W.P. Carey to Acquire CPA:18 for $2.7B

Net lease REIT W.P. Carey’s board approved the formal agreement to merge with Corporate Property Associates 18 – Global Incorporated, known as CPA:18.

The transaction, based on an implied $10.45 share price, which includes a fixed 0.0978 ratio exchange of W.P. Carey shares per CPA:18 share plus $3 in cash, has an estimated value of $2.7 billion, including the assumption of debt. A sale of CPA:18 assets is expected to fund the cash investment. After the completion of the merger, current W.P. Carey shareholders will own about 93% of the final company, while CPA:18 shareholders will have 7%.

The first reason W.P. Carey gave for the acquisition was improved adjusted funds from operations to make up for the loss of half the revenue from formerly managing CPA:18 properties. The company also plans to exit the investment management business, instead shifting its business strategy to focus on “stable and long-term real estate revenues” from a strong net-lease portfolio. 

With general and administrative expenses allocated across a larger group of assets (assuming as W.P. Carey does that there will be little to no increase in overhead), the result should be greater efficiency. The company doesn’t expect near-term capital raising from stock issuance through capital markets and will refinance CPA:18 mortgage debt to create additional value.

“This acquisition presents a unique and compelling opportunity to acquire assets we know extremely well that are aligned with our current portfolio, in a transaction that’s immediately accretive to our Real Estate AFFO per share,” W. P. Carey’s CEO Jason Fox said in prepared remarks. 

In its 2021 fiscal year, W.P. Carey saw nearly $1.3 billion in revenue, with a net income of $410.1 million, earnings per share of $2.25, and total real estate assets of roughly $10.6 billion, according to data from S&P Global Market Intelligence. The company had paid down $3.1 billion in debt and issued $3.4 billion, which probably means the debt was rolled over. Levered free cash flow was $795.5 million. Common dividends paid were $764.3 million.

CPA:18 had total revenue of $204.2 million, with net income of $27.8 million, earnings per share of $0.23, and total real estate assets of $1.6 billion. It paid down $233.3 million in debt and issued $188.7 million in new debt, for a total decrease of its debt position. Levered free cash flow was $266.5 million, which seems to be a high in CPA:18’s history.