W. P. Carey - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered stable operating performance: AFFO/share rose 1.7% YoY to $1.21 on rent escalations and net investment activity, while diluted EPS fell to $0.21 on a $90.4M Lineage mark-to-market loss and lower gains on sales. Revenues were $406.2M (-1.5% YoY; +2.2% QoQ).
• Record quarterly investment volume ($841.3M in Q4; $1.6B full-year) at ~7.5% initial caps and >9% average yields supports 2025 growth without equity issuance.
• 2025 AFFO guidance: $4.82–$4.92 per share (midpoint +~3.6%), predicated on $1.0–$1.5B investments funded primarily by non-core asset sales ($500M–$1.0B), G&A $100–$103M, non-reimbursed property expenses $49–$53M, and AFFO tax $39–$43M.
• Tenant credit de-risking: True Value resolution removes a prominent overhang; Hellweg and Hearthside unchanged with mitigation plans ongoing.
• Potential stock catalysts: clarity on tenant outcomes (True Value/Joann’s), no planned equity issuance in 2025, continued euro debt advantage, and dividend growth signaled with a post-quarter increase to $0.890/share.

What Went Well and What Went Wrong

What Went Well

• Record Q4 investments and attractive economics: $841.3M at mid-to-low 7% initial cap rates and >9% average yields; 2024 total $1.6B with strong rent bumps (mid-2% to 3%+).
• AFFO/share growth: $1.21 (+1.7% YoY) despite office exit/U-Haul headwinds; drivers included recoveries, escalations, and net investments.
• Funding and balance sheet: $2.6B liquidity at YE (cash $640.4M; largely undrawn revolver); euro notes at 3.700%; 2025 $450M U.S. bond repaid post-Q4; net debt/EBITDA 5.5x; debt/gross assets 41.6%.

What Went Wrong

• GAAP earnings volatility: diluted EPS fell to $0.21 on a $90.4M Lineage mark-to-market loss and lower gains on sale; underscores dependence on non-cash items in GAAP.
• Top-line softness YoY: revenues -1.5% YoY as office exit/dispositions and lower operating property revenues offset escalations and net investments.
• Ongoing tenant risk monitoring: Management embeds $15–$20M 2025 credit loss assumption; Hellweg remains challenged by German consumer softness; Joann’s bankruptcy expected to liquidate midyear (WPC assumes conservative outlook).

Transcript

Operator (participant)

Hello, and welcome to W. P. Carey's fourth quarter and full year 2024 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 this morning for our 2024 fourth quarter earnings call. Before we begin, I would 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 filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately one year and where you can also find copies of our investor presentations and other related materials. And with that, I'll pass the call over to our Chief Executive Officer, Jason Fox.

Jason Fox (CEO)

Thank you, Peter, and good morning, everyone. 2024 was a pivotal year for W. P. Carey, during which we successfully exited the office sector, establishing a new baseline for AFFO. Set the foundation for future growth. We also ended the year with strong fourth quarter investment volume, the full benefit of which will flow through to our earnings in 2025. As we look to the year ahead, we believe W. P. Carey presents a compelling investment opportunity, even with conservative assumptions on investment volume and tenant credit, reflecting the uncertainties around inflation, interest rates, and the potential impacts of the new administration on markets. We expect to generate AFFO growth in the mid-3% range, supporting a total return of around 10% when combined with our dividend yield of over 6%.

This morning, I'll briefly recap our recent investment activity and the continued strength of our balance sheet, but will focus my remarks on the transaction environment and our ability to continue funding new investments without issuing equity. I'll also provide an update on tenant credit. Toni Sanzone, our CFO, will review our results and guidance, and Brooks Gordon, our Head of Asset Management, is also here to take questions. Starting with investments, during the fourth quarter, we closed record quarterly investment volume totaling just over $840 million, which brought us into the top half of our investment volume guidance range for the year at approximately $1.6 billion. Initial cash cap rates on our fourth quarter investments averaged in the mid to low sevens, following the decline in 10-year Treasury rates during the fall, and for the year, averaged 7.5%.

We continued to achieve very attractive rent bump structures, averaging in the mid-2% range and up into the threes for certain deals. As a result, our average yields over the life of the leases on new investments remained above 9% for 2024, providing attractive returns relative to our spot cost of capital, and even more attractive returns when considering that we were deploying cash accumulated earlier in the year rather than from raising new equity. Our 2024 investments added over $100 million to ABR on leases with a weighted average lease term of 17 years. Approximately three quarters of our investment volume was in North America, the vast majority being in the U.S., and one quarter was in Europe. While about 60% went into warehouse and industrial, a meaningful proportion was also directed towards U.S. retail. Retail remains the largest segment of the U.S.

net lease market, and we have done retail deals in the past, primarily in Europe but also in the U.S. Importantly, we view additional investments in U.S. retail as complementary to our traditional focus on warehouse and industrial rather than an alternative to it. Our access to efficiently priced debt capital remains a competitive advantage, enhancing our ability to fund deals accretively, something we believe is currently underappreciated by the market. Our mix of U.S. dollar and euro-denominated debt gives us one of the lowest average interest rates in the net lease sector, and we expect to continue funding part of our capital structure with long-term euro bonds, currently pricing in the high 3% range. When combined with U.S. bonds pricing in the mid-fives, this provides an attractive source of financing for net lease deals with cap rates in the sevens and average yields greater than 9%.

