W. P. Carey Inc. (WPC) Q3 2015 Earnings Report, Transcript and Summary

Welcome to the W.P. Carey Third Quarter 2015 Earnings Conference Call. My name is Lauren and I will be your event specialist today. [Operator Instructions]. It is now my pleasure to turn today's program over to Peter Sands, Director of Institutional Investor Relations. Mr. Sands, please go ahead.

Good morning everyone and thank you for joining us on this call to review our 2015 third quarter results. Joining us today are Trevor Bond, Chief Executive Officer who will provide a business and strategic update, Jason Fox, President and Head of Global Investments, who will review our recent on-balance-sheet acquisitions and the market backdrop, and Hisham Kader, our Chief Financial Officer who will discuss our third quarter results and balance sheet. Following that we will take your questions, along with Katy Rice, Senior Managing Director and Jeremiah Gregory, Head of Capital Markets. I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements. Factors that may cause actual results to differ materially from W.P. Carey's expectations are provided in our SEC filings. Lastly, an online rebroadcast of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, where it will be archived for approximately 90 days. With that, I will hand the call over to Trevor.

Thank you, Peter and good morning, everyone. For the 2015 third quarter, we generated adjusted funds from operations, or AFFO, of $1.19 per diluted share, which is up 5.3% compared to the $1.13 per diluted share for the 2014 third quarter. As previously announced during the third quarter, we paid a quarterly cash dividend of $0.955 per share, that's equivalent to an annualized dividend rate of $3.82 per share, and based on yesterday's closing stock price, this represents a dividend yield of about 6%. Turning to our owned real estate portfolio, at the end of the third quarter, the Company's owned real estate consisted primarily of 854 net lease properties, comprising 89.8 million square feet leased to 221 tenants. Approximately 64% of the annualized base rent comes from our U.S. properties and about 34% from our properties in Europe. Portfolio occupancy remains high at 98.8% and our weighted average lease term stood at 8.9 years. Approximately 95% of our annualized base rent came from leases with contractual rent escalations, either linked to CPI or through fixed rent increases which provides built-in revenue growth and since they aren't net leases tenants bear the impact of inflation on a cost associated with operating and maintaining the property. Looking at our same store rent growth and releasing activity, the details of which you'll find in our supplemental by the way, rents were approximately 1.2% higher compared to the year ago quarter. This excludes any properties acquired, sold or vacated or subject to lease modifications during the 12 month period, and it's on a constant currency basis to allow for comparability. During the third quarter, three leases were renewed at or above the existing rent. We also entered into six new leases with a weighted average lease term of 8.1 years. In the aggregate this releasing and new leasing activity represented just over 1% of our portfolio's total annualized base rent. So, very small part of our overall portfolio. We have eight expiring in the remainder of 2015, representing about 1.9% of annualized base rent which is factored into our 2015 AFFO guidance. Now, I'll hand over to Jason, to talk briefly about our recent acquisitions in the market environment.

