WP Carey Inc (WPC) 2002 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the WP Carey and Company first quarter earnings conference call. At this time, I would like to to you that this conference is being recorded for rebroadcast and that all participants are on a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. I will now turn the conference over to inform Ms. Susan Hyde, director of investor relations. Please go ahead ma'am.

Thank you, Heather. Good morning and welcome everybody to WP carves first quarter 2002 earnings conference call. Joining us today are WP Carey's chairman, Bill Carey, president Gordon DuGan and chief financial officer John Park. As as you may be aware, today's call is being simulcast on our website, www.WPCary.com, and will be archived for 90 days. We'll also have a replace available beginning 1 o'clock this afternoon. The phone number is 800-428-6051, while international callers should call 973-709-2089.

The access code is 238031. Before I turn the call over to our president, Gordon Doug DuGan, I to inform you statements made this this earnings call that are not fact may be deemed forward-looking statements. Factors that could cause actual results to differ material from -- materially from WP Carey's expectations are listed in our SEC filings not now I'd like to turn the call over to Gordon.

Good morning, everyone. Well, as you saw from the release we made this morning, our business continues to perform well and is on track with our expectations. We're very pleased with the results we saw this -- in the first quarter and those results came in what is generally a tough economic environment as all of you know. Our business group nicely and that growth was fueled by the investment management business. It grew nicely in the first quarter and last year and we expect that to continue in the near future. Our existing portfolio of net leased assets produced steady performance and basically was flat year over year in line with our expectations. Going forward, we continue to benefit from strong fund raising in our private investments and we think that's primarily because investors are focusing on alternative investments to general stock and bond investments and our private REIT funds are benefitting from that. Our acquisition pace remained strong as evidenced in the first quarter, and we expect that to continue. This will be a key area of focus for us this year as the year proceeds. Another area of focus is our asset management business. We have hired a new managing director and partner in our asset management group, Tom Zacharias, and he will be charged with taking our current assets, maximizing the value. We are also going to focus on increasing the quality of that income as we continue to operate in a tough economic environment.

With that I'll turn it over to John Park to discuss the specific numbers and results.

Thank you. Good morning, everyone. As Gordon said, we had a solid quarter during the past quarter. On the revenue side, our rent revenues were essentially flat, as Gordon mentioned. We're pleased with that we have been able to maintain this level given the state of the economy. Our (inaudible) management business continues to be the main engine for the growth and increasing investment management revenues more than made up for the decrease in other income.

Last year's other income included 2 and a half million dollars in settlement revenues from Western Union. On the expense side, we continue to benefit from the lower interest rate environment and amortization, as some of you may know, the treatment of goodwill has changed. Beginning this quarter, goodwill will no longer be amortized over time, rather, it will be valid at a point (inaudible) on an ongoing basis. Obviously there's no need for us to take a charge with goodwill created when we acquired the management business since its performing extremely well. In addition, property expenses increased as we actively managed some of our assets as Gordon mentioned.

Another highlight for the quarter is for the fourth consecutive quarter we increased our quarterly dividend and even with these continued increases, we expect our pay out ratio will dip below 70 percent for the first time this year. Another recent development which actually takes effect today is the merger of two of our nontraded REIves, CPA10 and CIP. Shareholders of CPA10 and CIP approved the merger by 96 percent and 97 percent respectively, which I believe is a true testament to our investor loyalty and the performance of those funds. During the past quarter, we continue to focus on maintaining our rental revenues and fueling the growth of our management business. The (inaudible) of the investment management business have never been stronger. Our fundraising for CPA15, our newest REIT, continues at a record pace and our acquisition view (inaudible) will remain strong.

As we have said in the past, we expect that more of our investment activities to be on behalf of our managed entities for the foreseeable future. At this point, we feel very comfortable with our portfolio of leased assets and our growing management business and we remain optimistic about our prospects going forward. I'll turn it over to our chairman Bill Carey for concluding remarks.

