Hello and welcome to W. P. Carey's Second Quarter 2018 Earnings Conference Call. My name is Kevin, 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 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 today for our 2018 second 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 one year and where you can also find copies of our investor presentations. And with that, I will pass the call over to our Chief Executive Officer, Jason Fox.

Thank you, Peter, and good morning, everyone. I am joined this morning by our CFO, Toni Sanzone who will review our second quarter results, portfolio metrics, balance sheet and guidance, as well as by our President, John Park; and our Head of Asset Management, Brooks Gordon, who are also available to answer questions. The most significant event of the second quarter was undoubtedly the announcement we made in June of our proposed acquisition of CPA:17. So, I’ll start with a quick update on that process and the benefits of the deal before talking about some of our recent investments. CPA:17 is a $6 billion non-traded REIT that we’ve managed for over ten years and is primarily invested in a diversified portfolio of net lease real estate in the U.S and Europe. It’s an all stock transaction with W.P. Carey issuing 0.16 shares for each share of CPA:17 stock under a fixed exchange ratio. We are on schedule to close around the end of this year. The 30-day go-shop period ended with no competing bids. We’ve filed an initial version of a joint proxy statement related to the transaction, which remains subject to SEC review and we'll distribute the final version of the proxy materials to shareholders as soon as possible after that review. Our acquisition of CPA:17 offers a number of compelling benefits. From a strategic standpoint, it improves earnings quality, and further simplifies our business. Almost all of our earnings will be derived directly from more valuable lease revenues compared to finite life investment management income. For our portfolio, it adds a high quality diversified pool of assets and fits nicely with our existing portfolio. It will enhance its overall metrics, in particular, weighted average lease term and tenant and industry diversification. From a credit perspective, it enhances our…

Thanks, Jason, and good morning, everyone. This morning we announced AFFO per diluted share of $1.32 for the 2018 second quarter, with 82% or $1.08 per diluted share generated by our real estate segment. Net real estate revenues excluding reimbursable costs totaled $168 million for the second quarter, essentially in line with the prior year period. They do not yet reflect the impact of the larger portfolio acquisitions we closed either at or subsequent to quarter end. Investment volume for the second quarter totaled $289 million which included the acquisitions that Jason discussed, as well as the completion of three capital investment projects totaling $17 million. The Danish logistics portfolio acquisition which generates ABR of nearly $13 million closed just before the end of the quarter and therefore did not have a meaningful impact on our second quarter results. The three investments we closed after quarter end totaling $210 million bringing our total deal volume year-to-date to $605 million. These third quarter transactions add almost $15 million of ABR to our portfolio increasing total ABR to $708 million. Investment opportunities from within our existing portfolio continue to be a key element of our proactive management strategy while also allowing us to deploy capital for attractive incremental yields. During the second quarter, we committed to fund one new capital investment project and we completed three. At the end of June, our commitment to fund built-to-suit investments, as well as expansions, renovation and redevelopment projects totaled $145 million. Of this amount, we currently expect projects totaling $70 million to be completed in the second half of this year and therefore will be included in our 2018 investment volume. Based on the investments we've closed year-to-date, as well as our current pipeline, we have raised the lower end of the range for our…

[Operator Instructions] Our first question is coming from Nick Joseph from Citigroup. Your line is now live.

Thanks. Just want to better understand guidance. So it sounds like the structuring revenues increased by about seven tenths per share, versus your previous expectations and then you increased investment spend guidance which should also be a positive, I guess, depending on timing. So what are the offsets given on the increased overall AFFO guidance?

I think that the timing does play a factor in terms of when we expect acquisitions and dispositions to close. You are seeing the impact of the acquisitions that are hitting the first half of this year. But in terms of timing for the back half of the year, that still remains to be determined and as far as when the deals in our current pipeline would close. So I think that does play a role in it. In terms of the structuring revenue that does contribute partially to that increase which is why we lower – raised the lower end.

Okay, so, I guess, relative to where guidance was with the 1Q with the acquisitions are coming later than expected, which is offsetting the $0.07 benefit from additional structuring revenues which weren’t previously in guidance.

That’s right.

Okay, and then just on re-leasing square foot, it looks like they are down 13% in the quarter driven by industrial. So just wondering if you can give some more color on what happened with those three industrial assets?

