Quick Note: After announcing a dividend hike just last week, this week—big-dividend REIT WP Carey announced it would be spinning off its office properties and a dividend resizing (reduction) is forthcoming later this year. In this quick note, we offer our thoughts and opinion on investing.
For starters, office properties have been extremely weak post-pandemic as work-from-home persists (and demand for office real estate appears permanently damaged). As such, it makes sense that WP Carey would want to get rid of its ~15% portfolio allocation to office because it is causing the market to assign a valuation multiple that is too low. Frankly, we like the move to get out of office. Specifically, WPC has been reducing office in recent years, and this just speeds that process up.
We purchased shares of WP Carey just a couple weeks ago (right BEFORE the office spin off announcement), and we intent to keep holding the shares. Our thesis for the purchase was simply the valuation was too low (because office was dragging the valuation down) and now that office will be taken out of the equation, we expect multiple expansion (i.e. price gains).
The company has not yet announced all the details of the office spin off, however on a go-forward basis, we like WP Carey shares even more now. We expect the new dividend yield to remain relatively high (the company is targeting a 70% to 75% payout ratio).
You can read our previous WPC report using the link below:
We plan to continue to own shares of WP Carey going forward.