Hello and welcome to W. P. Carey's First Quarter 2018 Earnings Conference Call. My name is Diego, and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today’s event is being recorded. After today’s prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. I will now turn the program over to Peter Sands, Director of Institutional Investor Relations. Mr. Sands, please go ahead.

Good morning, everyone, and thank you for joining us today for our 2018 first quarter earnings call. 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 could cause actual results to differ materially from W. P. Carey’s expectations are provided in our SEC filings. An online replay 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 1 year. And with that, I will hand the call over to Jason Fox, Chief Executive Officer.

Thank you, Peter, and good morning, everyone. I will start by briefly reviewing the market backdrops in some of our recent investments, and after that our CFO, Toni Sanzone, will take you through the key elements of our first quarter results, balance sheet and guidance. We're joined this morning by our President, John Park; and our Head of Asset Management, Brooks Gordon, who are also available to answer your questions. Despite volatility in the capital markets, the first quarter was relatively routine for W. P. Carey, and one in which we continue to examine a significant number of investment opportunities, closing on a handful of the accretive deals that enhance the quality of our portfolio. Given our scale and long history investing in net lease, we believe we see virtually every opportunity out there, giving us unparalleled insight on market conditions. Generally, we continue to see evidence of late-cycle sentiment with motivated sellers displaying a willingness to transact, enabling buyers to regain some leverage. Market volume, especially for sale leasebacks, remained healthy, despite continued pressure on cap rates. And we are yet to see any direct evidence of cap rates reacting to the backup in 10-years treasury yields. However, if interest rates remain at current levels or move higher, we would expect to see cap rates increase later this year. In the U.S., retail generally remains unattractive on a risk-adjusted basis, although we are finding pockets of opportunity given the negative sentiment towards receptor due to the disruptions from e-commerce. In warehouse and logistics, while we view the overall business fundamentals for this sector as strong over the medium term, pricing remains very tight, given the level of demand. In fact, we question whether current market yields provide enough return over the long term as we think it's likely that…

Thank you, Jason, and good morning, everyone. This morning, we announced AFFO per diluted share of $1.28 for the 2018 first quarter, representing a 2.4% increase over the year-ago quarter. AFFO from our real estate portfolio was $1.06 per diluted share for the first quarter, representing 83% of total AFFO. These results reflect same-store rent growth, lower interest expense and stronger euro relative to the U.S. dollar. In aggregate, those factors more than offset low restructuring revenues from our investment management business, resulting from the fully invested status of the managed funds and strategic decision we made last year to cease raising new funds. As announced this morning, we’ve affirmed our 2018 guidance and continue to expect to generate AFFO per diluted share of between $5.30 and $5.50 for the full year, with about 80% of that coming from our core real estate portfolio. Given the expected timing of deal closings and the strength of our pipeline as well as the expected timing of structuring revenues and certain expenses that were weighted to the first quarter, our first quarter results do not reflect a run rate for the rest of the year. I will cover that in more detail shortly. Turning to our portfolio. At quarter end, our real estate portfolio was comprised of 886 properties, covering over 85 million square feet, net lease to 208 tenants. ABR for all leases in place at the end of the quarter totaled $689 million. The weighted average lease term in the portfolio increased to 9.7 years, while the portfolio maintained closed to full occupancy at 99.7%. Overall, same-store rent was 1.5% higher year-over-year on a constant currency basis and contributed to AFFO growth. With 68% of our ABR coming from leases with rent escalators tied to inflation, our portfolio is well positioned…

Thank you. At this time, we will take questions. [Operator Instructions] Our first question comes from R.J. Milligan with Robert W. Baird. Please state your question.

Hey, good morning, everyone. Jason, you mentioned that retail in general still wasn't very favorable in terms of the acquisition environment, but you were finding some pockets of opportunity. Any specific sectors where you’re seeing that opportunity?

Yeah. I mean, with this disruption, we think pricing is getting in some cases back to a level that may make some sense. I mean, we've always viewed that segment in the past as the commodity segment just given the efficiency in pricing. I think that’s starting to change, though, if there's a little less capital flow coming in. Now I would say, where we're seeing our opportunities, and this is both on the recent deal we did in the U.S. as well as what our pipeline looks like in Europe, these are going to be connected the sale-leasebacks, where we have - there’s a small universe of buyers who can structure those deals and that gives us some extra pricing power we’re able to generate some excess yield to really get us comfortable with the risk-return profile to make sense.

Got you. But in general, no real movement in cap rates given the movement in the 10-year?

You know what, I think there's still the lag effect happening. I think, again, in retail, there's a little less capital flows into that area. So I would think that in certain pockets you are seeing cap rate tick up a little bit, but generally across the board for net lease. We’re optimistic that it will happen, but there's still bit of a lag. So I don't think that the - where the 10-year treasury is right now, it’s still - is yet to really impact cap rates a lot. There’s still a lot of money targeting net lease generally.

Got you. And then obviously CPA:17 had filed that they were looking at some sort of strategic alternatives. Do you guys have an internal view as to what you think the timeline is there on CPA:17 for them to have some sort of liquidity event?

John, do you want to cover that?

Sure. We can add to public disclosures CPA:17, but what I’ll say is that we continue to believe that we are the most natural and debt buyer for CPA:17, and we have number of advantages over the buyers.