On the equity side, we have a variety of very attractive potential sources of capital available to us, primarily self-storage operating properties, but also other attractively priced non-core assets, which we would expect to sell at cap rates meaningfully inside of where we can redeploy the proceeds into new investments. These asset sales will also further simplify our portfolio, significantly reducing the non-core operating assets we own and provide us with a high degree of confidence that we can continue closing accretive net lease investments at a time when we view our equity as undervalued. Turning now to the deal environment. As I mentioned at the outset, markets currently face a range of uncertainties, including the direction of interest rates, inflation, and potential impacts of the new administration, and the early part of 2025, 10-year Treasury rates spiked.

This has the potential to widen bid-ask spreads and slow deal activity, although things could change quickly if 10-year Treasury yields continue to come down and stabilize. The potential for larger-scale M&A in 2025 may also create opportunities for sale-leasebacks, and over the medium or longer term, onshoring or nearshoring could provide a tailwind to both our investment activity and portfolio. While the first quarter is unlikely to be as active as the fourth quarter, we continue to find appealing opportunities to put capital to work. Our pipeline currently includes over $300 million of identified transactions, most of which we expect to close this quarter, and we have about $100 million of capital projects scheduled for completion this year.

We've adopted a more cautious approach to our initial guidance on investment volume, however, given the limited visibility we have this early in the year and the uncertainty that exists over the transaction environment. As the year progresses, however, and we have greater clarity on deal activity, we hope to raise our expectations, and we're confident that we can fund deal volume even if above the top end of our initial guidance range without having to issue equity. Even with this conservatism, I want to reiterate we view estimated AFFO per share growth of around 3.5% as an attractive starting point for the year. Before I hand the call over to Toni to discuss our guidance assumptions in more detail, I want to provide an update on the significant tenants we're focused on from a credit perspective.

Currently, that comprises the three tenants we've identified on prior calls: True Value, Hellweg, and Hearthside, which in aggregate represent 4.5% of ABR. I'll review the details, but in summary, we've agreed to a resolution on True Value that should remove a prominent point of uncertainty for investors, while Hellweg and Hearthside are essentially unchanged from a credit perspective versus last quarter. Since our last earnings call, Do it Best has completed its acquisition of True Value and remains current on rent for all our properties, comprising eight warehouses and one paint manufacturing facility. We've negotiated an agreement with Do it Best, subject to final documentation that includes several important points. Do it Best will retain six facilities at their existing rents on leases with a weighted average lease term of seven years and ABR of $14.1 million.

The remaining three assets will pay rent through June of 2025, at which point they will be vacated. We're proactively marketing them for sale and expect to sell them during the second half of the year. Assuming their timely sale, we would expect minimal impact on 2025 AFFO, which is factored into our guidance. Lastly, given the strength of Do it Best's credit, we no longer view it as a credit risk concern. Hellweg's situation is little changed from last quarter. It remains current on rent and continues to execute its turnaround plan to reduce costs and manage liquidity, and has successfully pushed out its debt maturities to 2027. It continues to face meaningful operational headwinds driven by the slowdown in German consumer spending, which we're monitoring closely, including an active dialogue with Hellweg's management team and reviewing its financials as they become available.

We also continue to take steps to proactively mitigate the risk of a potential rent disruption. Based on the specific interest we've received, we have confidence there's demand for our stores from other operators, and rent's generally in line with current rents, although that would incur some downtime and CapEx. We're also evaluating several dispositions, which could incrementally reduce Hellweg's contribution to our ABR this year. Finally, on Hearthside, there's no change to our view that we don't expect any rent disruption. Hearthside is targeting to emerge from bankruptcy early this year, at which point we will evaluate taking it off our credit watch list. I'll pause there and hand it over to Toni to discuss our results and guidance.

Toni Sanzone (CFO)

Thanks, Jason, and good morning, everyone. We finished the year reporting strong fourth quarter results, generating AFFO per share of $1.21, which brought our full year AFFO to $4.70 per share, marked by a quarter of record investment volume and internally generated growth from our portfolio. Dispositions during the fourth quarter comprised the sale of five properties for gross proceeds totaling $119 million. This brought full year disposition volume to $1.2 billion, driven by sales of office properties under our office sale program, as well as the exercise of the U-Haul purchase option. Contractual same-store rent growth for the fourth quarter was 2.6% year-over-year, and we anticipate that it will remain in the mid-2% range for the first quarter of 2025, moderating to an average in the low to mid-two's for the full year.

Comprehensive same-store rent growth for the fourth quarter was 2.5% year-over-year, which reflects the impacts of vacancies, leasing, restructurings, and rent recoveries. During the fourth quarter, we collected rents from cash-basis tenants, putting us in a net rent recovery position for the quarter, most of which was anticipated in our 2024 guidance. Currently, our 2025 AFFO guidance includes an estimated $15 million-$20 million for potential rent loss from tenant credit events, which is cautiously higher than where we typically start the year, given the current backdrop of broader economic uncertainty. We will continue to provide updates on tenant credit as the year progresses and refine our estimates accordingly. Fourth quarter leasing activity comprised 11 renewals or extensions and continued to trend positively, recapturing 107% of the prior rents overall, including positive releasing spreads on warehouse and retail.

Releasing activity impacted just under 2% of portfolio ABR and added close to five and a half years of incremental weighted average lease term. Other lease-related income for the fourth quarter was just $1.3 million, bringing the total for the year to $20.3 million, in line with our expectations. Based on the visibility we currently have, we expect other lease-related income to total between $20 million and $25 million for 2025, consistent with where it's been in recent years. As a result of our investment and asset management activities during 2024, we ended the year with a net lease portfolio comprising 1,555 properties, generating ABR of over $1.3 billion, with a weighted average lease term of 12.3 years and an occupancy rate of 98.6%. At year-end, our operating property portfolio comprised 78 self-storage properties, four hotels, and two student housing assets.

