically, our second quarter investments were concentrated in the U.S. where we continued to identify and evaluate many compelling opportunities, especially in industrial investment.

Spreads have generally remained wider in Europe, which represents the bulk of the deal volume we've completed so far in the third quarter as well as a significant portion of our near term pipeline. Our expectation is to continue to see and close attractively priced and structured deals in both regions over the remainder of the year. Turning to our sources of capital, in parallel with our first half investments, we've also made good progress with our funding strategy which we outlined at the start of the year and is centered on accretive sales of non core assets. We recently sold an initial tranche of 15 self-storage operating properties for $175 million executed at a sub 6% cap rate. Ten properties closed during the second quarter for $112 million with the remaining sales completed in July.

Currently we have two additional storage portfolios totaling 17 properties under contract with closings expected in August. This is keeping us on track with our initial projections for storage sales this year and ahead of our original expectations on disposition cap rate. We remain confident that this year we will achieve well over 100 basis points of spread between our overall asset sales and our new investments, with the potential to be closer to 150 basis points by the end of the year in line with higher anticipated investment volume. We're also raising our expectations for full year dispositions which could include additional tranches of storage assets. Even if investment volume exceeds the upper end of our guidance range, we're confident we can fund it with dispositions that generate strong accretion and AFFO growth.

While we believe we're generating attractive spreads to our spot cost of capital, which we're keeping in mind when we evaluate new deals, the spreads we're generating are particularly attractive when we factor in the average yields over the life of the leases and when considering our actual source of funding, which is non core dispositions at tight cap rates. Turning now to our portfolio, amid an environment of broader economic uncertainty, we started the year with an appropriately conservative view on the potential for credit events within our portfolio. Seven months into the year, we're lowering our estimate of potential rent loss by $5 million. Part of what's left in our rent reserve reflects ongoing caution towards Helvig, which remains current on rent but is still navigating its turnaround plan.

We've made good progress with our strategy of retenanting and selling Helvig stores, further reducing our exposure, keeping us on track to move it out of our top 10 tenants this year and out of our top 25 next year. While there has been some recent progress on U.S. trade policy, especially with Europe, many issues remain unresolved. We continue to see no direct impacts in our portfolio, however, and we're confident that our rent reserve can cover any potential impacts over the second half of the year. That said, we'll continue to monitor for further developments. With that, I'll pause and hand the call over to Tony to discuss our results and guidance.

Toni Sanzone (CFO)

Thanks, Jason. Starting with earnings, AFFO per share was $1.28 for the second quarter, which represents an $0.11 or 9.4% increase compared to the second quarter of last year, driven by accretive investment activity along with our sector leading rent growth as compared to the first quarter. The increase in AFFO per share was also primarily the result of net investment activity and rent escalations as well as certain timing impacts such as higher expenses in the first quarter and higher other lease related income in the second quarter. Given our strong first half results and visibility into the second half of the year, we have raised our full year AFFO guidance range to between $4.87 and $4.95 per share, which implies 4.5% year over year growth at the midpoint as outlined in our earnings release.

Our revised outlook is based on higher expected investment volume of $1.4 billion-$1.8 billion, mostly funded by higher expected dispositions of $900 million-$1.3 billion. As Jason discussed, we continue to expect to fund our investments accretively with proceeds from dispositions of operating and non core assets generating spreads averaging well over 100 basis points. Contractual same store rent growth for the second quarter was 2.3% year over year, comprised of CPI linked rent escalations averaging 2.6% for the quarter, while fixed rent increases averaged 2.1% for the full year. We expect contractual same store rent growth to average in the mid 2% range, which is also in line with our longer term expectations assuming inflation remains around current levels.

