W. P. Carey Inc.
Q1 2016 Earnings Call Transcript

Published: 4 Aug 2016

[Operator:]

Hello. And welcome to W. P. Carey's Second Quarter 2016 Earnings Conference Call. My name is Bob and I will be your operator today. [Operator Instructions] I will now turn today's program over to Peter Sands, Director of Institutional Investor Relations. Mr. Sands, please go ahead.

[Peter Sands:]

Good morning. And thank you all for joining for our 2016 second quarter earnings call. I'd 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. Also, an online rebroadcast 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 with that I will hand the call over to Mark.

[Mark DeCesaris:]

Good morning, everyone. And thank you for joining us today. I'm joined by the following members of our senior management team, Jason Fox, W. P. Carey's President and Head of Global Investments; Hisham Kader, our Chief Financial Officer; Mark Goldberg, who's Chairman at Carey Financial and heads up our capital raising for our investment management business; John Park, Managing Director of our Strategic Planning and Capital Markets group; and Tom Zacharias, our Chief Operating Officer. The second quarter was characterized by renewed focus on our day-to-day business. In particular, on the six key priorities, I have lined on our last earnings call, including considerable reengagement with our investors. Today, I'm pleased with the feedback we have received, whether it will be an ongoing effort and the one that we are committed to. On that note, I'd like to take this opportunity to say how proud I am from the focus and dedication I've seen from all of our employees as we execute on our business plan. For the 2016 second quarter, we generated AFFO per share of a $24 and $2.55 for the first half of the year. During the quarter, we raised our quarterly cash dividend to $0.98 per share up 2.7% versus a year-ago quarter. In equivalent to an annualized dividend rate of $3.92 per share. Based on yesterday's closing stock price, this represents an annual year of about 5.5%, and we maintained a conservative dividend payout ratio of 79%. We made progress towards our AFFO guidance, completing two investments for our balance sheet including a build-to-suit component and continued to execute on a disposition plan, the details of which Jason will discuss. We also made progress on the operational efficiency front, realizing G&A expense reductions. We remain focused on our balance sheet and utilized our ATM facility for the first time raising gross equity proceeds of 57.1 million since we started using under the ATM in mid-June, the details of which Hisham will review. Some of our leverage matrix was somewhat higher at the end of the second quarter, reflecting the fact that the timing of acquisitions and dispositions don’t always align perfectly. However, we expect our leverage to come down by the end of the years we execute our capital player. As I mentioned, we also embarked on extensive outreach program with both equity and fixed income investors in order to ensure access to capital markets and diverse gain our sources at capital. I'm currently spending about a quarter of my time engaging directly with our stakeholders and since our last earnings call, we have met in person at health conference calls with over a 150 investors. 70+ equity investors in New York, Boston, and Canada and 80+ fixed income investors in the US and Europe. Within investor management, the reclining constraints we value most continue to grow driven by our year-over-year growth and assets under management. We're also continue to make investments on behalf of the managed streaks, the timing of which may vary from quarter-to-quarter. And while we have the available capital, the actual timing of putting it to work is not always easy to predict but will eventually be invested. We also continue to raise capital for CWI 2 in our BBC, even has the industry adapts and regulation. And we made further improvements to our supplemental disclosure. Reorganizing and enhancing some of the information on the investor management fees we generate. Finally, just a few comments about on international exposure. We have a relatively small UK portfolio and both our UK and Europe exposure are appropriately hedged. So, we expect minimal impact on our financial results which Hisham will address in his comments. What I would say is that while the lead up to the Brexit referendum kept a lot of business on the side lines. Historically, we see some of our best wheels I times of uncertainty. And while there is nothing specific on the radar right now, we are seeing increased activity. And we might hesitate to invest in either region should the right deal come along. Before handing it over to Jason, I'd like to welcome Peter Farrell to our Board of Directors. Peter, who has many years of commercial real-estate and public read experience, joined our Board in June. And we look forward to working with him. And with that, I will turn the call over to Jason to discuss our earned real-estate portfolio and investment environment.

[Jason Fox:]