During the fourth quarter, operating property NOI declined to $17.6 million, reflecting the conversion of 12 self-storage operating properties to net leases under the transaction we completed with Extra Space in September and discussed on our last earnings call. Our operating asset portfolio is expected to generate between $70 million and $75 million of operating NOI, which is an annual number and excludes the impact of expected dispositions. A significant proportion of our dispositions this year are expected to be sales of self-storage operating assets, which our guidance assumes occur primarily in the second half of the year. As we get more clarity on the timing of asset sales, we'll update our operating NOI estimate as needed. Driven by our role as the external advisor to NLOP, we received $6.6 million in asset management fees and $4.2 million in other advisory income and reimbursements for the 2024 full year.

For 2025, we expect these line items to total approximately $8 million, with the management fees expected to decline over the year with additional NLOP asset sales, while the reimbursement remains fixed at $4 million. Non-operating income for the fourth quarter comprised $6.6 million of interest income on cash deposits, $4.5 million from realized gains on currency hedges, and $2.8 million in dividends from our equity stake in Lineage. This totals $13.8 million, which was essentially flat to the third quarter, as lower interest income was offset by higher realized gains on currency hedges. For the full year, non-operating income totaled $52.2 million.

For 2025, our guidance currently assumes non-operating income totals in the mid-$30 million range, assuming a flat quarterly dividend from Lineage of $2.8 million per quarter, lower interest income on cash totaling around $5 million for the year, and higher gains on currency hedges, given the current strength of the U.S. dollar. Turning now to key drivers of our 2025 guidance. For 2025, we expect to generate AFFO of between $4.82-$4.92 per share, implying about 3.6% growth at the midpoint, based on investment volume of between $1 billion-$1.5 billion, funded primarily through accretive sales of non-core assets. Currently, we're assuming dispositions total between $500 million-$1 billion, with the large majority expected to be opportunistic non-core asset sales, executed at cap rates averaging around the low to mid-sixes, with proceeds reinvested in net lease assets at initial cap rates in the sevens.

If deal volume is more robust than we're initially assuming, we have ample flexibility to sell additional assets accretively. Ordinary course net lease dispositions are expected to comprise the smallest portion of our disposition guidance at around $250 million. G&A is expected to total between $100 million-$103 million for 2025, and non-reimbursed property expenses are expected to total between $49 million-$53 million. Tax expense on an AFFO basis, which primarily reflects current foreign taxes on European assets, is anticipated to range between $39 million-$43 million. Moving now to our balance sheet and leverage. Our investment activity continued to be supported by successful execution in the debt capital markets.

During 2024, we raised approximately $1.7 billion of debt capital at a weighted average coupon of 4.3%, issuing bonds at attractive pricing relative to the yields we achieved on new investments and benefiting from our ability to access the euro bond market. Overall, the weighted average interest rate on our debt averaged 3.2% for 2024 and is expected to remain at or slightly below this rate in 2025, as we continue to benefit from weighting of euro-denominated debt in our capital structure. We ended 2024 with total liquidity of approximately $2.6 billion, as we were virtually undrawn on our $2 billion revolver and holding $640 million in cash, although since then $450 million has been applied to repaying the senior unsecured notes that matured at the start of February.

With our 2025 bond addressed, our debt maturity profile remains very manageable, comprising only about $200 million of mortgage debt due in 2025. Our next bond maturity is the euro bond maturing in April of 2026. Given our liquidity, we continue to have significant flexibility to access the bond market when we view the market conditions as most favorable, although our guidance currently does not assume any debt issuance this year. We also expect to recast our 2026 euro term loan this year ahead of its maturity. Our key leverage metrics ended the fourth quarter at levels consistent with where they've been throughout 2024. Debt to gross assets was 41.6%, which is at the low end of our target range of mid to low 40s, and net debt to EBITDA ended 2024 at 5.5 times relative to our target range of mid to high 5 times.

We expect both of these key leverage metrics to remain well within our target ranges in 2025, particularly given our plans to fund new investments with asset sales. And with that, I'll hand the call back to Jason.

Jason Fox (CEO)

Thanks, Toni. Given some of the uncertainty we see heading into 2025, we've incorporated a degree of conservatism in our initial guidance, both on investments and tenant credit. Despite the uncertainty, we believe we're well positioned to navigate the markets and have confidence in our ability to execute this year. We had a very strong fourth quarter on deal volume, and we have visibility on continuing to put capital to work in the first quarter. While investment spreads are somewhat tight compared to going in cap rates across most of the net lease sector, the spreads to average yields we're generating and the associated GAAP cap rates remain very attractive, and the dilutive headwinds from office dispositions and the U-Haul purchase option that we faced in 2024 are now fully behind us. From a balance sheet perspective, we remain to the low side of all our leverage targets.

Our only bond maturity in 2025 has been addressed, and our liquidity remains very high. Most importantly, we will not need to raise equity to fund deals in 2025. Instead, we will access alternative sources of capital through accretive asset sales, primarily through selling non-core operating assets meaningfully inside of where we can reinvest the proceeds in net lease assets, giving us confidence in our ability to continue doing deals and driving AFFO growth this year. As that concludes our prepared remarks, I'll hand the call back to the operator to take questions.