Comprehensive same store rent growth for the quarter was 4% year over year, reflecting the impact of rent collections including the recovery of some past due rent this quarter as well as leasing activity and vacancies. Historically, our comprehensive same store growth has typically tracked around 100 basis points below contractual. However, based on our current estimates, we expect it to track in line to slightly higher than contractual for the full year. Our portfolio continues to perform well with no significant new tenant credit events during the quarter. Therefore, we've lowered the potential rent loss assumption embedded in our AFFO guidance to between $10 million and $15 million, down from our previous estimate of $15 million-$20 million. Within that range, we currently have visibility into identified rent loss of about $4-$5 million or one-third at the current midpoint, which includes downtime on the Helvig stores we're taking back.

We continue to believe the balance of our rent loss assumption should conservatively cover any incremental tenant issues over the back half of the year. Other lease related income totaled $9.6 million for the second quarter, bringing the total for the first half to $12.8 million. While the timing of these payments can vary from quarter to quarter, we continue to expect other lease related income to total between $20-$25 million for the full year, which is unchanged from our prior estimate. Turning briefly to our operating properties, taking into account the self-storage operating properties we sold during the second quarter plus those already sold or expected to be sold in the third quarter, we estimate that our operating property NOI for 2025 will fall between $55-$60 million, including the four hotel and two student housing properties in our portfolio.

Given the possibility of additional operating asset sales this year, we'll continue to update that estimate as needed. Moving to expenses and non operating income, at the halfway point of the year we've refined our guidance assumptions for expenses, slightly lowering our expectations for G&A expense, which we anticipate will fall between $99-$102 million for the full year. As mentioned on our last call, G&A tends to run higher in the first quarter due to timing, with the second quarter reflecting more of a run rate for the remainder of the year. Non reimbursed property expenses are expected to total between $50-$54 million for the full year, with the remaining quarters anticipated to be in line with the second quarter. Tax expense on an AFFO basis, which primarily reflects foreign taxes on our European assets, is now expected to fall between $42-$46 million for the full year.

Our expectations for both non reimbursed property expenses and income tax expense have marginally increased due in part to the stronger euro. Non operating income is expected to total around $20 million for the full year, primarily comprised of the quarterly dividend we receive on our equity stake in Lineage, which totaled $2.8 million for the quarter and is assumed to remain at that level for the remainder of the year. Foreign currency hedging gains are expected to be negligible for the remainder of the year given the strengthening of the Euro relative to the US dollar. As a reminder, despite lower realized FX hedging gains and marginally higher expenses, a stronger Euro positively impacts our European cash flows and therefore AFFO, with the benefit primarily flowing through as higher lease revenue.

Moving now to our balance sheet, we continue to proactively manage our balance sheet leaving us well positioned with ample liquidity and very manageable near term debt maturities. Earlier in July we opportunistically issued $400 million of five year US bonds, achieving excellent execution pricing at a coupon rate of 4.65%. Our overall weighted average cost of debt remains low at 3.1% and is expected to stay around that level for the remainder of the year. We ended the second quarter with liquidity totaling about $1.7 billion, comprised primarily of the availability on our credit facility. At quarter end we were about $660 million drawn on our revolver and early in July we used the proceeds from our bond offering to partially pay that down, giving us additional flexibility as we execute on new investments over the remainder of the year.

We have less than $50 million of mortgage debt maturing over the remainder of 2025, and our next bond maturity is not until April 2026, leaving us a substantial amount of flexibility in how and when we access the capital markets. We ended the quarter with our key leverage metrics within our target ranges, with debt to gross assets at 43.2% and net debt to adjusted EBITDA at 5.8 times. We continue to expect both of these leverage metrics to remain within our target ranges. Lastly, we continue to grow our dividend. During the second quarter, we declared a dividend of $0.90 per share or $3.60 annualized, representing a 3.4% increase over the prior year. Our dividend is well supported by our earnings growth with our year to date payout ratio at approximately 73% of AFFO per share. With that, I'll hand the call back to Jason.