Thank you, Mark. And good morning, everyone. At the end of the second quarter, the companies owned real-estate portfolio included 914 net lease properties, covering roughly 93 million square feet, at least to 221 tenants. Weighted average lease term was 9.4 years, up from nine years at the end of the first quarter reflecting our commitment to enhance portfolio quality and extend lease term. And occupancy remained high at 98.8%. 99% of Annualized Base Rent or ABR came from leases with contractual rent escalations providing built in growth. And as you can see in a same store now which is provided in our supplemental, overall rents were close to 1% higher year-over-year on a constant currency basis. At quarter end, 64% of our annualized base rent came from our properties in the US and 33% from our properties in Europe. Although relatively small in a context of our overall portfolio, we thought would be helpful to briefly review our UK portfolio in light of the UK's decision to exit the European Union. At June 30th, we had seven tenants in UK generating approximately $35 million in ABR which is equivalent to 5% of the total. Almost 2/3rds of our UK exposure is comprised of a portfolio of 73 automotive retail sites net leased to Pendragon, which is the largest automotive retailer in the UK. Its critical real-estate for the tenants operations, representing about 1/3rd of its dealership footprint. Its relative diversified geographically, its well as being diversified across brands and price points, selling both new and used vehicles. In addition, to riding on site servicing and repairs. The portfolio has a long lease term with 13.6 years remaining, built-in escalations and strong site level van coverage. The remainder of our UK portfolio is primarily comprised of three high quality office buildings net leased to the UK government tax authority, a gas and electricity utility and an insurance company. Our UK tenants primarily serve the local UK market, a strong credit and have a combined weighted average lease term of over 13 years. In summary, our UK exposure is relatively small and we do not expect Brexit to have a significant impact on either our tenants operations or our net cash flows which are well hedged. In fact, as Mark noted, we've you any disruption in the UK real-estate market resulting from the Brexit go, as potentially creating attractive acquisition opportunities for us. Turning to our recent acquisitions. We've announced two acquisitions for our balance sheets so far in 2016, both of which I discussed in some detail on last quarter's earnings call. At the start of April, we entered into a sale lease batch with Nord Anglia to acquire three private prep schools for a $168 million. We also agreed to provide up to an additional $128 million and build the suit financing over the next four years to fund the expansion of existing facilities, which will effectively extend the overall lease terms of these assets up to four years past during the initial 25 year terms. Also in April, we close the sale-leaseback transaction for the acquisition of a 49 property industrial portfolio, with 43 properties in the US and six in Canada. For $218 million, with Forterra, a leading multi-national manufacturer of concrete and clay infrastructure products. Both of these acquisitions have attracted initial cap rates averaging in the mid 7's. With lease terms of 25 and 20 years respectively, they are also highly additive to the overall weighted average lease term of our portfolio, something that we are constantly focused on extending. As part of our active capital recycling program, during the second quarter, we disposed a four properties from our owned real-estate portfolio for total proceeds of a $160 million, bringing total dispositions for the first half of 2016 to $262 million. Including the year bit have closed since the end of the second quarter, this positions year-to-date total approximately $470 million. This includes a sale of an office facility in Sunnyvale, California, leased to AMD which was previously among our top 10 tenants by ABR. Approximately 96% of our year-to-date closed dispositions proceeds came from office buildings. As a result, we have reduced our office exposure as a percentage of ABR from 30% at the end of 2015 to below 25% today, including the recently closed AMD disposition. We continue to expect total dispositions for 2016 to fall in the $650 million to $850 million range built into our guidance, with a weighted average cap rate in a 7% to a 7.5% range. These cap rates, exclude our culpable assets which we are currently in active negotiations to sell, working towards the closing in the fourth quarter of this year. Turning to leasing activity, which relates to only a very small part of our overall portfolio of about 1% of ABR. Two leases were extended or modified during the second quarter. One was relatively small industrial property for which we recaptured 100% of the existing rents. The other with the FedEx World Technology Center in Collierville, Tennessee, a 390,000 square foot office campus with four years remaining on its lease. After years of rent escalations that outpaced the market, contract rent was well above market rates, in contrast to the leases renewable option at 95% of fair market value. In return for a rent reduction and moderate tenant improvements, we obtained a 25 year lease term with annual rent bumps to an investment grade tenant. We view this as the optimal outcome for this asset and one has meaningfully increased its NAV. Separately, during the second quarter, we entered into three new leases with a weighted average lease term of 16.3 years, which was added to the overall weighted average lease term of our owned portfolio. Turning to our upcoming lease expirations. As shown in our supplemental at June 30th we had six leases expiring in the second half of 2016, representing 1.3% of total ABR. The majority of which has already been addressed by our asset management team. We have 15 leases expiring 2017, representing 3.7% of total ABR and 26 leases expiring in 2018, representing 5.6% of total ABR, which is primarily look out for. Including AMD, about three quarters of our 2017 expirations have now been addressed. Similarly, including the anticipated car for sale later this year, we expect approximately 2/3rds of our 2018 expirations to be addressed by the end of this year. So, as you can see we are usually successful in addressing lease expirations two to three years in advance of the actual expiration date. Lastly, our briefly review of the acquisition environment. As has been the case in recent quarters, net lease in the US remains very competitive with widely marketed deals continuing to attract aggressive bidding. Other some evidence of a modest uptake in cap rates across the net lease market generally, we are seeing a more noticeable increase within the markets we traditionally target. For example, we estimate the cap rates for the deals currently in our pipeline have moved up 25 to 50 basis points, compared to where a might have been three to six months ago. In Europe, cap rates continue to be on a downward trajectory in both primary and secondary markets. Although, attractive investments with adequate spreads remain available given the reasons lower cost and debt. While we see growing competition in Europe, our established presence and reputation for reliable execution continues to give us access to attractive deals that are not heavily marketed. In contrast, we have seen moderately rising cap rates in the UK, in the aftermath of the Brexit both primarily among high profile UK properties being sold by funds based in increased redemptions. And with that, I'll hand it over to Hisham to review our financial results.

