W. P. Carey (WPC) said Thursday that it will cease new non-traded REIT activities, now carried out by Carey Financial. Instead, the company will focus on net-lease real estate investing.
“W. P. Carey’s management and board of directors believe this approach will create long-term value for shareholder by enhancing its ability to grow adjusted funds from operations (AFFO) through a combination of single-asset investments and portfolio acquisitions,” it said in a press release.
New non-traded (or private) REIT programs will end June 30, while exiting program will continue until their investment cycle is over. The firm hopes to save costs by eliminating its retail fundraising platform and says it “remains well-positioned to potentially acquire the net lease assets currently owned by the CPAREITs, which it has acquired and managed on their behalf.”
The company says it now has an enterprise value of about $10.7 billion. On Friday, its market capitalization was roughly $7.24 billion.
In addition to its global real-estate portfolio, W.P. Carey’s non-traded publicly-registered and private investment programs have assets under management of some $13.0 billion.
“We looked closely at the potential structures for new products such as CPA:19–Global, including the types of investments that would satisfy their liquidity and leverage needs, and the time and scale required for them to reach profitability. Our conclusion was that our shareholders would be better served by focusing on our core net lease investment expertise,” CEO Mark J. DeCesaris explained in a statement.
The company said on Thursday that it does not expect this decision to “impact its 2017 guidance range and in conjunction with this announcement is affirming that for the full year it expects to report AFFO of between $5.10 and $5.30 per diluted share, subject to previously disclosed assumptions.”
“You can only get away with selling poison for so long, before you’re unable to replace your dead customers with new ones,” wrote Josh Brown of Ritholtz Wealth Management in a blog about the declining sales of non-traded REITs a year ago.
Advisors who sell non-traded REITs traditionally have received a 7% commission, while the firm gets a 3% selling concession—“the very opposite of a fiduciary,” according to Brown.
As tracked Robert A. Stanger & Co., non-traded REIT fundraising was about $1.5 billion in January 2015, but was roughly $380 million in January 2016 and $114 million in May 2016.