Jason Fox (CEO)

Thanks, Tony. As we pass the midpoint of the year, we're pleased with the momentum we've built across our business. Our investment activity and pipeline remains strong. We're on track with our funding strategy, achieving very good results on dispositions and reinvesting the proceeds at compelling spreads. Disciplined execution combined with stable tenant credit and no discernible tariff related impacts positions us very well for the second half of the year. We continue to see a path to the high end of our revised guidance ranges for both investments and earnings. Our updated AFFO guidance reflects growth that's a meaningful step up from recent years. Combined with a well covered dividend yield that's remained in the mid to high 5% range, we believe we're well on our way to delivering a double digit total shareholder return for 2025.

Furthermore, we're confident that the foundation we built this year positions us well to maintain that level of growth in the coming years and deliver long term value creation for our shareholders. That concludes our prepared remarks. I'll hand the call back to the operator for questions.

Operator (participant)

Thank you. At this time we will take questions. If you would like to ask a question, simply press Star, then the number one on your telephone keypad. If you would like to withdraw your question, press the Star, then the number two. Our first question comes from John Kim with BMO Capital Markets. Please state your question.

John Kim (US Real Estate Analyst)

Thank you. For the second straight quarter, your comprehensive income was pretty meaningfully above contractual. And Tony, you reminded us that typically it's 100 basis points below.

For the second half of the year, do you expect it to be back to that historical level, 100 basis points below, or will it be lower just given the outperformance this year?

Toni Sanzone (CFO)

Thanks, John. Yeah, I would say if you look at it on a full year basis, we are expecting that to normalize a bit in the back half of the year. There's a couple of things behind that. First, if you think about how we've described our rent loss reserve, we've got about $12.5 million at the midpoint in the revised range. That assumption right now, we haven't had any real disruption in the first half of the year. Our guidance assumption on comprehensive same store, I'll assume that the $12.5 million is taken in the third and fourth quarters. That could prove conservative and we could outperform that. That's something that we're monitoring as well. I would just note that maybe the first half of the year was also impacted by some of the tailwinds associated with some of the headwinds we had in the portfolio last year.

You know, it's a little uneven in the first half to the second half, but there could be some upside relative to the full year estimate that I described, which would track probably just north of the contractual in the mid 2% range.

John Kim (US Real Estate Analyst)

Okay, and my second question is on your self-storage operating portfolio, you provided a bit of an update on the income. But I was wondering, you sold the first tranche, you transitioned some assets, do you expect to transition more to the triple net lease structure? And then as far as the buyer of the first tranche, I mean reportedly it's not an operator of those assets. And I'm wondering if a buyer can come in and cancel the third-party management contract.

Jason Fox (CEO)

Yeah, sure. So in terms of the first question, we have kind of lots of flexibility on what we do with the remaining portion of our operating self-storage portfolio. You noted last year we did take a sub-portfolio and put it under a net lease with Extra Space. And that's always been the goal for some portion of the portfolio. We thought the timing was right.

And then this year obviously we're clearly selling a substantial portion of it and we think that's the best way to fund new investments. Kind of looking forward, what we do with the rest of the portfolio, that'll depend on deal volume for the second half of the year into next year, what our capital needs are, what our other funding options are. I would expect that we could lean into some more sales in the second half of the year since execution has been strong. I also think that we could convert some portion of it to net lease as well. It's likely going to be a combination of the two. Either way, I think that probably by this time next year we're out of the operating storage business. We have some options between what we do between now and then.

In terms of the portfolio that we did sell, yeah, I think the way those contracts work, the management agreements, they're typically cancelable upon 30 days' notice. So there's not a lot of, you know, hurdles you have to overcome when you're selling assets to a different operator.

John Kim (US Real Estate Analyst)

That's great. Thank you.

Jason Fox (CEO)

Yep. Welcome.

Operator (participant)

Your next question comes from Greg McGinniss with Scotiabank. Please state your question.

