WP Carey Inc (WPC) 2004 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the W.P. Carey’s first quarter earnings conference call and web cast. 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. This call is also being simultaneously webcasted on W.P. Carey’s Homepage at www.wpcarey.com and will be archived.

At the request of the company, we will open the conference up for questions and answers after the presentations. I will now turn the conference over to Miss Susan Hyde, Director of Investor Relations. Please go ahead ma’am.

Thank you Hans. Good morning and welcome everyone to our first quarter 2004 earnings conference call. Joining us today are WP Carey’s President & Co CEO, Gordon Dugan and Chief Financial Officer, John Park.

Today’s call is being simulcast on our website wpcarey.com and will be archived for 90 days. We’ll also have a replay available beginning at 1:00 this afternoon. The telephone number for the replay is 18004286051, with the access code 343280.

Before Gordon, I need to inform you that statements made on this earnings call that are not a historic fact, may be deemed forward-looking statements. Factors that could cause actual results to differ materially from our expectations are listed in our SEC filings.

Now, I’d like to turn the call over to Gordon.

Good morning everyone. This is Gordon Dugan. I wanted to give a general overview of the first quarter and the business conditions we see today and then turn it over to John Park to give a more detailed review of the results that we released this morning.

As you saw from our release the earnings and epitha [ph] were impacted by a relatively low volume of acquisitions in the first quarter of this year relative to last year - - and I wanted to back-up and maybe put some perspective on that. In all of our calls, I think we’ve mentioned the lumpiness of the transaction volumes and the fact that it’s hard to judge that on a quarter-to quarter basis - -and that would be the first point I would make and we’ve said that in quarters that have been usually strong as well as quarters that have been less strong.

Secondly - - typically, the first quarter is slower - - the slowest of the year and the first half of the year is typically slower than the third and fourth quarters and the company’s focused balance sheet management raising in a more - - strong fashion, I guess I would say.

To put the first quarter in perspective - - over the last - -in the prior 5 years, 3 of those 5 years acquisition volumes had been under $100m for the first quarter and so it’s not a historical aberration to have a relatively slow first quarter. What is different is that the first quarter last year was by far our strongest over the last - - prior 5 years, as we’ve had a large transaction from the fourth quarter slip into the first quarter and so the comparison is based somewhat on the fact that the first quarter last year was unusually strong and first quarter this year is probably more typical, to give a general view.

But - - an overview for where we are and what we’ve seen as the current condition. We’ve seen pick-up in volume for the second quarter, the pipeline looks strong. We disclosed in our 10K that we have reached an agreement to make a $300m investment. We are in the process of closing that transaction. It’s actually the largest transaction in our history. It’s a very complicated, highly structured - - value added investment that think is typical of our investment approach but we were able to find a large transaction that we think is very good for our investors, worked well for the, our company clients and that is again in the process of closing so we expect the second quarter to be strong based in part on that. I would just add to that, that the pipeline is a fluid thing. We do see it relatively strong right now and I’ll give a little bit more color on the current market conditions in just a bit.

Overall in terms of assets under management for the business 3/31/2003, we were at $3.9b 31/2004 we’re at $4.8b that’s the year to year increase of 23% and shows the underlying growth in the asset management, I mean assets under management and that growth continues to be steady and increasing. In terms of fund raising, we’re averaging approximately $40m per month of fund raising at the moment. We had slowed down fund raising at the end of last year and were not raising funds from the mid August through the end of December and that was primarily to make sure that we were able to effectively invest the money we were raising in value added investment and again we were willing to slow down and in fact stopped the fund raising to manage that process and we think that, that’s a, this is our discipline investment process as the hallmark of our business and we’re back in the fund raising mode as we see opportunity to invest.

Lastly in terms of deal pipeline, we’ve commented in the past that there’s a great deal competition in the capital markets in general, the real estate finance market in particular, we see that competition continue. We’re hopeful that perhaps the recent correction in public prices and a more balanced discussion of the correct amount of capital that should be allocated or in the real estate finance market at this point we would prefer an environment where perhaps capital was a bit more scarce than it is today. That having been said, we’re still able to find opportunities for speed, certainty of close or complexity are present and those are the hallmarks of our investment approach to stay from purely price sensitive investment opportunities and look for a highly valued added a highly structured investments and we continue to find those at this time. With that I’ll turn it over to John Park to give a more detail run through of the first quarter results.

Thank you Gordon, good morning everyone. As Gordon mentioned earlier our first quarter results were weaker than last years primarily as the results of reduction in investment volume. However on the whole, the company’s fundamentals remain solid and I would also like to add that the fundamentals of our manage companies remain strong also. For the year ending 2003 all of our CPAs experience increase in net income as well as valuations so the assets are performing extremely well both within our own company’s portfolio as well as in the manage companies.

Let me take you through the details of the income statement.

On the revenue side our management revenue decrease by $8 ½m and as I mentioned the primary cause is lower transaction fees and they were partially offset by increases in our assets management fees. Rental revenues were flat over last year. This is actually an improvement over the recent trend of slight decreases in same property rental revenues and this is the first quarter in a couple of years we have been able to reverse that trend and as a very positive step and on indications that the pruning of our assets portfolio that we’ve done over the last couple of years is starting to bear fruit. Interest and other income decrease slightly about 700,000. The 2004 number includes 1.5m of proceeds that we receive from Carey and in 2003 number includes the $2.2m make hole payment from GAAP.

