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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, hello and welcome to W. P. Carey’s First Quarter 2019 Earnings Conference Call. My name is Adam and I will be your operator for 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. [Operator Instructions] I would now like to turn today’s program over to Peter Sands, Director of Institutional Investor Relations. Thank you, Mr. Sands. Please go ahead.
Good morning, everyone and thank you for joining us today for our 2019 first quarter earnings call. I would like to remind everyone that some of the statements on this call are not historic facts and maybe 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 1 year and where you can also find copies of our investor presentation.
I will now hand the call over to our Chief Executive Officer, Jason Fox.
Thank you, Peter and good morning everyone. The 2019 first quarter was the first full quarter since the completion of our merger, CPA:17 and we are off to a good start for the year. Investment volume was strong, primarily into industrial and warehouse properties at attractive spreads to our cost of capital and we continue to have an active pipeline.
From a funding perspective, we utilized our ATM program during the quarter to efficiently raise equity capital using the proceeds to prepay mortgage debt and fund acquisitions, which reduced leverage and expanded our pool of unencumbered properties. Today, I will focus my remarks on our recent investments before handing over to our CFO, Toni Sanzone, to discuss the details of our first quarter results, guidance and balance sheet. We are joined this morning by our President, John Park and our Head of Asset Management, Brooks Gordon. We are here to also take your questions.
Starting briefly with the investment backdrop which was a continuation of the competitive environment we have been in over the last few years. In the U.S. cap rates remained low and made continued low interest rates and strong competition for deals, particularly from private equity funds, which have recently had strong capital inflows. Industrial sector especially continues to attract high demand. While competitive, the market opportunity in the U.S. for net lease remains fast. Our longstanding presence which stretches back close to 50 years and track record of providing certainty have closed to sellers ensures we get access to almost every deal. Combined with our diversified approach and competitive cost of capital, we continue to win transactions without having to compromise on lease term or deal structure. Similarly in Europe, the industrial sector continues to attract the most interest, followed by office. The transaction market remains very active with significant capital inflows and compressed yields despite lower forecasted economic growth.
The ECB has pledged to keep interest rates low however and the resulting yield rate spread is likely to continue to drive capital inflows, especially from international investors. We remain focused on sourcing off-market transactions from both existing tenants and our deep network of relationships across the continent. As a pioneer of net lease in Europe, we benefit from our strong presence and establish platform built in more than 20 years of investments in the region. We are pleased with our first quarter investment volume, which totaled $240 million at a weighted average cap rate of 7.1% comprising 5 acquisitions totaling $188 million, all of which were in the U.S. and two completed capital investment projects at a total cost of $52 million.
Looking at 3D acquisitions in a bit more detail, first, we completed the $48 million acquisition of a 220,000 square foot office facility net leased to PPD, a leading global pharmaceutical contract research organization. The facility is located in Morrisville, North Carolina in the Raleigh-Durham Research Triangle, which have the heavy concentration at the pharmaceutical and bio-pharmaceutical companies they serve. This is the triple net lease with the remaining lease term of about 15 years and includes fixed annual rent increases.
Second, a $38 million investment in a 763,000 square foot distribution facility in Inwood, West Virginia net leased to an existing tenant Orgill, which is the world’s largest independent hardware distributor. The facility is strategically located on I-81 which is home to distribution centers for many large companies and just south of the I-70 Interchange providing additional access to the Baltimore and Washington DC markets. The property is Orgill’s sole distribution facility for the Northeastern U.S. and is triple net leased for a period of 15 years with fixed annual rent increases.
Lastly, we closed the $17 million acquisition for a 58,000 square foot tractor trailer hub less than a mile from O'Hare International Airport. Triple net leased to Amerifreight, a growing trucking company for a period of 12 years and includes annual fixed rent increases. It’s a very desirable location at the center of one of the largest industrial markets in the county. We view this as a covered landslide that may have significant development value at the end of the lease. The acquisitions we completed during the quarter were all critical properties of long-term leases with the weighted average lease term of approximately 17 years and supported by strong tenant businesses. It provides built-in growth either tied to inflation or from fixed increases with the weighted average fixed increase of close 2%. And in keeping with our diversified investment approach, it covers a range of property types, tenant industries and geographic locations.