Greg McGinniss (Director)

Hey, good morning, Tony. I'm just trying to better understand on the AFFO guidance. It seems to imply back half quarter results falling from where we were in Q2. Now, aside from the lower lease termination income and I guess a potential highway credit event, are there any other headwinds that are anticipated? I'm not sure what the issue is, but on the back of the laptop you can take a paperclip and reset the power. There's like a little pin.

It's on the left side. I can show you. Yeah. Mute. Are you able to mute that person? I'm not sure if that's.

Jason Fox (CEO)

Yep. Sorry. Csa. See it.

Greg McGinniss (Director)

Okay.

Toni Sanzone (CFO)

Yeah. So Greg, I'll just maybe highlight. You reiterated really the two points that I think are worth thinking about as we get into the second half. When you look at the second quarter relative to the outlook for the remainder of the year, the other lease related income is probably the biggest driver in terms of second quarter being elevated. You know, maybe worth noting we didn't update our full year guidance on that. This is really just more of a timing and it is, you know, these types of payments don't lend themselves really to a run rate from one quarter to the next. If you really take the balance of our full year guidance over the back half of the year, that would normalize out about $0.03 in each of the third and fourth quarters.

On the rent reserve side, as I mentioned, on the comprehensive income question, the $12.5 million reserve is assumed to all be taken in the third and fourth quarter. You got another roughly $0.03 in each of those quarters as well. I think those are really the anomalies. From there, we do expect to grow our AFFO. There's certainly a path where we could see outperformance relative to not needing the full rent contingency that we've discussed. As we continue to see the pipeline investments grow, that growth is going to continue to play through the third and fourth quarters as well.

Greg McGinniss (Director)

Okay, thank you, that's really helpful. Jason, I was hoping you'd touch on. Some of the acquisitions that you guys do are not necessarily brand names that we're all familiar with. In terms of the credit of the tenants that you're doing sell leasebacks with or financing expansions for whatever it happens to be. How are you getting comfortable with those transactions and the credit quality considering some of the troubles that have happened over the last year with certain tenants?

Jason Fox (CEO)

Yeah, sure. We've always targeted sub investment grade tenants. We think that's the sweet spot in net lease investing. And we typically focus on large companies with operationally critical real estate. So, you know, nothing new there. You know, really our approach hasn't changed a lot. We focus on value, the criticality, tenant credit, underwriting. It's something that we've, we're good at. We've done that for a long time.

We think we can underwrite and structure around risk really well, and that's part of the model. So it's really a range of credits. I mean, but I think one of the themes that we've talked about before, while it's just below investment grade, I think the large companies do make a big difference.

Greg McGinniss (Director)

Is there something happening now that's bringing more of these companies to market or are you just doing more deals now that you have the capacity to do so?

Jason Fox (CEO)

Yeah, I mean, look, the market feels quite strong and constructive right now. There are lots of opportunities. I think some of this is driven by what feels like a relatively stable interest rate environment. It's probably been the case now for several quarters, which is always a key ingredient in kind of the increase in transaction activity. That's despite changing expectations throughout the year around tariffs.

If you look at treasury yields, they've been mostly range bound in the low to mid fours for most of this year, even dating back to the fourth quarter of last year. That creates stability. I think you see transaction activity increase, bid ask spreads have come in and we're taking advantage of that. I think we've had a really strong first half of the year. We're tracking ahead of our initial expectations and a good, healthy pipeline. I think some of it's market driven. A lot of it is who we are as a company. We've been doing this for a long time. We have a lot of relationships in an environment where maybe there's stability, but there's still this overlaying uncertainty. I think execution really comes into play and we're going to fare quite well. If we're competing on deals, execution is a strength of ours.

I think it's really a combination, all of those things, but generally it's a good environment right now for us.

Greg McGinniss (Director)

Great, thank you.

Operator (participant)

And your next question comes from John Kielachowski with Wells Fargo. Please state your question.