Thank you, Trevor and good morning, everyone. During the third quarter, we completed two acquisitions for our owned real estate portfolio, totaling approximately $98 million, bringing total on balance sheet investment volume for the first nine months in the year to approximately $543 million. We acquired a portfolio of three modern truck and bus servicing facilities in Germany and Austria for approximately $44 million, leased to wholly-owned subsidiaries MAN Group, which is one of Europe's leading producers of commercial vehicles, engines and engineering equipment. The facilities built by third-party developer to the tenant's specifications are among the largest service facilities operated by MAN Group and are important sale drivers for its fleet repair and maintenance business. Well located on arterial grooves [ph] the facilities benefit from high commercial traffic flow connecting several major European cities. All three facilities are net leased with 15 years remaining lease term and built in rent growth through CPI based rent escalations. We also acquired a Class A office facility in North East England for approximately $54 million, net leased to a wholly-owned subsidiary of RWE Power, one of U.K.'s leading energy companies. It's critical real estate for the tenant, housing about one quarter of its workforce. It's also a high quality well located facility, and it's a triple net lease rate 10 year term with built-in rent growth linked to the U.K. retail price index. We remain focused on extending the overall weighted average lease term of our portfolio and the deals completed in the first nine months of the year have been added to it. Acquisitions completed during the third quarter had a weighted average lease term of approximately 12.3 years while acquisitions completed in the first nine months of 2015, had a weighted average lease term of approximately 14.1 years. In addition to these acquisitions, we completed an office build to suit project Banco Santander, located just outside of Dusseldorf, Germany for a total investment of just over $51 million. The approximately 212,000 square foot building was placed in service in September, commencing a triple net lease with a 20-year term and built in rent growth linked to German CPI. Acquisitions for our owned portfolio during the third quarter had a weighted average cap rate of approximately 6.9%. Acquisitions completed in the first nine months of the year also had a weighted average cap rate of approximately 6.9%. Disposition activity was light during the third quarter, totaling approximately $6.7 million, bringing total dispositions for the first nine months of the year to about $32 million. We expect further capital recycling this year in line with the revised $40 million to $100 million target range factored into our updated 2015 AFFO guidance, with a focus on extending lease term, improving credit quality and increasing asset criticality within the portfolio. Turning briefly to the investment environment, in the United States remains very competitive. However, the market feedback we are receiving indicates that although deals continue to clear at lower cap rates, the majority of bids are clustered at slightly higher levels, indicating that cap rates may have begun to firm with the potential to move higher. Europe remains at a different point in the cycle with cap rates continuing to compress as U.S. investors are becoming increasingly more comfortable with the risks associated with investing in that region, creating capital inflows. With that, I'll had it back to Trevor.

Thanks Jason. Turning briefly to our investment management business now. We continue to execute on our strategy of diversifying our product offerings. In May, we launched our second lodging fund, Carey Watermark Investors 2, and during the quarter it generated investor capital inflows of approximately $75.5 million. As I mentioned on our last earnings call, during the third quarter, we launched our first nontraded business development company or BDC, which is called Carey Credit Income Fund and we're currently working through the due diligence process for it to be added to various broker's platforms. At September 30, 2015, total assets under management within our investment management business stood at approximately $10.5 billion, up about 26% from a year ago quarter. Now, before handing over to Hisham I'd like to briefly address our announcement in this morning's earnings release that the Board of Directors has authorized management to actively explore the potential separation of the Company into more focused entities. As you know, Katy Rice recently assumed an internal advisory role examining our core competencies and the strategic and operational opportunities and challenges unique to each. Now, as part of that ongoing initiative, we are actively exploring their potential separation and the ability to create long-term value, by allowing each to pursue distinct business strategies and what we believe would be superior opportunities for growth. Our review is well underway and we feel we have good visibility into the fundamental issues involved. However, considerable work remains concerning the specific details of potential structures, time tables and the like, particularly regarding things like tax, regulatory and legal matters. We're excited by the opportunities that a separation may create and look forward to providing an update on the outcome of our review and details of our specific plans once they're fully developed. Until then it continues to be business as usual for most of the firm and we remain focused on the day-to-day operations of the Company. We felt it was important to provide this progress update, however at this time, we're very limited in what further we can say as I'm sure you'd expect. Now, I'll hand over to Hisham.