As I mentioned earlier, we completed two capital investment projects during the quarter at a total cost of $52 million. We also added one new capital project with an existing tenant for 138,000 square foot expansion of an automotive manufacturing plant in Alabama that we expect to complete in the fourth quarter of this year at a total cost of $12.5 million. While this particular deal is small relative to our overall portfolio, the great example of our proactive approach to asset management and the benefits of staying close to our tenants. This is the third such expansion we have done with the tenant, each time resetting the lease term which has resulted in a total term of 35 years since the inception of the original lease. The increased size of our portfolio provided a fertile source of investment volume for us. We ended the quarter with eight capital projects outstanding for an expected total investment of approximately $200 million. We currently expect five such projects to be completed in 2019 for a total investment of just over $100 million in addition to the two we completed during the first quarter. So plenty of investment activity both completed and underway, we continue to find transactions that attracted cap rates without comprising on deal structure or asset quality. And with the demonstrably improved cost of capital we are able to generate wider spreads on those deals as well as select the best deals from an expanded opportunity set.
And with that I will hand the call over to Toni to talk more about our earnings, guidance and balance sheet.
Thank you, Jason and good morning everyone. This morning we announced AFFO of $1.21 per share for the first quarter in line with our projections and as expected down from the $1.28 in the prior year. Real estate AFFO increased almost 7% to $1.13 per share compared to $1.06 in the prior year. Since announcing our merger with the CPA:17, we have discussed its near-term impact on our earnings and we see the first full quarter of that impact in our 2019 first quarter results. The elimination of advisory fees previously earned from CPA:17 was partly offset by the accretive impact of the real estate acquired in the merger as well as net acquisitions over the last 12 months. First quarter lease revenues increased to $263 million compared to $169 million for the year ago quarter, highlighting the impact of the merger on our real estate earnings.
Definitely, I will take a moment here to highlight a presentation change as a result of adopting in the new leasing standard on January 1, 2019. Lease revenues reported in our income statement now include the reimbursement operating cost from tenants which was historically reported as a separate line item within the revenue section. This presentation change has no impact on our AFFO or net income. Related to this within the operating expenses section of our income statement, we are now separately breaking out reimbursable tenant costs which help to identify the amount we have received within lease revenues.
Given that the majority of our first quarter acquisition activity occurred at the end of March, the related lease revenues did not flow through our first quarter results in a material way. Annualized base rent, however, increased to $1.08 billion at quarter end, resulting primarily from the $240 million of investments we completed during the first quarter, which Jason discussed. We also benefited from same-store rent growth of 1.5% year-over-year on a constant currency basis driven by rent increases built into our leases. Disposition activity for the quarter was limited to the sale of one small retail property for $5 million at a 6.4% cap rate. For the full year, we continue to expect total dispositions to be in line with our original guidance assumption of between $500 million and $700 million, which we generally expect to be weighted towards the second half of the year, including The New York Times repurchase in December.
Turning to our Investment Management segment, the significant decline in the contribution from this segment reflects a full quarter’s impact of elimination of fees and earnings previously received from managing CPA:17. Last year’s first quarter included asset management fees from CPA:17 of $7.5 million and earnings from equity method investments of $8.8 million, representing our prior ownership and profit interest in that fund. We continue to earn fees on the remaining non-traded funds we manage, which are laid out in detail in our supplemental. Structuring and other advisory revenue has become a much less meaningful component of our Investment Management earnings, totaling $2.5 million for the first quarter of 2019, and nothing significant is expected for the remainder of the year.
Moving to expenses, G&A expense for the first quarter was $21 million compared to $19 million for the year ago quarter due primarily to the elimination of expense reimbursements previously received from CPA:17. G&A expense is typically higher in the first quarter of the year due to timing of annual compensation and related taxes. We continue to expect G&A for the full year to fall within our guidance range of $75 million to $80 million.
Turning now to our balance sheet and capital markets activity, as a result of our recent merger, we have significantly larger scale and greater trading liquidity in our stock. During the first quarter, we utilized these benefits to further enhance our credit profile by efficiently raising $304 million of equity capital issued through our ATM program, at a weighted average price of $76.17 per share. Proceeds from this equity issuance were used primarily to fund acquisitions and prepay $200 million of mortgage debt that had a weighted average interest rate of nearly 5% while incurring minimal fees. Since the end of the first quarter, we raised an additional $59 million through our ATM at a weighted average price of $78.27 per share and have continued to use those proceeds to prepay mortgage debt. Debt prepayments had a minimal impact on our first quarter results given their timing. However, they are expected to reduce our interest expense going forward, largely offsetting the dilutive impact of the shares issued to date.
