On Friday, W. P. Carey & Co. (NYSE:WPC) received a Neutral rating from UBS, with a set price target of $57.00. The firm's outlook on the real estate investment trust (REIT) is based on the anticipated challenges in growth due to the current high interest rates affecting its diversified Triple Net lease portfolio.
W. P. Carey, which is known for its diversified portfolio of properties under long-term net leases, may see some near-term benefits from its nearly $1 billion in cash and proceeds from 1031 exchanges. However, UBS notes that the company's current implied capitalization rate, estimated at 6.8%, could pose difficulties for future accretive acquisitions, especially with acquisition targets yielding around 70 basis points spreads.
The analyst also highlighted the positive impact of W. P. Carey's recent Office portfolio spin-off, removing a perceived obstacle for the company's shares. Despite this, the firm acknowledges the potential for ongoing tenant credit issues, evidenced by a watchlist that currently stands at 5% of annual base rent (ABR), compared to a historical range of 2.0% to 2.5%.
UBS projects that W. P. Carey's adjusted funds from operations (AFFO) will grow by 1.6% by 2025, placing it at the lower end compared to its peers, which average a growth rate of 4.0%. The valuation, according to UBS, already reflects this subdued performance forecast, with W. P. Carey trading at a 100 basis points discount below its five-year average discount to the Triple Net subsector average of 8%.
Given the uncertainties surrounding the company's growth algorithm, UBS expects the stock to remain range-bound in the near term. This neutral position reflects a cautious outlook on the company's ability to navigate the current economic environment while managing its portfolio effectively.
InvestingPro Insights
In light of the recent analysis by UBS, current data from InvestingPro offers additional insights into W. P. Carey's financial health and market position. Notably, W. P. Carey has demonstrated an impressive gross profit margin of 92.06% over the last twelve months as of Q1 2023, which underscores the company's efficiency in generating profits from its revenues. Additionally, the company's valuation implies a strong free cash flow yield, which could be an attractive point for investors seeking cash-generative businesses.
Moreover, W. P. Carey's commitment to returning value to shareholders is evident in its track record of maintaining dividend payments for 27 consecutive years. This consistency is complemented by a high dividend yield of 6.17% as of the most recent data, which may appeal to income-focused investors. With a market capitalization of $12.27 billion and a P/E ratio of 24.04, the company's financial stability is further highlighted by analysts' predictions that W. P. Carey will be profitable this year, reinforcing the company's solid performance over the last twelve months.
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