[Hisham Kader:]

Thank you, Jason. And good morning everyone. As Mark mentioned, for the 2016 second quarter, we generated AFFO per diluted share totaling $1.24. Looking at a buy a business segment, own real-estate generated AFFO of $1.22 per diluted share up 5% from the 2015 second quarter, due primarily to additional lease revenues from both acquisition and contractual rent bumps on existing properties. Investment management generated AFFO of $0.02 per diluted share, compared to $0.15 for the 2015 second quarter. This decline was primarily driven by lower structuring revenues due to lower acquisition volume on behalf of the managed rates. This was partly offset by a higher asset management fees resulting from stronger year-over-year growth in assets under management. Importantly, both segments for year-over-year growth in their recurring income streams reflecting the underlying growth in our business. In addition, G&A expenses for both segments were lower compared to the 2015 second quarter, due to large part of the cost reduction effort we implemented in the fourth quarter of this year, as well as higher professional fee in the prior year period related to the implementation of a firm wide enterprise resource planning system. Turning to AFFO guidance and the progress we've made towards it. In this morning's release, we affirmed our 2016 AFFO guidance range of $5 to $5.20 per diluted share. Our AFFO guidance assumes acquisitions with W. P Carey balance sheet of between $400 million and $600 million. During the first half of 2016, we completed acquisitions totaling $386 million, and an addition entered into commitments to provide both the suit financing of $128 million. We are very comfortable with the progress we've made with acquisitions for our balance sheet. Our guidance how to assume dispositions from our owned real-estate portfolio of between $650 million and $850 million. During the first half of 2016, we completed dispositions totaling $262 million. And for the year-to-date period, three today, we have completed approximately $470 million. Lastly, we are maintaining our assumption that acquisitions completed on behalf of the managed rates will be between $1.8 billion and $2.3 billion, with roughly 50% to 60% for the CPA REITs and 40% to 50% for the CWI REIT. During the first half of 2016, we structured a new investment sterling $594 million on behalf of the managed REIT, including $240 million for the CPA REIT, and $354 million for the CWI REIT. And this quarter end, we have structured roughly $315 million of additional acquisition, bringing the total year-to-date through today to roughly $910 million dollar. As you know, investment volume does not occur evenly across quarters and also increases significantly to year-end. AFFO is also impacted by numerous other factors, such as the timing of dispositions and the size and timing of any capital rating. As the second half of the year progresses, and we have little visibility into cost factor, we will update our guidance accordingly. Given the recent declines in the Pound Sterling and the Euro in the aftermath of the UK's Brexit referendum, I would like to reiterate that we continue to expect FX movements to have a very minimal impact on our 2016 AFFO. As we enter the second quarter, approximately 5% of ABR was derived from leases denominated in Sterling and 27% from leases denominated in the Euro. We're always mindful of protecting our cash flows and dividends from foreign exchange fluctuations. Accordingly, the majority of both our Sterling and Euro denominated cash flows are hedged through a combination of a natural hedge as we created by having debt denominated in those currencies and derivative contracts under our active currency hedging program. Turning briefly to our capitalization and balance sheet. As Mark mentioned, in mid-June we commence issuing shares under the ATM offering program that we established last year. We issued a total of 840,219 shares at a weighted average share price of $68.74, raising a total of $57.1 million in gross proceeds or $56.2 million net of fees. Turning to our key leverage matrix. At quarter end, pro rata net debt to enterprise value stood at 37.7%. To early consolidated debt to growth assets were 51% and pro rata net debt to adjusted EBITDA was six times. The weighted average cost of our pro rata secured debt was 5.3% and our overall weighted average cost of debt was 3.8%. At the end of the second quarter, we had approximately $210 million of debt maturing in the remainder of 2016. Compared to total liquidity at quarter end, of $879 million, which includes cash and cash equivalents and the ongoing availability on our $1.5 billion credit facility revolver. The leverage and liquidity numbers that I just discuss, of course has it quarter end. So, it's important to know that that will not reflect property dispositions or issuance under our ATM program since that time. We are executing on our capital plan according to schedule. And as we close additional disposition schedule for the third and fourth quarters, we expect to further reduce our leverage by the end of the year. We remain committed to our unsecured debt strategy and during our pool of unencumbered assets as well as maintaining access to public capital markets of both the debt and equity which we continue to monitor. Before handing over to the operator for Q&A, I'll briefly review some of the key matrix investment management business. Investment capital inflows for the managed programs including DRIP proceeds and net of redemptions totaled $135 million for the second quarter. And we're primarily into CWI 2, our second lodging fund and CCIF our business development company. At quarter end, total assets under management for the managed programs was an $11.7 billion up 13% from $10.4 billion as of June 30, 2015. And with that, I'll hand it back to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Chris Lucas with CapitalOne Securities. Please proceed with your question. Chris, your line is live for question.

[Chris Lucas:]

Sorry, I had it on mute.

[Mark DeCesaris:]

Good morning, Chris.