Operator (participant)

Thank you, and 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 Brad Heffern with RBC Capital Markets. Please state your question.

Brad Heffern (Director)

Yeah. Hey, Morning, everyone. Thanks for taking the questions. Tariffs, obviously, a lot of news around those and a lot of uncertainty, of course. Curious if you can give your thoughts on how your portfolio might be affected by those and if it's changing at all how you think about new investments.

Jason Fox (CEO)

Yeah, sure, Brad. Good morning. Yeah, look, I mean, tariffs certainly add a degree of uncertainty to the market environment, and we talked about that a little bit. And clearly, they could have broader economic impacts, especially or potentially on inflation and therefore rates. I mean, we're diversified. I think that's an important layer of protection within our portfolio. It may be on the plus side in the medium to long term if tariffs are substantial and they stay in place. We could see some tailwinds from onshoring in manufacturing. Maybe that'll benefit our warehouse and industrial portfolio. I think on new investments, we'll continue to maintain the same approach of underwriting, which is rigorous. We think about the downside exposure and protections and how we structure deals, like we always do. We'll continue that.

But by and large, I think we're going to have to react to what tariffs look like, given that it's been a bit uncertain.

Brad Heffern (Director)

Okay. Got it. Thanks. And then two other tenant updates I was interested in that weren't in the prepared comments. Can you give your thoughts on the Joann's Distribution Center and then Advance Auto Parts, obviously closing stores? I know you own distribution centers, not stores, but any update you can give on how those are positioned would be great.

Jason Fox (CEO)

Yeah, sure. Brooks, you want to take that?

Brooks Gordon (Head of Asset Management)

Sure. On Joann, as you know, they've filed for the second time in as many years, and we own one warehouse. It's about 20 basis points of ABR. Rent's below market. We think we'll be able to re-tenant that pretty effectively. That said, we're not including any assumptions of re-tenanting in our guidance, but we are assuming that that company goes into a liquidation around mid-year. So I think that's a conservative approach to that one from a modeling perspective. On Advance Auto, we own 28 facilities. It's a single master lease, about 1.4% of ABR, eight years of term. So there's really no near-term impacts to us. They will close a few warehouses. I think they've announced three that we own. That'll give us a lot of flexibility to work those while the lease remains in place.

So those will be good opportunities for us to potentially push rents a bit higher on those. But we don't expect, and we're not modeling any actual impacts in the near term.

Brad Heffern (Director)

Okay. Thank you.

Operator (participant)

Our next question comes from Rich Hightower with Barclays. Please state your question.

Rich Hightower (Managing Director)

Hey, good morning, everybody. I think I missed the comment on sort of the cadence of same-store growth, but did you say that portfolio same-store growth, at least within the net lease part of the portfolio, is going to decelerate to the low twos by year-end? I just want to make sure I've got that right.

Toni Sanzone (CFO)

Yeah, I'll take that, Rich. That's about right. I think we expect the first quarter of 2025 to be probably our highest print in the low to mid-2% range and see a decline from there to the low twos. Now, again, today we're factoring in kind of higher prints on inflation on the U.S. side, so we'll adjust that accordingly, but I don't think that'll have a material movement.

Rich Hightower (Managing Director)

All right. Thanks, Toni. Very helpful. And then just on the, I guess, on the capital allocation side, obviously a big part of the positive spread that you can generate on your European investments has to do with the cost of debt relative to the U.S. And I'm just maybe, as a general matter, the next incremental dollar of capital allocated to Europe, how do you feel about that, kind of given everything going on in the world as we sit here today?

Jason Fox (CEO)

Yeah, look, I think that Europe is something that we've been there for a long time, since 1998. I think we have a good feel for the markets, boots on the ground, staffed by Europeans. So like everything we do, we're certainly very diligent in our underwriting and how we look at markets and obviously tenant credits, etc. And look, there's a reason why we've always wanted to generate wider spreads in Europe. I think we can do that. I mean, right now, we can borrow in euros about 150 basis points inside of where we can borrow in the U.S. And I'd say cap rates are in similar zip codes in Europe compared to the U.S. I mean, obviously, there's going to be some variation by country and deal-specific variations.

But overall, we can generate wider spreads there, and we think we account for any incremental risks that real or perceived may be over there.

Rich Hightower (Managing Director)

All right. Thanks, Jason.

Jason Fox (CEO)

Yep. You're welcome.

Operator (participant)

Your next question comes from Mitch Germain with Citizens JMP. Please state your question.

Mitch Germain (Managing Director)

Congrats on the quarter, guys. Just curious, Jason, with those sort of cap rates that you're assuming on the dispositions, obviously, it seems like there's a bunch of self-storage in that number. ToniAnn said that. But I'm curious, is there anything else that's sitting in what you would characterize to be non-core bucket?

Jason Fox (CEO)

Yeah. I mean, big picture, I mean, we talk about our disposition plan and how we're going to fund deals. I think most of what's in there is non-core. The bulk of it, as you mentioned, is operating assets, and the bulk of that portion is storage. But there's also some student housing and, I would say, an operating hotel that we would likely sell this year as well. But the bulk of it is self-storage. We're targeting to sell, I would say, a subset of that portfolio, likely in the second half of the year. But the expectation generally is that across the portfolio we sell, that we'll generate maybe 100 basis points of positive spread between disposition cap rates and reinvestment cap rates. That's kind of our big round number right now.

Obviously, as the year goes on and we complete some of the dispositions, we can provide updates, but that's the kind of general math for you.