Sure, this is Brooks. I can give you some color on that. It’s actually one tenant and it’s three properties. It’s a very niche situation, it’s three auto manufacturing plants representing prior rent of $6.9 million of ABR. It’s important to note about half of that rent was shifted from properties that we’ve sold in a restructuring in 2009. For the core rent where we allocated to these three properties, we actually recovered 100% of that rent and the result was we extended the lease about 14 years. And it's important to note that for the entire deal, the ROI from acquisition we talked today has been about 18.5%. It’s a very unusual situation, but now that’s fully stabilized.

Thanks. And then just finally on the asset swap, is there any change to the rents that you’ll collect between the assets that you took back versus the assets that you gave up?

This is Brooks again. Yes, it’s a slight increase that brings that 600k in total increase in ABR.

Thanks.

[Operator Instructions] Our next question is coming from Joshua Dennerlein from Bank of America Merrill Lynch. Your line is now live.

Hey, good morning guys.

Good morning, Josh. Good morning.

I was curious on CPA:17, I think in the past you’ve said that you owned a stake in Lineage. How do you view that stake once the merger goes into effect and is there any update you can give on, maybe what kind of valuation you think it’s worth or it’s like the book value I think it’s $39 million?

Yes, Josh this is Jason. Yes, we do own a stake in the operating company as well as, I should say, the CPA:17 on the stake in the operating company as well as owns a number of assets leased to Lineage and that was really how we ended up with a stake in the operating company. I think, like the book value is around $39 million, without putting any numbers on it, we think there has been substantial appreciation to book’s value. So, there is upside for W. P. Carey in that asset once we acquire CPA:17 in terms of what we do with that, I think that should be determined and we will update with you as we have more information.

Great. Thanks, Jason. And then, I guess, speaking with the topic of CPA:17, there is a lot of I think self-storage assets in that fund. Is it your expectation that you will sell them off since they are operating in that REITs or do you think you’ll keep them for a little bit and what kind of cap rates you can kind of get on that?

Yes, you are right. The bulk of the non-net leased assets within CPA:17 are self-storage operating assets and that’s beyond our clear focus of being a pure play net lease REIT. But that being said, self-storage is an industry that we know quite well. We’ve been investing in that space since 2004 and through our funds have accumulated a pretty sizable portfolio. They’ve been great assets and as a portfolio it likely command a cap rate that’s well inside of the overall 7% cap rate at which we are acquiring CPA:17. So we think they are very well could be highly accretive sales if we choose to go that route. And as you know, it’s an asset class. It’s a very high demand with assets are very liquid and so when we choose to do something with them, whether I close or sometime in the future after that we’ll have lots of options to choose from.

Great. Thank you.

Welcome.

[Operator Instructions] Our next question today is coming from Sheila McGrath from Evercore. Your line is now live.

Yes, good morning.

Good morning, Sheila.

Good morning, Jason. Any reason why most of the transactions are in Europe is priced – so far this year’s pricing there more appealing or is it just driven by the opportunities?

Yes, I mean, it’s a little bit more the latter. But I think it does underscore the benefits of our diversified model. At different points in the cycle or different points in time we can choose where to allocate our capital to those best risk return opportunities. And while cap rates, in Europe have experienced meaningful compression especially given the borrowing costs, still while rising slightly or still at the lows, we are still going to generate great spreads there. And mainly, these are transactions that were unique to us. One it was a purely off-market logistics deal where we had relationships with the fund that had merged with a life insurance company and had a strategy to divest some of their – the funds that they manage and the other one was part of a sale-leaseback as part of an M&A activity. So, kind of a typical type of deal for us. But, I think it’s important to note, we are seeing and realizing great spreads in Europe. Those two deals were in the high sixes, low sevens and if you recall, our nine year fixed-rate Eurobond that we completed back in February was a two and an eighth percent. So, pretty substantial spreads and I think for that reason, we are seeing some pretty attractive opportunities in Europe.

And just with these larger portfolio transactions, if you can just remind us on the underwriting do you look at the rent coverage, replacement cost or just tell us about what you key in on these bigger portfolio transactions?

