W.P. Carey Exiting Office With Spinoff, Sales
A 50-year-old net lease real estate investment trust is abandoning the office market to beef up its industrial holdings.
W.P. Carey is aiming to sell 87 office assets by January and is spinning off the remainder of its office properties, 9.2M SF leased to single entities, into a new publicly traded independent REIT, the company announced in a press release Thursday.
Among the properties being spun into the new REIT, dubbed Net Lease Office Properties, are the 1M SF KBR headquarters tower in Houston and Blue Cross and Blue Shield of Minnesota's 443K SF office campus in Eagan, Minnesota, according to a presentation filed with the Securities and Exchange Commission.
The move is the latest sign that the global office sector is out of favor with investors as landlords face dropping leasing demand and real estate values, which has prompted many U.S. banks to increase reserves for troubled loans.
“While we’ve meaningfully reduced our office exposure in recent years, the plan we’ve announced this morning vastly accelerates our exit from office, enhancing the overall quality of our portfolio, improving the quality and stability of our earnings and incrementally benefitting our credit profile,” W.P. Carey CEO Jason Fox said in the release. “Ultimately, with a clear path to monetizing our legacy office assets, we believe we will achieve a lower cost of capital and be better positioned for long-term value creation for our shareholders.”
Going forward, W.P. Carey’s portfolio will primarily be focused on single-tenant industrial and retail properties in the U.S. and Europe. The firm said those properties have improved tenant renewals and lower capital expenditure requirements than office.
W.P. Carey has already reduced its office exposure from 30% of its revenues to 15% since 2015.
The 59 office buildings being transferred to Net Lease Office Properties represent about 10% of W.P. Carey’s overall annual base rent and are leased to 62 corporate tenants. The new REIT will manage and sell the portfolio off over time, and W.P. Carey will serve as its external adviser. NLOP will assume $169M in mortgage debt, and existing W.P. Carey shareholders will get pro-rata shares of the new REIT once it closes on Nov. 1, according to the release. JPMorgan Chase is providing NLOP a $455M debt facility.
W.P. Carey also is selling 87 office properties that generate $77M in rents annually, or about 5% of the firm’s total annual rents. That includes 70 properties leased to the Spanish government in Spain that generate $32M annually in rents, according to SEC filings. The firm did not list the individual assets it planned to sell, but Fox said in the release that properties representing more than half of its annual rents are “either in the advanced stages of a sale or have been sold.”
This wave of sales is projected to infuse $800M into company coffers, and NLOP is transferring $350M to W.P. Carey as part of the spinoff.
While not a common story at this point, W.P. Carey isn’t the first REIT to pivot away from office investments. In 2021, Veris Residential — which at the time was known as Mack-Cali Realty — began selling off its office assets to focus on multifamily. Veris sold its last office holding, the 2M SF Harborside office complex in Jersey City, New Jersey, in April for $420M, Real Estate NJ reported.