Mitch Germain (Managing Director)

You mentioned $400 million, give or take, of identified pipeline in terms of deals versus your guidance. I mean, from a cadence perspective, should we still think things will be back-weighted to match it up with the timing of those sales?

Jason Fox (CEO)

Yeah. Look, it's a good question. I think our dispo guide right now is $750 at the midpoint and probably a little bit more back half weighted. But the actual amount and timing of dispositions is probably going to be more driven by investment volume and investment pacing. We'll want to match that the best we can. So again, there'll be some ins and outs throughout the year, but I think the numbers that Toni went through are probably the best direction we can give right now.

Mitch Germain (Managing Director)

Great. Just a quick one for ToniAnn and if I can sneak one more in. Is there any noise in interest expense, ToniAnn? I noticed, obviously, quarter-over-quarter down, you were sitting on a little bit more debt, obviously, in anticipation of selling or, sorry, of redeeming the bond in February. Is there any without the K being filed here, is there anything in that number that is wacky?

Toni Sanzone (CFO)

No, I think the right way to look at it is to look at interest expense and interest income on a net basis. So kind of on a year-over-year, again, we've addressed a lot of our maturities. We are seeing benchmark rates decline from 2024 levels. So on a year-over-year, if you look on a net basis, net interest income based on the cash we were holding on our deposits, we really should be relatively flat year-over-year. So no headwinds there that we're experiencing looking into 2025, and there was no disruption or nothing material in the fourth quarter, if that's what you're referring to.

Operator (participant)

Thank you. Our next question comes from Smedes Rose with Citibank. Please state your question.

Smedes Rose (Director)

Hi, thank you. I just wanted to ask for a bigger picture. You talked about cap rates in the fourth quarter, and it sounds like kind of expectations for a relatively similar pace in 2025. But with the 10-year continuing to rise, I mean, do you think seller expectations will need to change potentially more in your favor, or is it more likely that potentially just transaction volumes slow in the current environment? Just kind of interested in your thoughts around that.

Jason Fox (CEO)

Yeah. Look, it's hard to predict. I think in the fourth quarter, transaction cap rates, they came in a little bit. They were slightly below our average for the year, and I think that's reflective of both a lower 10-year at the time. I think in the fourth quarter, maybe early on, we saw it in the mid to high threes at that point in time. And I think there was also an expectation that rates were going to come down with Fed rate cuts even further. I think that's changed to some. And obviously, the new news today is the hot print with inflation. So we'll see what that does over the coming weeks or months. But yeah, I mean, long-term, cap rates will certainly track long-term interest rates. In the short term, it creates some volatility, probably widens bid-ask spreads to some extent that may impact deal volume.

I think that's part of the reason why we initiated deal volume guidance at what I would view as a conservative range because there is uncertainty out there and how that flows through to sellers' needs and expectations and what that means for being in the market. Hard to predict, obviously, but long-term, I think certainly cap rates will track interest rates and we'll have to see where they go.

Smedes Rose (Director)

And then in 2024, I mean, I know you did some investing in Mexico and in Canada. Just wondering, are you pausing or rethinking maybe how you underwrite investing in those countries given a fair amount of uncertainty around potential tariffs?

Jason Fox (CEO)

Yeah. I mean, the deals we did in both those countries in Mexico, I think it was one transaction. It was a U.S.-based company, big company, I think one of the larger private industrial conglomerates. So good credit. The lease, importantly, is U.S. dollar denominated. These were very high-quality pieces of real estate as well. Long-term lease. So yeah, there might be some short-term fluctuations in maybe how people view Mexico depending on what happens with tariffs. And I would say that could apply to Canada as well. But we have long leases with good credit, so there's not long-term concerns there. We'll keep on monitoring those markets. Sometimes a little bit of dislocation or uncertainty creates opportunity as well. I think we'll want to make sure we structure them right to make sure there's no kind of short-term exposure that we'd be concerned with.

But overall, I don't think it changes materially how we look at Mexico or Canada, certainly in the long term.

Smedes Rose (Director)

All right. Thank you for that.

Operator (participant)

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

Anthony Paolone (Co-head of U.S. Real Estate Stock Research)

Yeah. Thanks. I think if I'm doing the rough math right on kind of what you talked about disposition-wise against this $70 million-$75 million of operating property annualized, it seems like you're going to get rid of maybe 40%-50% of that over the course of this year. And so just wondering kind of how you're thinking about the rest of it and whether this is something you're going to continue to wind down in 2026 and we don't have any of it in 2027 or just thoughts there?

Jason Fox (CEO)

Yeah. I mean, I think base case, maybe midpoint of the dispo range, your math is probably right, but we'll keep on evaluating our funding needs depending on where deal volume goes. And certainly, we can lean into storage more. And we also want to see what the transaction environment looks like for storage. I think maybe if not this year, probably next year, we're mostly out of the operating storage business, if not entirely. I think that there'll be opportunities to sell, but there could also be opportunities to convert some of it to net lease as well. But for now, I think there's a bit of a range on how we view what we'll do with the storage properties we own right now.

Anthony Paolone (Co-head of U.S. Real Estate Stock Research)

Got it. Okay. And then just second one back to the sort of credit items. You guys covered a lot of the ground with the specific names, but I may have missed this. What's just the broader sort of bad debt, if you will, that's in guidance for 2025? I'm just trying to ascertain whether there's some cushion beyond just the items you mentioned with True Value and Joann and stuff.

Jason Fox (CEO)

Yeah. Toni, do you want to tackle that cadence number?