Thank you very much, John. Well, we're very pleased with the -- with the results of this quarter. I also like to emphasize that we're vesting for the long run and we shouldn't be looking at quarter-to-quarter results. The -- this is a -- the best of which where earnings could go up or down because of some situation, tenant moving out or something like that, but we are here for the long pull and we know that we feel confident that we can deliver repeatedly approving results from year to year and we -- this could be -- I could be wrong, but the history of the enterprise has suggested that that's what's likely to happen.

One of the things that I'd like to mention is that Sean Sovak, who's our -- been our executive director for operation strategy has been promoted to managing director and chief acquisitions officer at age 29. This is -- this may seem like a very young age, but Sean was one of the first persons maybe the first person I ever knew summa cum laude at the Wharton School graduated at a very tender age and got started young and has proven himself time and time again. I think this is a terrific development that will enable our president, Gordon DuGan, who was chief acquisitions officer, to be more presidential and to be -- help me in the chief executive officer responsibilities, so it's a marvelous development for the firm and I expect it to continue to go.

We also elected another managing director in the acquisitions department, also, 29 years old, Ed LePuma (phonetic), who is an equally strong young man. I think the youth of the acquisition department plus the seniority of the investment committee led by George Stoddard just makes a terrific combination, something which is quite unique to WP Carey. With all of that I want to thank you for your continued support. We can't expect to repeat the 38 percent total return we gave you last year, but we're going to do our best to deliver steady returns going forward.

Thank you, and now we'd like to open up the lines if anyone has any questions for us. I the question and answer session will begin now. If you are using a speakerphone pick up the hand set before pressing any numbers. Should you have a question, please press 14 on your pushbutton telephone. If you would like to withdraw the question, please premises 13. The questions will be taken in the orders received. Please stand by for your first question.

Your first question comes from Daveal buy combustion. State your affiliation followed by a question.

Hi, Dave Albashon (phonetic), AG Edwards. Good morning everyone.

Good morning, Dave.

Good morning, Dave.

You mention your payout ratio dipped below 70 percent for the first time. Are you -- is Carey in general managing toward a certain pay out ratio? And if -- and where can we expect dividend growth to go going forward if -- you know, depending on what the pay out ratio that you're looking at?

Good question, Dave. I think our dividend policy since we became a public company has always been to grow at a faster clip than the dividend and I think that the -- our dividend increase pattern will continue for the time being and we hope that we can increase our FFO at a much faster clip.

Okay. Does that portend faster dividend growth is my ultimate question.

Not necessarily.

Gordon, can you review the, I guess the (inaudible) asset management position and how that was -- the derivation that have and is there a concern about credit quality or asset quality in the portfolio and this is a position that you want to add on to increase that or I guess kind of give me the background, give some examples of what Tom maybe doing to the portfolio feel, you know,.

As we mentioned last year in our annual report, we are going to continue our focus on asset management for our business. The investments in WP Carey are generally a maturing investments so this has been an area of growth and focus for us for the past couple of years and generally has always been an area of focus area but we stepped up that focus, hiring Tom, who's just a terrifically talented guy we believe is a coup for the business and reflects two things, one that these are maturing assets in WP Carey and we want to make sure we are maximizing the value. The number two, the business is growing. We continue to grow the business generally. We are -- our acquisition pace has been at record levels last couple of years. We expect that to continue and it's just a byproduct of the -- of the growth that we (inaudible). As you know, the economy generally is -- is patchy at best and we have been very aggressive at managing our residuals, making sure that if -- on expiration of a lease a tenant moves, we're aggressive at releasing if we need to, selling properties if we need to and it's not a bad time from that standpoint, but we're always focused on managing the down side so while we're managing the down side, Tom's payment as much as anything reflects the continued growth in the business.

Just a broader question about the market, gored only. Obviously, real estate is very strong right now, at least from an investor perspective.

Yes.