[Chris Lucas:]

Good morning, I'm sorry guys. Jason, a quick question on the portfolio allocation. You made a conscious comment about the reduction in office exposure from 30% to less than 25%. Is that a goal of your of the companies and how are you thinking about where you would like office or just the general buckets to just sort of filter out to?

[Jason Fox:]

Yes. I mean, we're optimistic in our approach of how we look at new investments. I mean, certainly from and asset management standpoint, we're very focused on extending our weighted average lease term, improving creditcality as the buildings and reducing residual risk and I think a lot of the reason why you've seen us disposed some of our office assets I should say, the bulk of our dispositions have been in the office asset class, is trying to improve on those matrix right there, in particular the residual risk associated with those office assets. But there is no hard and fast target. I mean, we are opportunistic, we certainly like diversification and we'll always be cognizant of that but there's no hard and fast target.

[Chris Lucas:]

Okay, great. And then, I think, do you have a techno or a detail question. I'm just trying to sort of wrap our hands around our model relative to the results and one of the things that we're struggling with is that they were, if I go back to last quarter, there was a fairly significant run-up in lease revenues and then it sort of fell back down this quarter and then there were two other items that were pretty large delta's. One was related to taxes and the other one was related to the above and below market lease numbers. If you could maybe walk though maybe what we're seeing there, give us a little background on those please.

[Jason Fox:]

As your [indiscernible] lease revenues, I mean, that it's not just rental income, there are also GAAP related, I mean, not only that gross rate so, lease revenues in the last quarter was impacted by the cost transaction. So, we had below and above market lease in tangible assets that had to be accelerated to us, that's the primary reason for a relative, I would say in the GAAP lease in revenues line item. I think your other question was around taxes, right?

[Chris Lucas:]

Right, exactly.

[Jason Fox:]

And so same. So, tax orders impacted this quarter by a large impairment that we took in our financial statements for the [indiscernible] portfolio. And so that resulted in a write down of a differed tax liability, pushed us into a benefit position. And I'm sorry, I think that there are this third point that you were also looking at?

[Chris Lucas:]

Yes, just on above and below, the innovation item for this quarter.

[Jason Fox:]

Yes, same thing. Its [indiscernible] to the cash transaction where we had a spike in activity from an acceleration of the amortization in Q1 compared to this quarter.

[Chris Lucas:]

Okay, great. Thank you. And then last question, just as you mentioned the care for, just what progress are you making there on the disposition of that portfolio?

[Jason Fox:]

Yes. We're working toward the closing in Q4, we're not going to share any specifics on pricing until later once that's completed for competitive reasons but we're on it and we expect it to be closed by the end of the year.

[Chris Lucas:]

All right, thank you very much.

[Operator:]

Thank you. Our next question comes from the line of Paul Adornato with BMO Capital Markets. Please proceed with your question.

[Jason Fox:]

Good morning.

[Paul Adornato:]

Good morning. Hi, Jason, I think you said in your remarks that you noticed cap rates in the US for your product type that would be I guess larger transaction sizes, actually increasing a little bit. I was wondering if you could provide a little bit more detail, is that because of lower credit quality or is this just a repricing all else being equal of the same credits?

[Jason Fox:]

I think in the morning we talked, we are seeing across the board some increases. We are also finding a lot such steps in during direct sale stocks, which were the last year and a half two years, the bulk of what we have been doing have been direct sales stocks and especially more recently with portfolio companies, private equity firms. I think given the complexity of those types of transactions and the expertise required to underwrite and structure those transactions, we think that we are able to generate some outside returns relative to other similar Net-Lease properties or portfolios that trade in the secondary market. So, I think as of that we’re structuring more sale lease stocks, so little bit less efficient market than in terms of traded assets and certainly less efficient and what we do is the commodity Net-Lease market lot of the retail trades out there.

[Paul Adornato:]

Oh great and in your negotiations what are the some of the heartburns that you encountered in terms of tenant demands?

[Mark DeCesaris:]

So, I mean it’s the difficult stuff, obviously pricing is important to everyone, in many cases is timing, how short of a due diligence period and closing period, we can deliver upon, lease term is always has been negotiated we tend to fight for a longer lease terms and perhaps provide more flexibility in other areas where stock price is a little bit replacing in yield to walk in a longer lease term but it’s a big issue as you expect our details in leases that various transfer focus on were various private equity firms such as transfer position, change of controls, assignment of leases but they were pretty good in getting what we need in our leases for those new types of provisions.

[Paul Adornato:]

Okay. Thanks for that color and finally CPA 17 is nearing I guess, its liquidity event window and so was wondering I have realized this now your decision but was wondering if you have any visibility on what we might expect in terms of a liquidity has been from CPA 17?

