© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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.
Hello, and welcome to W. P. Carey's Fourth Quarter 2019 Earnings Conference Call. My name is, Jessie, 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, Director of Institutional Investor Relations. Mr. Sands, please go ahead.
Good morning, everyone. Thank you for joining us today for our 2019 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 with that, I will hand the call over to our Chief Executive Officer, Jason Fox.
Thank you, Peter, and good morning, everyone. Today. I will start by briefly reviewing some of the highlights of 2019, before focusing my remarks on a selection of our recent investments in the context of the market environment.
Toni Sanzone, our CFO will cover our 2019 results, our 2020 guidance and our balance sheet positioning, including the further flexibility we have gained with the renewal and upsizing of our credit facility. We are joined by our President John Park and our Head of Asset Management, Brooks Gordon who are available to take questions.
During 2019 we executed on a variety of important initiatives. Coming into the year, we were focused on fortifying the benefits associated with our merger with CPA:17 while taking advantage of opportunities to further enhance our portfolio and balance sheet and continuing to replace investment management fees with higher-quality lease revenue.
On the portfolio front, our weighted-average lease term continued to increase, while enhancing the quality of our portfolio, including lowering tenant concentration, reducing office assets and converting a large operating self-storage portfolio to net lease with investment grade rated Extra Space as the tenant.
Through our merger and a regular investment activity, we increased real estate AFFO per share by 8% year-over-year, which we feel particularly good about in the context of simultaneously reducing leverage and eliminating earnings from investment management.
Our balance sheet is stronger than ever and the quality of our earnings, EBITDA and dividend coverage all significantly improved in 2019 with investment management representing just 5% of total AFFO, the percentage that will continue to decline as remaining funds roll-off.
In the capital markets, we accessed a variety of channels raising a record amount of capital via the public markets. We prepaid over $1 billion of mortgage debt and achieved the lowest coupons and spreads in our history in both the U.S. and Euro bond markets while reducing secured leverage below 10%.
As a result of our strong execution on multiple fronts, we generated a total shareholder return of 29% and replaced on positive outlook by S&P. Most importantly, we believe our efforts will benefit shareholders not just in 2019, but over the long run as we complete the wind down of our investment management business and focus on delivering consistent and steady performance from our real estate portfolio.
Turning to the fourth quarter. From an investment standpoint, it was an especially active quarter, completing close to half of our 2019 investment volume, primarily into warehouse and industrial properties at attractive spreads to our cost of capital and that momentum has continued into the New Year.
The market environment in the fourth quarter was again defined by the competitive conditions that prevail throughout 2019, underpinned by low interest rates. In Europe, very low rates continue to spur capital flows into the region with increasing amounts of money chasing widely marketed deals.
The progress of Brexit helped renew interest in UK assets and the Nordic commercial real estate market had a record year for deal flow. In the U.S. industrial and logistics continued to be the most sought after property types and they have continued economic growth supported by low unemployment, low inflation, and the low cost of credit.
Throughout 2019, we continue to view sale leasebacks and off-market acquisitions as well as build the suits and other capital projects at the best ways to put capital to work on a risk-adjusted basis.
While the warehouse and industrial sectors presented the best opportunities in 2019, comprising close to 80% of our full-year investment volume. We maintained our diversified approach, completing investments totaling $868 million that span all major property types, across 55 properties, net leased to 29 tenants, operating in 14 different industries located primarily in U.S. and Northern and Western Europe.
During the year, we also creatively converted the bulk of our operating self-storage assets to net lease, adding further diversity to our net lease portfolio as well as a potential source of future net lease opportunities as operators look to take an asset light approach.
In 2019, we actively used our improved cost to capital to extend our investments into higher quality industrial and logistics assets, that traded lower cap rates. However, this did not displaced our ongoing focus on the broader opportunity set of net lease assets that we have traditionally invested in.
