W. P. Carey Inc. (WPC) Earnings

Management highlights

Investment Activity: • The firm maintained strong investment momentum in H1 2026, with over $700 million in closed investments during Q2, with the vast majority being warehouse and industrial properties, split between the U.S. and Europe in line with long-run averages. • The largest Q2 transaction was a $400 million sale-leaseback with Garden Corps, a leading U.S. lawn and garden consumables manufacturer, which is now WP Carey's fourth largest tenant, covering 43 facilities across 24 states under a 20-year triple net master lease. • Full-year average cap rates are expected to land in the low to mid 7% range, consistent with start-of-year guidance. The near-term pipeline holds several hundred million dollars of investments in process, plus $133 million in capital projects scheduled to deliver in H2 2026, as part of 10 total projects that will add ~$300 million to investment volume over the next 18 months via the Carey Tenant Solutions Initiative. Capital Markets and Balance Sheet: • Year-to-date 2026, the firm has raised nearly $900 million via forward equity and issued ~$1.5 billion in bonds, ending Q2 with $691 million in anticipated net proceeds from unsettled forward equity. • A U.S. bond issuance completed in early July 2026 retired the firm's final 2026 debt maturity, leaving no near-term maturities and ample total liquidity of ~$2.7 billion, including an undrawn $2 billion credit facility. • Leverage (excluding unsettled forward equity) ended Q2 at 5.5x net debt to adjusted EBITDA, which is at the low end of the firm's target mid-to-high 5x range, down from 5.7x at the end of Q1. • The weighted average interest rate on outstanding debt remained low at 3.2% in Q2, with a marginal increase expected in H2 2026 following recent bond refinancing. • The quarterly dividend was raised 4.4% year-over-year to $0.94 per share, maintaining a payout ratio just over 70% and an annualized yield near 5% at current share prices. Helvig Exposure Mitigation: • Over two years, the firm proactively reduced Helvig exposure from 35 stores to 16 via lease terminations, re-leasing, and asset sales, following Helvig's recent insolvency filing. • Remaining gross Helvig exposure is just 90 basis points of ABR, and Helvig is no longer a top 20 tenant. Springing leases are already in place for half of the remaining stores at comparable rents, with active discussions for the remainder, and management expects all remaining assets to be leased or sold by end of 2026. Helvig is expected to have a negligible impact on 2026 earnings.

Guidance

• Full-year 2026 AFFO per share guidance was raised and narrowed to a range of $5.19 to $5.27, increasing the midpoint by 2 cents and implying 5.2% year-over-year growth, driven by higher net investment activity, higher CPI-driven rent growth, lower expected property and tax expenses, and lower expected rent loss, partially offset by share dilution from settled forward equity. • Full-year 2026 investment volume guidance was raised to a range of $1.7 to $2.1 billion, up from the prior range of $1.5 to $2.0 billion. Management expects activity will likely land in the top half of the new guidance range if Q4 activity matches recent years. • Full-year 2026 disposition volume guidance was narrowed and lowered to a range of $350 to $550 million, down from the initial range of $250 to $750 million, with roughly one-third of dispositions expected to be non-core assets, and two-thirds for vacancy cleanup and risk mitigation. • Full-year 2026 contractual same-store rent growth expectation was increased to 2.6%, with further growth expected to trend higher in 2027 based on current U.S. and European inflation expectations, reaching a projected mid-to-high 2% range, near 3%, in 2027. • Full-year 2026 comprehensive same-store rent growth is expected to average 1% to 1.5%. • Expected full-year 2026 rent loss from tenant credit events was lowered to a range of $7 to $10 million, down from the prior $8 to $12 million range, with a maximum expected $3 million net loss from Helvig in 2026 after factoring in bank guarantees. • Full-year 2026 G&A expense guidance is maintained at $103 to $106 million, unchanged from prior guidance. Full-year property expense guidance was lowered to $54 to $58 million, and full-year AFFO-basis tax expense guidance was lowered by $2 million to $43 to $47 million. • Full-year 2026 other lease-related income is expected to total in the low to mid $30 million range, with lower totals in H2 due to the concentration of material one-time termination and settlement income in H1.

Segment performance

WP Carey is a net lease real estate investment trust with performance reported across its overall portfolio, with no distinct product segments separated in the transcript. Key overall portfolio results for Q2 2026: AFFO per share was $1.34, a 4.7% year-over-year increase. Contractual same-store rent growth hit 2.6% year-over-year, with CPI-linked leases (49% of same-store leases) averaging 2.7% growth and fixed rent escalation leases (48% of same-store leases) averaging 2.5% growth. Comprehensive same-store rent growth was 0.2% for the quarter. Portfolio occupancy reached 98.5%, up 40 basis points from Q1 2026, driven by disposition of vacant properties. Other lease-related income totaled $11.2 million in Q2, bringing year-to-date total to $21.7 million. G&A expense was $25.9 million for Q2, with a year-to-date total of $53.3 million. Non-reimbursed property expenses totaled $15.2 million for Q2, with a year-to-date total of $29.8 million. AFFO-basis tax expense was $10.5 million for Q2, including a one-time unanticipated tax benefit. Non-operating income totaled $4.2 million for Q2. Dispositions totaled $84 million in Q2 2026, bringing year-to-date disposition proceeds to $246 million. Year-to-date 2026 closed investments total $1.3 billion at a weighted average initial cash cap rate of 7.4%, with an average long-term yield of over 9% after factoring in rent escalations and an 18-year average lease term.

Risks & headwinds

• The ongoing insolvency of tenant Helvig creates potential rent loss, though management has proactively reduced exposure and modeled a maximum $3 million net 2026 loss, with plans to dispose of or re-lease all remaining Helvig properties by year-end. • Higher long-term interest rates could put upward pressure on cap rates for new investments and create refinancing headwinds for maturing debt, though management underwrites conservatively with residual value cushions and has addressed all 2026 maturities, with only one moderate maturity in 2027. • Rising competition in both the U.S. and European net lease markets from new entrants including large non-traded asset manager funds could pressure pricing, though WP Carey maintains competitive advantages from its long-standing local market presence and deep industry relationships in Europe. • Proposed generic drug tariffs under the USMCA agreement could impact the firm's second-largest tenant Apotex, though management notes the assets are mission-critical and located in a strong infill market, and Apotex is systemically important to Canadian healthcare, limiting downside risk. • Geopolitical tensions in the Middle East have not impacted transaction activity to date, but broader macroeconomic volatility from global conflicts could disrupt deal flow or credit performance. • Impairment charges have risen sequentially for several quarters, driven by planned dispositions of non-core assets at prices below current carrying value, though management notes these impairments have no impact on AFFO and expected sale proceeds remain accretive relative to reinvestment options.

Analyst Q&A

• Q: What are the firm's capital allocation priorities across build-to-suits, expansions, and acquisitions, and where are the best returns currently? /

  A: Management does not prioritize one category over another, and pursues attractive opportunities across all segments. Build-to-suit and expansion projects under the Carey Tenant Solutions initiative tend to be high-quality captive opportunities, so the firm welcomes more of these deals, but will not pass on strong opportunities in other segments to pursue them. The $1.3 billion year-to-date investment volume includes activity across all deal types already.