John Kilichowski (VP and Equity Research)

Good morning. Thank you. In your initial remarks, you touched on it, but we've had a lot in the news flow recently around our conversations between the U.S. and the EU on trade discussions and tariffs. I know in our last quarter's earnings, you know, you mentioned that there really hasn't been an impact to your numbers. It sounded like more of the same here. I'm curious if you've spoken to your operators and if they've started to give any sort of opinion on what they're hearing out of the government and if they think it'll affect their business at all or if maybe there's some tailwinds that we're not considering.

Jason Fox (CEO)

Yeah, I mean, look, I think uncertainty is still an underlying theme, but to date, yeah, we don't think there's been much of an impact that have flowed through to the economy. I think generally. I mean, tariffs have been a big part of the news, but they really haven't been implemented. Certainly with the way companies have been trying to get ahead on inventories, it hasn't really flowed through the economy at this point in time. That's similar with our portfolio. We haven't seen impacts, we haven't seen a lot of commentary from our tenants, and it really hasn't impacted investment activity as well. I think there's probably reasons to think that, given the more moderate nature of the tariffs that are being discussed right now, why there wouldn't be big impacts, at least on us and our tenants' abilities to pay rent going forward.

Certainly it's something that we keep monitoring and we'll see where everything lands.

John Kilichowski (VP and Equity Research)

Got it. And then maybe on the opportunity set, it sounded like you highlighted in the opening remarks that Europe was providing better spreads. I'm curious, just what's the primary drivers of that.

Jason Fox (CEO)

In terms of better spreads? I mean, the biggest driver is the cost to borrow. In Europe, we can borrow probably 125-150 basis points inside of where we could issue U.S. bonds. Yet cap rates are in the similar zip code, maybe a little bit tighter depending on the country. In Europe, cap rates kind of range fairly widely given the different markets. That is the biggest driver, our ability to borrow cheaper in euros than we can in US dollars.

We talked about this before, but we think that is something that is sometimes overlooked or at least underappreciated in our model, that we do have access to very cheap capital in Europe.

John Kilichowski (VP and Equity Research)

Got it. Thank you.

Operator (participant)

Welcome. Your next question comes from Michael Goldsmith with UBS. Please state your question.

Michael Goldsmith (US REITs Analyst)

Good morning. Thanks a lot for taking my question. First question is just about the opportunities. Sticking with the topic of Europe, what is the opportunity set you are seeing in Europe and the US both? You know, you touched a little bit on spreads and cap rates, but you know, just during the quarter there were predominantly acquisitions in the US relative to Europe. Just trying to get a sense of how the opportunity set looks maybe going forward. Was that kind of timing related where you were a little bit more US than Europe? Thanks.

Jason Fox (CEO)

Yeah, I mean, look, we have been seeing really good opportunities in Europe, especially in the industrial sector and especially through sale leasebacks. As you noted, or as I talked about earlier, three quarters of our deals year to date have been in North America. The pipeline is shaping up a little differently. I would say right now, looking forward, it is probably a 50-50 split between North America and Europe. We are starting to see more activity. Our pipeline is within Europe. The deals tend to take a little longer to close there, so maybe we have a little less visibility into the timing there, but it is picking up there. I would expect the second half of the year to be more active over there.

Maybe we end up with something that is closer to a 2/3-1/3 split between the two, but it will vary quarter to quarter for sure.

Michael Goldsmith (US REITs Analyst)

Thanks for that, Jason. As a follow up, maybe similar question, but on the retail versus industrial split. Clearly a lot of industrial being done in the pipeline, but also at the beginning of the year you talked a little bit more about, you talked about how you wanted to do more in the retail space. Is that timing related? Is that the opportunities or is there any sort of change of strategy? Just trying to get a sense of preference between industrial and retail because it did seem pretty industrial heavy in the quarter.

Jason Fox (CEO)

Yeah, no change in strategy. We want to continue to build and ramp up our retail vertical and we'll continue to be opportunistic there.