Namely, operationally critical properties, net lease to growing companies that fit just below investment grade, thereby providing additional spread and compelling risk-adjusted returns over long leases.
In aggregate, our 2019 investments were executed at an initial weighted-average cap rate of 6.7% and had a weighted-average lease term of 19 years. As anticipated, our 2019 investment activity was backend weighted with an especially active fourth quarter during which we completed $412 million in investments at a weighted-average initial cap rate of 6.3% in a weighted-average lease term of 20 years.
This included the completion of three capital investment projects totaling $44 million, bringing the full-year total for completed projects to $127 million, which represented about 15% of our total 2019 investment volume.
These are truly off-market transactions, enabling us to negotiate better terms compared to widely-marketed deals and create value to the lease structure itself. Such transactions not only provide a ready source of incremental deal flow given the size and breadth of our portfolio, they also add high-quality real estate at cost.
Let's go through a handful of more notable deals from the quarter. Our largest investment during the fourth quarter was the $94 million sale leaseback of a logistics facility, net leased to Stanley Black & Decker the widely known manufacturer of hand and power tools, which has an A rating from S&P.
The facility is located in the Greater Charlotte area and close proximity to key transportation routes. This is the tenant's second largest distribution center in the U.S. the triple net lease with 60 annual rent increases and has below market rent that provides potential upside at the end of the 12 year term.
In December, we completed a $56 million acquisition of an experiential retail store, net leased to Bass Pro Group, a leading provider of outdoor sporting goods in the U.S. and Canada. This is a true destination retail location that is been in operation for more than 17 years. It is triple net lease on a 24 year term with CPI base rent growth.
We remain selective in our approach to the retail sector and continue to focus on top-performing locations with strong coverage, where the tenant has a differentiated strategy, shielding it from e-commerce competition.
Earlier in the quarter, we closed a $53 million cross-border sale lease back for three industrial facilities net leased to Apex Tool Group, which is one of the largest producers of high-performance tools.
Two of the facilities are located in the U.S. and one in Mexico, all of which are critical to the company's global operating footprint. The properties are leased on a triple net basis in U.S. dollars for a period of 25 years with fixed annual rent escalations.
The last one I will mention is the $38 million sale lease back we closed in November for two logistics facilities in Denmark and Sweden. Net leased to Stark Group, which is the largest supplier of building and construction products in the Nordic region. Both assets are strategically located with easy access to major highways and shipping routes. They triple net leased for a 20 year term with annual CPI base rent escalations.
Our 2019 investments in conjunction with our proactive approach to asset management also improved the quality of our portfolio across many key metrics. ABR generated from warehouse and industrial properties increased to 45% of ABR, while ABR from office was reduced to 22%, compared to 25% a year ago.
We increased the proportion of ABR generated by investment grade tenants to 30% and further reduced our top 10 tenant concentration to 22%, which remains one of the lowest in the net lease peer group.
We also extended the portfolio of weighted-average lease term to 10.7 years, which is six months longer than it was a year earlier, despite the passage of time and edged closer to full occupancy ending the year 98.8% occupied.
Looking ahead, we expect market environment to remain competitive in 2020. The Central Banks both in the U.S. and Europe signaling their intention is to keep rates low. Brexit has made some meaningful progress in fears of a trade war with China have eased somewhat. However, the impact of the Corona Virus on global growth and supply chains has become an unknown.
Over the long-term, we believe the market opportunity for net lease remains best. Our diversified approach enabled us to invest across property types and on two continents, and our cost of capital allows us to do so accretively supported by established access to the capital market and a well position balance sheet with example liquidity to execute on our investment pipeline.
As I mentioned, the transaction momentum we saw in the fourth quarter has extended into 2020 year-to-date we have added $206 million of investments comprising two close acquisitions, totally $139 million and three completed capital projects totaling $67 million.
We also have an additional six projects totaling $176 million scheduled for completion by the end of this year. So we currently have good visibility into about $380 million of investment volume for 2020 and a healthy pipeline of additional new investments an excellent position to be in this early in the year.