[Mark DeCesaris:]

Yes, I think, as we said in the past that CPA 17 is approaching its natural liquidity pace and the directors in those funds have a lot of flexibility both in timing as well as options they pursue on that. We duly approached them and it’s something that we have evaluated a high level from time to time but ultimately that decision belong to those independent directors, as you probably seen many times we would be interested in those assets like any M&A deal, we would evaluated from the factors including strategic benefits impact on our overall portfolio metrics, impact on the NAV and FFO accretion dilution, so a number of factors go into that decision but ultimately at the end of the day it's a responsible I believe those directors to determine that.

[Paul Adornato:]

And thanks for that and related question I guess on the managed funds you mentioned as well slow down or digesting of the new regulations in terms of the new product sales I was wondering if you could provide a little bit more detail on is that because of the product that is being offered is not necessarily aligned with the new regulations or just lower appetite from retail investors?

[Mark DeCesaris:]

I am going to ask Mark Goldberg who is in that everybody to respond to your question from there.

[Mark Goldberg:]

Hi Paul, there has been a disruption and I would refer to it as disruption as opposed to a fundamental shift, it comes for two regulatory changes that I know you are familiar with 1502 and obviously the department of labor’s fiduciary role but the way we look at the marketplace is that it is bad at least from the non-traded equity side a bad $8 billion to $10 billion steady steep market for new capital and about $3 billion capital slow for the business development companies. If you go back about six, seven years that is the normal rate or a out-size years that we are on the upside 2014-2015, we don't think those are normal years but if you really look at it there hasn't been a performance change. There isn't the change in the need for income, or desire from FAs and their investors for our products. What’s happened is a regulatory shift and that's created a disruption. There is a lot of education that needs to be had by both the financial advisers and ultimately to the investors. There has to be new forms, new compliance controls in the broker-dealers and that's the disruption that's taking place today and why you see the market has come down some 55%-60% year-over-year in terms of sales but the fundamentals that we focus on brand our performance the need for income all there and in time the market will return to its historic norms. So we feel very confident in that none other fundamentals have changed relative to the need for these products.

[Paul Adornato:]

Okay, great, thank you.

[Operator:]

Thank you. Our next question comes from the line of Dan Donlan with Ladenburg Thalmann, please proceed with your question.

[Mark DeCesaris:]

Morning Dan.

[Daniel Donlan:]

Yes good morning Mark. Just had a couple quick questions here. number one, it looks like you need to do about $1.2 billion in the managed funds to kind of hit the low end of your guidance range call it 1.4, 1.5 to hit the midpoint in the managed funds. I am just curious how confident you guys are in hitting that that is something you might be realized it's you guys have done this before but you don't really have five months left in the year. So I am just curious with your thoughts on hitting this target range?

[Jason Fox:]

Yes sure. So, we are comfortable we can achieve the balance of our acquisition volume based in that range. In prior year as you have probably seen it's not unusual for our acquisition volume to be much more heavily weighted towards the second half really even the fourth quarter of the year as companies look to have real deadlines and that's really we excel and there is hard and fast deadlines and short deal closings. But of course it's always risk that at the end of the year those deals can take longer than you would expect and it could sweep past December 31, but we are going to get these deals done at this point we are comfortable we can do in this year. But we will update you as we get closer to that point.

[Mark DeCesaris:]

Dan, what I’d tell you still today we have closed about 910 million of that so we are roughly half way to the lower end of that guidance range but as Jason said ultimately the capital gets put to work we are going to do with the best deals what we see and the timing of those will be what it is whether that gets on this year into early next year ultimately we will recognize the benefits of that.

[Daniel Donlan:]

Okay. I thought that 900 million included what you did on balance sheet, but just put in the funds and that's a big take off. So you have done about you call it 300 plus million in the managed funds since the end of the quarter. Is that right?

[Mark DeCesaris:]

That's right.

[Daniel Donlan:]

Okay. That makes more sense. Okay and then just kind of curious on maybe question for Mr. Goldberg, but the CPA 19 that's been registered historically you guys have done a lot of these, when do you – when did these things kind of get up and running in terms of capital -- quality occupation period for these things?

[Mark Goldberg:]

So, historical move anything today within the process we are somewhere at the mercy of the process we go through at the SEC that's sort of the first step, we’re rather into that and based on somewhat of a historical point of view we feel we will be through that. It's not even in our control but sometime in the first part of 2017, so we will be able to re-introduce we hope our product our flagship product in 2017 beyond that there is the sign up of the broker-dealer community we are really benefiting a great deal from this current market environment with the slight to quality particularly as sponsor exit the business and there has been fair amount of that so I expect the sign up to be pretty quick on that front and so prospect today look good but again I have to question with subject to the timing and the comments of the SSC but I would feel more confident about CPA 19 as a sign-up and quick start up than any of the funds that we do.

[Daniel Donlan:]

Okay. That was really my next question and you already answered it. And just curious as it pertains to the hotel product that market has been quite volatile over the last year and half particularly the stock prices. Is there any thought process to potentially shut off those responds at some point in time? I realized you want to be buy hotels when other people aren't but in the past you have shut down your programs when we couldn't put money to work creatively just kind of curious how you look at the that in terms of the macro end if you start to get nervous about the economy do you stop putting folks into those, do you shut down the program? How do you guys look at that?