Toni Sanzone (CFO)

Yeah. I think embedded in the initial guidance is a range for credit loss at around $15 million-$20 million. So that's probably about 50 basis points wider than where we typically start the year. And really just, again, based on broader economic conditions, our approach really was to take kind of a bottoms-up assessment of risk on a tenant-by-tenant basis and estimate a range of possible outcomes. So we did take a top-down view as well, and we've built in some conservatism there to cover a degree of uncertainty. So broadly, I think we talked about the larger tenants. We don't expect any imminent disruption there, but we do have, again, a broad range of outcomes that would well be covered by this $15 million-$20 million range over the course of the year.

Anthony Paolone (Co-head of U.S. Real Estate Stock Research)

Okay. Sorry, just to make sure that that $15-$20, it includes True Value and Joann's, or that's on top of it?

Toni Sanzone (CFO)

It does. It's all inclusive. That's every tenant in the portfolio. And I'll note Jason referenced kind of the outcome with True Value. We really expect minimal downside there, but it does encompass everything that we've discussed.

Anthony Paolone (Co-head of U.S. Real Estate Stock Research)

Okay. Great. Thank you.

Operator (participant)

Your next question comes from John Kim with BMO Capital Markets. Please state your question.

John Kim (Managing Director)

Good morning. I realize you only have 1.8% of leases expiring this year, but I was wondering if you could break that out, especially among warehouse and retail where you had the stronger recapture rates this year or the last quarter?

Jason Fox (CEO)

Sure. Yeah. So we have 1.8% expiring in 2025, as you said. It's a very small amount. I'd say the majority of that have transactions in progress. So we're making good progress on that. We'll have, I think, one non-renewal in the back half of the year on a couple of warehouses in Europe, which we're currently marketing. Reasonable rents there. So we'll work on that. In terms of property split, the large majority is warehouse and industrial. There's about 20% retail, and the balance is really warehouse and industrial there. So really manageable lease expiration outlook for 2025.

John Kim (Managing Director)

Okay. And then you talked about Euro-denominated debt as being an attractive source of capital. Right now, you have $5 billion roughly of euro debt. Assets, maybe give or take $6 billion. I'm wondering on your end where you see loan-to-value of your euro exposure and how much capacity do you have to borrow more?

Jason Fox (CEO)

Yeah. I think loan-to-value, we're certainly in range or maybe even below the range that we've seen other large REITs that have Euro debt and have a presence in Europe. We're probably in the 70%-80% range, and that's an estimate and a bit of a guess there. In terms of limits, I think we can go higher, and some of that will depend on the deal activity we're doing and what our currency needs are. But we certainly like the flexibility of having the option of issuing bonds in different currencies, and the Euro certainly does that for us.

John Kim (Managing Director)

Does that change how you look at acquisitions in Europe? I know there are questions on the other end about the risks of foreign exposure, but does that make you more inclined to acquire assets in Europe?

Jason Fox (CEO)

Yeah. As I said earlier, I think we are generating wider spreads there, given that we can borrow right now about 150 basis points inside of where we can borrow in the U.S. So we do like generating wider spreads there. I think that's been the case historically whenever we've been buying assets. But I think there's an ability to lean into pricing maybe a little bit more if we think we see the right deals, and I think that's our expectation.

John Kim (Managing Director)

Great. Thanks.

Operator (participant)

Thank you. And our next question comes from Greg McGinnis with Scotiabank. Please state your question.

Greg McGinnis (Analyst)

Hey, good afternoon. Jason, could you just expand on your comment regarding retail as complementary to the industrial and warehouse holdings?

Jason Fox (CEO)

Yeah. Sure. I mean, we're always looking for ways to expand our opportunity set, and certainly our diversified approach supports that. We've been active in European retail for quite some time, and the U.S., we've been active there, but I would say it's been more opportunistic, and so now, I think we mentioned maybe on a call or two ago that we're ramping it up with a dedicated team, but I think that importantly, we want to make sure that it is complementary. We're not shifting our focus away from warehouse industrial. This is going to be in addition to doing warehouse industrial, and the hope is that we're expanding our opportunity set, which can help us do more deal volume and ultimately lead to more growth, but it's not in lieu of industrial warehouse.

Greg McGinnis (Analyst)

Okay. And I guess with regards to the current investment pipeline you guys talked about earlier, could you disclose what % of that is U.S. retail and then how you expect that to trend for the full year? And if you could also add in cap rates and escalators on retail versus industrial transactions, that'd be appreciated? Thank you.

Jason Fox (CEO)

Yeah. Sure. So we talked about our pipeline being over $300 million at this point in time with identified transactions, and we also have another $100 million of capital projects that are scheduled to close throughout the year. So that's kind of the visibility we have right now. I think the capital projects are largely non-retail. These are going to be more warehouse and manufacturing expansions. Some retail perhaps associated with that with the Las Vegas loan that would fall into that bucket. Last year, about a third of our deal was retail. This year, it's a little lighter to start off the year. It's probably depending on how you kind of cut through the pipeline. Maybe it's in the 10%-20% range. I think cap rates, on average, are probably similar to our targets across the portfolio. I'd say in the 7s.

The bump structures are a little bit lower in the retail. So if you think about average yields or cap rates, the retail that we're targeting is probably going to be a little bit inside of what we can generate, certainly in manufacturing and in many cases in warehouse as well. But that's kind of how we view the world.

Greg McGinnis (Analyst)

Okay. Thanks, Jason.