And with that, I will hand the call over to Toni.
Good morning everyone. As Jason said, we are very pleased with the progress we made on several fronts in 2019 and believe we are well positioned for the year ahead given our current outlook.
Starting with our results. As a reminder, our 2019 results reflect the full-year impact of the merger with CPA 17 which significantly improved the composition of our earnings with 95% of total AFFO generated by our core real estate business.
As our investment management fee stream decline overtime, we are actively replacing them with more highly valued and steady real estate cash flows. We were pleased to generate 8% year over year growth in real estate, AFFO per share while at the same time significantly the leveraging and strengthening our balance sheet.
Total AFFO for the fourth quarter was a $1.28 per share bringing full-year AFFO to $5 per share, a decrease of 7.2% driven by the expected decline in investment management earnings. AFFO from real estate total the $1.21 per share for the quarter and $4.74 per share for the full-year an increase of 8% over the prior year.
Driven by substantially higher lease revenues from the properties we acquired in the CPA:17 merger as well as our net investment activity and strong same store growth. Real estate AFFO in 2019 also included two significant lease related settlements and recoveries totaling $16 million which we discussed on prior calls.
As Jason discussed, our fourth quarter investment volume totaled $412 million representing close to half of our full-year total of $868 million and because the majority of investments closed near the end of the quarter, they had minimal impact on the fourth quarter and full-year earnings.
Disposition activity was also largely backend weighted driven by the New York Times repurchase at the start of December. During the fourth quarter we disposed of 12 properties for $348 million bringing full-year dispositions to $384 million.
Since the end of the year we have closed the sale of an operating hotel in Miami for $115 million, leaving us with just one remaining operating hotel, which we expect to sell over the next year. Our 2019 occupied dispositions were executed or weighted average cap rate of 7.8% excluding the New York Times, which we view as an outlier given its fixed price purchase option.
Other dispositions during the fourth quarter included six retail properties and one educational facility which were vacant and transfer back to the lenders, thereby eliminating their associated carry costs.
ABR increased 5% year-over-year, driven by our 2019 net investment activity, the conversion of self-storage assets, net lease and solid year-over-year contractual rent escalation. Same-store rent growth as we define it was 2% which represents an average contractual rent increase written into our leases.
As many of there has been growing interest for net lease REIT to disclose the same-store growth metrics. That includes the impact of leasing activity, vacancies, and credit losses. Incorporating the impact of those factors, we have reduced our same-store rent growth by about 100 basis points and it is something we will look to add to our supplemental disclosure going forward.
From a re-leasing perspective, we had an active fourth quarter executing 15 lease renewals and extensions, representing 2% of ABR. A portion of this is related to the lease restructuring of four manufacturing facilities, which we discussed on our last earnings call.
As anticipated, that restructuring included an initial rent reduction from $5.4 million to $1 million, but will steadily grow to $2.4 million by year four of the lease. This roll down more than offset positive re-leasing spreads on several office and warehouse properties. In aggregate, our re-leasing activity recaptured 89% of the prior rent and added seven years of incremental weighted-average lease term.
Given the variability in this metric from quarter-to-quarter, internally we look at it over the trailing eight quarters, over which timeframe we recaptured 97% of the prior rent and on a weighted-average basis added 7.7 years of incremental lease term, while only spending a $16 per square foot on tenant improvements and leasing commissions.
For new leasing activity, we entered into 11 new leases on existing properties, with a weighted-average lease term of 17 years. This included leasing approximately one million square feet of roof space for the installation of solar panels on a recently expanded logistics facility we own in the Port of Rotterdam in Netherlands.
This will generate additional lease revenues without any additional investment on our part. Given the opportunity set provided by the size of our warehouse and industrial portfolio, we are actively looking to replicate these leasing opportunities, which also serve to further our ESG initiatives.
