Thank you for the detailed analysis Paul. I agree that the dividend seems reasonably safe after the reset and with Fed cuts now confirmed. Realty Income said they wanted to acquire companies with both Industrial and International exposure, but without the office properties that both O and WPC disposed of. After WPC torched its shareholders seeking Dividend Aristocrat status, WPC will likely be more accretive to acquire than other Net Lease REITs like NNN. It is almost as if WPC management planned this so they could get a change-of-control payout.
Since it seems like O might acquire it, I decided to write/sell covered calls at 70 for next summer to collect the dividends. Selling OTM covered calls on dividend stocks works for my bearish bias because I get extra payments now that I can reinvest and am prevented from selling the position until expiration date. And in my taxable account I now pick expiration dates far enough in the future to ensure long term capital gains.
Unlike a traditional buy/write strategy, I always wait until there is a gain before writing/selling the calls. Since you comment on TrappingValue's articles, have you done an analysis of covered call selling?
Well after the past, difficult, 7 years since this crew took over, they might welcome getting bought out.
Did you notice that I sold OTM covered calls on my holding of SPG just last week? Dec 2025 expiration. So similar approach to yours in that case. I only do that these days if I really feel like I would not mind holding the stock forever. I use calls or puts once in a while, and even once used a collar.
Still, experience has taught me that options are not my game. Psychologically, I don't have or want the right mindset. My focus is on understanding companies and investing based on value.
So I have not invested time in that aspect of what TV does. He likes to play the game of divining the near future, at times based on flawed analysis. He is a smart and driven guy; when it happens I enjoy interacting with him.
Nice piece. While I was never really interested in WPC, your piece shows an "okay" REIT that has some risk and fudges on its debt presentation, while it is taking steps that it thinks will work in its favor. Personally, having had great success with SLG (thank you Wealth Management!), it doesn't make much sense to me that they got rid of their entire office portfolio. Weren't there ANY decent properties to hold onto? If not, what does that say about their investment process?
Big difference in office property types. WPC owned single tenant net lease properties, much more treacherous than the tall, multi-tenant properties that SLG owns.
When a CEO makes some foolish comment on financials, I am not as worried as I am when a CFO uses "footnotes" to explain some financial reporting. Nice catch.
I was looking forward to this article to decide whether to grow, hold or sell my WPC holding. I’ve read it twice and my conclusion is that I still don’t know :).
Helweg reminds me a bit of MPW - Steward, although much less severe. renting to a large private company that holds their financials tight is always a risk.
Despite my counter argument to David Hoffler on electricity, I do agree the Europe exposure is generally more of a risk than an asset, with the small bright side of access to lower cost loans.
But ultimately it’s the management team that matters, and there is just too much going on with WPC, every time.
I guess I end up in the same camp. Hold my 2% position, hope for 1 or 2 good quarters to take them out of the slump, where the stock price catches up to their better run peers, and then get out. I
Paul thank you for the write up, just for my own knowledge. When they do flag risk in tenant what options does the company have? Its not like they can just end the lease and look for someone else.
Well they can sell the property with the lease, though likely not at a good price. Or make a plan for what to do in case they get it back. Also they can reach out to the tenant and ask for more disclosures.
Their European exposure for a company in warehouse and manufacturing is what concerns me. Heavy industry has pretty much collapsed in the EU due to the high cost of energy. When heavy industry fails, light industry and manufacturing often follows. I'd be curious as to your thoughts on this aspect.
I do think that is a relevant point, and one that had escaped me. Without question, there may be knockon effects. Another reason to be concerned about their tenants.
I sold all my WPC when I learned just how large their European exposure was. The current price of electricity in Germany is about $O.40 USD. That's insane. You can tell government is aware of the problem in that the rate for business is "only" $0.27 but with the path they are on, those rates are only going to rise and any industry that is energy intensive is going to relocate elswhere or die.
I live in BC where I'm ticked that the bill has gone over the 10 cent Cdn mark.
David, one of my job responsibilities is to look after the right industrial footprint for a manufacturing company that has 25 plants across the US, Canada, Germany, UK, and 4 Asia locations. We do 2-3 major transfers each year. Your comment on electricity is true, and it is a factor we take into account while doing the studies. But it is also a small factor. For the type of manufacturing facilities WPC owns, I believe this to be the same. This is not heavy process industry. Labor cost and utilization, cost of gasses and rents are all larger factors. Electricity cost in South East Asia has also increased a lot. Singapore used to be <$0.10 and is now ~$0.25 per kWh. Most other surrounding countries are $0.20. So the gap between Asia and Europe hasn’t increased on a relative basis.
Note also that some of these mfg plants require humidity and temperature controlled environments, which are actually cheaper to run in Germany VS Asia
UK has also gone back to about $0.20 for our large facility, after a major spike
So my assessment is that this in itself is not a major argument. I would rather look at the loss of manufacturing capabilities in Europe, after several decades of offshoring.