But year to date we're finding better risk adjusted returns in the industrial sector. Look, the U.S. retail is something we've always characterized as being more competitive and you know pricing is a little bit tighter there, maybe less so the going in cap rates but more when you factor in the bumps in kind of the total return on U.S. retail, you know it's a little bit tighter than maybe we think it should be. Yeah, it's been more industrial, less retail. I think the second half of the year we'll see you know us get some retail done. I think it's okay if we're lighter on retail for points in time. It highlights the value of our platform and the benefits of a diversified model where we can allocate capital to the best opportunities across a wide range of property types and geographies.

More to come there but I think we'll see more as the second half goes along.

Michael Goldsmith (US REITs Analyst)

Thank you very much. Good luck in the back half.

Jason Fox (CEO)

Thank you.

Operator (participant)

Our next question comes from Smedes Rose with Citi. Please state your question.

Smedes Rose (Director)

Hi. Thank you. I just wanted to ask you a little bit more about the increased outlook for acquisition volume in the back half of the year. And it sounds like you're seeing a lot more attractive opportunities and so could you just maybe talk about what you're seeing on the competitive side or kind of maybe what's just sort of being what's driving the incremental opportunities for you?

Jason Fox (CEO)

Yeah, it's really market conditions that are driving the opportunities.

If you think about over the past couple years there's been less activity and maybe characterized it as pent up sellers looking for kind of a stable transaction market to get better execution. I think that's what we've been seeing, I mentioned earlier a lot of that's driven by the kind of being range bound with Treasuries at least in the U.S. competition. I think in the U.S. that's always been a competitive market. Less so where we've historically targeted which is industrial sale leasebacks a little more so as I just mentioned in retail. It's all manageable. It's always been competitive and we continue to find ways to compete there. I would say it's more driven by kind of overall market conditions.

Smedes Rose (Director)

Okay. And then I just wanted to ask you.

So it sounds like the Hellweg, which is kind of in line with your revised expectations, and then you took down the credit rent loss expectations for the year for a little bit. I mean, any other sort of changes on your watch list of tenants that are maybe, you know, coming in better relative to your expectations or things that you could highlight?

Jason Fox (CEO)

Brooks, you want to take that?

Brooks Gordon (Managing Director)

Sure, yeah. I mean, credit quality has improved substantially. I mean, True Value and Hearthside were the only other two tenants of any large size on the watch list in addition to Hellweg. So those have been resolved with very little impact. We've had a handful of other smaller tenants, you know, complete refinancing and we've moved them off the watch list. So credit quality is in a solid place right now.

That said, we have a degree of caution around an uncertain world right now, especially around tariffs and trade, also helps turnaround like we discussed. We have that $10 million-$15 million reserve that we've described. That may prove conservative, but that's kind of the perspective we're taking right now.

Smedes Rose (Director)

Thank you. I appreciate it.

Operator (participant)

Your next question comes from Spencer Glimcher with Green Street Advisors. Please state your question.

Spenser Glimcher (Research Analyst)

Thank you. Maybe just a higher level question here to start. We've recently seen some large real estate players like BlackRock and Starwood acquire some net lease portfolios, platforms. Is there any concern on your end that over time these firms are going to start impacting the bidding tents or pricing or just become a larger competitive force in the net lease market?

Jason Fox (CEO)

Yeah, I mean, look, less competition is always better, which is kind of what we've liked about Europe for some time now. As I said before, the net lease market has always been competitive in the U.S. and we have seen some new private equity entrants, including some non-traded platforms that you mentioned, and they're finding net lease attractive. I think that's a, you know, maybe a positive signal, you know, take away there. You know, they typically are focused on using higher leverage, which is generally more expensive and, you know, maybe less reliable in the current market. Like I said, we've been able to compete, you know, in the U.S. market for quite some time. I don't think that's going to change.

Spenser Glimcher (Research Analyst)

Okay, that's all for me. Thanks, guys.