You’ll notice that the revenue of other business operations went up significantly this is as a result of consolidating Ligonia as required by 1046. For comparison purposes, I would net out operating expenses of other business operations of 1.6 so on the net it grows slightly. On the expense side interest expense decrease slightly. We continue to benefit from lower debt balances and interest rates and G&A expenses decreased, it’s a lower variable expenses. On the normal side, we wrote off from note receivable from (inaudible) with a book balance of $2.25m due to deterioration of the (inaudible) financial condition, but we still plan to vigorously pursue realization of value on this claim. Overall I think the company’s fundamentals are very strong and we’re well positioned to take advantages of the opportunities as we go forward. We have a robust pipeline of investment opportunities, as well as a very strong balance sheet. We only have $44 million of company level debt and also, more importantly our exposure to rising interest rates is minimal because most of our debt is long term fixed rate debt. As an example, 100 basis point increase in short rates would only add a penny or two to our bottom line or less than 1% of our - - results.

With that I’ll turn it over to our chairman Bill Carey for his concluding remarks.

Thank you very much John. – Inaudible- I’m extraordinarily pleased with the direction the company is going, somebody might say “how can you be pleased when your (inaudible) quarter looks less than the prior year?”, that happens - - its a - - the cyclicality of our business is in the deal closing but the overall direction is extremely positive. Actually this is the first time in the last five years that we had - - we haven’t had a lower - -inaudible - - net earning 2003 was the first time we have extraordinary high first quarter, it was bigger than the second quarter. Every other year -- its sort of customary, since people only rush to close deals at the end of the year, the first quarter is just a little off. We’re looking forward to a terrific second quarter and to a terrific first half. At the present time, although we always believe in cautiousness and not getting too excited. We have our whole business plan is based on conservative operations, trying to build our long term protection of our dividends –inaudible – we received, look at the cash flow from operations tables for the quarter and even though we had a significant drop in transaction related income. There’s a lot of things, there are plans to build the long term stability (indiscernible) other things are set up so that we differ portions of the fees as they come in over at a period of time. So we’ve basically fund a very stable enterprise we regard this as a stay rich investment not a get rich investment and people have invested with us over the years and for the most part, I haven’t heard any complaints yet.

I would like to open up to any of you who have questions for us.

Thank you the question and answer session will begin at this time. If you’re using a speaker phone, please pick up 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 into the order that it’s received please stand by for your first question.

The first question comes from Michael Beal of Davenport and Company please state your question.

Yes good morning when one looks at the change in the rental income I’m sorry the management income, it was down about $8m obviously that’s because of lower transaction activity. The G&A expense dropped about $1.3m the income item dropped about $8m. What’s the typical relationship there in terms of the variable cost associated with generating those acquisitions fees? And it looks like it’s about 20 cents on the dollar just looking at those numbers, is that---can you just comment on that relationship in general?

Sure. The way we look at our variable compensation or basically compensation expense on the whole, is that we--- our target is around the third of net management revenues. And over the last few years we’ve been able to drive that ratio down from approximately 40% range to low 30% range, so we’re still in line and we--. On a quarter to quarter basis it’s difficult to tell because the G&A line includes some noise and that they also includes the G&A we incur on behalf of our affiliates, that are reimbursed. But on a net basis we’re in a very comfortable range.

I’m not sure I understand all that but I’ll think about it, thank you. Quickly two other things looking at (multiple speakers).

I’m sorry specifically on transaction revenues the variables expense is about 20%.

Okay that’s helpful thank you. Looking at the cash flow statement indicated there, there was equity investment purchases during the quarter of about $4m. What kind of equity investment do we make is that equity as in the stock market or is that in joint ventures or partnerships?

Those are joint ventures core investment are being made with us through affiliates.

In retirement of shares $2.5m this were open market purchases of shares or is this some other activity? That’s $2.5m retirement of share in the first quarter.

Those are open market as well as non-open market transactions.

Okay do we have an authorization or program to buy in stock in the public market at the moment?

Are you referring to a repurchase program?

Yes sir.

We do have at the current time. We had one several years ago but we do not have one (indiscernible) for repurchase.

Last thing what is the approximate amount of cash available for investments in the different CPA series of REITs at the moment. And I know that that can be levered but just trying to get an idea of how much liquidity you have in those partnerships available for investments this year.

Our overall acquisition capacity exceeds $1m.

Okay so final question you are – so we started back raising equity again you indicated that in August you slowed it down through the end of the year but we made a conscious effort to try to raise equity again or to turn that sticket on?

That’s correct.

And that’s currently running about $40m per month?

Roughly yes.

And we would lever that 2.5 to 1 or something?

A little less than that, between 1 to 1 and 2 to 1.

Okay thank you very much.

Thank you.

As a reminder should you have a question please press star one at this time. As a final reminder should you have a question please press star one at this time. If there are no further questions I would now turn the conference back to Ms. Susan Hyde to conclude.

Great thank you very much everyone. We just also wanted to let you know that we’ve scheduled our annual meeting of Shareholders and the luncheon that follows it for Thursday June 10th at 10:30 at the Waldorf Astoria. And certainly you can contact any one in our investor relation department for additional information. And we also wanted to let you know that the web cast of Gordon’s recent presentation to the New York Society down list, is available on our web site www.wtcarey.com and we encourage you to view it. So thanks very much and we look forward to speaking with you again next quarter. Bye-bye.

Thank you.

Ladies and gentlemen this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.