We ended the first quarter with debt-to-gross assets of 41% and net debt-to-EBITDA of 5.8x. We also reduced secured debt as a percentage of gross assets to 16.8% at quarter end, down from 18.3% at the end of the fourth quarter. And based on our current plans, we see a clear path to reducing this to below 14% by the end of the year. Given the current availability on our credit facility, which is substantially undrawn, and expected proceeds from our disposition pipeline, we have considerable financing flexibility and can remain opportunistic in our capital markets efforts. We are extremely well positioned to execute on the acquisition volume in our guidance and access the capital markets when it’s most advantageous to do so.
In summary, we had a solid start to the year on all fronts. As we noted in our earnings release this morning, we are affirming our guidance range for total AFFO of $4.95 to $5.15 per share for the full year and real estate AFFO of $4.70 to $4.90 per share.
And with that, I will hand the call back to the operator to take questions.
Thank you. [Operator Instructions] Our first question comes from the line of Sheila McGrath from Evercore. You are now live.
Hi, guys. Good morning. Jason, you still have guidance for dispositions at $500 million to $700 million. I was wondering if you could give us a little insight on what the profile of those assets that you’re targeting for sale is and if the proceeds from these transactions will match-fund planned acquisitions or do you still expect to use ATM in your current plan?
Well, I will turn to Brooks to talk in some color.
Sure. So on the disposition pipeline as Toni mentioned, it’s certainly we expect to be back end loaded in the year. Again, we sold one small asset this quarter and we subsequently sold one further small asset subsequent to quarter, but we do expect to be in the $500 million to $700 million range again inclusive of the time spread option in December. We expect kind of all-in execution to be roughly in line with our acquisition cap rate from a pricing perspective. In terms of deal type again with near times it’s about 50% purchase option, about 30% what we call non-core and then small percentages in the other asset types. Kind of geographically it’s about 85% U.S., 8% Asia-Pacific and 8% Europe and about half of this 22% we think will be an operating hotel that we are looking at exiting. So it’s a good mix, but it is weighted towards the back half of the year.
And Brooks does that include sub-storage from the recent CPA:17?
It does not.
Okay. And then just quickly on G&A you maintained guidance for the year, Toni I was just wondering if you could just give us a little insight on seasonality, first quarter is typically higher than the other three quarters?
It is. I think the first quarter differential includes roughly around $2 million of additional compensation related costs, payroll taxes and one-time costs in nature that wouldn’t recur over the remainder of the year.
Okay. Thank you.
Thank you. Our next question comes from the line of Greg McGinnis from Scotiabank. You are now live.
Hey, good morning. Toni, AFFO is in line with your projections was bit below Street estimates, could you let us know how you are thinking about earning acceleration into the end of the year and if you still feel that the top end of guidance is the realistic goal, I am curious what needs to happen if you actually reach that end?
Sure. In terms of kind of just looking at the first quarter results, I think I highlighted in my remarks the number of issues or a number of areas where we don’t feel that’s a run rate. If we focus first just on the lease revenue, in terms of the first quarter the acquisition activity occurring at the end of the quarter and no dispositions at that point certainly isn’t something we would expect to annualize. So from a modeling perspective, I think it’s better captured if you look at the ABR at the end of the quarter. But I think on top of that, we are always actively managing our portfolio well ahead of lease expirations. And right now we are working on some leasing activity that we expect to have a positive impact on our lease revenues over the back half of the year. It’s too soon to get into any specifics on that, but we look forward to giving more details on that as things frame up. So I think that’s on the revenue side. On the expense side I mentioned in my remarks that the interest expense would be impacted by the debt prepayments we made that were just at the end of the quarter and subsequent to quarter end. So I think you are going to see a lot of these impacts flow through more towards the back half of the year as we get into that and that really drives a lot of the reasons why the Q1 is not a run-rate for us.
Okay, thank you. And moving on to kind of acquisitions, dispositions you have one of the largest investment universes within net lease REITs considering the type of assets – asset types and geographies within the portfolio, are there any industries or geographies that are particularly attractive today, I know you touched on a few in the opening comments, but I am also curious where you might be seeing some trouble or scenarios with some trouble just thinking about how you are going to build or decrease exposure…?