Okay, yeah. That was case. Thanks, guys.

Our next question comes from Nicolas Joseph, with Citi. Please state your question.

Thanks. Just give me the comments around the impact of interest rates on cap rates may be moving together going forward. Does it change the way the pace of your dispositions of acquisitions for the year?

On the disposition side, we do have a plan of assets that we think strategically make sense to sell. In some cases, it’s a bit opportunistic given how strong the disposition market is. But I don’t think it’s going to impact the pace and we have we have the business plan in place that we’re going to follow. On the acquisition side, you are - I think that it is going to be helpful. We still feel good about the guidance that we’ve provided, as Toni mentioned, and our near-term pipeline is probably strong as it’s been over the past 2, 2.5 years. And I think some of that is a reflection in little bit more pricing power from the buyers.

And so just on the balance sheet, how do you view the current mix between U.S. and euro-denominated debt. And then if you were to do another debt deal, where would you lean today?

Look, we have the ability certainly to continue issuing in both markets. Given our current waiting of European debt in the capital structure: a) future issuance would probably depend largely on the acquisition and disposition activity and market conditions really. In the short term, we have sufficient room on our credit facility to give us the flexibility, but I think that will depend largely on the net acquisitions and where those happened.

But from a current portfolio standpoint, do you think you’re hedged from an asset-level perspective on the euro debt?

Yeah, I think that we are comfortable. It’s almost fully hedged at this point. There is probably a little bit room, but I think that’s a fair statement.

Thanks.

Thank you, our next question comes from Todd Stender with Wells Fargo. Please state your question.

Thanks. For the build-to-suit projects, you completed one in the Nord Anglia properties in the quarter. Can you remind us what the has been initial yield and then, if that two more coming for the remainder of the year, any additional or color around those or change in yields versus this one?

So, this is Brooks. Just to remind you on the Nord Anglia portfolio, the initial yield was 7.2%, and we have two projects ongoing. And as a reminder, there is a another tranche that we agreed to in the transaction that we think will follow in one to two years’ time, and that’s based off a spread to ten-year treasuries, plus 500 basis points plus 10-year treasuries.

I think the other thing to keep in mind, Todd, is as we complete these build-to-suits, we reset the leases factor there original 25 years. So there is some upside embedded in those lease expansions as well.

So despite being in different locations, they are all under the same yield?

That’s correct.

Okay, thanks. And then for the three retail locations you acquired in the quarter, I know you are not disclosing who the tenant is, but you can give any color on the credit rating, or maybe if its private equity owned, any color around that?

Yeah. Through confidentiality agreement in the lease, we're not allowed to disclose the name. But they mentioned earlier, it’s a larger regional furniture retailer. They're good size for their markets. I think what equally important is the assets that we purchased are some of their highest-performing retail sites with over four times coverage. So we feel pretty good about what we have there. And that’s all under a 25 year lease. So again, sale-leasebacks allow us to put a good structure in place that includes a longer-than-typical lease term.

Okay, thanks. And then on dispositions, you’ve got five listed here. Any of these were handed back to the lenders or vacancies, any color around that?

Sure. None of those were handed back to lenders. With one small asset [Indiscernible] asset sold for about $1.6 million, it had one small tenant. It's a multi-tenant office building that was primarily vacant. But the balance was all occupied.

Thank you.

Thank you. [Operator Instructions] And next question comes from John Massocca with Ladenburg Thalmann. Please state your question.

How should we think about the composition of the pipeline between many granular transactions and bigger portfolios? I mean, would you expect kind of the acquisition activity to be kind of bulkier quarter-to-quarter or a different size quarter-to-quarter going forward?

Yeah. Yes, I think it's more the latter. I mean, we tend to especially sale-leasebacks, we tend to do larger transactions than a typical net least investor. So these tend to be a little bit on the lucky side, and I think that's what we're seeing in our pipeline right now. It can be a little bit more skewed to Europe for the near-term pipeline, but we also have some interesting opportunities we're looking at in the U.S too.

And in terms of the European skewed, you mentioned there is more capital kind of moving to riskier markets. Is there some reason why that’s not, maybe attractive to you given the health of Europe over the last couple of quarters and the potential to get maybe outsized yield if you were to move maybe out of some of your traditional markets in Europe, obviously not outside of the Europe?

Yeah, I mean our pipeline, we’re seeing some good deals that have yields that makes sense for us and the risk of that particular deal in more of our core markets, Northern and Western Europe. But we are open to opportunities as long as we think that we’re getting paid for the risk and we can understand the risk. And we’ve been in Europe for 20 years now. So we’ve transacted in most of the markets. So we have a good feel for how to structure and optimize the transactions there. So yeah, I think we are open to it, but I think you’ll see the bulk of our focus being on Northern and Western Europe.

Yeah. Understood. And that’s it from me. Thank you guys very much.

Great. Thanks.

At this time, I'm not showing any further questions. I’ll now hand the call back to Mr. Sands.

All right, thank you. Thank you for your interest in W. P. Carey. If you have further questions, please feel free to call Investor Relations directly on 212-492-1110. That concludes today’s call. You may now disconnect.

Thank you. All parties may disconnect.