Monday, May 19, 2014

Know The Brand

WP Carey's (WPC) CEO, Trevor Bond, made an interesting comment on WPC's May 8th earnings call, which I read in the call's transcript.  In response to a question as to whether WPC is planning a CPA 19 (Corporate Property Associates 19), Mr Bond said this (my emphasis):
Well, it's a great question. We have no -- nothing filed now with the SEC and nothing on the works. I think that we like the optionality going forward of having the ability to delay the CPA:19 as long as we need to. We'll think more about that as we get to the end of the investment period for CPA:18. We have a modest amount of capital still left in CPA:17, and so CPA:17 and CPA:18 are co-investing on some deals. And I think that from management's point of view, the risk of not having a CPA:19 tied up is not a problem because we can always shift deal flow toward W. P. Carey Inc. if we're ever in a period where we are out of the market. And I think that would then further our goals of growing our balance sheet because the transactions that worked for the funds are clearly going to be very accretive for W.P. Carey Inc. And so it's something that has -- as we get closer to the end of the investment period for CPA:18, we'll be faced with that decision. I'll also say that now that we focused -- we are focusing on creating new products silos for our investment management platform, the Hotel fund which has been successful to date is one example. We also have an active self-storage business as you know, which is folded into the CPAs, but we could have a separate fund for them. And then we're always considering other product silos with capable experienced sponsors and other product types. And so I think that it's probably better for us to focus more on that type of new product, really, in the medium term, to enhance the value of our platform. And so that will continue to be one of our areas of focus.
So, WPC is thinking of not immediately offering another REIT in its flagship CPA brand.  WPC may just buy properties directly.   I have no doubt WPC, with its $6.2 billion market capitalization, could acquire accretive properites, and do it cheaper than a CPA REIT.   I'm less optimistic about the larger implications to the non-traded REIT industry of this possible WPC product exit. 

Broker / dealers sell WPC products because of its CPA programs and their history of regular income and long-term performance.  WPC's hotel deal has raised a moderate amount of capital, but CPA 18 raised more equity over the last six months than the hotel deal has raised in nearly four years.  Brand is important, and WPC's brand is Corporate Property Associates - which are sale/leaseback REITs -  not a hotel REIT, not a self-storage REIT, and not whatever new product it develops. 

WPC, through its CPA REITs, offers real competition to the ARC / Cole non-traded REIT machine.   WPC now appears ready to cede market share to ARC at a time when quality REIT options are shrinking.  If it thinks it can create new products, or stop selling or delay the next CPA program and maintain market share, WPC is misjudging its brand and the competitive environment. 


Anonymous said...

Great post. True dat.

Clarity Finance said...

The folks at Carey would do well to put a call in to their friends at CNL. Or perhaps it is playing out the CNL story all over, with a vehicle that can access capital markets easily and cheaply AND an expensive distribution group looking for product.

Rational Realist said...

Thanks for the comments. I've (naively) never believed that a distribution group should run the business arm. Offering / developing non-brand products just to pacify a group of ornery wholesalers is no way to run a business. Plus, I can't really think of a successful situation where an established product sponsor has rolled out and transitioned to a new product type. There have been some modest successes, but all with the core brand in place.