[Mark DeCesaris:]

I think, the strategy of the fund and how we execute in both CWI one and two and in CWI two is an offering has to be somewhat cautious about my comment but the strategy is a value edged strategy, could be capital constraint by the seller. They could be over-leveraged. We could see a particular opportunity. Based on the pipeline that we see in working with Watermark Capital, we see plenty of opportunity on the horizon. That doesn't mean and said ultimately there is the fund extend or doesn't extend but today we look through March of 2016 as the current registration statement will expire. We will evaluate it then. We will make determination if there is an opportunity there, but I would point out that CWI one which is not in offering today has been one of the best performing funds as we benefit not just in our space not just from sort of the uptake in what we have had in terms of the hotel industry metrics, but because of value creation. So I think the strategy will be determinative in terms of the pipeline but we don't know whether there is going to be an extension of that offering or new offering we will evaluate that come to the end of the offering.

[Jason Fox:]

Good. What I would say is as you mentioned we are investment shipment fund so to the extent that we continue to see attractive investments and I know there is a lot of pressure out there about where we are in the hotel cycle. But we are still seeing it attractive investments today as long as we continue to see that we will continue to have product in that space as well.

[Daniel Donlan:]

Okay. That's helpful. And then lastly on the lease role it sounds like you guys have knocked out quite a bit in 2017 and 2018 we are just kind of curious and I am sorry if I missed this in prepared remarks what type of CapEx requirements if any that require you kind of get this lease extensions push through?

[Mark DeCesaris:]

Are you referring to the FedEx lease extension?

[Daniel Donlan:]

Yes.

[Mark DeCesaris:]

Yes. So I mean that's bit of unique situation and we had four years remaining on that asset. The criticality was a little uncertain at that point in time. Utilization was lower and the tenant was considering alternative. So we cut a new deal there round and advance of the expiration, we did give a rent concession obviously but we did get a new 25 year lease with an investment grade credit. We put in I think the commitment is $18 per square foot but that splits half in 2019 and then half 10 years later in 2029. So it's out quite a waste. I think the results is, I mean you look at the – you have a 25 year lease with FedEx and we think we have made a meaningful improvement in the asset value which translates into a incremental increase in our portfolio.

[Daniel Donlan:]

Sure. Sure. 25 leases are -- by these days. And I guess just lastly on the weight average lease term your – have seen there go below ten years and some now well above 10 and to 11 year range. We are just kind of curious, how conscious are you of this? Is this something that you think you can get above ten years? How do you – how are you thinking about that on the going forward basis? Is there all that you have in mind? Do you want stay at over the next five to ten years just kind of curious your thoughts there.

[Mark DeCesaris:]

Yes. I mean the goal certainly is always to try to extend the weighted average lease term. We look at that with new investments where we try the structure the best deals with the longest lease terms. Obviously just concession that you go further out and we take those in consideration on new deals. I mean certainly on the renewals and re-tenanting that's something we look at. We focus on TIs and what kind of lease term we can get and sometimes you will see us have a little bit more roll down in re-tenanting compared to others because we are focused on really pushing out that lease term and minimizing TI dollars. We get the ten years or longer I think a lot of that depends on the new acquisitions and how we treat each negotiation as leases expire.

[Daniel Donlan:]

Okay. Appreciate the thoughts.

[Operator:]

Thank you. Our next question comes from [indiscernible] with Bank of America Merrill Lynch. Please proceed with your question.

[Unidentified Analyst:]

Hey good mornings guys.

[Mark DeCesaris:]

Good morning.

[Unidentified Analyst:]

So you guys issued the ATM, on the ATM the first time on 2Q how should we expect to these going forward how do we view that?

[Mark DeCesaris:]

I think from my standpoint we will access the – we may access the equity or bond markets between now and the end of 2016 the details for size, pricing, timing all depend on the evaluation of the auctions and more we will think we will get the best execution. We wouldn't expect capital market issuance to take us outside of our existing range even if the result with a slight increase or decrease in AFFO but for us the decision comes down to looking at both the key metrics on our and balance sheet as well as our acquisition pipeline. And if we are comfortable with the acquisition pipeline seeing accretive investments we wouldn't hesitate to build up some dry powder whether those investments fall up in this year or next year regardless of our guidance range and if we feel that we did have material impact we would certainly let our investors know given the rationale behind why we are using it.

[Unidentified Analyst:]

Okay. Thanks. I guess more specifically is there a quarterly run rate you see yourself using the ATM for the rest of the year? And similar to what you did in 2Q or --

[Mark DeCesaris:]

Yes nothing specific as I said we view it more – it's an ongoing evaluation. We review more from the balance sheet and pipeline standpoint.

[Unidentified Analyst:]

Okay. Not sure I understood in the opening remark but do you have any acquisitions that are pending?

[Mark DeCesaris:]

Yes for the balance sheet you mean we have re firmed our guidance range as of 400 million to 600 million for the year so certainly there is a pipeline we are looking at opportunities and we are going to update you as we close this.