Thank you, Trevor and good morning, everyone. As Trevor mentioned, for the 2015 third quarter, regenerated AFFO of $1.19 per diluted share, up 5.3% compared to $1.13 per diluted share for the 2014 third quarter. This increase was driven by two key factors. First, the asset we acquired for our owned real estate portfolio had a positive net impact on AFFO. Second, within our investment management business, growth in assets under management resulted in both higher asset management fee and higher distributions of available cash from our interest in the operating partnerships of the managed REITs. These factors were partially offset by the impact of a stronger U.S. dollar year-over-year, primarily relative to the euro, net of realized gains from our currency hedging program, as well as higher G&A expenses. Now turning to our 2015 AFFO guidance, for the 2015 full year, we have narrowed our AFFO guidance range to between $4.83 and $4.97 per diluted share. This assumes acquisition for W.P. Carey's balance sheet totaling approximately $600 million to $700 million and dispositions of between $40 million and $100 million for the full year period. It also assumes acquisitions on behalf of the managed REITs of between $2.1 billion and $2.8 billion. Looking ahead we expect to address 2016 AFFO guidance on our next earnings call. Turning briefly to our balance sheet and leverage metrics, at quarter end, pro rata net debt to enterprise value stood at 41.8%. Total consolidated debt to gross assets was 49.8%, and pro rata net debt to adjusted EBITDA was approximately 6 times. We continue to view our near term procured debt maturities as manageable with approximately $149 million maturing over the remainder of 2015, and $252 million maturing in 2016, compared to total liquidity, at the end of the third quarter of about $1.3 billion. At quarter end, the weighted average cost of our pro rata secured debt was 5.4% and our overall weighted average cost of debt was 4.1%. The majority of our debt maturing over the next few years is secured debt with interest rates that we continue to believe are above where we could issue unsecured debt today. Please note that as part of our ongoing effort to provide helpful information to investors, we have added a summary of debt by currency on Page 16 of our supplemental. Lastly, for completeness, I'd like to know that we did not issue any shares under our aftermarket or ATM program during the third quarter, or subsequently. With that, I'll turn it back to the operator for questions.

[Operator Instructions] Our first question comes from Sheila McGrath of Evercore. Your line is open.

Trevor, I understand you can't go into details, but I was just wondering if you could give us a little bit more background on the thought process, why splitting the entities might make sense and are there specific public company comparables that you think are relevant for us to look at, versus how WPC is trading all under one umbrella?

Sure, and thanks for the question, Sheila. First off, I have to caution that there clearly are many possible permutations of this theme of separation. So, I think that the goal of this call is to present, we're comfortable discussing what's common to many of those permutations, but as I said, we have to be careful about getting into too much detail, but with respect to the rationale and the goals of this this idea, we think that there are clear advantages, and I can enumerate some of them. We believe that separation would provide for a more focused and simplified structures that would be easier for investors to understand. We think that aligning each platform with sector specific shareholders is desirable and that we could achieve a cost of capital most appropriate to each entity by this alignment. We think that would allow us to allocate capital in a more focused way. We think this this idea allows for better alignment of currency exposure, each of the platforms are different investors. Most importantly, I think we feel that this could potentially allow us to pursue individual growth and business opportunities for each of the separate entities. For instance, our investment management arm would have a greater ability to grow unconstrained by REIT status. We can also pursue individual inorganic growth strategy, strategic opportunities having a public currency that we could use for that. So, I think the bottom line here is that this creates even stronger business that can pursue better growth opportunities as separate entities and create long-term value, and we look forward to posting you more in the future as that unfolds.

Okay, and do you think -- you outlined that you would be giving guidance on the next call, like earnings guidance, do you think that, that would be the venue where you might have more information or how long do you think this process would take?

Well, we certainly recognize that it's in everyone's interest to move expeditiously, but as mentioned, there are a number of considerations with respect to tax, regulatory and legal and we're trying to be methodical and thoughtful in our approach. So, I wouldn't want to pin us down to a particular time right now.

Okay, and then just -- were there any costs related to this potential restructuring in G&A and should we think about G&A being a little bit elevated or will you break out the costs separately? How should we think about this over the next couple of quarters?

In our Q, which will be filed soon, you'll see that we've incurred so far, about $1.1 million on this exercise but just for your clarification, it doesn't impact the FFO. So, it's not included in G&A. It shows up as a separate line item.

Okay, great. I'll get back in the queue. Thanks.

Your next question comes from the line of Juan Sanabria of Bank of America Merrill Lynch. Your line is open.

Just following up on Sheila's questions on the strategic review, are you guys running a concurrent process where you're looking to potentially sell in the market these businesses that you may be looking to spin out it sounds like?

Well, nothing's ruled out, but as I said -- and thanks for the question first, Juan, we're looking at a lot of different permutations. So, I don't think I could comment on any one particular one very specific of that.

In the interest of maximizing shareholder value, do you think when you have more clarity and what exactly you want to do to -- you look at both options kind of concurrently or what's the Board's view on that?

