Why W. P. Carey Stock Slumped Nearly 11% in October

Shares of W. P. Carey (NYSE: WPC) tumbled 10.6% in October, according to data provided by S&P Global Market Intelligence. Weighing on the real estate investment trust (REIT) were its third-quarter results, a potential tenant issue, and an unexpected rise in government bond rates.

Weighed down by the reset

W. P. Carey reported its third-quarter results last month, which declined due to the impact of property sales. The diversified REIT has sold or spun off its entire office property portfolio over the past year. On top of that, one of its top tenants exercised its option to repurchase the portfolio of self-storage properties it had been leasing from the REIT. As a result, W. P. Carey's adjusted funds from operation (FFO) per share declined by 10.6% in the third quarter.

The REIT also got some potentially bad news from a leading tenant last month. True Value filed for bankruptcy in October. The home improvement retailer leased nine properties from the REIT, contributing 1.4% of its annual base rent (its 15th largest tenant). True Value was current on its rent and had agreed to sell substantially all its business to Do It Best. However, the bankruptcy added some uncertainty about the future rental payments on these properties.

Meanwhile, the 10-year Treasury bond yield has risen from about 3.75% to nearly 4.4% over the past month. That made the lower-risk investment more attractive to income-seeking investors. As a result, many REIT share prices fell, which increased their dividend yields to compensate investors for their higher risk profiles.

Despite these near-term headwinds, W. P. Carey is optimistic about what's ahead in 2025 and beyond. It has been able to rebuild its portfolio slowly by acquiring new properties. For example, it has completed $971.4 million of real estate investments already this year. That has it on track to achieve its guidance of $1.25 billion to $1.5 billion of investments in 2024.

Meanwhile, W. P. Carey has the resources to continue making accretive investments in 2025 without selling new shares at the currently lower price. It can continue selling non-core properties and recycle the capital into new investments. "These factors, along with a constructive investment backdrop, the completion of our exit from office, and the strength of our rent growth, all support AFFO growth in 2025, despite the potential impacts of certain tenant-related issues," stated CEO Jason Fox in the third-quarter earnings report.

Getting ready to reaccelerate

With its stock price falling last month, W. P. Carey's dividend yield has risen to more than 6%. Meanwhile, the REIT expects its AFFO to start growing again next year, which should allow it to continue increasing its dividend (it has already raised its payout several times since resetting it in late 2023 following its strategic decision to exit the office sector). That combination of growth and income could enable W. P. Carey to produce attractive total returns in 2025 and beyond, making it look like a solid investment right now.

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Matt DiLallo has positions in W.P. Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.