There's a lot of discussion in the public markets regarding an asset value and where cap rates are and whether or not they should be become down and therefore increase the value of the real estate. Are you seeing any increased competition for assets in your (inaudible) program?

We haven't seen a significant increase in competition yet, Dave. I wouldn't be surprised if more money flows into the sector, as you mentioned, it is an attractive area for investors. We are keeping our ear to the ground but the first quarter reflects the acquisition pace has remained good. Second quarter, we also feel very good about so far, so, you know, so far so good, but there probably will be some increase in competition. We have always used our brand name WP Carey is a 30-year-old factor in this business and I believe we're the leading factor in the business so the competition will -- may be there but we have a number of competitive advantages we use on, you know, in our acquisition volume.

Do you believe that WP Carey gets a premium rate because of the history and the ability to close?

Yes, we do. We compete on ability to close and the -- the known name of WP Carey. At the same time, we're competitive on transactions. We have a large investor pool. We have got the capital raised so we leverage that but -- but we do believe that we're often selected because of our brand name and reputation.

The 117 million in the quarter versus 44 obviously is a big jump. Is there any -- is it just timing issues or the deals are just happening too -- or flowing a little bit stronger than even last year, which was obviously a strong year as well.

I'd say the deal flows stronger but it's -- the first quarter reflects lumpiness more than that. I would not use the first quarter and extrapolate that for growth. Of the deal flow is strong but timing differences can make up a big part of that difference between the 117 and the 44.

So still 300 to 400 million is the target for the year.

Our -- our internal targets are in excess of that.

Okay.

One last question. Is there any opportunity, Gordon, in the -- in kind of unwinding some of these synthetic lease arrangements that are -- have gained a little bit more popularity because of what's going on in Enron and Arthur Andersen, those sorts of things?

Yeah, there's no question we're going to see some opportunity in the unwinding of the synthetic leases, and we have been targeting providers of synthetic lease financing as well as the companies that have borrowed under those. The question I think really is timing of that. We are -- we've seen some of it so far, we're going to target that for our investment team but the FASV has not given its final ruling on the final guidelines which are expected relatively soon. Until that happens, we don't know just how much activity or when because those guidelines will contain among other things by when companies need to unwind their synthetic leases.

Okay. Thank you very much, gentlemen.

Thanks Dave.

Thanks Dave.

Thank your next question comes from Richard Baroush (phonetic). State your affiliation followed by a question.

I'm Dick Baroush with Jani Montgomery Scott (phonetic) And I'm just curious. I love dividend increases as everybody does but yours are so small, does it really make sense to increase the dividend at such a small level versus waiting until it can be a little bit more meaningful? Because it hardly even makes a dent and I'm just curious about the rationale behind such a small percentage increase. Can you help me on that?

Hi, this is Gordon DuGan. We have a -- traditionally we have a history of increasing our dividends. The dividend increase is something that we like and our investors seem to like. It's on the smaller side, as you point out, but we're really focused on increasing, as John said, our FFO faster than the dividend. The dividend increase is something that -- that our investors appreciate and you know it's one of those situations where for the time being we think it's the right place to be, increase it quarterly.

This is Bill Carey. This is as you know what we consider to be a stay-rich investment that means that you are conservative. With your conservative and maybe overly some people like to say we are overly conservative in our dividend increases but that's the way we are and if the long run, we believe it's going to serve our investors very well.

You have been about the best investment I've had over the last year so keep up the good work because I need a lot of help.

Thank you.

Thank you.

I would like to remind you ladies and gentlemen should you have a question, please press 14 on your push button phones at this time. If there are no further questions I will turn the conference back to Ms. Hyde to conclude.

Well, thank you everybody for participating in today's call and we look forward to speaking to you again next quarter.

Thank you all.

Ladies and gentlemen should you wish to access the rebroadcast after the live call, domestic callers dial 184286051, and international callers dial 9737092089 with the pin 238031. Also access the web cast available for 90 days at www.wP Carey.com. Thank you all for participating and have a nice day. All parties may now disconnect.