Yes, sure. The diversification certainly is something that we value substantially. It does allow us to allocate capital across asset classes and geographies where we see the best risk return opportunities in any given point in time. If you look back at first quarter even into 2018 as well we had a lot of success allocating capital into the industrial segment. Many of those deals were structure deals, sale leasebacks, some build to suits as well and we command better pricing structure as well, but lease term and lease provisions which we find there important. We hope to continue that. I think our pipeline looking forward also is more heavily weighted towards industrial. I think currently right now we are also more heavily weighted towards the U.S. I think some of that is more just timing of specific transactions as opposed to a fall-off in expected yield flow in Europe. But I would expect us for the full year to be more weighted towards the U.S. this year certainly compared to last year.
In terms of asset classes that we are not focused on, I think retail is certainly one that we continue to maintain in underweight position, something that we’ve talked about for years and years now, going back close to two decades at this point in time. It’s always been the asset class that we view as the one that trades most efficiently, a lot of capital inflows, a lot of a smaller, bite-size deals with tenants that are easily understood by a broad range of investors, so they do trade pretty tight. And obviously, over the last 10 years, there’s been the Amazon effect and e-commerce on that asset class, not to mention the supply issues that we see in the U.S. We have also talked in the past about where we do see opportunity in retail is more in Europe. I think out of our total ABR, 18% of the portfolio is retail, but 14% of that 18% is in Europe, where we think the supply dynamics are much more in check. And then we’ve also focused on tenants and components of the retail industry that are less exposed to e-commerce.
Right. Thanks so much for the color.
Yes, welcome.
Thank you, our next question comes from the line of Manny Korchman from Citigroup. You are now live.
Hi, good morning everyone. Just a follow-up on the comments on industrial, you mentioned that it’s a healthy industry, but you also talked about some of the competition looking for assets there. So just how do you balance the deal that you are able to execute on and source versus the massive amount of competition out there?
Yes, sure. It’s – yes, there’s a lot of competition within industrial, even with the net lease. But certainly, the broader industrial market, I think, is where even more of the capital inflows have shifted. I mean we compete in a couple of fronts. I mean, number one, we’ve been around for close to 50 years now. We have a strong reputation. We’re going to get an opportunity to look at all the deals of anything of meaningful size. We typically get early look to those transactions as well. And I think through our long track record of ease of execution and the lack of execution risk, we’re given very good opportunities to compete on these deals. I think we’ve also really carved out a niche specifically within the sale/leaseback and build-to-suit component of net lease. Those transactions tend to have more structure complexity upfront, which allows us to drive some yields as well as structure, as I mentioned earlier. So that sits primarily where we compete. I think the other component of this is, and this is a bit of a differentiator relative to our peers, is we do have the ability to invest within our existing portfolio, both follow-on deals with existing tenants, whether those are expansions or other capital investment projects, or follow-on transactions with some of our existing tenants. I think the Orgill transaction I mentioned earlier is a good example of that. That’s a tenant that we’ve done some deals with and hope to do more with over time.
So as we think about your pipeline right now, how many of those sort of follow-on, exclusive-to-you deals that you won are in that? Wondering if you can quantify it in some way for us?
Yes. I mean I think the deal flow that I think is truly proprietary and truly up-market are those what we call capital investment project, be it expansions and follow-on investments, particularly on ones that are related to an existing asset or portfolio of assets. The pipeline right now contains about $200 million of those projects, and that’s in our supplemental. Those are projects that are under contract and really underway in terms of construction. They count towards our deal volume for the year once they complete and rent commences. So out of that $200 million, about $100 million of those are expected to close in 2019. Perhaps we would see a little bit of incremental deal flow to that this year but more building to future years as well.
Thanks, Tony. And Toni, maybe just to dig into earnings more specifically, can you help us sort of just understand the trajectory or cadence of how earnings is going to fall in? I think a couple of other analysts have mentioned that 1Q was a surprising low number. If we annualize your real estate AFFO, we don’t get to your range. So how quickly does that ramp, especially given the dispositions at the end of the year?
Yes. I mean I think we have always certainly said we don’t give quarterly guidance, but what we can give you color on as I mentioned is really around the lease revenue. The timing of transactions does have an impact for us. I mean we can have a quarter like we did this quarter which is on pace with the guidance range that we have given on acquisition volume and have no dispositions towards the end of the year. The ramp up that you will see will come again from the timing on the investment volume when that closes and as I mentioned in terms of the leasing activity that we mentioned. So that’s not something that we can guide on specifically and give you that much color, but we do see that happening more towards the third and fourth quarters of the year. I mean that’s specific to the revenue side.