[Unidentified Analyst:]

Okay but nothing that close since 2Q?

[Mark DeCesaris:]

Nothing that it's closed since the end of Q2. That's correct.

[Unidentified Analyst:]

Okay. Thank you that's it from me.

[Operator:]

Thank you. Our next question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.

[Unidentified Analyst:]

So, it’s Michael, Mark I was wondering if you can walk through the two -- you did in CPA 17 the quarter the two on page 42 can you walk through just sort of the dynamics of why those went into the non-traded REIT versus on balance sheet? What were the costs of capital decisions? What were the cap rates? What sort of drove those there versus balance sheet?

[Mark DeCesaris:]

I think as we previously announced we will finish putting the capital to work for CPA 17 and 18 fiduciary to that this year to the extent of investments go on to our balance sheet it's either because we are satisfying some 1031 activity that we need to do or feel they are better suited for our balance sheet. Ultimately as we get through 17 and 18 we can now see CPA 19 at that point we will look to put deals on our balance sheet assuming they make sense and should they not make sense we will look to see if they make sense using the capital to CPA funds. So that's the strategy behind it.

[Unidentified Analyst:]

So these just went to non-trade and that may have capacity but won't even viewed for balance sheet depending on where you are putting the capital or accretive on balance sheet?

[Mark DeCesaris:]

That's correct. We had an obligation on CPA 17 was primarily in that lease fund we have capital to put to work for that and we will complete that and finish that off.

[Unidentified Analyst:]

As you think about the volatility that you had with quarterly results, and as you clearly coming from the non-traded business and creating clearly a headwind for the shares how do you sort of think about the net lease business as one off stability long duration yield driven that your company got this tail or as investment management business that creates a lot of discussions I guess do these quarters really make do get this volatility make you sort of re-question that you made back?

[Mark DeCesaris:]

As we have announced in our previous earnings call going forward as we come out in CPA 19 we are looking to putting the deals on our balance sheet. Our investment management business while won't decline will become smaller and smaller piece of our overall AFFO results, I think on six month period we are generating like 95% of our FFO from the lease business and roughly 5% from the investment management business. But as we look at the revenue streams that we value in that investment management business which are the asset manage and revenues based on a RIM that's a very steady flow of income for our business. That's not something we are looking to that has a tail on my mind or anything else. We like that source of capital we like the assets management revenues we generate from that and from my standpoint from the strategic position that gives us access to a capital source beyond our own equity in debt which is important in times of an economic downturn and allows us to continue to grow our business and grow our dividend for our investors.

[Unidentified Analyst:]

Your raised about $100 million in the non-traded platform in the quarter clearly there is a lot of things going on that probably get that little bit it sounds like the existing cash that you have left in fund plus the leverage capacity would sort of assuming no additional flows would get you to the high end of your acquisition guidance to the funds, I just want to make sure that’s correct. And then secondarily as we sort of think about 2017, I guess the capital is going to be depended on whether the new 19 comes out and you are able to raise capital to be able to put out and keep an acquisition guidance for next year that would be in the similar range to this year?

[Mark DeCesaris:]

So let me take the first part of your question first to give the available capital that hit our guidance range from an acquisition standpoint for managed funds. As we have said before which I have said is the investment premise behind and not hitting a certain number with guidance that money will be put to work whether it's put to work this year or next year but ultimately will recognize a benefits from that through [indiscernible] and increase assets management revenue fee. So as 2017 goes we will give guidance on that somewhere around the end of the year based on where our acquisitions once we have clarity on where our acquisitions are falling this year that will be combination of both acquisitions on our balance sheet using our own sources of capital as well as where we are in the process with future products for the investment management business.

[Unidentified Analyst:]

You talked about $20 million of annualized cost saving initiatives how much of that reflect in 2Q results?

[Hisham Kader:]

I mean, a good portion of it Michael this is Hisham, so the $20 million that we described was an annualized number a pretax annualized number and it was – but we see that as you can see compare this quarter to the same quarter last year it's coming through. We have achieved our reduction and some compensation. Two compensation and there are other reductions and compensation fees that we began to see in this quarter and we continue to see over the remainder of the year. So we are on track to achieving that target.

[Mark DeCesaris:]

That will be an ongoing process managing our cost structure to bring it to make sufficient as possible and achieve the scale as we grow the business.

[Unidentified Analyst:]

And from the remodeling standpoint if you would deduct that 24 this quarter how much seeding are in there that are not yet reflected that are coming in the back half that would let you achieve something in your guidance range?

[Mark DeCesaris:]

I would say, you can think of it around roughly at about 20%.

[Unidentified Analyst:]

20% to go?

[Mark DeCesaris:]

Yes and so no, sorry I mean 20% last quarter. The thing that we see compensation we all know occurs evenly over the course of a year but not these other discretionary non-compensation related cost, they occurred in 2015 that various times over the year and not smooth number and the same thing will be the case this year.

