W.P. Carey Flags A Fourth-Quarter Earnings Dip From Free Rent, Adds Hertz To Credit Watch List
The REIT's CFO says the third quarter, not the fourth, is the better base for 2027 growth, while potential rent loss falls to $3 million to $5 million.
W.P. Carey, the real estate investment trust that leases commercial property to companies on long-term net leases, expects free-rent periods to pull down fourth-quarter earnings, CFO Toni Sanzone said on the company's third-quarter earnings call. The company also put Hertz on its tenant credit watch list, said Brooks Gordon, head of asset management.
Free rent drags on the fourth quarter
Sanzone said rent abatements tied to re-leasing could take two to three cents off fourth-quarter adjusted funds from operations (AFFO, the REIT's core earnings measure) per share. That includes four months of free rent on one Nord Anglia property, worth about $3 million to $3.5 million, plus possibly one or two other deals, depending on whether they close as expected.
Third-quarter AFFO per share was $1.33, up 8 cents, or 6.4%, from a year earlier, and one cent lower than the second quarter. For 2026 the company raised and narrowed its AFFO per share outlook to $5.23 to $5.29, lifting the midpoint by 3 cents and implying 5.8% growth.
Answering a Scotiabank analyst, Sanzone said that with the abatements and some expense seasonality, it is "probably reasonable not to look at Q4 as a run rate or a starting point for 2027 growth." She called the third quarter "a better jumping off point."
Hertz joins the watch list
Asked about tenant credit, Gordon said overall risk has improved and several names have come off the list. Hellweg, the German retail tenant, comes off completely in the fourth quarter. Cornerstone sits at around 60 basis points, and Hertz, recently added, is also about 60 basis points, he said; everything else is much smaller.
W.P. Carey owns three of Hertz's most important airport sites, at SFO, Newark and Logan. Gordon said a Hertz balance-sheet restructuring is possible, but the company would not expect any impact on its leases.
Sanzone cut the estimate of potential rent loss from tenant credit events to $3 million to $5 million, or 25 basis points of annual base rent at the midpoint, from $7 million to $10 million. The company collected Hellweg's full third-quarter rent and a previously outstanding June payment, and expects to draw on Hellweg bank guarantees in the fourth quarter.
Deals, rates and a $500 million bond
CEO Jason Fox said year-to-date investments total about $1.6 billion at a weighted average initial cash cap rate of 7.5%, and that deals closed or expected are in the mid to high sevens. Higher long-term rates have made fourth-quarter volume harder to predict, so the company only moderately raised the low end of its investment guidance, to $1.8 billion to $2.1 billion.
On financing, Sanzone said a €500 million euro bond maturing in April is the biggest 2027 refinancing risk and will add to next year's headwind, though she called it manageable. The company has about $540 million of forward equity available, raised at around $73 a share, and a quarterly dividend of $0.95 per share.
Sanzone said the Hellweg bank guarantee proceeds are expected to be drawn in the fourth quarter, and other lease-related income for the year should land in the mid-$30 million range.
Sources
- Document — sec.gov
- W.P. Carey Q3 earnings beat as investment activity holds up (WPC:NYSE) | Seeking Alpha — seekingalpha.com
- W.P. Carey (WPC) Beats Q3 FFO and Revenue Estimates — Yahoo Finance
- W. P. Carey FFO of $1.33 beats by $0.03, revenue of $468.3M beats by $8.55M (NYSE:WPC) | Seeking Alpha — seekingalpha.com
- W. P. Carey Announces Third Quarter 2026 Financial Results — prnewswire.com