Thank you. Our next question comes from the line of Karin Ford from MUFG Securities. You are now live.
Hi, good morning.
Good morning Karin.
Can you give us some color on where investment spreads today and are you interested in going up the quality spectrum on new deals given your better cost of capital?
Yes. Sure. So the answer to your last question is yes. We do have a meaningfully better cost of capital, lot of which is related to the simplification of the business and we have talked about in the past as part of our CPA:17 strategy. So yes, we do have interest in expanding funnel into lower yielding investments that may be the higher quality real estate or real estate they may provide higher than typical growth. But we view that as incremental to our typical deal flow and the opportunity set that’s we have more historically have targeted. I would say to give a range in terms of deal spreads we typically target cap rates in the U.S. in the low to mid-6s up into the 7s. We have referenced the weighted average for the first quarter which was most entirely U.S. deals was a little bit over 7%. So we can come down from that. We can get into the sub-6 category if think there is the appropriate risk return associated with that. Cap rates in Europe are probably 25 basis points to 50 basis points lower all else being equal and of course our borrowing costs are even wider or even wider spreads in that to the cap rate, so we could pick up some higher accretion there. Again, that’s one of the benefits of being diversified and the ability to invest in Europe.
Great, that’s helpful. Second question is just on releasing spreads, it wasn’t a huge volume, but they did look pretty positive this quarter, is that the start of the trend or was that just the nature of the leases that you did this quarter?
Sure. This is Brooks, I certainly would hesitate to extrapolate trends in any given quarter, but it was an active quarter and one we are very pleased with. If you look at the last eight quarters for example, to trying to extrapolate a little bit more trend we have recaptured on the order of 96% and we are optimistic going forward as well. I think it’s important to note that during that trailing eight quarter timeframe, we have added 8 years of weighted average lease term. The tenant improvement allowance has been kind of sub-$1 per square foot and that’s impacted about 14% of ABR. So it’s a good outcome for us. Again, each quarter is going to be very different, but over the long run we are optimistic about our lease expiration outlook.
Great. Thanks. And just one more, given the favorable current debt environment, any interest in extending out debt duration from the current level just under 5 years?
Sure. I think that currently we have excellent access to almost all forms of capital. We have a lot of options at a disposal to efficiently access capital both here in the U.S. and Europe. So we are actively evaluating options.
Great. Thank you.
Thank you. Our next question comes from the line of Anthony Paolone with JPMorgan. You are now live.
Great. Thank you. Just on the cap rate side with your comment about the current pipeline leaning a bit more towards industrial, should you think you’ll be able to keep that 7-ish number over the balance of this year? Should we think about the rest of the activity in the pipeline and your guidance being a bit lower?
Yes, it’s hard to predict how the full-year will come out. If you look over the past couple of years, we have been in that 7% range, but it’s a pretty big range, I mean, we’ll do deals in the low-6s, and perhaps even lower depending on the opportunity set that we see, certainly, our cost of capital could allow us to do those, but we are also finding deal opportunities into the 7s, including deals that are higher than that especially the ones that are – the capital investment projects I mentioned earlier. So, hard to give you a number right now, but we hope that if we do have a lower cap rate, it will come with a larger opportunity set and hopefully an incremental growth from there.
Okay. And then any comments on just Realty Income going outside the U.S. and whether that creates more competition for you or whether that helps spread the word about shaking corporate real estate lose, any thoughts on what that does, if anything?
Yes, sure. I mean, we have great respect for Realty Income up here and we certainly understand their rationale behind their decision to expand into Europe as a source of both growth as well as diversification. As you know, diversification has always been a hallmark of our approach to investing in net lease. We’ve been over there for 20 years and have a substantial platform centered in London and Amsterdam. But in terms of competition, I mean, I think Summit [ph] said it well last week on their call, their investor call, post their announcement, that we have a complementary existence. I think that will be true in Europe as well, it’s a very large market over there. So, we may see them on a handful of deals, but I don’t think we envision competing with them substantially directly, but we’ll wait and see how that plays out. I think more than anything, I think you’re right, we view this as a positive from W. P. Carey’s perspective and from a capital markets perspective. In many ways it validates the value of our platform in Europe and the benefits of geographic and the industry diversification within the net lease asset class, so, something that we’ve talked about for decades. And I do think that we’ll see an increased focus from the investing community on European net lease, and I think they’re no longer be examining it just in the context of W. P. Carey. So, all of that we see as beneficial to our story.