Thanks Johan, that filled in some blank spots for me. Very curious why humidity and temperature would be cheaper in Germany?
To clarify, I do understand that for many industries energy is going to be a small part of the equation. But when the energy intensive industries shut down, all their local suppliers lose a customer, and they are usually a big customer for them. So there's a trickle down effect, but not the good kind.
Well that is a relatively easy point. Usually clean rooms run around 18-22C and <50% humidity. Most of S.East Asia, which is usually the alternative, not China anymore, has average temperatures around 30C or more, and very high humidity. It just takes a lot more energy to get those back to the required limits above.
I do agree with you. Electricity is a factor, likely not so much for the WPC properties, but there is a chain effect on the heavy industries, as well as a gap of knowledge that is being created
Good question. Depends how much you care about that notional 20% upside vs the risks discussed. As I said my conclusion is that this company is likely to underperform but not crash. And that dividend does seem reasonably secure for now.
That would depend on the relative pricing of other REITs. If everything else stayed the same, then near $70. But since it is an income period, my main question is relative yield vs other options. So when the yield drops below that of NNN would be a clear trigger. But if it is running I would be a bit patient and I do not know what else I might buy, yet.
It's hard to believe that an organization didn't take advantage of the zero interest rate era with 30 year debt....NNN certainly did. Oh wait.....neither did the US Treasury...(pause)...enough said.
Thank you for the detailed analysis Paul. I agree that the dividend seems reasonably safe after the reset and with Fed cuts now confirmed. Realty Income said they wanted to acquire companies with both Industrial and International exposure, but without the office properties that both O and WPC disposed of. After WPC torched its shareholders seeking Dividend Aristocrat status, WPC will likely be more accretive to acquire than other Net Lease REITs like NNN. It is almost as if WPC management planned this so they could get a change-of-control payout.
Since it seems like O might acquire it, I decided to write/sell covered calls at 70 for next summer to collect the dividends. Selling OTM covered calls on dividend stocks works for my bearish bias because I get extra payments now that I can reinvest and am prevented from selling the position until expiration date. And in my taxable account I now pick expiration dates far enough in the future to ensure long term capital gains.
Unlike a traditional buy/write strategy, I always wait until there is a gain before writing/selling the calls. Since you comment on TrappingValue's articles, have you done an analysis of covered call selling?
Well after the past, difficult, 7 years since this crew took over, they might welcome getting bought out.
Did you notice that I sold OTM covered calls on my holding of SPG just last week? Dec 2025 expiration. So similar approach to yours in that case. I only do that these days if I really feel like I would not mind holding the stock forever. I use calls or puts once in a while, and even once used a collar.
Still, experience has taught me that options are not my game. Psychologically, I don't have or want the right mindset. My focus is on understanding companies and investing based on value.
So I have not invested time in that aspect of what TV does. He likes to play the game of divining the near future, at times based on flawed analysis. He is a smart and driven guy; when it happens I enjoy interacting with him.
Nice piece. While I was never really interested in WPC, your piece shows an "okay" REIT that has some risk and fudges on its debt presentation, while it is taking steps that it thinks will work in its favor. Personally, having had great success with SLG (thank you Wealth Management!), it doesn't make much sense to me that they got rid of their entire office portfolio. Weren't there ANY decent properties to hold onto? If not, what does that say about their investment process?
Big difference in office property types. WPC owned single tenant net lease properties, much more treacherous than the tall, multi-tenant properties that SLG owns.
When a CEO makes some foolish comment on financials, I am not as worried as I am when a CFO uses "footnotes" to explain some financial reporting. Nice catch.
Thanks for Commenting.
For the Iove & support you've shown me I'll introduce you to a huge & massive ɨn⩔៩នƬ៣៩nƬ
Write with Taylor Nelson
₩Ħ₳₮$₳₱₱: ±𝟭 (𝟱𝟴𝟱)𝟲𝟮𝟯-𝟬𝟭𝟯𝟯
Tell him I sent u. It's very prof!table
Good point!
I was looking forward to this article to decide whether to grow, hold or sell my WPC holding. I’ve read it twice and my conclusion is that I still don’t know :).
Helweg reminds me a bit of MPW - Steward, although much less severe. renting to a large private company that holds their financials tight is always a risk.
Despite my counter argument to David Hoffler on electricity, I do agree the Europe exposure is generally more of a risk than an asset, with the small bright side of access to lower cost loans.
But ultimately it’s the management team that matters, and there is just too much going on with WPC, every time.
I guess I end up in the same camp. Hold my 2% position, hope for 1 or 2 good quarters to take them out of the slump, where the stock price catches up to their better run peers, and then get out. I
Yeah. Me too. As you can tell.
Paul thank you for the write up, just for my own knowledge. When they do flag risk in tenant what options does the company have? Its not like they can just end the lease and look for someone else.
Trying to understand for future cases
Well they can sell the property with the lease, though likely not at a good price. Or make a plan for what to do in case they get it back. Also they can reach out to the tenant and ask for more disclosures.