Jason Fox (CEO)

You're welcome.

Operator (participant)

Your next question comes from Brad Heffern with RBC Capital Markets. Please state your question.

Brad Heffern (Director)

Yeah, thanks. Morning everybody. Equity cost of capital has improved quite a bit this year. I know the plan for 2025 at least is to fund with dispositions, but I'm curious if you're close to seeing equity as an attractive option or do you think the primary funding source will remain dispositions for the foreseeable future?

Jason Fox (CEO)

Yeah, we've had some nice momentum in the stock price year to date, but I think we continue to believe that we don't need to be in the equity markets this year and we're continuing to be comfortable with the approach that we've talked about about selling non-core assets to fill our deal funding needs this year.

I wouldn't rule out and maybe couldn't rule out any opportunistic issuance if the right situation comes up and that could help us get ahead of future capital needs. Again, I think the reality is we don't need to do that this year given our funding plan. That's even if we push through the top end of our investment volume guidance. Something to monitor, but it's not a need.

Brad Heffern (Director)

Okay, and Toni, you mentioned in the prepared remarks about the tailwind from a stronger euro. Can you give a figure for how much of the guidance raise was due to that and then just remind us what that sensitivity is to changes in the euro?

Toni Sanzone (CFO)

Sure, yeah. I think as you're highlighting, there are certainly some impacts on the euro, but maybe it's worth kind of just stepping back and thinking about how that's playing through for us. I think overall on a net basis, just given how we hedge, both with the natural interest expense and property expenses denominated in euro and then the cash flow hedging program on top of that, we really do mitigate out any significant impact. You know, over the first half of the year, we call it a 10% change in the euro from the start of the year, it's probably only having between a 1-2 cent net impact and, you know, that flows through various line items, but, you know, something pretty manageable and, you know, that goes in both directions.

I think to the extent the euro declines relative to the dollar, we wouldn't expect a material impact in the back half of the year either.

Brad Heffern (Director)

Okay, thank you.

Operator (participant)

Your next question comes from Anthony Paolone with JPMorgan. Please state your question.

Anthony Paolone (Executive Director)

Thanks. I think the only thing I had left was, I may have missed this, but what were your acquisition and disposition cap rates for the quarter and just the pipeline? What those look like for the pipeline as well?

Jason Fox (CEO)

Yeah, acquisitions for year to date, mid 7s, call it 7.5%. And that's where we've been for a while now. It's where we kind of ended last year. It's where we have been in the first half of the year. I would say it's roughly where kind of the average is across our pipeline as well. Again, that's reflective of maybe a little bit more stability in the interest rate environment. In terms of dispositions, we noted we closed about a little under $600 million of dispositions year to date.

The biggest piece of that was one of the self-storage portfolio. It was about $175 million in total. That was a sub 6% cap rate. We're not getting the specifics because we have other portfolios in the market. In fact, we have two others that we think probably close this quarter. That's all part of the initial plan for the first half of our storage that we've been talking about. Maybe the way to describe dispo cap rates is we do expect to achieve 100 basis points at least and probably closer to 150 basis points of spread between where we're investing and what we'll sell this year. I think you can think about dispo cap rates approaching 6% for the full year. That's probably a decent assumption to use.

Anthony Paolone (Executive Director)

Okay, great. That's all I got.

Jason Fox (CEO)

Okay, thanks, Tony.

Operator (participant)

Thank you.Before we take the next question, just a reminder to the audience. To ask a question, press star one on your telephone keypad. To withdraw your question, press star then the number two. Once again, to ask a question, press star one on your telephone keypad. Your next question comes from Jana Galan with Bank of America. Please state your question.

Jana Galan (Director)

Thank you. Good morning and congrats on a great quarter. Just a question on the fixed in place rent bumps, I think you mentioned that the portfolio is at 2.1%. And then on the leasing to date, you mentioned the fixed escalators are 2.8%. I was just curious if this is due to more industrial being in that mix or are tenants now conversations you're having accepting these kind of higher escalators?

