Why W.P. Carey Shares Are Falling Today?

Several analysts lowered the price target on W.P. Carey Inc WPC. Last week, WPC planned to exit the office assets in its portfolio by spinning off 59 office properties into Net Lease Office Properties (NLOP) and creating a separate publicly traded REIT.

Also, the company plans to implement an asset sale program to divest 87 office properties retained by WPC. 

The spin-off is expected to close by November 1, 2023, subject to certain conditions, and the sale is projected to be completed by January 2024.

Related: This REIT Is Getting Rid Of Its Entire Office Building Portfolio — And Is Gearing Up For A Dividend Reset

BMO Capital Markets analyst John P. Kim downgraded W.P. Carey Inc WPC to Market Perform from Outperform and lowered the price target to $60 from $75.

The analyst sees the timing and execution of the spin-off as a surprise and expects the new REIT to trade at a heavily discounted value.

Kim is not convinced the new WPC will re-rate significantly higher and expects existing WPC shareholders to absorb the transaction costs and NLOP performance. He sees a dividend reduction of 15%-20%.

The analyst lowered the estimates for FFO per share to $5.16 (from $5.32) for FY23 and $4.77 (from $5.40) for FY24. 

Also, RBC Capital Markets analyst Brad Heffern cut the price target to $73 from $79 and reiterated the Outperform rating.

The analyst questions the need for a spin-off and thinks the negative market reaction to the announcement is a 'lack of desire from institutional investors to inherit the office assets in a taxable spin'. 

However, Heffern believes WPC is significantly better positioned without office assets and does not need to raise additional capital for the most part of the year. 

The analyst reduced the H2 FY23 and FY24 adjusted FFO per share estimates by $0.13 and $0.61, respectively, and expects the company to target a payout ratio of 70%-75% of AFFO.

Moreover, B Of A Securities trimmed the price target to $54 from $67, maintaining the rating at Underperform.

Also Read: W.P. Carey Revenue Beats Consensus And Hypes Sale-Leaseback Trend, Narrows Outlook

Price Action: WPC shares are down 4.63% at $54.03 on the last check Tuesday.