Typically you simply must name it such as you see it: 2024 was a horrible 12 months for W. P. Carey (NYSE:WPC). However it’s vital to grasp what this dangerous 12 months actually is about. For this actual property funding belief (REIT), it was about setting the stage for a greater future. Certainly, this dangerous 12 months 2024 ought to make you wish to purchase WP Carey shares much more.
Primarily, the very first thing that greeted WP Carey traders in 2024 was a dividend reduce. Moreover, the discount occurred after 24 consecutive annual dividend will increase. So, simply on the sting of REIT reaching an vital milestone, administration and the board of administrators have chosen to cut back the dividend. It isn’t an excellent overview, however there’s extra to grasp right here.
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One of the crucial vital components is that administration started growing funds once more within the quarter following the discount. Furthermore, it continued to extend it in every subsequent quarter, which corresponds to the identical charge of enhance that the corporate had adopted earlier than the discount. This makes the dividend reduce look extra like a dividend reset, which is definitely what it was. However why decrease the dividend?
On the finish of 2023, WP Carey made the dramatic resolution to exit the workplace sector. The corporate had step by step diminished its publicity to some of these buildings, however the workplace actual property market was more and more disrupted and administration got here to the conclusion that it will be higher to promote the remaining buildings shortly. Earlier than this resolution, workplace buildings represented 16% of WP Carey’s rents. That is merely an excessive amount of earnings to lose with out resetting the dividend.
WP Carey’s exit from the workplace phase was a calculated strategic transfer that eliminated a distressed property sort from its portfolio. So, regardless of the dividend reduce, this REIT is in a stronger place at present than it was a couple of 12 months in the past. Wall Road, nevertheless, stays cautious. its dividend yield stays excessive at 6.2%. THE S&P 500 Index (INDEXSNP: ^GSPC) yields only one.2%, whereas the typical REIT yields round 3.7%, utilizing the Vanguard Actual Property Index ETF (NYSEMKT:VNQ) as an trade proxy.
Buyers are at present being paid effectively to personal WP Carey. However what do they get? Abandoning its workplace buildings has given WP Carey liquidity to spend money on new properties which can, in flip, drive development. A lot has already been spent, however it’s possible that administration will nonetheless spend this cash not less than till 2025, since shopping for belongings typically takes longer than promoting them. And, extra importantly, the advantages of latest acquisitions is not going to manifest suddenly. New rents solely are available as new buildings are added to the portfolio over time.
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