Their European exposure for a company in warehouse and manufacturing is what concerns me. Heavy industry has pretty much collapsed in the EU due to the high cost of energy. When heavy industry fails, light industry and manufacturing often follows. I'd be curious as to your thoughts on this aspect.
I do think that is a relevant point, and one that had escaped me. Without question, there may be knockon effects. Another reason to be concerned about their tenants.
I sold all my WPC when I learned just how large their European exposure was. The current price of electricity in Germany is about $O.40 USD. That's insane. You can tell government is aware of the problem in that the rate for business is "only" $0.27 but with the path they are on, those rates are only going to rise and any industry that is energy intensive is going to relocate elswhere or die.
I live in BC where I'm ticked that the bill has gone over the 10 cent Cdn mark.
David, one of my job responsibilities is to look after the right industrial footprint for a manufacturing company that has 25 plants across the US, Canada, Germany, UK, and 4 Asia locations. We do 2-3 major transfers each year. Your comment on electricity is true, and it is a factor we take into account while doing the studies. But it is also a small factor. For the type of manufacturing facilities WPC owns, I believe this to be the same. This is not heavy process industry. Labor cost and utilization, cost of gasses and rents are all larger factors. Electricity cost in South East Asia has also increased a lot. Singapore used to be <$0.10 and is now ~$0.25 per kWh. Most other surrounding countries are $0.20. So the gap between Asia and Europe hasn’t increased on a relative basis.
Note also that some of these mfg plants require humidity and temperature controlled environments, which are actually cheaper to run in Germany VS Asia
UK has also gone back to about $0.20 for our large facility, after a major spike
So my assessment is that this in itself is not a major argument. I would rather look at the loss of manufacturing capabilities in Europe, after several decades of offshoring.
Thanks Johan, that filled in some blank spots for me. Very curious why humidity and temperature would be cheaper in Germany?
To clarify, I do understand that for many industries energy is going to be a small part of the equation. But when the energy intensive industries shut down, all their local suppliers lose a customer, and they are usually a big customer for them. So there's a trickle down effect, but not the good kind.
Well that is a relatively easy point. Usually clean rooms run around 18-22C and <50% humidity. Most of S.East Asia, which is usually the alternative, not China anymore, has average temperatures around 30C or more, and very high humidity. It just takes a lot more energy to get those back to the required limits above.
I do agree with you. Electricity is a factor, likely not so much for the WPC properties, but there is a chain effect on the heavy industries, as well as a gap of knowledge that is being created
California…$0.55
I really enjoy your writing on REITs. Like a good novel, I never quite know what the ending (your conclusion) will be, until the punchline
Well I do try to set up the evidence.... 😎
Thanks for this excellent article Paul. I didn't know about Hellweg, that is eye opener indeed.
You are welcome, Julien
You are sticking to your guns but is it worth starting a position now? Or rather go for NNN or VICI?
Thanks for Commenting.
For the Iove & support you've shown me I'll introduce you to a huge & massive ɨn⩔៩នƬ៣៩nƬ
Write with Taylor Nelson
₩Ħ₳₮$₳₱₱: ±𝟭 (𝟱𝟴𝟱)𝟲𝟮𝟯-𝟬𝟭𝟯𝟯
Tell him I sent u. It's very prof!table
Good question. Depends how much you care about that notional 20% upside vs the risks discussed. As I said my conclusion is that this company is likely to underperform but not crash. And that dividend does seem reasonably secure for now.
WPC currently 58.50. what level would you consider selling?
Thanks for Commenting.
For the Iove & support you've shown me I'll introduce you to a huge & massive ɨn⩔៩នƬ៣៩nƬ
Write with Taylor Nelson
₩Ħ₳₮$₳₱₱: ±𝟭 (𝟱𝟴𝟱)𝟲𝟮𝟯-𝟬𝟭𝟯𝟯
Tell him I sent u. It's very prof!table
That would depend on the relative pricing of other REITs. If everything else stayed the same, then near $70. But since it is an income period, my main question is relative yield vs other options. So when the yield drops below that of NNN would be a clear trigger. But if it is running I would be a bit patient and I do not know what else I might buy, yet.
It's hard to believe that an organization didn't take advantage of the zero interest rate era with 30 year debt....NNN certainly did. Oh wait.....neither did the US Treasury...(pause)...enough said.
🤣🤣🤣
Just mind boggling that the US Treas. did not offload all the US debt they could for 100 years at 3% or so.
Exactly!!!!'
100% Agree! Hopefully, just a matter of time.
This is a great write up, with the final sentence a real fresh eye opener!! I appreciate your honesty.
Thanks for Commenting.
For the Iove & support you've shown me I'll introduce you to a huge & massive ɨn⩔៩នƬ៣៩nƬ
Write with Taylor Nelson
₩Ħ₳₮$₳₱₱: ±𝟭 (𝟱𝟴𝟱)𝟲𝟮𝟯-𝟬𝟭𝟯𝟯
Tell him I sent u. It's very prof!table