Moving to our capital markets activity and balance sheet. We continued to have access to a variety of capital markets in 2019. In total, raising $1.4 billion of well-priced long-term and permanent capital. We accessed the U.S. dollar and Euro debt capital markets in June and September, respectively, raising approximately $900 million through unsecured bond offerings.
Net proceeds from these offerings were primarily used to reduce the amount outstanding on our unsecured credit facility and to repay higher yielding mortgage debt, further advancing our unsecured debt strategy.
In the fourth quarter, we paid down $324 million of mortgage debt, bringing the total for 2019 to $1.3 billion. As a result, secure debt as a percentage of growth assets was effectively cut in half during 2019, ending the year at 9.7% unencumbering an additional $180 million of ABR in the process. As a result, at the end of 2019, 73% of total ABR was unencumbered, up from 53% at the start of the year.
Our 2019 bond issuances had weighted-average interest rate of 2.3%, which is well below the 4.8% weighted-average cost of the mortgage debt we repaid, creating significant interest savings in 2020 and beyond.
In addition to our ATM program, we raised $523 million of equity capital in 2019 at weighted-average price of $79.70, all of which completed earlier in the year as no ATM activity was issued in the fourth quarter. We ended the year with net debt-to-adjusted EBITDA of 5.4 times and debt-to-gross assets of 40.3%, reducing overall leverage from 5.8 times and 42.8% a year ago.
Since your end, we have amended and restated our senior unsecured credit facility, increasing total capacity to $2.1 billion, of which $1.8 billion is a multi-currency revolving line of credit in addition to £150 million Sterling term loan and in $105 million equivalent multi-currency, delayed draw term loan, all of which mature in five years.
The increased size and improvements in pricing duration and other terms reflect the significant progress we have made over the last several years executing our business strategy and the strong demand in the bank market for our credits.
As such, we are starting the year with an extremely well positioned and strong balance sheet with ample liquidity, ensuring we have significant flexibility in funding our acquisition pipeline and allowing us to continue accessing the capital markets opportunistically.
Turning now to guidance for 2020, we expect to generate total AFFO of between $4.86 and $5.01 per share, including real estate AFFO of between $4.74 and $4.89 per share. Our guidance assumed investment volume of between $750 million and $1.25 billion, which includes capital investment projects we expect to complete during the year.
Regarding the timing of 2020 investments. As Jason mentioned, we have closed $206 million of investments already this year reflecting continued momentum from an active fourth quarter and we have an additional $176 million of capital investment projects scheduled to be completed in 2020 with expected completion dates for each provided in our supplemental. Based on our experience, our guidance also assumes investment activity not currently in our pipeline is likely to be more weighted towards the end of the year.
Disposition activity for the year is expected to fall between $300 and $500 million. This includes the $115 million sale of an operating hotel which closed in January as I previously mentioned. From a forecasting perspective, it is important to note this hotel was running your breakevens, so its sale will not have a significant impact on 2020 AFFO.
As expected, our investment management earnings will continue to decline with the pending merger and internalization of the CWI lodging funds. We currently expect the transaction will close at the end of the first quarter subject to shareholder approval at which time we will receive an estimated $32 million of common stock and $65 million of preferred stock in the combined company, which we anticipate will carry a 5% dividend.
This is in addition to the approximate $100 million of common stock we currently are in the CWI funds. At the same time, we will see sterling asset management fees and profits interest in the funds and will no longer pay stub advisory fee.
On the expense side, we expect total G&A for 2020 to fall between $80 million and $84 million. This includes certain onetime expenses of about $4 million in 2020, as we transition to a new headquarters office later this year. In addition, we expect to absorb the cost of previously shared platform costs as the reimbursements we received from the CWI funds for transition services wind down over the course of the year.
To give some additional context on our 2020 expectations, in relations to this year's results. AFFO for 2019 included significantly higher lease termination and other income than we expect in 2020, primarily as it relates to the two larger lease related recoveries, the total $16 million in 2019.
