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WP Carey Exiting Non-Traded REIT Business, Closing Fundraising Platform

Investor to Focus Exclusively on Net Lease Investing
June 22, 2017
Mark J. DeCesaris, W. P. Carey's CEO, is exiting the non-traded REIT sector after 27 years.
Mark J. DeCesaris, W. P. Carey's CEO, is exiting the non-traded REIT sector after 27 years.
W. P. Carey Inc. (NYSE: WPC), which has been sponsoring non-traded REITs since 1990, has decided to get out of that business.

The internally-managed net lease REIT's board this week approved plans to exit all non-traded retail fundraising activities and plans to shift its business focus from structuring fees from REIT fundraising to generating property revenue from net lease investments.

The company also said it will cease all non-traded retail fundraising activities carried out by its wholly-owned broker-dealer subsidiary, Carey Financial LLC, effective June 30, 2017.

W.P. Carey will continue to manage six funds with about $13 billion in assets to the end of their lifecycles, which analysts estimate could be another six years. The company expects to acquire the net lease assets from two of those funds:
  • Corporate Property Associates 17 - Global Inc. (CPA: 17) owns 394 properties triple-net leased to 118 tenants, and totaling 43 million square feet.
    Corporate Property Associates 18 - Global Inc. (CPA: 18) owns 59 properties triple-net leased to 103 tenants totaling 9.7 million square feet.

    The CPA: 17 and 18 funds still have combined investment equity of about $300 million, which they will continue to invest, the REIT said.

    W.P. Carey also plans liquidate the two non-traded lodging REITs it manages: Carey Watermark Investors Inc., which owns 32 hotels, and Carey Watermark Investors 2 Inc., which owns 10 hotels.

    Also slated for the sales block is a fund which invests in European student housing and a business development fund that invests primarily in loans to private U.S. companies.

    "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," said Mark J. DeCesaris, W. P. Carey's CEO. "Our conclusion was that our shareholders would be better served by focusing on our core net lease investment expertise."

    In a call with analysts following the announcement, DeCesaris said the fundamental changes in the non-traded REIT industry made raising new funds outside of owning net lease properties less attractive.

    Both existing and new entrants in the non-traded REIT sector are making changes to their business plans with the goal of squeezing out costs and reducing fees. DeCesaris said his firm believes that the stable, recurring and predictable revenues from owning net leased properties on its own balance sheet seemed to offer the better option.

    In exiting the non-traded REIT sector, W.P. Carey also expects to eliminate the costs associated with its retail fundraising platform. The REIT has been in cost-cutting mode of late reducing general and administrative expenses from about $100 million in 2015 a year to about $80 million last year. Getting out of the fundraising business is estimated to save the firm another $10 million, the company said.

    W.P. Carey currently owns 900 net lease properties totaling 87 million square feet primarily in the U.S. but also some in Europe.

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