The Board view and management view is, as I said, we have three really strong core competencies that we're working with, each of them has strength and we believe strong growth capability and we believe that the growth capabilities of each would be better off if they were on their own, but we're still exploring some of the legal, regulatory and tax receipts that would be connected to that. So, within that umbrella of possibilities, there are a lot of possible things that again, I won't comment on individual detail, but I can certainly talk about the strength of each of the platforms themselves.

Then the three core competencies with the U.S. triple net, overseas triple net and the investment management business?

I think that's right. We have an investment business that's 42 years old, that has delivered 15 full cycle funds. These are long life funds, not quick flips. No full-term investor has lost money with those funds. So, that's given us a tremendous track record, brand value and name recognition. There are significant barriers to entry in that business. We believe that there's improved prospects in the business notwithstanding some regulatory changes. We think that transparency, will help that industry generally over the next several years. In Europe, where we've been since 1998, we have a self-contained operation. We have all functions on the ground in U.K. and Amsterdam, 18 to 19 languages are spoken in that office, and based on our portfolio there we would be the largest public [indiscernible] that's the route we chose to go. We feel that the opportunity in Europe as we've said on earlier calls is still in the earlier innings than here, and you might disagree on where we are in the United States in terms of [indiscernible] but, Europe is still contemplating another round of quantitative easing. Interest rates are still low and we have yet to have full cap rate compression. This is what we've seen here. So, we think of Europe and this is just repeating, what I've said on earlier calls is a great opportunity and so we have to be mindful of the fact that a separate European platform might be able to better take advantage of that for a variety of reasons that I already enumerated. Then finally, the U.S. REIT would be -- if that's the route that we went and had a separate U.S. REIT, it would be one of the largest of the net lease REIT even without the European assets. It would be pure play. We could better illuminate the cost structure if we did not have the G&A from our investment management business in there, as I think you pointed out Juan, and from some of your observations, and so, finally, most of our leases are tied in some way to inflation and that would apply to both Europe and the United States, and we really feel that once inflation does revive we think it ultimately will, that those portfolios would do very well from the same store rent growth point of view.

Then from a G&A perspective, it sounds like the three businesses are relatively staffed up to run as separate business lines, outside of I guess, [indiscernible] is that fair to say?

We have a deep bench. We're really proud of the resources that we've put in place for each of these platforms and one of the reasons we feel very confident that each of the platforms will grow well is because we think we're staffed appropriately and know we have talented individuals within each of them.

Could you remind us of the G&A we should be thinking of that's associated with the investment management business?

We have that broken out. I think it's in the supplemental.

We don't have that number right now, Juan.

An annual number? Just kind of --

For the IM company?

Yes.

That's in the supplemental.

Yeah, it should be there, yeah.

The specific allocation.

Yes.

We'll get back to you on the actual -- you're looking for an absolute number not percentage of total G&A right?

Yeah, that'd be helpful. Thank you.

We're not going to get it right this moment.

We'll get back to you Juan.

Your next question comes from the line of Dan Donlan of Ladenburg. Your line is open.

Thank you and good morning. Trevor, I'm sorry if this has been asked before, but I was just looking at the lease expiration schedule and noticed that the annualized base rent has ticked up. It's up $13 million plus, versus last quarter of about $9.8 million. So, just kind of curious, what the change was there. Did somebody exercise an early termination right and then what the plan is to -- the plan last quarter was to basically dispose of the -- most of the properties that were underlying that rent, but just kind of curious what's going to happen to the expiring rent and how much you think we're going to recapture how much at this point you sell via asset sales.

I'm sorry. Is your question in connection with the increase in annualized base rent or --

Yes. The first question is why did it go up and the second question is, how much of that do you think you're going to be able to recapture through releasing or how much of it is going to go away, the net percent it's going to leave or how much is going to be sold via asset sales?

Well, it went up because I believe that would've been Santander coming on loan -- some, when we did have a [indiscernible] and I think that, with respect to our releasing, we're still in the middle of negotiations with respect to the remainder of the year, and I don't think we expect untoward declines relative to what we reported historically, but I wouldn't care to comment on the actual outcomes of specific leases that we're in the middle of negotiating. I think that our -- by affirming our guidance, actually finding the range we've sort of factored in the questions that you're asking, at least I hope I can answer that question.