Yes, certainly, I mean, this is consistent with how we look at every one of our transactions and frankly how we look at our portfolio and when we consider dispositions. These two deals were long-term leases. I think one was about 18 years, the other one had about a weighted average of 15 years. The credit underwriting is certainly important if we can get comfort which we did on the creditworthiness of these tenants then, we’ll lock in a good revenue stream with high visibility. So, credit underwriting was important. We have great access to senior management understand the business that they are in, both of these companies are market leaders. I think one of them which has around 50% market share that Danske Freight in the business-to-business freight industry within Denmark. Intergamma has about 40% market share for the do-it-yourself market in the Netherlands, number one market share. So certainly credit was a key part of this. But we also like the real estate, I mean with their logistics portfolio, these are Class A logistics assets. We have several large hubs, but we also have smaller facilities that are closer into some of the population centers that serve more as last mile facilities. So, it’s really a combination of everything. And then, finally, given the size of these portfolios relative to the operations of the company, we have critical real estate. So it really checks in both of these cases all the boxes for us.

Okay and one final question. On the pipeline, both if you could comment, if it’s more U.S. versus Europe, just how the acquisition pipeline is looking? And then the second part of that question is, also on the funds, CPA:17 is a huge transaction. Any indications you could give us on what – when there might be other liquidity events for the balance of the fund?

Right, sure. So need to talk pipeline first. Yes, the substantial amount of the deals that were closed to-date, those were in Europe. But our pipeline is still active. I would say, at the beginning of the year, that pipeline was more heavily weighted to Europe of course, because of those deals. Now it’s a bit more imbalance between the U.S. and Europe. But of course opportunities come along as you can point some time and that could change. I think our pipeline, I think I'll note that it's still our typical pipeline. We are focused on sale-leasebacks and build-to-suits where we can control deal structure and where we feel we can generate higher than market yields. So, I think you’ll see more of that as well. In terms of – John, do you want to talk CPA:17?

Sure.

You have the funds I should say.

Good morning, Sheila. This is John.

Good morning, John.

I think first of all, is that going to point out that post CPA:17 acquisition, all of our IM business, including CPA:18 will comprise 5% of our business and we are committed to delivering high level of service to those investors in the remaining funds as we have done throughout our 45 year history. In terms of timing and method of liquidations will depend on a number of factors including market conditions, and other factors, some of which we control and some which we don’t. But we will work closely with the independent directors of those funds to optimize the outcome.

Okay. Thank you.

Thank you. Our next question today is coming from John Massocca from Ladenburg Thalmann. Your line is now live.

Good morning everyone.

Good morning, John.

Good morning, John.

Still it's a non-asset you own at this time, but I was wondering how the credit agreement with Agrokor is going to affect CPA:17’s property’s lease to that tenant?

Hi, John, this is Brooks. So, Agrokor is a tenant within CPA:17 that is going through restructuring. We own a number of grocery stores as well as two distribution facilities. But I think the most important thing to note is that, number one, the same team has been managing that portfolio as we’ll manage it after the merger and equally as importantly, in our underwriting, we have fully reserved for approximately 50% of the rent. So that’s what’s flowing through ABR. So we think there is very little downside there and potentially some upside as we work through that restructure.

And has the July credit agreement settlement changed your view on at all or there is – is that kind of same as or at the time of the merger announcement?

Still the same and that’s very much a work in progress as the restructuring kind of completes. It’s a large company and a big restructuring, but they are making progress and we are very closely monitoring it.

Okay and then another sort of CPA:17 properties, the Bon-Ton assets, have you had any success either selling or re-leasing those properties?

So, that’s we are working on those presently. It’s important to note that the W. P. Carey owns a very high quality location warehouse leased to Bon-Ton in Allentown. So that's a Class A premier market location where we see a lot of opportunity to increase rent. On the CPA:17 side, we own retail stores and it's a little too early to comment on outcomes there, but we are making good progress and it’s a very active discussions for alternatives.

Understood. And then, one more kind of detailed question, other gains were up fairly sizably quarter-over-quarter. I know it’s a line item that sends out a lot of variable movement, but what was driving that this quarter?

The most significant driver there was the movement in the foreign currency rate and that’s unrealized marks on various assets in the portfolio that went through that line item.

Understood. That’s it for me. Thank you guys very much.

Thanks, John.

Thank you, John.

Thank you. At this time, I am not showing any further questions. I’ll now turn the call back over to Mr. Sands.

Thanks everyone for your interest in W. P. Carey. For any additional questions, please feel free to call Investor Relations directly on 212-492-1110. That concludes today’s call. You may now disconnect.