W.P. Carey exploring a breakup

W.P. Carey Inc., a publicly traded real estate investment trust, is exploring breaking up into three separate businesses.
The company announced in an earnings call on Tuesday that it was actively exploring the option of creating three businesses: a U.S. net lease REIT that would own and manage domestic commercial properties, an international net lease unit and an asset management company to create nontraded REITS and other alternative investment products.
“We are actively exploring their potential separation and the ability to create long-term value, by allowing each to pursue distinct business strategies and what we believe would be superior opportunities for growth,” said CEO Trevor Bond, on the conference call. “Our review is well under way, and we feel we have good visibility into the fundamental issues involved.”
Right now, the company is essentially a hybrid, operating both as a REIT and a manager of nontraded REITs. Last year, W.P. Carey said it was retreating from selling nontraded REITs that focused on net lease real estate, its bread and butter for years. Instead, it was focusing on lodging and self-storage commercial real estate, as well as looking for opportunities in Europe.
(More: Nontraded REIT heavy weight W.P. Carey retreats from net-lease real estate)
Mr. Bond declined to comment several times on the call when analysts asked about the details of the company’s restructuring.
“The bottom line is we don’t know what it will look like,” said Paul Adornato, an analyst with BMO Capital Markets. “There are many questions about how much G&A — general and administrative — expenses each potential entity would bear. If you don’t know that, it’s very tough to come up with an estimate of the value of each component of the company.”
Mr. Bond said details of the potential change in the company’s structure would be forthcoming, particularly regarding issues such as taxes, regulation and legal matters.
There was an upside to the potential separation.
“We believe that separation would provide for a more focused and simplified structures that would be easier for investors to understand,” Mr. Bond said. “We think that aligning each platform with sector specific shareholders is desirable and that we could achieve a cost of capital most appropriate to each entity by this alignment. We think that would allow us to allocate capital in a more focused way.”
“I think that each (business line) has a clear path to growth that doesn’t rely upon any of the others,” he said.
W.P. Carey has also recently shaken up its lineup of nontraded REITs and other alternative investment products sold by leading independent broker-dealers, including Commonwealth Financial Network and LPL Financial.
It recently began selling its second hotel and lodging oriented nontraded REIT, Carey Watermark Investors 2 Inc., as well as a nontraded business development company, Carey Credit Income Fund.
Meanwhile, the company had revenue for the quarter ended in September of $214.7 million, an increase of 9% when compared with the same period last year. It also posted adjusted funds from operation of $126.6 million for the quarter, an equivalent to $1.19 per diluted share.