Okay. And then last question maybe for Toni and I think this is along the lines of some of the other questions around just the first quarter variance to perhaps street models. If I look at your AFFO statement, you added back $4.1 million of – looks like FX related stuff. Is it fair to think about that as kind of – we should maybe just net that against or add back to NOI to kind of get the full effect quarter-to-quarter or is that just being overly simplistic?
Yes, I mean, I think it’s hard to look at this on an individual line item basis, but I think what you’re highlighting is the issue that the currency is flowing through on the various NOI line, so certainly, on our lease revenue, we’ll see it on the interest expense as an offsetting impact, and then we do offset that with realized gains from settling hedges. So, as part of our hedging strategy, we actually have contracts in place that will mitigate some of the remaining risk of our un-hedged – of the cash flows that are not hedged naturally. So, that does flow through that line in that add-back. So, I think again depending on how your model is working specifically looking at that as a component of the NOI is probably reasonable.
Okay, thank you.
Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America/Merrill Lynch. You’re now live.
Hey, good morning, guys.
Good morning, Josh.
Hi, Josh.
You – hey, you mentioned earlier that the deals this year would most likely be in the U.S. and heavy industrial focused. Is that a function of competition, just supply of deals or kind of pricing, is it –
In terms of less deals in Europe?
Yes, yes, and like –
Yes, I mean, there is – the GDP growth has slowed a little bit in Europe. I think that’s perhaps that has dampened activity a little bit, but if you think about it, the interest rates are still quite low there, TCP [ph] 8 has pledged to keep rates low throughout 2019 and perhaps beyond that. So, there still are good spreads there. I think we’ll see some pickup in Europe. Our pipeline does include some of that and we’d certainly don’t have visibility to what a full-year will look like at this point in time. Pipeline is really, I would say, maybe 3 months forward-looking. So, I think stay tuned there. But we are seeing better opportunities in the U.S. than we have in the past. The first quarter was indicative of that. I think our current pipeline is maybe it’s two-thirds weighted towards the U.S. right now, so more to come as deals progress forward, but I think you’ll probably see a little bit more of a U.S. and industrial theme this year.
Okay, okay. And then just kind of following up on the earlier question about Europe and how – do you think there’s opportunities some – for some more, I guess, cap rate compression over there as kind of you get a big peer coming in and then many others following on the back of that or is that – that’s an opportunity for you guys to maybe monetize some assets over time?
Yes, we have been doing that some. We’ve been opportunistic in especially with some retail assets more recently. We talked last quarter about taking some profits under Hellweg portfolio, especially, after acquiring some more Hellweg’s as part of the CPA:17 transaction. So, I think certainly that’s a possibility. But the broader message is, Europe is a very, very big market, and in fact, it has from a sale leaseback standpoint, it has a meaningfully higher percentage of owner-occupied real estate that really could be targeted for sale-leasebacks and net lease assets. So, it’s big. I think that the benefits of someone like a Realty Income and perhaps others entering the market is more to add more visibility and credibility to being a diversified net lease, which we’ve really always been focused on.
Got it. Thank you. Appreciate it.
Sure.
Thank you. Our next question comes from the line of Todd Stender with Wells Fargo. You’re now live.
Good morning. Thank you.
Good morning, Todd.
So, regarding the ATM, we haven’t seen it very often in the equity markets, so the volume is pretty big, but not compared to your size, but it does definitely improve your liquidity. How much visibility do you get to see who the shareholders are? Is it more of a blind issuance, are these truly reverse increase, you get to see who it is, can you just kind of characterize who you’re placing the shares in the hands of?
Good morning, Todd. We don’t have a lot of visibility in terms of the ultimate buyers of the ATM issuance, but the way we view that is that while we have access to all forms of capital, given our increased trading volume, we felt that last quarter and this quarter was particularly attractive time for us to access the ATM market.
Well, thanks for that. And do you – is it at a handful of shareholders? Is it 1 or 2 building a position or you really don’t get to see who it is on the other side?
No, we’ve had broad interest from institutional investors. Well, I think that the distribution and ownership has been broad.
Okay, thanks. And then probably for Jason, the Amerifreight acquisition in the quarter seems pretty interesting, you characterized it as a covered land play. How much land is in the deal and maybe kind of just share what the cap rate was? Thanks.