Similarly, in 2019, we recognized certain income tax benefits totaling over $5 million, which reduced our cash tax expense to about $20 million on an AFDO basis. Based on our current visibility, we would not expect similar benefits in 2020 thereby increasing our cash tax expense.
Lastly, we expect interest expense to decline significantly in 2020 resulting from the full-year impact of last year’s capital markets activity, which reduced our cost to debt to 3.2% at the end of the year. While we don't provide specific guidance on capital markets activity, our guidance range assumes we run our balance sheet leverage-neutral on a debt-to-gross assets basis.
In closing, our balance sheet is stronger than ever with low leverage, ample liquidity and well-established access to various forms of capital. We are pleased with the early momentum we are seeing with the investments we have already closed to-date and how our pipeline is building.
As Jason noted, we have good visibility into about $380 million of 2020 deal volume through investments that have already closed and capital project scheduled for completion by the end of the year, and with the expected closing of the CWI merger at the end of the first quarter, we will further simplify our business moving incrementally closer to generating 100% of our earnings from real estate.
And with that, I will pass the call back to the operator for questions.
Thank you. [Operator Instructions]. Our first question comes from Sheila McGrath with Evercore. Please proceed.
I guess I was wondering, if you could give us insights on the same-store NOI for self storage, which was particularly strong. Are all those properties leased properties, just what was driving that growth participation in the leases?
This is Brooks. The vast majority are net leased in the Extra Space transaction. We have 10, that are currently operating properties and another nine that are scheduled to be added to the Extra Space lease, and the same-store performance is really just embedded in that portfolio. Those are in markets that have seen a good rent growth.
So for example, in the 10 that we have retain as operating properties for example, doesn’t seem very good growth north of 10% NOI growth and on the net lease those are subject to a long-term rent growth formula where there is a fixed component and a variable component based on revenue growth. Also just New hall has a bump in there as well, and that is a big piece of the puzzle.
Oh, that is right. And then on the leasing spread on industrial being negative, was there one deal that was doing skiing - that. Just a little color on the leasing spreads in industrial.
Yes. That is very much just driven by that one workout that Toni mentioned in her opening remarks. So, if you backed that out, leasing spreads were quite strong this quarter, kind of in 112% range, but that one workout transaction on four industrial properties really drove that.
Okay. And last question, if you could just comment on tenant watch lists, how that is tracking and if there is any notable tenants you want to call out for us to be mindful of?
Sure. Our credit quality is quite good right now, heightened watch list is under 2% of ABR. In terms of any concentrations, there aren't really any industry trends in there. It is just a mix. Again, we closely monitor all tenants and are quite cautious and willing to downgrade on to our watch list quite proactively. So, we think that is a safe ways to look at and one we feel pretty good about. So, no real concentrations or particularly notable ones.
Okay. Thank you.
Thank you. Our next question comes from Greg McGinnis with Scotiabank. Please proceed.
Hey, good morning.
Good morning Greg.
Toni I was just hoping you could help us think about for the acquisition guidance, kind of what the underwriting assumptions on there? Whether it is cap rates or investment spreads?
Hey Greg, this is Jason. I will take that. I'm sure. So in our guidance, we talked about acquisition range of 750 to a billion and a quarter of new investments. I think embedded in that, we have seen some cap rate compression over the year both in the U.S. and Europe. If you look at our Q1 deals to-date the $200 million we referenced earlier across five investments, both new investments as well as capital projects, those blended to around a 6.5% cap rate.
Hard to predict the full-year of where the markets will go and where the opportunities will arise. But I think that is probably a good run rate for you to think about on the year. It is come down a little bit from the mid to high sixes that we were for a blended cap rate in 2019 and I think that is reflection of two things.
One is we have seen continued yield compression, but I think equally important, we are kind of broadening the types of deals that we look at. We are still focused on what we have traditionally done, which is sale leasebacks, critical operating properties where we generated above market yields.