So Dan, the primary driver for the increase in ABR is acquisitions, $85.8 million of ABR growth.

Yeah, I'm talking about in the year for 2015, when I looked at this last quarter, it was I think $9.8 million, you had expiring rent coming due, in '15 at the end of 2Q, and now you have $13.3 million. So, I was trying to figure out why that went up.

Yeah, so we have the lease expirations that are coming, but then see, when we look at our guidance also, like Trevor was saying, we have estimates that we make over releasing and acquisitions. It's bundled in there.

Well, okay. So, if I look at the remaining 2015 lease expirations, you have eight leases coming due, that's $13.3 million of annualized base rent. As I look at the exact same stat in the last quarter, at the end of the last quarter for 2015, that number I think was, from my notes, like $9.8 million, it was nine leases expiring. So, I'm just trying to figure out, why that number changed. Is somebody [indiscernible] what's the difference? Why did that number go up? It should have either gone down or stayed the same?

It's a good question, Dan. It's a level of specificity that I'm not prepared to talk about frankly. Right now, there's a lot of moving parts to this and you could certainly look into that.

Your next question comes from the line of Nick Joseph of Citi. Your line is open.

The three core businesses, do you view each as more independent or do some have more overlap between some than others?

I think that each have clear paths to growth Nick that don't rely upon any of the others. That's the short answer so that we're not -- and in so saying, I'm not concluding anything or implying anything. The event as I mentioned before, I think if you walked through those or see that each of the businesses could grow really quite independently of one another.

Right. I guess, I'm thinking more from a staff -- from a G&A perspective. Is there more overlap between some than others? For example, wholly on balance sheet side, is that G&A more overlap there between U.S. and Europe versus the investment management business?

Well, I mean, you can look at the relative concentration of assets but the way that we look at things, our international operation which primarily U.K. and Amsterdam based is devoted in part to the investment management platform with assets under management and in part to the real estate and so, theoretically you could do an allocation in terms of just the gross assets, but I think, other than that, the G&A that's devoted to the U.S. REIT is appropriate to what comparable pure net these companies will have we believe and the G&A that allocable to the investment management platform generally is appropriate to that segment. Does that answer your question?

Yes, it does. Then, I guess in terms of management structure, how do you think about that? Particularly the importance of internal management and its impact on any potential separations?

Well, we certainly recognize that the internal management is quite important to root investors, and other than to say that I mean, we are internally managed right now.

Right, I'm thinking more if you do end up spinning out or breaking up into the three different core businesses what is your thoughts around internal management on each of those core businesses.

Well, again, I apologize. I have to go back to the -- there are several different permutations on the theme. I know what you're getting at and I'd like to be able to provide you with more details and specifics on how each of those entities would look. We're certainly quite familiar with other transactions that have taken place, but we wouldn't want to conclude anything at this stage. It's too early I think and that's one reason why we are being cautious.

Your next question comes from the line of Paul Adornato of BMO Capital Markets. Your line is open.

Switching gears a little bit, I just wanted to follow up on one of your comments that dispositions were a little light this quarter yet, you also mentioned that the market is still very competitive. So, was wondering if you could square those two comments that dispositions profiting and a little bit less than what you might've estimated.

Sure. This is Jason. I'll respond to that. I think a lot of this is timing issue. Our expectation is that capital recycling will pick up substantially in 2016. We're still working on the specific assets and what the numbers will be, but we do expect that will tick up considerably from where it has been in 2015.

Thanks, and you also mentioned that you might have started to see the beginnings of top rate movements? Was wondering if you could expand on that.

Yes, it's anecdotal than anything else. In some of the transactions we've bid on, feedback has been that perhaps the winning bidders are a bit more of an outlier now than they have been in the past. We've seen, in the past the cluster of bids might be in and around where the clearing price was. We feel in some of the transactions, the clearing price has been more of an outlier and the cluster has been at a slightly higher yield than where it has been in the past. So, anecdotal but we do you -- and this is in the U.S. by the way, I'm referring to, we do think it's perhaps a sign of some firming of where cap rates will end up.