Yes, I think it’s a little over I think in and around 10 acres. It’s currently being used predominantly for truck parking. And so we think we have the ability to convert that into a trucking terminal as well at some point in time, but we have a good tenant in place. We have 12 years of term and so over time, I think that becomes more value as a redevelopment play, but in the meantime, it will provide some pretty solid income. The cap rate, we don’t really give specifics, but call it mid-6s.
Okay, thank you.
Welcome.
And then probably for Toni, you paid off quite a bit of secured debt. Any prepayment penalties when were these due and is there a sense of urgency to do more of this?
Yes, no, we did – we paid off roughly $200 million during the quarter and even subsequent to the quarter end through today about $185 million, but we’ve incurred right just under $2 million of prepayment penalties, so pretty minimal at this point.
No issue with your credit rating, right, I mean, is this a renewed sense to do this or coupons were still fairly low?
Yes, I mean, look, we knew we assume $2 billion of secured mortgage debt with our acquisition of CPA:17. And as we’ve always said, we’re committed to the unsecured strategy looking to reduce those borrowings and increase our unencumbered asset pool. This was a good opportunity for us to pull some of that forward and it did have a weighted average interest rate of about 5%, so, we will see some incremental interest savings from that as well. So, I mean, we will continue to explore opportunities to reduce the secured debt ahead of scheduled maturities but balance that with certainly the other needs on the capital side, including our acquisition pipeline.
Todd, I would add that, we certainly not – we don’t have an issue with credit rating. In fact, I would say that our credit profile continues to improve as our revenue composition quality improves, as we continue to pay down our secured debt. So, I think that we’re in a good place and we continue to improve.
Okay, thank you.
Thank you. Our next question comes from the line of Chris Lucas with CapitalOne Securities. You’re now live.
Hey, good morning, everybody.
Good morning, Chris.
Hey, Jason, given the news with Realty Income and obviously the increased attention that you guys are receiving based on the post CPA:17 side. I guess maybe if you could remind us the scale of the operation you guys have in Europe in the two main offices in their responsibilities and roles there?
Yes, sure. So, about a 3rd of our portfolio is in Europe, call that $6 billion or $7 billion. And as we mentioned, we’ve been over there since 1998 investing in Europe. It’s predominantly out of two offices, we’re investing out of London, it’s a team of 5 or 6 people, very experienced, all Europeans, who understand the culture in the markets and have deep relationships within the European markets. From an operational side, it’s based out of Amsterdam, it’s, call it 40 plus people based in Amsterdam with a host of ranges of responsibilities and job functions, asset management is focused there. We have a large team that really follows the same proactive approach that we do in the U.S., staying ahead of lease maturities and trying to find opportunities to continue to further invest in our properties through expansions and follow-on deals with our tenants. Again, all Europeans who understand those markets. And then the other functions we have there are really what you’d expect, we have financial reporting, treasury, tax, accounting all based within the office.
Thank you for that. And then I guess just one other question, just as it relates to deal sourcing, is there a material differences between sort of how you source deals in the U.S. versus how deals are sourced in Europe?
We’ve been in the U.S. for 50 years, Europe in 20 years. So, I think reputationally we’re very understood, lot of name recognition and a long history of track record of good execution. But the approach is similar, I mean, it’s relationship-driven through the different deal sources whether they are through developers, brokers, investment banks or directly with the tenants themselves, very much relationship-driven with a wide funnel given the diversification.
Great, thank you for that. That’s all I have this morning.
Thanks.
Thank you. [Operator Instructions] Our next question comes from the line of Greg McGinniss with Scotiabank. You’re now live.
Hey, hello again, I just wanted to get a couple of quick details actually from Sheila’s follow-up question. I know we asked about this a lot, but I was just hoping you could give us your updated thoughts on the self-storage platform, whether you expect to hold onto it or what your options are for offloading those assets and what that timeframe might look at?
Right, sure. Yes, we’ve talked about this in the past a little bit and really the message is similar. We remain focused on being a pure-play net lease REIT. So, we’re not going to own operating properties long-term and when we have something to announce on that front, we’ll let you know.
Okay, thanks.
Yes, sure.
Thank you. Ladies and gentlemen, at this time, I’m not showing any further questions. I would now like to turn the call back over to Mr. Sands.
Thanks everybody for your interest in W. P. Carey. If you have additional questions, please feel free to call Investor Relations directly on 212-492-1110. And that concludes today’s call. You may now disconnect. Thank you.