Operator (participant)

Our next question comes from Jim Kammert with Evercore ISI. Please state your question.

Jim Kammert (Managing Director)

Thank you. Good morning. Could you remind me what percentage of your ABR do you receive tenant financials or reporting and periodicity of that?

Jason Fox (CEO)

Brooks, you want to take that?

Brooks Gordon (Head of Asset Management)

Sure. It's materially all of the tenants. I mean, there's an exception here and there, but it's really materially all the tenants we get financial reporting from. And each lease is different, but we get on balance quarterly unaudited, typically on a delay of probably 45 days, and then annual audited on a delay of, say, 60 days on average, maybe a little longer for the audits. And then on certain deals, we get, especially around retail, store-level financials as well, but also from some manufacturing.

Jim Kammert (Managing Director)

Great. And then as a derivative of that second part of the question, how has your sort of tenant/credit monitoring process and the HEFT sort of evolved over the last couple of years? I mean, you've done a great job addressing the couple that have come to date in terms of credit problems, but have you made any modifications in the team and the staffing and sort of the rigor applied? Thank you.

Jason Fox (CEO)

We've always had a really rigorous credit review process, both on new investments and on an ongoing basis. It's really driven by tenant relationships as well as financial statement monitoring. I'd say where we've made some incremental changes is what we've chosen to disclose publicly. For example, we've expanded our top 10 list substantially to top 25. We've made a point of identifying specific larger tenant situations on a recurring basis and providing updates directly on those. As Toni went through, providing what we view as a conservative and really all-inclusive credit reserve bucket. That's kind of the most direct way to model credit risk. We're quite confident in our process. We've made some improvements around disclosure and communication, and we'll continue to do so.

Jim Kammert (Managing Director)

Thank you.

Operator (participant)

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

Michael Goldsmith (Analyst)

Good morning. Thanks a lot for taking my question. Wanted to continue to dive into just the expansion into retail. You did a portfolio deal with some Dollar Generals. I know you're underexposed to that category, maybe relative to some of the peers that have focused more on retail over time. But can you talk a little bit about what you see in dollar stores now that makes you feel comfortable that stepping in at this time? And are you considering kind of more exposure to the category going forward? Thanks.

Jason Fox (CEO)

Yeah. Sure, Michael. Yeah. We completed it. It was about a $200 million deal on Dollar General assets in Q4. There's a couple more from one of the sellers that is going to spill over into Q1, maybe about $20 million more or so. But a pretty typical Dollar General investment, obviously individual assets, they're quite granular. It's about maybe a little over 100 properties in total, and they're spread out across 21 states. I mean, look, I would say it's consistent with what we've been talking about, about expanding more into U.S. retail, where we can generate some incremental increased deal flow. We like Dollar General because we think it's the strongest of the discount retailers. And in terms of timing, the sector was somewhat out of favor at points during 2024, which created maybe a little bit more interesting opening for us.

As you mentioned, many of our competitors are pretty full on their exposure to dollar stores. We were able to make a, what I would say, reasonably substantial investment without taking on any outsized exposure relative to our top 25. In fact, that investment barely cracks into our top 20. I think that's the idea here. We do like the credit, despite some of the bumps that it went through in 2024. We don't think that is a risk from a cash flow standpoint. We certainly view it as a safe investment. It'll reliably cash flow for the length of the lease. I think these assets tend to have strong renewal characteristics as well. Will we do more? I mentioned our pipeline has a couple more in it. I think there's nine more stores to close, likely in Q1.

Beyond that, I'll say it'll depend on the economics, but I suspect we'll look at more at some point.

Michael Goldsmith (Analyst)

Really helpful. And then just as a follow-up, you also did a data center in the fourth quarter. What would make you more constructive on data centers and to do additional deals in that group?

Jason Fox (CEO)

Yeah. Sure. Yeah. We did do one data center deal in the first quarter. It was around a $100 million acquisition, a little over 200,000 sq ft data center, leased to a company called Centersquare. It's out in Weehawken in New Jersey, if you're familiar with the New York market. That's just a few miles outside of New York City, and we view the rents as well below market. Good credit. They have 72 locations. It's really a co-locator. That's kind of where they focus. I think they provide around 400 megawatts of power capacity. And we like the basis. It's about $8 million per megawatt. So a good deal for us to do. Would we do more of these? Yeah. We've been spending time on data centers. We've been working with advisors and bankers on the space.

I think this deal was a bit unique, but yeah, let's see if it's something we can build on.

Michael Goldsmith (Analyst)

Thank you very much.

Jason Fox (CEO)

You're welcome.

Operator (participant)

Our next question comes from John Kilichowski with Wells Fargo. Please state your question.

John Kilichowski (Executive Director of Equity Research)

Good morning. We've heard on some competitor calls that competition is picking up from the private side this year. I'm curious how much of that is influencing the lower acquisition guide outside of just maybe traditional conservatism?

Jason Fox (CEO)

Yeah. I mean, I would agree with that. I think that competition has picked up some. I mean, look, the market in the U.S., especially the U.S., has always been competitive. I think we've observed some private equity entrants coming into the market, and they've been, at least one of them has been, fairly aggressive on some portfolio deals that we may view as weaker portfolios. Deals like the lending markets were starting to come back. We'll see if kind of the rate volatility impacts that at all. But yeah, I mean, look, the U.S. has been competitive, and I think that's all factored in when we set guidance and probably plays a role in the conservatism from the start here. I think Europe is less competitive, and that's one of the things we've always liked about it.