But we are also adding higher quality real estate, that may trade at lower cap rates, may have higher embedded growth or better releasing outcomes at the end of the terms. You the Stanley Black & Decker would be a good example of that. So, I think those two components really are kind of driving the slight cap rate compression at least how we are seeing the year unfolding.
Thanks. And then, I know you talked about this a bit previously, so I apologize if this was covered, but on the capital investment side where you are looking to deliver almost a quarter billion of projects in 2020. Do you see this as a reasonable expectation for deliveries going forward? Just kind of curious what you see as the - how deep is this pipeline within the current portfolio of potential investment projects and then what is the process for sourcing more?
I will start, I will see if Brooks wants to add some color. Yes, so 2018, 2019, we about 10% to 15% of our deal volume with these capital investment and development projects that also include build to suits by the way.
This year you heard the numbers that we just talked about, we expect that to double in the 2019 numbers we are expecting about $240 million of investments that are scheduled to complete this year. Again, both build to suits and expansions. Some of those have already completed two to date.
We also have another $130 million in our supplemental that are expected to complete in 2021. So hard to predict as always, but I think a good run rate is probably in that 20% to 30% range. It is become a big focus of our investment management team.
We have the skill set to identify and attending relationships. We also have a sizable pool of assets, and particularly, the industrial assets that tend to lend themselves quite well to expansions.
I mean as we have talked in the past, we are putting more money to work, but we are also putting money to work at higher yields. We are extending lease terms when we are doing expansions. It is higher quality real estate, and we are also adding criticality of the portfolio given that we are building or expanding to a tenant's current specs and needs.
So, a lot of positives that come out of that type of investment. And I think you will continue to see a focus and, and hopefully a growing portion of our annual deal volume.
Great. Thank you.
Thank you. Our next question comes from Jeremy Metz with BMO. Please proceed.
Hey guys, good morning. Question for Jason or maybe Brooks here. But I was hoping we can get any sort of update on the Pendragon situation if you are having any discussions there about potentially restructuring those leases and that is something we need to keep an eye out for possible here in 2020. And just as a follow on the Pendragon property count went down and sounded 69 now, but I didn't see a sale listed on the disposition page. So, any color on that would be great as well.
Sure. This is Brooks. I will take that. On that specific question, we just went direct with a tenant that was formerly the subtenant. So, we still own the property. But, that was a good outcome for going direct with a sub tenant that was already in place.
And then with respect to Pendragon more broadly, we think the company has made a lot of progress, especially in the second half. A lot of their actions are bearing fruit. Those include hiring a very well-regarded new CEO, substantially reducing costs, but really the biggest driver of their turnaround and the biggest cause for some of their challenges was just way too much inventory, and they drastically reduced that by close to 30% and are in much better place.
I think that is in the context of a very conservative balance sheet, certainly industry headwinds, and their competitors share of those headwinds, but we don't view this as a default risk. We have over 10 years of weighted-average lease term. There is no intention to restructure that deal, nor do we foresee a need to. So, you know, we think the company is in a good place now. Certainly industry headwinds, but they are well-positioned on recovery.
That is helpful. And then, Toni, I appreciate the added color you gave on the same-store. You mentioned that including vacancies and credit loss, it would have had about 100 basis impact. Not sure if you have interested in what that would have been in terms of impact for the full-year. How much of that was credit loss versus vacancy, and just as you think about credit loss in 2020 any sort of color on what you are forecasting here, even if just relative 2020 verse 2019.
So, this is Brooks. In terms of credit losses. We make assumptions that are baked into our guidance. I don't have the specific percentage right in front of me. But in any given year we are always assuming some portion of credit loss. Our expectations, historically that we actually perform better than that.
You know I will say with respect to the drag on same-store, 100 basis points is a good a placeholder and we intend to disclose more of that going forward. I think our real world experience in recent years has been somewhat better than that. And so, we do think that is a good placeholder for the moment and you will see more disclosure from us on that in the future.