[Unidentified Analyst:]

Right. Mark can you talk you talked in the press release you took significant investor outreach to ensure continued access to capital markets and diversify you income your capital sources. Can you give a little bit of flavor of the types of capital sources you were meeting with over the course of the quarter obviously I know from the equity perspective you spent all the time institutional shareholders, but what other sort of capital sources would fall in to that and I was wondering if you could talk about how much time did you spend talking about the non-traded business versus -- and whether that was disproportionate of _ 10% of the company that it is.

[Mark DeCesaris:]

With both equity and fixed income investors both in the US, Canada and in Europe what I will tell you that I got receive from the majority of the meetings was positive. We still have some work to do as I mentioned earlier on the fixed income side primarily in Europe we have seen some increased activity in the bonds we have over there. Our spreads have tightened roughly 50 basis points since we conducted the outreach so I think that's a positive sign for us as well. So overall it's pretty positive. I talk about the business Michael, I don’t tend to talk about disproportionately our investment management from our real estate business from our net lease business. I talk about the businesses a whole because that's what our model represents for me. And what the advantage of -- and as I said I have been had some pretty good feedback on that as well.

[Unidentified Analyst:]

I just wonder whether you got more questions on the non-traded business relative --

[Mark DeCesaris:]

It is on the business overall most of it was on acquisition activity we see and our cost structures and our philosophy on how we run the business. Now we look investment and I think that's all positive.

[Unidentified Analyst:]

Last question. Just, there is common Hisham, like you made that you would update your guidance accordingly depending on volumes and other things would happen I the back half of the year and as is whether that was supposed to be a cautionary note that there is some chances that you may not hit certain restructuring revenues or acquisitions and [indiscernible] that your other things that are more volatile that either or no yet now where you could and you'll update low [indiscernible]. I just wanted to make sure I understood the context upon which you sort of said that comment.

[Hisham Kader:]

No, that's a good question. It's not intended to be cautionary. The strategy, our investments and acquisitions occur [indiscernible] over the course of the year. And then in our recent history, we've seen that runs up to at the end of the year and maybe even the fourth quarter. This is just to reiterate that point. That at risk stage, we are comfortable with our guidance change where they are, where it is. And as we get closer to the end of the year, we'll take another look based on how successful we've been in closing those deals.

[Mark DeCesaris:]

Yes. I would say dear Michael, is investments no matter where do they go on our balance sheet or on the balance sheet of one of our managed funds or an even. They're hard to predict the closing of especially when you're getting into the type of structuring that we do some of our net lease investments overall. We will never look to close investments just to hit a number. We're going to put the capitals the work in the best investment, so we see and whatever the timing to get the right structure, the lease requires that so we're going to put it into it. And it falls toward, falls from a timing standpoint, ultimately will harvest a value that over the long term. And that's how we view it and I think it's up to us to update or investors on how the timing of those investments work and what the impacted has on our results in any in both the short term as well as the long term.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

[Sheila McGrath:]

Yes, good morning. Most of my questions have been --.

[Mark DeCesaris:]

Good morning, Sheila.

[Sheila McGrath:]

Good morning, Mark. Most of my questions have been answered but specifically maybe this question is for Jason. On the Nord Anglia transaction or just in general. What kind of pricing premium would you get for a forward delta suit versus buying and just a regular in place net lease acquisition.

[Jason Fox:]

Yes. Some of it depends on how fast forward you're committing. I think in this case, it was all negotiated as part of the deal as a whole, to say a lease back and the delta suit. But generally speaking, it also certainly depends on what our expectations are on borrowing cost going forward. We'll look at the forward curve but we'll also take other things in considerations too. I would say generally to give you a number, it's probably 50 to 75 basis points, but it does depend on the asset and in this other characteristics that I mentioned.

[Sheila McGrath:]

Okay, great. And I think you touched on this but I just asked a different way. So, on the G&A, run rate of the all your cost initiatives, do you think there could be continued downward improvement on the G&A line item in the back half of the year.

[Jason Fox:]

So, we're always looking for ways to drive up operation efficiency and to type in our cost structure. But the number that we put out, the 20%, that is what we are targeting for this year. And that's what we expect to hit as well. But once again just to reaffirm, we're always looking at ways to manage our cost and drive it down.

[Sheila McGrath:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of David West with Davenport & Company. Proceed with your question.

[Mark DeCesaris:]

Good morning, David.

[David West:]

Good morning, Mark. My question goes to the impairment charge, the $35 million. Was that entirely related to [indiscernible] or any other assets impaired?

[Mark DeCesaris:]

Yes. It is entirely related at [indiscernible]. At the end of the quarter, when we review our portfolio and given where that asset is in its disposition state, we classified it as held for sale and that trigger a requirement for us to look t its value. And so, we noted down to our estimate of its fair value.

[David West:]

Very good. Thank you.

[Operator:]

There are no additional questions at this time. I'll like to turn the floor back to Mr. Sands.

[Peter Sands:]

Thank you, for your interest in W. P. Carey. If you have follow-up questions, please call institutional investor relations at 212 492 1110. This concludes today's call. You may now disconnect.