WP Carey Inc (WPC) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the W. P. Carey & Company's second quarter 2003 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Kurt Ritter [ph], Director of Corporate Communications. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to our second quarter earnings conference call. Joining us today are W. P. Carey's Chairman, Bill Cary, President Gordon DuGan and Chief Financial Officer, John Park. Today's call is being simulcast on our Website, www.wpcarey.com, and will be archived for 90 days. We will also have a replay available beginning at 1:00 this afternoon, which will be available until August 5th. The telephone number for the replay 1-800-428-6051, with the access code of 297720.

Before I turn the call over to Gordon, I need to inform you that statements made in this earnings call that are not historic fact may be deemed "forward-looking statements". Factors that could cause actual results to differ materially from W. P. Carey's expectations are listed in our SEC filings.

Now, I would like to turn the call over to Gordon.

Good morning, everyone. I thought I'd begin with an overview of how the business performed in the second quarter by our business groups. First, from an acquisition standpoint, for the first six months of this year we completed $330m of investments. The second quarter was $59m, which was down from the first quarter and down from the second quarter the year before.

If you'll recall, in our first quarter earnings conference call we did mention that we had unusually strong volume in the first quarter and that the investment volume is, by it's nature, somewhat lumpy. In the second quarter we saw, probably, a little bit of the same thing and the number of transactions that were scheduled to close did not close. They got pushed into the third quarter.

For July, we've closed two transactions already totaling, roughly, $50m. One was a sale lease-back in conjunction with the leveraged buy-out of Lillian Vernon, the catalog retailer. We purchased the corporate headquarters and primary distribution facility as part of an investor group purchasing the company and taking the company private. In addition, we did a small follow-on transaction in France on a warehouse leased to Carpor [ph].

The acquisition pipeline was good. We have a number of investments in the process of closing and the deal flow remains reasonably strong. I'd like to remind everybody that we think the opportunities that we see are very different than other publicly traded real estate investment companies. Our deal flow is more of a propriety deal flow and corporate sale lease-backs that tend to be focused on the brand name and reputation of the buyer more than just pure pricing. We believe that we see deals that other people don't. Our acquisition team is very focused and working terrifically hard to identify and structure these investments.

From an asset management standpoint, our fund portfolio performed moderately well. Same store sales in the portfolio were down slightly. We sold three properties for, roughly, $10m, including a small Holiday Inn property in Alpena, Michigan.

There was no significant leasing activity. We continue to focus on the Gap warehouse where we leased 118,000 square feet in the first quarter. I would say, though, that we're seeing decent activity in terms of the number of proposals that are out and the number of showings that we have for the reasonably small vacancy that we have.

From a marketing standpoint, investor interest in our fund products remains very strong. The second quarter we had net inflows of $221m, as opposed to $117m in the second quarter of last year. For the six months, net inflows were $368m, roughly double of what they were last year. Our marketing arm continues to do a wonderful job and the investor interest remains strong based upon the track record that we've been able to establish.

Our focus on the balance of the year is simple. Find investment opportunities for the significant capital that is available to us. We believe corporations will continue to seek long-term financing that we provide through the sale lease-back of corporate real estate. I think this is especially true in an environment where corporate CFO's are concerned about the rise of interest rates and how that can affect their business. We believe that that will be an impetus for corporations to continue to seek sale lease-back financing through the remainder of the year.

With that overview, I'll turn it over to John Park, our Chief Financial Officer.

Thank you, Gordon. Good morning, everyone. Our second quarter was a solid quarter. Aside from the decrease in investment volume, which we consider to be a timing issue rather than an indication of business fundamentals, our operations delivered strong results.

Let me take you through the numbers. On the revenue side, our management business continues to perform well. The reduction in quarterly transaction fees were partly offset by increased inactive management fees as we gathered assets under management. For six months, our management revenues increased by nearly $11m.

Rental revenues declined for the quarter and for the six month period. We expect this trend to continue given our dispositions activity and the weak real estate market. We sold approximately $16m of assets this year. While such dispositions have diluted in the short run, we believe that pulling our portfolio and actively managing them will serve us well in the long run.

Other income increased for the quarter as a result of revenues from Integra and Hallwood. For the six months, other income includes $2.2m Acor (ph) payment from Gap.

On the expense side, interest expense decreased slightly. And I've been saying this for quite some time, but we do not expect much more savings from lower interest rates, but we continue to get them.

G&A expenses increased about $1.5m for the quarter. About half of this increase was due to reimbursed expenses we incurred on behalf of our affiliates and the other half was, primarily, compensation expense.

Property expenses increased as well, $400,000 for the quarter and $1.2m for the six months, due to increased real estate taxes and utilities on properties that were actively operating.

Lastly, dilution, due to outstanding options, added about 1.2m shares to our shares outstanding. Using last year's average price of $23 would have resulted in dilution of 400,000 shares, or one-third. I think that's the kind of dilution that our shareholders don't mind suffering.

Throughout the year, we've continued to strengthen our balance sheet as we continue to pay down our debt. Our credit facility balance is now down to $32m from $49m at the beginning of the year. Our dividend coverage continues to increase.

We're very pleased that we're able to generate over 5 % growth in per share FFO over the first six months. We believe that we're well positioned to weather the challenges in a weak economy and we're on track to meet, or exceed, corporate goals that we have set for ourselves for the year. We remain very optimistic about the remainder of 2003.

I will now turn it over to Bill Carey for his concluding remarks.

I can't add too much to that, but as we noticed from these reports, there are a number of things which are up which are very encouraging, FFO, total revenues, assets under managements, fund available for investment and dividends. That's just for six months and in this type of climate I think that's a pretty good sign. I think we're going to continue to do well. As Gordon mentioned, we're beginning the third quarter pretty nicely and we have every expectation that third quarter will be an improvement.

The only other comment I'd like to make is my continued respect and admiration for the young officers in this firm. They work their tails off and they do a great job for us and they're bright and able. It really speaks well for my declining years. I know I'm going to be well taken of as time goes on.

We'll now open up the floor to questions.

Ladies and gentlemen. We will now begin the question and answer session. If you are using a speaker phone, please pickup the handset before pressing any numbers. Should you have a question, please press star one on your push button telephone. If you wish to withdraw your question, please press star two. Your question will be taken in the order it is received. Please stand by for your first question.

Once again, ladies and gentlemen, if you do have a question, please press star one on your push button telephone at this time.

Gentlemen, I'm showing no questions at this time.

OK. Thank you all for being with us this morning.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 297720. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.