And now 100 basis points that is both mix of credit loss and vacancy impact, right? So, should we think about that half-and-half or is there any sort of rough ballpark.
Yes. I think the rough ballpark I think half-and-half is probably a good assumption, you know for example that workout that I just mentioned and Toni mentioned certainly plays into that number.
Great. Thanks guys.
Thank you. Our next question comes from Emmanuel Korchman with Citi. Please proceed.
Hey, good morning everyone.
Good morning.
Just maybe once for Toni. Does dispositions, can you talk about the timing and expect yield from those throughout the year.
For the upcoming year or what we have experienced?
For the upcoming year.
Sure. I mean I think the timing is well spread at this point in time. I don't really see any significant waiting. I mean, I think the pipeline is, it is something we actively work on. Brooks, can you give some color on the, just the breakdown of how we are looking at that?
Yes, so obviously we have announced, one transaction which was already closed, which was the operating hotel. the disposition pipeline. It is pretty evenly spread over the year, but historically that has tended to slip closer towards the end of the year, but we do expect it to be pretty well spread out from a deal makeup perspective, 40% of that expected disposition volume is what we call non-core.
Again, the vast majority of that being that operating hotel and minimal vacant assets sales kind of about 5% to 7% of that with the balance kind of roughly split between residual risk management and opportunistic sales it is about 60% international, 40% U.S. and pretty evenly split across property types.
Great, thanks. And Jason going back to a comment you made. You said that you are sort of maybe broadening the types of properties you looked at. You pointed out the Stanley Black & Decker deal. Does that then put you in a situation where you are competing with a different competitive set of other investors and how do you think that your cost to capital on your sort of operating advantages versus theirs, when you are operating in different asset category?
Yes, I mean on the margin, there probably are some different competitors that will compete against, especially as you get into higher quality, more in-fill or Tier 1 markets. You know I think where we differentiate ourselves in a lot of those deals is our ability to execute.
The focus is still going to be on sale leasebacks, we can drive some yield relative to what the market typically bears you know to the extent there is complexity on print structuring that will play well into us.
But our cost of capital has gotten stronger and we can do deals like the Stanley Black & Decker deal that is a kind of well below a 6% cap rate instilled January sufficient spread to our cost to capital.
You know we are not going to win all those deals of course, but we do have very good relationships within the net lease community. You think we will get first look and last look at a lot of these and that is an advantage to us as well.
So, again, we look at that as more incremental to our deal volume. We are going to continue to focus and do lots of deals in the traditional space where we can generate, cap rates of North of 6% and even North of 7% in some circumstances.
Great. Thank you.
You are welcome.
Thank you. [Operator instructions] We do have an additional question from Sheila McGrath with Evercore. Please proceed.
Yes, Jason, I saw an article in Cranes that you guys were thinking about doing something new in Chicago maybe redeveloper expanded a building at Clinton Street. I was wondering if you could just give us some information on that opportunity?
Yes, sure. I mean, it is a great asset that we have owned for a while. I will let Brooks gives some color on, on what our possibilities are for that asset.
Sure. So it is an office asset in the West Loop in Chicago. It has a way below market rent and the tenant doesn't have any renewal options. So, we have a excellent opportunity to push economics there. We also own a parking lot directly adjacent. And so, the article I believe you are mentioning , references the planned expansion that we are working on for that site. It is early days, but it is a very, very good opportunity with an extremely attractive site. And so, hopefully you will hear more about that soon.
Okay, great. And that is currently not in the investment in the supplemental correct?
No. It is not.
Okay. Thank you.
Thank you. At this time, I'm not showing any further questions. I will now hand the call back to Mr. Sands.
Great. Thank you. Thank you for your interest in W. P. Carey. If you have additional questions, please call investor relations on 212-492-1110. That concludes today's call. You may now disconnect.