There's no real established net lease market over there from a public company standpoint, certainly not a pan-European competitor. So a little less over there. But yeah, I would kind of echo that, that competition is picking up a little bit.

John Kilichowski (Executive Director of Equity Research)

Got it. And then maybe just to clarify an earlier comment that I think you made in the opening remarks, I just want to make sure I heard it right. Hearthside, I know that there is a potential for there was room to maybe restructure rents, but it sounds like you think that you're going to recoup everything. I just want to make sure I heard it right. Are you not considering rent restructuring at this point?

Jason Fox (CEO)

No. It's a big company. They are in bankruptcy. I think our expectation is that they'll come out of bankruptcy, likely first quarter. We'll see what the exact timing is, and we have highly critical assets that produce a big portion of the products that they generate. Their customers are the big consumer packaged goods companies that rely on them for a lot of their outsource production. So yeah, we think our facilities are needed and therefore won't have any rent disruption, and we'll go in and out of bankruptcy without any disruption, and that's the expectation right now.

John Kilichowski (Executive Director of Equity Research)

Great. Thank you.

Jason Fox (CEO)

You're welcome.

Operator (participant)

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

Spenser Glimcher (Managing Director)

Thank you. On the storage assets you guys have earmarked for sale, have you guys begun marketing these? And/or do you have a sense of how deep the buyer pool is? I'm just curious because obviously the sector has been out of favor, so it doesn't seem like that's going to get better just because of where the housing market is. And then they've also been re-operated, so there tends to be less operational upside for potential buyers. So if you could just expand on the buyer pool as you see it today.

Jason Fox (CEO)

Yeah. Let me take this, and Brooks, you can add some color if you'd like. Yeah. We have not taken it to market yet. We're kind of in the pre-marketing process right now, going through the portfolio and identifying the sub-portfolio that we expect to sell. It could be sold as one big portfolio. It could be sold as a number of smaller or medium-sized portfolios. I think we can be flexible here. I think we're going to size it, and the marketing approach will be based on what we think the buyer pool looks like, the depth and the size that are being targeted. So no real details right now, Spencer, on how we look at that, but I think that we'll update as we get deeper into that process.

In terms of kind of the storage fundamentals, yeah, I mean, look, it's not as robust as maybe we would like it to be. I think same store comps are getting easier compared to last year. Maybe there is some potential for increased housing mobility if mortgage rates come down or as we get into the second half of the year. I mean, there's certainly a lot of pent-up demand for housing change. So that could start flowing through at some point, and that's obviously a big driver in storage. But I think by and large, we're still comfortable and expect across our disposition plan that we can probably generate 100 basis points of spread between what we sell and what we buy. And I think that's going to generate some good growth for us.

Spenser Glimcher (Managing Director)

Okay. Great. That's all for me. Thanks so much.

Jason Fox (CEO)

Okay. You're welcome.

Operator (participant)

Thank you. And before we take the next question, just a final reminder to ask a question at this time, press star one on your telephone keypad. To remove yourselves from the queue, press star two. Our next question comes from Farrell Granath with Bank of America. Please state your question.

Farrell Granath (Equity Research Associate)

Hi, this is Farrell. Thanks so much for the question. I was curious, given your portfolio acquisitions tended traditionally to more sale-leaseback, can you give a comment on how you're seeing sale-leasebacks in the market today and how you're thinking about that going forward in your acquisition guidance compared to portfolio acquisitions?

Jason Fox (CEO)

Yeah. Sure. Yeah. We have historically done, I would say, the majority and maybe in some years the vast majority of our new deals as sale-leasebacks, so we're build-to-suits, which have very similar characteristics. I think last year was a bit of an exception. Over half of our deals last year were existing leases either from, say, developers or portfolio sellers. We hope to do a little bit more of that this year again, but right now, I think that our pipeline is back more heavily weighted towards, say, sale-leasebacks, and look, sale-leasebacks, there's certainly correlation to M&A in some regards, and I think there is expectation that as we get into 2025, maybe M&A will pick up, but it's not just tied to M&A.

Certainly, when we're in a down cycle or there's dislocation in the financing markets, sale-leasebacks provide a nice alternative to debt or equity capital. And I think we've seen a lot of that over the last couple of years. And maybe there's opportunities to do more of that going forward. And of course, we've done a lot of sale-leasebacks alongside private equity sponsors, and we have a great bench of relationships there that we can lean on and provide capital when it's needed. So yeah, it's still a market that we'll rely on quite a bit, but maybe a little less so than we have historically because I think we can lean into some existing lease. And maybe that'll be the case, especially with U.S. retail.

Farrell Granath (Equity Research Associate)

Okay. Thank you. And one other one on your acquisition of the Tidal Wave Auto Spa. I was curious of your thoughts in the car wash industry. I've been hearing more pressures kind of anecdotally about the area itself and your thoughts about continued expansion in that area.

Jason Fox (CEO)

Yeah. Sure, Brooks. Do you want to take that?

Brooks Gordon (Head of Asset Management)

Sure. We've done a handful of car washes. It's quite a small exposure for us, but I think the news item was around the bankruptcy of Zips. We've done ours with a company called Tidal Wave, which we view as really a best-in-class operator, great sponsorship, really a different story than Zips. That said, it's quite a small investment exposure for us, but we do really like the locations, and Tidal Wave is a great operator.

Farrell Granath (Equity Research Associate)

Okay. Thank you.

Operator (participant)

Thank you. 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)

Thanks, everyone, 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, and you may now disconnect.