And were you referring to both kind of bulk portfolios, as well as larger individual assets or what type of assets?

I would say more towards individual assets. We have looked at a lot of the portfolios as well and I think, that pricing seems to vary, more widely on how people look at the larger portfolios.

Your next question comes from the line of Chris Lucas with CapitalOne Securities. Your line is open.

I joined the call late, so if this has already been covered I apologized. Just on the lease term fee income, could you maybe provide some color on whether that was a single tenant or multiple leases or just give us a little bit more on what that involved.

Yeah, there were three dispositions. One was a vacant building. One is a -- it's a murky tenant, but it has an NOI of $100,000, but it's very small and the third disposition was for storage assets with a single asset with about $200,000 of NOI.

I guess, I was looking for the lease term fee income for the quarter?

Termination.

We had three of them.

Sorry Chris. Did that answer your question or did you want more detail on the lease termination fees? When you say lease term, you're referring to lease termination? Is he still with us?

Your next question is from the line of Jon Woloshin of UBS. Your line is open.

Morning, just a couple of questions. Is the tightening of the AFFO range a function of reduced structure income, because I noticed it was down a bunch in the third quarter?

Well, there are a number of factors. Number one, structuring revenue is lumpy as you know and as we get closer towards the end of the year, we get more clarity on what we can and cannot close. There are deals in our pipeline that may or may not close and they may close in the fourth quarter between December and January and that impacts our revenue AFFO for 2015 versus 2016. That's one reason. That's one primary reason. It's for why we were able to tighten our range.

Okay, thanks and Trevor, just on any potential strategic transaction, if after your detailed review you conclude that you're not going to do anything and leave the structure of the business as is, what would be the overwriting considerations that would lead you to conclude that?

Well, as I said, at this point, we're encouraged by what we've seen so far with respect to separation, and but we're still looking at tax, regulatory and legal perspectives so as to maximize efficiency et cetera and so, I suppose if we found something that causes to change our mind on those, but like I said, we're very encouraged by what we've seen so far.

Your next question comes from the line of Sheila McGrath of Evercore. Your line is open.

Yes. Just on the acquisitions for the balance of the year, third quarter was less closings than we had anticipated. I'm just wondering if you have expectations that fourth quarter will kind of pick up the slack, number one and number two, you did put an ATM in place. Is this -- given your acquisition plans, do you think that would include tapping the ATM?

With regards to acquisitions, I think we're still in our guidance range of $600 million to $700 million for the year. So, you can kind of factor that into where we are now versus what we expect to close between now and the end of the year.

Then Sheila with regard to the ATM. It's a tool in our set. We look at what Jason just said, the likelihood of closing some of the acquisitions along with what dispositions we're able to accomplish in the remainder of this year, but certainly a tool, but we have no -- we need a plan to tap it just yet.

Your next question comes from the line Dan Donlan of Ladenburg. Your line is open.

Just going to Page 29 of the supplemental which you [indiscernible] thanks very much for fitting that. I was just kind of curious on the new leases, what that rent looks like relative to what it was before. You provide that on the renewals, but you don't provide them in lease days. Just kind of curious how that looks and, I realized it may be that the space had been vacant for a while, but just any kind of clarity you could provide particularly on the office side, given how large of a lease that was, would be helpful.

Yeah, I don't have too specific information right on my fingertips on that, but typically earlier in our launch when I was talking about this number tends to be down 10% to 15% relative to what might have been in place before. I hope that, that helps. That's sort of when I was referring to our historical average and that I think is the case.

Your next question comes from the line of Chris Lucas of CapitalOne Securities. Your line is open.

Operator I have a pretty quick trigger before. On the strategic review, Trevor, I guess the overriding question I have and again, if you've covered this, I apologize, but what's driving this review process? What is sort of the number one consideration that you're looking at as part of the reasons we're even evaluating it at this point?]