Jason Fox (CEO)

Yeah, it's probably a combination of the two. Jana, we've talked before that we've gotten a little bit less inflation-based increases in the new deals that we're doing. What that means is we've been able to push the fixed increases a little bit higher. Yes, year to date on new deals with fixed increases, I think the average fixed increase was 2.8% on new deals. Again, I think that's reflective of where alternative lease bump structures could be with inflation. I think it's also a reflection of the industrial deals we're doing. Retail tends to be meaningfully lower, probably 1.5%-2% per year depending on the credit. Especially if you go investment grade, those tend to be flat to maybe 1% or 10% every 10 years. I think it's a combination of the two things. We do maybe want to continue emphasizing that we have substantial bumps in our portfolio.

We look at spreads both between going-in cap rates, which provide year one accretion, but also importantly what's the average yield over the life of the lease. We think the mid-9s that we've been achieving as of late, that's probably one of the highest, if not the highest, in the net lease sector. Quite attractive still.

Jana Galan (Director)

Thank you. Maybe just following up on that, can you talk a little bit about how you think about the developments?

Jason Fox (CEO)

Developments as in build-to-suits?

Jana Galan (Director)

Yes. What kind of yields you're targeting there and how that the trade off between sale leasebacks on income producing and doing these build to suits?

Jason Fox (CEO)

Yeah, and we do provide some pretty good disclosure in our supplemental capital investment projects is what we categorize it as. And that includes build-to-suits, expansions, and redevelopments. And it's something that we've been doing for a long time. I think historically they probably made up maybe 10-15% of annual deal volume. And I think that we can ramp that up. You may have noted this quarter we committed to funding several new projects totaling about $100 million. That brings our total projects currently under construction to about $300 million. Those will deliver over the next, you know, call it 18 months or so. And with cap rates, you know, it does depend on the deal obviously. I would say on average you probably see, you know, 15 or 25-50 basis points of premium for long-term build-to-suits.

When you think about the expansions or redevelopments that we can do within our portfolio, it's probably meaningfully higher than that in terms of the spreads that we can generate. And that's something we want to ramp up. And we've built up a dedicated project management team in house. They have deep operational real estate expertise and that gives us a real competitive advantage and something that we can offer development services and solutions to our existing tenants and hopefully ramp up deal volume there.

Jana Galan (Director)

Great, thank you so much for the time.

Jason Fox (CEO)

You're welcome.

Operator (participant)

Your next question comes from Jim Kammer with Evercore ISI. Please state your question.

James Kammert (Managing Director)

Good morning. Thank you. Really just building on that last theme, Jason and team, you know, the current administration certainly seems to want to bring manufacturing to the U.S., whether it's pharmaceuticals, autos, etc. Is that really translating to any opportunity, particularly among your very manufacturing-specific tenant base? Are they having more conviction in their conversations with you about expanding or putting capital to work and therefore needing more space? Just curious at a high level.

Jason Fox (CEO)

Yeah. I mean, it's anecdotal, but I think there is some truth behind that, that we've heard more inbound conversations on build-to-suits, but also expansions and adding capacity to our existing asset base. That's certainly some tailwinds that we can foresee. How widespread or impactful it'll be, it's kind of hard to tell.

These are long-term decisions that companies need to make. Obviously, there's been a lot of fits and starts and stops in terms of where tariffs are going to land. I think long term, we would benefit within our industrial portfolio and especially the manufacturing side.

James Kammert (Managing Director)

That's great. Thank you for your time.

Operator (participant)

At this time, I'm not showing any further questions. I'll now hand the call back to Mr. Sands.

Peter Sands (Head of Investor Relations)

Thank you for your interest in W. P. Carey. If anyone has additional questions, please call Investor Relations directly on 212-492-1110. That concludes today's call. You may now disconnect.

Operator (participant)

All parties may disconnect.