Market Overview

High-Yield REIT W.P. Carey Invests In UK Automotive Sector

High-Yield REIT W.P. Carey Invests In UK Automotive Sector

The single-tenant net lease REIT sector continues to be one of the top performing, high octane REIT sectors, when it comes to both total returns and high yields.

Along with W.P. Carey Inc (NYSE: WPC), top names in this sector trading at or near 52-Week Highs include: Realty Income Corp (NYSE: O), National Retail Properties, Inc. (NYSE: NNN) and Spirit Realty Capital, Inc (New) (NYSE: SRC).

Simple Business Model

The single-tenant triple-net business model is straightforward and easy to understand. REITs acquire (or build-to-suit) freestanding facilities leased to creditworthy corporate tenants. In addition to monthly rent, tenants pay: insurance, taxes and almost all of the maintenance.

Tale Of The Tape


This REIT sector has continued its strong performance in 2015.


However, the incredible short-term gains in Realty Income and NNN shares have resulted in dividend yields that are no longer as attractive to traditional REIT investors.


Spirit Realty Capital is still paying a competitive dividend, however, it has significant concentration risk in one U.S. retailer, Shopko, Inc. SRC has recently made moves to remedy that situation over time.

Related Link: This REIT Is Focused On Creating Long-Term Value

U.K. Automotive Acquisition Hits On All Cylinders

On January 28, W.P. Carey announced that it had acquired 73 retail automotive facilities for $365 million and leased them back to Pendragon plc.

Pendragon is the largest automotive dealer in the U.K. with 225 automotive franchises selling 26 brands across the country including: Kia, Ford, Range Rover, BMW, Mercedes, Aston Martin and Ferrari.

The 73 locations contain 1.6 million square feet, and are net-leased to Pendragon for an initial term of 15-years, including annual inflation based escalations.

WPC - Not Focused On U.S. Retail

  • The fact of the matter is that most of W.P. Carey's U.S. REIT peers, including Realty Income, NNN as well as Spirit Realty, are first and foremost focused on acquiring facilities and leasing them back to U.S. retailers.
  • Competition from other REITs, private equity and foreign buyers often results in cap rates being driven down on "cookie-cutter" fast food, convenience stores and corner drug stores.
  • W.P. Carey does not typically compete in that arena.

WPC - Differentiated Business Model

  • W.P. Carey is focused on mission critical facilities that it acquires or builds for a wide range of corporate customers including: office, industrial, R&D, etc. These facilities are often "one of" and underwriting them requires a higher level of sophistication.
  • W.P. Carey also derives fee income from managing and acquiring properties for its non-traded REIT portfolio.
  • Along with its diversified portfolio of U.S. assets, WPC has about one-third of its investments in the U.K., Europe, and Asia/Pacific.
  • When it comes to investing in retail, W.P. Carey CEO Trevor Bond prefers "higher barrier to entry" markets found overseas, where leases often contain uncapped inflation escalators.

Related Link: W.P. Carey: How 5 Acquisitions Can Tell A Compelling Story

Bottom Line

Investors looking for income have traditionally turned to the U.S. REIT sector. During 2015 YTD 10-Year U.S. Treasury Note yields have continued to decline, making it difficult for investors to find attractive investments.


The fact that the vast majority of W.P. Carey leases have rent escalators will help the company to grow its cash available for distribution moving forward.

The fees generated from the non-traded REITs are non-dilutive to shareholders and provide an additional source of cash flow to pay and increase dividends.

(Article image sourced from WPC press release)


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