Well, I think that, we've said at our Investor Day on earlier calls, we are trying to unlock shareholder value. That's the broad term and it can include a lot of different things, and I think on this call, what we're saying is that we've begun to narrow our focus somewhat and that we've been encouraged by what we've seen when we look at the possibility of separating the Company, but really it's all about how you generate the most growth, that's really what unlocking shareholder value means. So, when I spoke earlier about this attractive growth characteristics of our main operating platform, that's what I was referring to. So, that all of you has focused on what each of those operating platforms would look like having independent entry. How do they affect one another [indiscernible] question how they relate to each other now, how they could be managed by themselves for maximum growth opportunities, then we feel very good that each of them does have those capabilities. So, I'd say that that's what our analysis has been driven by, really more in the affirmative which would be creating shareholder value by unlocking growth potential.

Then, as it relates to just the different combinations and thought that go on, any thought as to whether this would be one of those processes that was announced so that they were transactions concurrent or that they would be sequenced or how are you guys thinking about that?

What precisely, that kind of permutation that I really can't comment on at this time. Sorry, Chris.

That's all right. I appreciate it. Thank you very much.

Your next question comes from the line of Nick Joseph with Citi. Your line is open.

I just wanted to come back to the strategic process and you talked to Dan's question about unlocking the growth potential of the various entities as the reason for the value creation aspect of it, and I'm curious as you think about WPC and one of the consistent things that you've heard as you became their CEO has been perceived and to some extent potentially real conflicts of interest that come from managing both the nontraded REITs which are active in the same business that you are in at the mother ship and the potential for integration of those nontraded REITs into WPC and being on both sides of the transaction. If you think about that aspect of the Company and the feedback that you've received and you think about that potentially of being a value inhibitor to WPC, I guess, I'm looking from you about a more definitive statement that as you think about potentially three different companies that the relationship between them, there actually won't be. There won't be an externally managed REIT which doesn't really do a lot from a value perspective as we've seen from others that there won't be any long-term interactions but that you'd create three and granted there will be G&A synergies but the question is who would you pick up? Enough value from having three independent lease internally managed run company, and can you sort of comment a little bit about that?

To the extent that I can subject to the limits that I've already mentioned, as I said in answer to, I think it was Nick's question, we do believe that each of the potential entities can compete quite effectively and grow effectively without having significant relationship with any of the others and also that we're well aware of other companies and different approaches to this and we're studying that very carefully, but for me to commit to anything beyond that, I think at this stage would be premature and I certainly understand why investors want to know that and I think that when we're ready to talk in much more detail what these entities would really impact look like, all those questions will be answered, but we're aware of different objections, different structures and what people like about some and dislike about others and all that being factored in. What we're really trying to do here is have a high quality process and take a thoughtful and methodical approach while carefully exploring all aspects of the separation and that would include the questions that you just raised.

Right, I guess, what I had heard was that this is more about growth than trying to overcome any sort of conflict perceived and/or real, that perhaps maybe causing a discount on your stocks, so I guess, if I would've heard from you that look we continually hear that the nontraded REIT business for WPC, even though we've been there for four years and it's something that we're really good at and we have very high standards, we know from our investor base that it's an issue for people to be on both sides of the transaction in similar businesses, and we would expect that at WPC, we're an externally managed REIT in the net lease business by WPC Advisor, so that would be an issue. I guess what I'm looking for is, if that's really how you're thinking about it all or you're just thinking, I've three separate entities, I can grow faster.

Well, I understand specifically what you'd like me to say, and again, I have very valid reasons for not going into more detail, but I can comment a little bit with respect to this question of conflict of interest, and clearly the feedback that we've received from external stakeholders, which would include you and another analysts has influenced our thinking and caused us to refine our thinking. I would note that, earlier we had announced a pivot according to which first look for all transactions would be given W.P. Carey when CPA 18 was fully invested. We do think that we're slightly ahead of schedule on that, so that by the first quarter, we do believe CPA 18 will be fully invested and that we'll be able to fully execute the pivot that we talked about, and then all our new products in the investment management platform or at least our current ones are a lodging offering and a DTC offering, so that when I speak about growth of the individual platforms I should've said that implicit in that is that by freeing them from one another you would be reducing the potential for protection of conflict, because I think that has weighted on our own considerations, our deliberations.

[Operator Instructions]