Closing W.P. Carey’s Valuation Gap
- It’s that consistency and predictability that has earned WPC a valuable place setting in my Durable Income portfolio.
- Upon closer examination, WPC’s valuation gap appears to be almost exclusively related to “confusion risk” associated with the recently announced CPA:17 acquisition.
- Given the wide valuation gap, we believe that there’s strong upside to initiating a position now.
“As a global net lease REIT, W. P. Carey has provided “SWAN” investors with a constant net lease source of income for almost 40 years. The globally diverse asset portfolio, combined with its sustainably innovative operating platform, has made W. P. Carey one of the safest and reliable real estate investment platforms in the world.”
As you see, I have always considered WPC a “sleep well at night” REIT and I even defined the term (in that 2011 article):
“The SWAN investor is seeking a fundamentally safe investment strategy where principal preservation and sustainable income (and growth) are a must. Essentially, this investor is seeking a bond-type investment in a real estate wrapper.”
Since that time, WPC has consistently delivered on its promise of providing investors with predictable dividend income, and over that time shares have returned an average of 12% per year. It’s that consistency and predictability that has earned WPC a valuable place setting in my Durable Income portfolio.
So far this year, WPC has under-performed the Net Lease REIT peers, shares (in WPC) have returned -1.5% year-to-date.
On the surface, that seems to be odd, since WPC has relatively no U.S. retail exposure with almost no retail store closure overhang.
However, upon closer examination, WPC’s valuation gap appears to be almost exclusively related to “confusion risk” associated with the recently announced CPA:17 acquisition. We view this valuation gap as a perception overhang, that will likely dissipate over the next few quarters.
The purpose for this article is to provide investors with an Q2-18 update and to provide details as to why we believe W.P. Carey is well-positioned to close its valuation gap.